<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14161
ANALYSIS & TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Connecticut 95-579365
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Route 2, North Stonington, Connecticut 06359
(Address of principal executive office)
(Zip Code)
(860) 599-3910
(Registrant's telephone number, including area code)
(Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of the close of business on February 9, 1999, the registrant had
outstanding 3,651,489 shares of Common Stock.
<PAGE> 2
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 12
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 13
ITEM 5. OTHER INFORMATION 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
i
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- --------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue $ 42,219 $ 40,773 $ 124,671 $ 116,380
Costs & expenses 39,536 38,466 117,117 110,782
--------- --------- --------- ---------
Operating earnings 2,683 2,307 7,554 5,598
--------- --------- --------- ---------
Other deductions (income):
Interest expense 166 105 377 208
Interest income (4) (32) (76) (93)
Gain on sale of joint venture -- -- -- (1,591)
Equity in income of
joint venture -- -- -- (17)
Other, net 331 337 900 753
--------- --------- --------- ---------
493 410 1,201 (740)
--------- --------- --------- ---------
Earnings before income taxes 2,190 1,897 6,353 6,338
Income taxes 967 826 2,804 3,267
--------- --------- --------- ---------
Net earnings $ 1,223 $ 1,071 $ 3,549 $ 3,071
========= ========= ========= =========
Basic earnings per common share $ 0.34 $ 0.30 $ 0.98 $ 0.88
--------- --------- --------- ---------
Diluted earnings per common share $ 0.31 $ 0.27 $ 0.88 $ 0.80
========= ========= ========= =========
Weighted average shares outstanding
Basic 3,631 3,567 3,624 3,509
Diluted 3,954 3,921 4,003 3,751
</TABLE>
See accompanying notes to the consolidated financial statements.
1
<PAGE> 4
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ASSETS DECEMBER 31, 1998 (UNAUDITED) MARCH 31, 1998
------ ----------------------------- --------------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 247 $ 954
Contract receivables 29,210 25,637
Notes and other receivables 802 665
Prepaid expenses 1,421 832
--------------- ---------------
Total current assets 31,680 28,088
Property, buildings, and equipment, net 14,917 14,886
Other assets:
Goodwill, net of accumulated amortization 16,889 15,402
Product development costs, net
of accumulated amortization 367 302
Deferred Compensation Plan investments 3,943 3,467
Notes receivable 407 539
Deposits and other 672 505
Deferred income taxes 494 420
--------------- ---------------
22,772 20,635
--------------- ---------------
TOTAL ASSETS $ 69,369 $ 63,609
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 341 $ 329
Accounts payable 545 439
Accrued expenses 8,601 11,350
Dividends payable -- 766
Deferred income taxes 950 749
--------------- ---------------
Total current liabilities 10,437 13,633
Long-term debt, excluding current installments 7,024 2,161
Other long-term liabilities 3,964 3,468
--------------- ---------------
TOTAL LIABILITIES 21,425 19,262
--------------- ---------------
Shareholders' equity:
Common stock, $.083 stated value
Authorized 11,250,000 shares; issued and
outstanding, 3,637,779 shares at
December 31, 1998 and 3,614,537
shares at March 31, 1998 303 301
Additional paid-in capital 8,974 8,928
Retained earnings 38,667 35,118
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 47,944 44,347
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 69,369 $ 63,609
=============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
2
<PAGE> 5
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- -----------------
OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings $ 3,549 $ 3,071
ADJUSTMENTS TO RECONCILE NET EARNINGS TO
NET CASH (USED) PROVIDED BY OPERATIONS:
Gain on sale of joint venture -- (1,591)
Equity in income of joint venture -- (17)
New product development write-off -- 281
Depreciation and amortization of property,
buildings and equipment 1,748 1,867
Amortization of goodwill 712 492
Amortization of product development costs 122 108
Provision for deferred income taxes 127 87
Loss on sale of equipment 16 117
Decrease (increase) in:
Contract receivables (3,573) (2,900)
Notes and other receivables (5) (50)
Prepaid expenses (589) (28)
Other assets (508) (376)
Increase (decrease) in:
Accounts payable and accrued expenses (2,643) (178)
Other long-term liabilities 496 318
--------------- ---------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (548) 1,201
--------------- ---------------
INVESTING ACTIVITIES:
Additions to property, buildings, and equipment (1,703) (2,126)
Product development costs (187) (107)
Proceeds from the sale of equipment 3 9
Proceeds from sale of joint venture -- 3,000
Acquisition of business units (net of cash acquired) (2,429) (7,826)
--------------- ---------------
NET CASH USED BY INVESTING ACTIVITIES (4,316) (7,050)
--------------- ---------------
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 5,120 3,220
Repayments of long-term debt (245) (233)
Proceeds from sale of common stock 595 1,261
Repurchase of common stock (547) (683)
Dividends paid (766) (693)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,157 2,872
--------------- ---------------
Decrease in cash and cash equivalents (707) (2,977)
CASH AND CASH EQUIVALENTS:
Beginning of period 954 2,977
--------------- ---------------
End of period $ 247 $ --
=============== ===============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 6
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. The information furnished in the accompanying unaudited Consolidated
Statements of Operations, Consolidated Balance Sheets, and Consolidated
Statements of Cash Flows reflect all adjustments (consisting only of items
of a normal recurring nature) which are, in the opinion of management,
necessary for a fair statement of the Company's results of operations and
financial position for the interim periods. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes included in the Company's Annual Report for the year
ended March 31, 1998.
2. Statement of Financial Accounting Standards SFAS No. 128, Earnings Per
Share (EPS), requires the disclosure of basic EPS, which is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding at the end of the period. Diluted EPS,
which gives effect to all dilutive potential common shares outstanding, is
also required. Options to purchase 125,750, 1,750 and 177,150 shares of
common stock as of December 31, 1998, March 31, 1998, and December 31, 1997
respectively, were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average
market price of common shares.
3. On December 19, 1997, the Company's Board of Directors authorized a
three-for-two stock split in the form of a stock dividend distributed on
January 29, 1998 to shareholders of record as of the close of business on
January 2, 1998. All references in the fiscal 1998 financial statements and
schedules to average number of shares outstanding and per share amounts
have been restated to reflect the stock split.
4. Statement of Financial Accounting Standards SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, establishes standards
for the way that public business enterprises report information and
operating segments in annual financial statements and requires reporting of
selected information in interim financial reports. This statement is
effective for fiscal years beginning after December 15, 1997. The Company
has elected to apply the provisions of SFAS No. 131 beginning in the
quarter ended June 30, 1998. The required disclosures for interim financial
statements are presented below.
The Company operates principally in two segments, Engineering and
Information Technologies (Engineering/IT), and technology-based training,
which it develops through its wholly-owned subsidiary, Interactive Media
Corp. (Interactive Media). The Engineering/IT segment serves primarily the
needs of the Department of Defense while the Interactive Media segment
targets both government and commercial customers. Total revenue by segment
includes both sales to unaffiliated customers, as reported in the Company's
consolidated statements of earnings, and intersegment sales.
4
<PAGE> 7
The following tables present information about the Company's segments for
the quarters and nine-month periods ended December 31, 1998 and December
31, 1997.
<TABLE>
<CAPTION>
(Unaudited)
Quarter ended
December 31, 1998
(amounts in thousands) Engineering/IT Interactive Media Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 35,603 $ 6,616 $ -- $ 42,219
Intersegment sales 447 14 (461) --
- ------------------------------------------------------------------------------------------------------------------------------
$ 36,050 $ 6,630 $ (461) $ 42,219
==============================================================================================================================
Operating earnings $ 2,232 $ 451 -- $ 2,683
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense 166
Interest income (4)
Other, net 331
- ------------------------------------------------------------------------------------------------------------------------------
493
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before income
taxes $ 2,190
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
Nine months ended
December 31, 1998
(amounts in thousands) Engineering/IT Interactive Media Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 105,187 $ 19,484 $ -- $ 124,671
Intersegment sales 1,194 95 (1,289) --
- ----------------------------------------------------------------------------------------------------------------------------------
$ 106,381 $ 19,579 $ (1,289) $ 124,671
==================================================================================================================================
Operating earnings $ 6,596 $ 958 $ -- $ 7,554
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense 377
Interest income (76)
Other, net 900
- ----------------------------------------------------------------------------------------------------------------------------------
1,201
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income
taxes $ 6,353
==================================================================================================================================
</TABLE>
5
<PAGE> 8
<TABLE>
<CAPTION>
(Unaudited)
Quarter ended
December 31, 1997
(amounts in thousands) Engineering/IT Interactive Media Eliminations Consolidated
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 35,649 $ 5,124 $ -- $ 40,773
Intersegment sales 392 11 (403) --
- ------------------------------------------------------------------------------------------------------------------------------
$ 36,041 $ 5,135 $ (403) $ 40,773
==============================================================================================================================
Operating earnings $ 1,910 $ 397 $ -- $ 2,307
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense 105
Interest income (32)
Gain on sale of joint --
venture
Equity in income of joint --
venture
Other, net 337
- ------------------------------------------------------------------------------------------------------------------------------
410
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before income
taxes $ 1,897
==============================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(Unaudited)
Nine months ended
December 31, 1997
(amounts in thousands) Engineering/IT Interactive Media Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales to unaffiliated customers $ 103,400 $ 12,980 $ -- $ 116,380
Intersegment sales 591 33 (624) --
- ----------------------------------------------------------------------------------------------------------------------------------
$ 103,991 $ 13,013 $ (624) $ 116,380
==================================================================================================================================
Operating earnings $ 4,960 $ 638 $ -- $ 5,598
- ----------------------------------------------------------------------------------------------------------------------------------
Interest expense 208
Interest income (93)
Gain on sale of joint (1,591)
venture
Equity in income of joint (17)
venture
Other, net 753
- ----------------------------------------------------------------------------------------------------------------------------------
(740)
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings before income
taxes $ 6,338
==================================================================================================================================
</TABLE>
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
A summary of comparative results for the quarter and nine-month periods
ended December 31, 1998 and December 31, 1997 is provided below. Results for the
prior year nine-month period include a one-time after tax gain of $405,000
related to the sale of the Company's interest in Automation Software, Inc. (ASI)
in July 1997, and a one-time after tax charge of $318,000 for the write-off of
capitalized software development and related costs. The net effect of the ASI
gain and the software charges was an after tax gain of $87,000. The comparisons
in this discussion and analysis for the nine-month period exclude these
non-recurring items.
(UNAUDITED)
THREE MONTHS ENDED DECEMBER 31
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERCENT
1998 1997 CHANGE
------- ------- --------
Revenue
<S> <C> <C> <C>
Engineering/IT $35,603 $35,649 (0.1)%
Interactive Media 6,616 5,124 29.1%
------- -------
Total 42,219 40,773 3.5%
Operating earnings
Engineering/IT 2,232 1,910 16.9%
Interactive Media 451 397 13.6%
------- -------
Total 2,683 2,307 16.3%
Earnings before income taxes 2,190 1,897 15.4%
Net earnings 1,223 1,071 14.2%
Basic earnings per common share 0.34 0.30 13.3%
Diluted earnings per common share 0.31 0.27 14.8%
</TABLE>
(UNAUDITED)
NINE MONTHS ENDED DECEMBER 31
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
(EXCLUDING NON-
(INCLUDING NON- (EXCLUDING NON- RECURRING ITEMS)
RECURRING ITEMS) RECURRING ITEMS) PERCENT
1998 1997 1997 CHANGE
-------- -------- -------- ----
Revenue
<S> <C> <C> <C> <C>
Engineering/IT $105,187 $103,400 $103,400 1.7%
Interactive Media 19,484 12,980 12,980 50.1%
-------- -------- --------
Total 124,671 116,380 116,380 7.1%
Operating earnings
Engineering/IT 6,596 4,960 5,490 20.1%
Interactive Media 958 638 638 50.2%
-------- -------- --------
Total 7,554 5,598 6,128 23.3%
Earnings before income taxes 6,353 6,338 5,277 20.4%
Net earnings 3,549 3,071 2,984 18.9%
Basic earnings per common share 0.98 0.88 0.86 14.0%
Diluted earnings per common share 0.88 0.80 0.78 12.8%
</TABLE>
7
<PAGE> 10
Revenue increased 3.5% to $42.2 million for the quarter ended December 31,
1998 from $40.8 million for the quarter ended December 31, 1997. For the
nine-month period ended December 31, 1998 (the first nine months of fiscal
1999), revenue increased 7.1% to $124.7 million compared with $116.4 million in
the first nine months of fiscal 1998. Revenue for the Company's Engineering/IT
business was level at $35.6 million for the third quarter of fiscal 1999
compared to the third quarter of fiscal 1998. For the first nine months of
fiscal 1999, the Company's Engineering/IT business grew 1.7% to $105.2 million
from $103.4 million for the first nine months of fiscal 1998. Interactive
Media's revenue increased 29.1% to $6.6 million for the third quarter of fiscal
1999 from $5.1 million for the third quarter of fiscal 1998. For the first nine
months of fiscal 1999, Interactive Media's revenue increased 50.1% to $19.5
million from $13.0 million for the first nine months of fiscal 1998.
Revenue for the Company's Engineering/IT business was adversely affected by
a decrease in work subcontracted to other companies and a decrease in purchased
materials. For the quarter and nine-month period work subcontracted to other
companies and purchased materials for the Company's Engineering/IT business
decreased $2.4 million and $5.1 million, respectively, over the same periods in
fiscal 1998. Subcontracting is down because in some cases A&T is gaining market
share, some subcontractors have gotten their own contracts, and some
subcontractors' work has not been renewed by the customer. Purchases of
materials are down due, in part, to a U.S. Navy mine clearing hardware contract
that is nearing completion. Without the effect of subcontracts and materials,
Engineering/IT revenue would have been up nearly 8% for the quarter.
Interactive Media revenue was favorably affected by the acquisition of UP,
Inc. in November of last year and by an expanded sales force. During the
quarter, funded backlog for Interactive Media increased 35% from $9.7 million to
$13.1 million.
For the quarter and nine-month period ended December 31, 1998, operating
earnings for the Company were $2.7 million and $7.6 million, respectively,
compared with $2.3 million and $6.1 million, respectively, in the comparable
quarter and nine-month period ended December 31,1997.
Operating earnings as a percentage of revenue (operating margin) increased
to 6.4% for the current quarter and 6.1% for the nine-month period ended
December 31, 1998 compared with 5.7% and 5.3%, respectively, for the prior
quarter and nine-month period ended December 31, 1997. Operating margin for
Engineering/IT increased to 6.3% in the third quarter of fiscal 1999 from 5.4%
in the third quarter of fiscal 1998. For the first nine months of fiscal 1999,
operating margin for Engineering/IT increased to 6.3% from 5.3% for the first
nine months of fiscal 1998. The reduction in lower margin subcontract and
material revenue plus improved cost controls and good performance on contracts
contributed to the Engineering/IT increase. Operating margin in the current
quarter for Interactive Media decreased to 6.8% from 7.8% in the prior year
quarter. The decrease was due in part to lower fees earned on projects, offset
in part by a decrease in indirect expenses as a percentage of revenue. For the
first nine months of fiscal 1999 operating margin for Interactive Media remained
constant at 4.9% as compared to the first nine-months of fiscal 1998.
Total other expenses as a percentage of revenue was 1.2% for the current
quarter, compared to 1.0% for the prior year quarter. For the nine-months ended
December 31, 1998, total other expenses as a percentage of revenue was 1.0%
compared with 0.7% for the nine-month period ended December 31, 1997. For the
current quarter and nine-month period, both interest expense and amortization of
goodwill increased due to the Company's recent acquisitions, including a
contingent payment to the former owners of UP, Inc. as discussed more fully
below in "Liquidity and Capital Resources".
Earnings before income taxes increased 15.4% to $2.2 million for the third
quarter of fiscal 1999 from $1.9 million in the third quarter of fiscal 1998.
For the first nine months of fiscal 1999, earnings before income taxes increased
20.4% to $6.4 million from $5.3 million for the same period in the prior fiscal
year. The increases for the quarter and nine-month periods were due largely to
higher revenue and improved margins.
The Company's effective tax rates on earnings were 44.1% for the third
quarter and for the first nine months of fiscal 1999 compared with 43.5% for the
third quarter and first nine months of fiscal 1998. The higher tax rate is
primarily due to the increase in amortization of goodwill, most of which is not
deductible for tax purposes.
Net earnings for the third quarter of fiscal 1999 were $1.2 million,
compared with $1.1 million for the prior fiscal year quarter, an increase of
14.2%. For the first nine months of fiscal 1999, net earnings were $3.5 million
compared to net earnings for the first nine months of fiscal 1998 of $3.0
million, an increase of 18.9%.
8
<PAGE> 11
Basic earnings per share increased 13.3% to $0.34 for the third quarter of
fiscal 1999 compared with $0.30 for the third quarter of fiscal 1998. For the
nine-month period ended December 31, 1998, basic earnings per common share
increased 14.0% to $0.98 compared with $0.86 for the prior year. Diluted
earnings per common share increased 14.8% to $0.31 for the current quarter
compared with $0.27 for the prior year quarter. For the nine-month period ended
December 31, 1998, diluted earnings per share increased 12.8% to $0.88 compared
to $0.78 in the prior year.
The weighted average number of common shares used to compute basic earnings
per share was 3.6 million for the current and prior year third quarter and for
the first nine months of fiscal 1999 compared with 3.5 million in the first nine
months of fiscal 1998. The weighted average number of common shares used to
compute diluted earnings per share was 4.0 million for the current and prior
year third quarter and for the current nine-month period compared with 3.8
million for the nine-month period of fiscal 1998. The increase for the
nine-month period was due primarily to the exercise of stock options and an
increase in the number of stock options outstanding.
LIQUIDITY & CAPITAL RESOURCES
For the nine-month period ended December 31, 1998, net cash used by
operating activities totaled $548 thousand. Cash generated by net earnings,
after consideration of non-cash charges for depreciation, was offset by an
increase in contract receivables of $3.6 million and a decrease in accounts
payable and accrued expenses of $2.6 million.
Contract receivables totaled $29.2 million, $25.6 million and $30.1 million
as of December 31, 1998, March 31, 1998, and December 31, 1997 and represented
42%, 40% and 46% of total assets at each of those dates. The average period for
payment to the Company was 63 days at December 31, 1998, 54 days at March 31,
1998 and 66 days as of December 31, 1997. The collection period at December 31,
1998 is in the normal range for the Company.
Net cash used by investing activities for the nine-months ended December
31, 1998 was $4.3 million. The primary use of this cash was for the addition of
office equipment, the development of our new management information system, and
for acquisitions including a contingent payment to the former owners of UP,
Inc., acquired in November 1997, in accordance with the purchase agreement.
Net cash provided by financing activities for the first nine months of
fiscal 1999 totaled $4.2 million. The primary source of cash from financing
activities was proceeds from borrowing under the Company's revolving credit
agreement. Uses of cash included the payment of dividends and the repurchase of
the Company's common shares. On May 31, 1997, the Company announced that it had
expanded its share repurchase program. The Company's Board of Directors
authorized the repurchase of an additional 450,000 shares or a total of up to
750,000 shares in amounts and at times and prices to be determined by the
Company's management. Since the program was initiated in March 1996, the Company
has repurchased 399,400 shares. Since March 31, 1998 the Company has repurchased
42,900 shares under this repurchase program at current market prices on the
dates of purchase. There are approximately 3.6 million shares outstanding.
Any capital needs not satisfied by cash generated from operations were, and
in the future are expected to be, met with money borrowed by the Company under
its revolving credit agreement. The total funds available to the Company under
this agreement at December 31, 1998 were $20.0 million. Borrowing under the
Company's revolving credit agreement was $5.1 million at December 31, 1998, and
$3.2 million as of December 31, 1997. There was no borrowing under the Company's
revolving credit agreement as of March 31, 1998.
It is anticipated that the Company's existing cash, together with funds
generated from operations and borrowings under its revolving credit agreement,
will be sufficient to meet its normal working capital requirements for the
foreseeable future.
The Company believes that inflation has not had a material effect on its
business.
9
<PAGE> 12
YEAR 2000 READINESS DISCLOSURE
Many financial information and operational systems in use today may not be
able to interpret dates after December 31, 1999 because such systems allow only
two digits to indicate the year in a date. As a result, such systems are unable
to distinguish January 1, 2000 from January 1, 1900, which could have adverse
consequences on operations and the integrity of information processing.
Accordingly, some computer hardware and software, including programs embedded
within equipment, may need to be modified prior to the year 2000 in order to
function properly. This potential problem is referred to as the Year 2000 or Y2K
issue. For purposes of this discussion, a product or system is Year 2000
compliant if it functions the same on or after January 1, 2000 as it did prior
to that date.
The Company established a task force in January 1998 to assess Year 2000
risks, identify and implement solutions to known problems, and report the
results of the assessment. The task force examined the services and products the
Company provides, its internal information technology (IT) software, facilities
and infrastructure, and third party risks. The Company is approaching its Year
2000 readiness program in the following three phases: (1) assessment, (2)
planning and preparation, and (3) implementation. The table below summarizes the
Company's projected and actual progress over time:
System Category Completion Dates
--------------- ----------------
Planning &
Assessment Preparation Implementation
---------- ----------- --------------
Customer Services 9/98 12/98 3/99
Internal IT Software 9/98 12/98 7/99
Facilities/Infrastructure 9/98 12/98 7/99
A discussion of the Company's Year 2000 readiness program follows.
Customer Services. The Company principally provides services to its
customer base. Within the Company's Engineering/IT business unit, certain of
these services involve delivery of software code or verification of the
customers' testing of software. The Company's Interactive Media business unit
provides services which result in custom designed computer based training
materials. The services are typically provided in accordance with the
specifications and requirements of the customer. The Company's services
generally are not transactional or date sensitive in nature and therefore
generally are not subject to Year 2000 problems. Currently, when services are
provided that do involve Year 2000 issues, the services provided are Year 2000
compliant. For previously delivered services, the Company believes that its
customers are responsible for their costs to achieve Year 2000 compliance.
However, based on the present state of the Company's knowledge and of the law as
it applies to this aspect of the Year 2000 issue, the Company is unable at this
time to determine the full extent of exposure or to estimate the probable cost
and timing of any required remediation.
Internal IT Systems. The Company's Engineering/IT business embarked on a
plan in 1996 to implement a comprehensive re-engineering of its business systems
to better handle multiple business units or subsidiaries. As part of this
scheduled plan the Company is upgrading or replacing all of its major existing
business systems including upgrading a fixed asset accounting system and
replacing an accounts receivable system that were not Year 2000 compliant. The
decision to upgrade or replace these business systems was not accelerated as a
result of the Year 2000 issue but was scheduled as part of its business systems
re-engineering plans. Accordingly, the cost for this upgrade and replacement are
not considered Year 2000 costs.
The Company is using a combination of purchased applications software and
custom-built software in its business system upgrade. The existing non-compliant
software is being upgraded or replaced with software that is Year 2000
compliant. The Company is not repairing or rewriting any existing applications
software to resolve Year 2000 issues. The scheduled implementation date for the
new business systems is 1 April 1999.
The Company's Interactive Media business unit uses Deltek System I
purchased software for its business applications. While this purchased software
is not currently Year 2000 compliant, the vendor has represented that it will
provide at no cost a system upgrade that will make its system compliant. This
upgrade is scheduled to be installed and tested by 1 July 1999.
10
<PAGE> 13
Facilities and Infrastructure. The Company is upgrading and testing its
facilities and infrastructure (buildings and related environmental systems,
network and telephone systems, security systems, alarms, desktop computers and
related operating systems and applications software) to achieve Year 2000
compliance. Much of the Company's facilities and infrastructure is relatively
new and Year 2000 compliant. This is the case for most of the Company's desktop
computers which are replaced at the end of their three-year lease term in
accordance with the Company's standard practice. With a combination of
relatively new equipment and upgrades and procedural changes to address
non-compliance problems, the Company believes the Year 2000 issue will not pose
significant operational problems for the Company's facilities and
infrastructure. The system changes identified to address the facility and
infrastructure Year 2000 issues are scheduled to be finished by July 1, 1999.
Costs for Year 2000 Compliance. The Company believes that total costs for
its Year 2000 compliance activity will not be material to the Company's results
of operations, liquidity and capital resources and are not expected to exceed
$100,000. Costs related to the Year 2000 issue have been expensed as incurred
and are funded through operating cash flows. The primary costs incurred to date
have been to conduct the initial assessment of Year 2000 potential issues and
develop a corrective action plan. Cost estimates are based on currently
available information. The Company has not deferred any critical information
technology projects because of its Year 2000 program efforts.
Year 2000 Risks Faced by the Company. The Year 2000 issue may also create
risk for the Company due to unforeseen problems from third parties with whom the
Company deals. The Company has contacted its key suppliers, customers, and other
third parties to determine the possible impact on its business. Most of the
third parties with whom the Company does business are engaged in executing their
own Year 2000 readiness efforts. Accordingly, the Company cannot fully evaluate
the Year 2000 risks from those parties. However, to date, there has been no
indication that a third party's failure to be Year 2000 compliant would create a
significant operational problem for the Company. The Company does not plan to
use any independent verification and validation processes to assure the
reliability of third party responses. While the Company now routinely assesses
all data for Year 2000 compliance, the Company completed its initial assessment
of third party risks in September 1998.
The Company is heavily dependent upon the effectiveness of its primary
customers' systems, principally in the U.S. Government, for the administration
of contracts and payment of the Company's invoices. The Company's reasonably
likely worst case Year 2000 scenario is that the Company's payments from the
U.S. Government would be significantly delayed. The Company and the Professional
Service Council (PSC) to which the Company belongs, have made inquiries
regarding the status of compliance efforts by the Company's main government
payment office, DFAS-Columbus. The following information was received via a
January 11, 1999 PSC Action Update: "PSC received a letter from DFAS regarding
its Y2K compliance schedule...stating that 77% of DFAS's systems are Y2K
compliant and 100% will be compliant by the end of March 1999." If DFAS is not
successful in becoming Year 2000 compliant the Company believes it has adequate
availability of funds under its revolving credit agreement to fund any
reasonable increase in accounts receivable due to government payment delays.
While the Company has plans in place to address known Year 2000 issues
under its control, an infrastructure problem outside of its control could
disrupt Company operations depending on the nature and severity of the problems.
The Company expects that most utilities and service providers would be able to
restore service interruptions caused by Year 2000 problems within days. However,
more pervasive system problems involving multiple providers could last longer
depending on the complexity of the systems and the effectiveness of their
contingency plans.
Although the Company is dedicating reasonable resources towards attaining
Year 2000 readiness, there is no assurance it will be successful in its efforts
to identify and address all Year 2000 issues. Even if the Company acts in a
timely manner to complete all of its assessments and identifies, develops and
implements remediation plans believed to be adequate, some problems may not be
identified or corrected in time to prevent material adverse consequences to the
Company. The discussion above regarding estimated completion dates, costs, risks
and other forward-looking statements regarding Year 2000 is based on the
Company's best estimates given information that is currently available and is
subject to change. As the Company continues to progress with its Year 2000
initiatives, it may discover that actual results will differ materially from
these estimates.
The information provided above constitutes a "Year 2000 Readiness
Disclosure" for purposes of the Year 2000 Information and Readiness Disclosure
Act.
11
<PAGE> 14
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements, within the meaning of The
Private Securities Litigation Reform Act of 1995. These statements are based on
current expectations and are subject to a number of risks and uncertainties.
Statements relating to the Company's or management's intentions, hopes, beliefs,
expectations, or predictions of the future are forward-looking statements.
Forward-looking statements set forth in the paragraphs above discuss the
Company's liquidity and capital resources and Year 2000 Readiness Disclosure.
The Company cautions readers that actual results could differ materially from
those in the forward-looking statements. The factors that could cause actual
results to differ materially include the following: general economic conditions,
Navy program funding priorities, budget reductions in defense programs, delays
in the development and acceptance of new commercial products and pricing
pressures from competitors, and third party failures to complete their "Year
2000" conversions in a timely manner. A more complete discussion of business
risk factors is included in the Company's Form 10-K for the year ended March 31,
1998.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<PAGE> 15
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS
NONE.
ITEM 2. CHANGES IN SECURITIES
NONE.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE.
ITEM 5. OTHER INFORMATION
NONE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
4 FIFTH AMENDMENT TO REVOLVING CREDIT AND TERM
LOAN AGREEMENT AND REVOLVING CREDIT NOTE
DATED DECEMBER 30, 1998
11 EARNINGS PER SHARE CALCULATION
27 FINANCIAL DATA SCHEDULE
b. REPORTS ON FORM 8-K
None.
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANALYSIS & TECHNOLOGY, INC.
Date: February 12, 1999 /s/Gary P. Bennett
Gary P. Bennett
President and CEO
Date: February 12, 1999 /s/David M. Nolf
David M. Nolf
Executive Vice President/
Chief Financial and Administrative Officer
14
<PAGE> 17
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
TO
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED: DECEMBER 31, 1998
COMMISSION FILE NUMBER: 0-14161
ANALYSIS & TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<PAGE> 18
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENTS
4 FIFTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT
AND REVOLVING CREDIT NOTE DATED DECEMBER 31, 1998
11 EARNINGS PER SHARE CALCULATION
27 FINANCIAL DATA SCHEDULE
i
<PAGE> 1
FIFTH AMENDMENT TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT AND REVOLVING CREDIT NOTE
THIS AMENDMENT, dated as of December 30, 1998 (the "Amendment") to
the Amended and Restated Revolving Credit and Term Loan Agreement and the
Revolving Credit Note, both dated as of November 15, 1993 and amended pursuant
to a certain First Amendment to Revolving Credit and Term Loan Agreement and
Revolving Credit Note dated as of December 9, 1994, a Second Amendment to
Revolving Credit and Term Loan Agreement dated as of November 29, 1995, a Third
Amendment to Revolving Credit and Term Loan Agreement dated as of November 13,
1996 (as so amended, the "Agreement" and the "Note" respectively) and a Fourth
Amendment to Revolving Credit and Term Loan Agreement and Revolving Credit Note
dated as of December 17, 1997, is entered into by and between ANALYSIS &
TECHNOLOGY, INC., a Connecticut corporation (the "Company") and FLEET NATIONAL
BANK, formerly known as Shawmut Bank Connecticut, National Association, a
national banking association (the "Bank").
W I T N E S S E T H
WHEREAS, pursuant to the Agreement, the Bank has made certain
advances to the Company and the Company has made certain covenants to the Bank;
and
WHEREAS, the Bank and the Company now desire to amend the Agreement
to provide for, among other things, an extension of the Termination Date.
<PAGE> 2
2
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged and pursuant to the requirements of the Agreement, the parties
hereto hereby agree as follows:
Section 1. Definitions. Capitalized terms used herein and
not otherwise defined herein shall have the meanings specified in, or by
reference in, the Agreement.
Section 2. Amendment to the Agreement.
(a) Section 1.1 of the Agreement is amended and restated
to read as follows:
Section 1.1 Amounts. Subject to the terms and conditions contained
in this Agreement, the Bank agrees to make loans (the "Revolving
Credit Loans" and individually, a "Revolving Credit Loan") to the
Company from time to time prior to March 31, 2000 (the "Termination
Date") in principal amounts not exceeding at any one time
outstanding the sum of $20,000,000 (such amount, as it may be
reduced from time to time as hereinafter provided, is herein called
the "Commitment") less the face amount of all Letters of Credit
issued for the account of the Company or any other party guaranteed
by the Company (the "Letters of Credit" and each individually a
"Letter of Credit"). Each Revolving Credit Loan shall be either a
Domestic Loan, a CD Loan, or a Eurodollar Loan as the Company may
elect subject to the provisions of this Agreement. Notwithstanding
anything herein to the contrary, during the term of this Agreement,
the sum of (i) the aggregate outstanding principal amount of
Revolving Credit Loans hereunder plus (ii) the aggregate available
face amount of all Letters of Credit, shall not at any time exceed
the Commitment.
<PAGE> 3
3
(b) Section 1.3 of the Agreement is amended to change the maturity
date of the Term Loan from November 1, 2004 to April 1, 2005, by substituting
the reference to "November 1, 2004" with "April 1, 2005."
Section 3. Conditions and Effectiveness. This Amendment shall become
effective when, and only when, the Bank and the Company have received
counterparts of this Amendment executed by the Bank and by the Company.
Section 4. Reference to and Effect on the Agreement.
(a) Upon the effectiveness of Section 2 hereof, on and
after the date hereof, (i) each reference in the Agreement to "this Agreement,"
"hereunder," "hereof," "herein," or words of like import, and each reference to
the Agreement in the Revolving Credit Note and any other document relating to
the Agreement, shall mean and be in reference to the Agreement as amended hereby
and (ii) each reference in the Revolving Credit Note to "this Note, "
"hereunder," "hereof," "herein," or words of similar import, and each reference
in the Agreement to "the Note" or "the Revolving Credit Note" shall mean and be
in reference to the Revolving Credit Note as amended hereby.
(b) Except as specifically amended herein, the Agreement and the
Note shall remain in full force and effect and are hereby ratified and
confirmed.
Section 5. Headings. Section headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose.
<PAGE> 4
4
Section 6. Execution and Counterparts. This Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which when taken together
shall constitute one in the same instrument.
Section 7. Governing Law. This Amendment shall be governed
by and construed in accordance with the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
ANALYSIS & TECHNOLOGY, INC.
By: /s/ David M. Nolf
-----------------------------------
Name: David M. Nolf
Its:Executive Vice President
Chief Financial and
Administrative Officer
FLEET NATIONAL BANK
By: /s/ Matthew E. Hummel
-----------------------------------
Name: Matthew E. Hummel
Its: Vice President
<PAGE> 1
Exhibit 11
ANALYSIS & TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
FOR THE QUARTERS AND NINE-MONTH PERIODS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic:
Weighted average shares
outstanding 3,630,817 3,566,672 3,623,593 3,508,511
Net earnings $ 1,222,165 $ 1,070,795 $ 3,548,489 $ 3,071,054
Basic earnings per common share $ 0.34 $ 0.30 $ 0.98 $ 0.88
=========== =========== =========== ===========
Diluted:
Weighted average shares
outstanding 3,630,817 3,566,672 3,623,593 3,508,511
Net effect of dilutive stock
options based on the treasury
stock method using the
average market price 323,309 354,307 379,277 242,524
----------- ----------- ----------- -----------
Total 3,954,126 3,920,979 4,002,870 3,751,035
=========== =========== =========== ===========
Net earnings $ 1,222,165 $ 1,070,795 $ 3,548,489 $ 3,071,054
Net effect of earnings attributable
to subsidiary stock options (403) (19,527) (39,184) (62,874)
----------- ----------- ----------- -----------
Net earnings $ 1,221,762 $ 1,051,268 $ 3,509,305 $ 3,008,180
=========== =========== =========== ===========
Diluted earnings per common share $ 0.31 $ 0.27 $ 0.88 $ 0.80
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 247
<SECURITIES> 0
<RECEIVABLES> 29,210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31,680
<PP&E> 38,129
<DEPRECIATION> 23,212
<TOTAL-ASSETS> 69,369
<CURRENT-LIABILITIES> 10,437
<BONDS> 0
0
0
<COMMON> 303
<OTHER-SE> 47,641
<TOTAL-LIABILITY-AND-EQUITY> 69,369
<SALES> 0
<TOTAL-REVENUES> 124,671
<CGS> 0
<TOTAL-COSTS> 117,117
<OTHER-EXPENSES> 900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301
<INCOME-PRETAX> 6,353
<INCOME-TAX> 2,804
<INCOME-CONTINUING> 3,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,549
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.88
</TABLE>
