SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 27, 1998
COMPTEK RESEARCH, INC.
(Exact Name of Registrant as Specified in Charter)
New York 1-8502 16-0959023
(State of Other (Commissi (IRS Employer Identification
Jurisdiction of on File No.)
Incorporation) Number)
2732 Transit Road, 14224-2523
Buffalo, New York
(Address of (Zip Code)
Principal Executive
Offices)
Registrant's (716) 677-4070
telephone number,
including area code:
Not Applicable
(Former Name or Former Address, if Changed Since Last Year)
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
The following financial information is being filed in order to
satisfy the financial statement requirements for the Form 8-K
filed May 26, 1998.
(a) Financial Statements for Businesses Acquired
1. Consolidated financial statements of PRB Associates,
Inc., and Subsidiaries, as of and for the years ended
December 31, 1997 and 1996, together with Independent
Auditors' Report.
PRB ASSOCIATES, INC., AND SUBSIDIARIES
Financial Statements for the
Years Ended December 31, 1997 and
1996, and Independent Auditors'
Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PRB Associates, Inc., and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
PRB Associates, Inc., and Subsidiaries (the Company) as of
December 31, 1997 and 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows
for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of PRB Associates,
Inc., and Subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting
principles.
March 27, 1998
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<S> <C> <C>
ASSETS 1997 1996
CURRENT ASSETS:
Cash and cash equivalents $3,214,266 $3,390,002
Securities available for sale 367,368 -
Accounts receivable 6,571,473 7,093,370
Inventories 28,554 115,541
Prepaid expenses and other 236,005 202,866
Refundable income taxes 1,160,479 674,000
---------- ----------
Total current assets 11,578,145 11,475,779
---------- ----------
PROPERTY AND EQUIPMENT:
Furniture and equipment
4,896,929 3,630,906
Building and land under capital lease
5,975,000 5,400,203
Leasehold improvements 65,891 226,206
---------- ----------
Total property and equipment 10,937,820 9,257,315
Less: Accumulated depreciation and
amortization (3,506,079) (4,754,640)
----------- -----------
Net property and equipment 7,431,741 4,502,675
----------- -----------
DEFERRED INCOME TAXES - 244,000
OTHER ASSETS 7,404 45,262
----------- ----------
TOTAL ASSETS $19,017,290 $16,267,716
=========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
DECEMBER 31, 1997 AND 1996
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $1,363,082 $1,679,407
Accrued expenses
231,257 130,242
Accrued salaries and employee benefits
2,507,985 1,983,840
Deferred income taxes 124,500 436,600
Current portion of obligations under 659,079 427,223
capital leases --------- ---------
Total current liabilities 4,885,903 4,657,312
--------- ---------
DEFERRED INCOME TAXES -
124,000
OBLIGATIONS UNDER CAPITAL LEASES 4,765,098 3,308,651
--------- ---------
MINORITY INTEREST IN NET ASSETS OF (35,053) 1,356
SUBSIDIARIES --------- ---------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
authorized, 1,500,000
Shares; issued and outstanding,
551,880 and 563,055 shares for
1997 and 1996, respectively 5,519 5,631
Additional paid-in capital 401,127 397,827
Unrealized holding gain for securities 108,123 -
available for sale
Retained earnings 8,762,573 7,896,939
--------- ---------
Total stockholders' equity 9,277,342 8,300,397
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,017,290 $16,267,716
</TABLE> ---------- ----------
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
CONTRACT REVENUES $29,474,480 $27,307,114
---------- ----------
EXPENSES:
Direct costs 14,480,242 14,198,624
Fringe benefits
5,064,741 4,365,885
Overhead expenses
4,237,969 3,201,390
General and administrative expenses
3,625,064 3,091,115
Interest expense 558,703 491,810
---------- ----------
27,966,719 25,348,824
---------- ----------
EARNINGS FROM OPERATIONS 1,507,761 1,958,290
---------- ----------
INTEREST AND OTHER INCOME 212,219 120,559
MINORITY INTEREST IN LOSS (EARNINGS) OF 36,409 (1,356)
SUBSIDIARIES ---------- ----------
EARNINGS BEFORE INCOME TAXES 1,756,389 2,077,493
INCOME TAX PROVISION 718,000 846,500
---------- ----------
NET EARNINGS $1,038,389 $1,230,993
========== ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C> <C> <C> <C>
Additional Unrealized
Common Stock Paid-In Retained Holding
Shares Amount Capital Earnings Gain
BALANCE, JANUARY 1, 1996 560,730 $5,607 $363,629 $6,679,230 $-
Net earnings - - - 1,230,993 -
Redemption of common (1,000) (10) (707) (13,284) -
Stock
Exercise of common
stock options,
Including income
tax benefit 3,325 34 34,905 - -
------- ----- ------- --------- ----------
BALANCE, DECEMBER 31, 1996 563,055 5,631 397,827 7,896,939 -
Net earnings - - - 1,038,389 108,123
Redemption of common (12,300) (123) (8,693) (172,755) -
Stock
Exercise of common
stock options,
Including income
tax benefit 1,125 11 11,993 - -
-------- ----- ------- --------- ----------
BALANCE, DECEMBER 31, 1997 $551,880 $5,519 $401,127 $8,762,573 $108,123
======== ===== ======= ========= ==========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,038,389 $1,230,993
Adjustments to reconcile net earnings to net
Cash provided by operating activities:
Depreciation and amortization
1,365,824 835,588
Deferred income taxes
55,900 (22,400)
(Gain)/Loss on disposal of property and
equipment (621,313) 1,088
Minority interest in (loss) income of
Subsidiaries (36,409) 1,356
Increase in securities available for
Sale (259,245) -
Decrease (Increase) in accounts
Receivable 521,897 (233,491)
Decrease in inventories
86,987 256,137
Increase in prepaid expenses and other
(33,139) (26,407)
Increase in refundable income taxes
(486,479) (186,000)
Decrease (Increase) in other assets
37,858 (3,826)
(Decrease) Increase in accounts payable
(316,325) 101,508
Increase in accrued expenses
101,015 1,028
Increase in accrued salaries and
Employee benefits 524,145 365,937
--------- ---------
Net cash provided by operating
activities 1,979,105 2,321,511
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment
(1,367,158) (965,726)
---------- ---------
Net cash used in investing
activities (1,367,158) (965,726)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock
And exercise of common stock options
12,004 34,939
Principal payments on capital lease
Obligations (618,116) (374,109)
Redemption of common stock
(181,571) (14,001)
--------- ---------
Net cash used in financing
activities (787,683) (353,171)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (175,736) 1,002,614
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,390,002 2,387,388
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,214,266 $3,390,002
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash payments for interest $510,967 $491,810
========= =========
Cash payments for income taxes, net of $1,148,160 $1,055,300
Refunds received ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease assets acquired and $574,797 $154,198
Obligations incurred ========= =========
See notes to consolidated financial statements.
</TABLE>
PRB ASSOCIATES, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - PRB Associates, Inc., and Subsidiaries
(the Company) is primarily a defense contractor specializing
in the end-to-end development of computer-based systems for
mission planning and command and control. Software
engineering is the Company's key technical discipline,
although the Company has significant hardware and systems
integration expertise as well. Approximately ninety percent
of the Company's revenue is derived from contracts with the
U.S. Department of Defense, with the balance derived from
international defense-related contracts and commercial sales.
International customers include Pacific Rim and Middle East
countries.
PRB Associates, Inc. is the parent of DeVoe & Matthews, L.C.,
an 80%-owned subsidiary, and SimWright, Inc., an 84%-owned
subsidiary.
Principles of Consolidation - The consolidated financial
statements include the accounts of PRB Associates, Inc.,
DeVoe & Matthews, L.C., and SimWright, Inc. All significant
intercompany accounts and transactions have been eliminated.
Revenue Recognition - The majority of the Company's services
are performed under various firm-fixed-price and cost-plus-
fixed-fee contracts. Revenues on firm-fixed-price contracts
are recognized on the percentage-of-completion basis, based
upon costs incurred in relation to total estimated costs.
Revenues for cost-type contracts are recognized as costs are
incurred, plus a proportionate amount of fee earned.
Provisions for estimated losses on uncompleted contracts are
made in the period that such losses are determined.
Contract costs for services provided to the U.S. Government,
including indirect expenses, are subject to audit and
subsequent adjustment by negotiation between the Company and
the Government. All contract revenues are recorded in
amounts that are expected to be realized upon final
settlement.
Audits of the Company's costs have been completed by the
Defense Contract Audit Agency (DCAA) through 1995.
Subsequent years are subject to DCAA audit. The Company is
of the opinion that any DCAA audit adjustments for subsequent
years would not have a material effect on the financial
position or results of operations of the Company.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes - The Company follows Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes." Under SFAS 109, deferred income taxes are
recognized for the future tax consequences of differences
between tax bases of assets and liabilities and financial
reporting amounts, based upon enacted tax laws and statutory
tax rates applicable to the periods in which the differences
are expected to affect taxable income. Income tax expense is
the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Inventories - Inventories are stated at cost, which
approximates market value. Cost is recorded on a specific
identification basis.
Property and Equipment - Furniture and equipment are recorded
at cost and are depreciated using the straight-line method
over the estimated useful lives of the assets, which are
three to five years. Property under capital lease is
amortized over the life of the related property which is
three to fifteen years, or the term of the lease, whichever
is shorter. Leasehold improvements are amortized over the
remaining terms of the related leases using the straight-line
method. Repair and maintenance costs are expensed as
incurred.
Securities available for sale - The Company adopted Statement
of Financial Accounting Standards No. 115 (SFAS 115),
"Accounting for Certain Investments in Debt & Equity
Instruments" during 1997. Under SFAS 115, available-for-sale
securities are to be reported at fair value with unrealized
holding gains and losses reported as a net amount in a
separate component of stockholders' equity until realized.
Cash and Cash Equivalents - For purposes of the statement of
cash flows, the Company considers its temporary investments
with original maturities of three months or less as cash
equivalents.
Reclassifications - Certain prior-year amounts have been
reclassified to conform to the current-year presentation.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996, are
primarily with the United States Government and consist of
the following:
<TABLE>
<S> <C> <C>
1997 1996
Billed $2,544,520 $2,852,827
Unbilled 4,026,953 4,240,543
--------- ----------
$6,571,473 $7,093,370
</TABLE> ========= ==========
Unbilled accounts receivable include approximately $1,052,900
and $1,875,200 of retainages at December 31, 1997 and 1996,
respectively.
In accordance with industry practice, accounts receivable
relating to long-term contracts and unbilled amounts pending
DCAA audit completion are classified as current assets, even
though a portion of these amounts is not expected to be
realized in one year.
3. NOTE PAYABLE
The Company has a $1.5 million line of credit agreement with
a bank that bears interest at the Eurodollar daily floating
rate plus 2%, per annum. There were no amounts outstanding
at December 31, 1997 and 1996. The line of credit is
collateralized by certain eligible deposit accounts of the
Company and expires on May 31, 1998.
4. INCOME TAXES
The Company's provision (benefit) for income taxes for the
years ended December 31, 1997 and 1996, consists of the
following:
<TABLE>
<S> <C> <C>
1997 1996
Current - Federal $553,000 $737,000
- State 109,100 159,000
------- -------
662,100 896,000
------- -------
Deferred - Federal 46,000 (45,000)
- State 9,900 (4,500)
------- -------
55,900 (49,500)
------- -------
Income Tax Provision
$718,000 $846,500
</TABLE> ======= =======
Actual tax expense differs from that computed by applying the
Federal Statutory income tax rate of 34 percent to earnings
before income taxes due primarily to the effect of state
taxes, net of Federal benefit.
Deferred income tax assets and liabilities at December 31,
1997 and 1996, reflect the net tax effects of temporary
differences between the financial reporting and the tax bases
of assets and liabilities pursuant to SFAS No. 109.
Components of the Company's deferred tax assets and
liabilities as of December 31, 1997 and 1996, are as follows:
<TABLE>
<S> <C> <C>
1997 1996
Current deferred tax assets
(liabilities):
Retentions on fixed price $(547,500) $(764,000)
contracts
Annual leave 135,000 100,900
Accrued bonuses 273,000 215,000
State taxes 15,000 11,500
-------- -------
Net current deferred tax $(124,500) $(436,600)
liabilities ======== ========
Noncurrent deferred tax assets
(liabilities):
Capital leases $64,000 $(670,000)
FAS 115 Adjustment (44,000) -
Depreciation (144,000) 914,000
------- --------
Net noncurrent deferred tax $(124,000) $244,000
(liabilities) assets ======= =======
</TABLE>
5. FORMATION OF SUBSIDIARIES
On July 30, 1996, PRB Associates, Inc. along with two other
partners, formed a limited liability corporation, DeVoe &
Matthews, LC, a software company specializing in sensor
system analysis, computer simulation and modeling, and
analytical photogrammetry, with products and services for
sale to both government and commercial customers. PRB
Associates, Inc. contributed $250,000 for an 80 percent
equity share. Results of operations of DeVoe & Matthews, LC,
are included in the consolidated financial statements from
July 30, 1996 through December 31, 1996 and for all of 1997.
All intercompany accounts and transactions have been
eliminated in consolidation.
On April 11, 1997, PRB Associates, Inc., along with three
other investors, formed SimWright, Inc., a software company
specializing in computer modeling and simulation products and
services for both government and commercial customers. PRB
Associates, Inc. purchased 12,000 shares of common stock at
$0.01 par value ($120) for an 84 percent equity share.
Results of operations of SimWright, Inc. are included in the
consolidated financial statements from April 11, 1997 through
December 31, 1997. All intercompany accounts and
transactions have been eliminated in consolidation.
6. LEASES
The Company has lease agreements, principally for land and
office facilities, expiring at various dates through 2004.
These leases are primarily with related parties (Note 7).
Some of the leases include renewal provisions at the option
of the Company and some contain escalation provisions
requiring rent increases based on the Consumer Price Index.
Aggregate minimum rental payments due under leases with
initial or remaining lease terms greater than one year at
December 31, 1997, are as follows:
<TABLE>
<S> <C> <C>
Year Ending Capital Operating
December 31, Leases Leases
1998 $1,200,612 $149,746
1999 1,200,612 88,485
2000 1,200,612 43,715
2001 1,200,612 -
2002 1,200,612 -
Thereafter 1,400,714 -
--------- --------
$7,403,774 $281,946
--------- --------
Less amount representing interest 1,979,597
---------
Present value of minimum rental 5,424,177
commitments
Less current portion of obligations
under
capital leases 659,079
---------
Obligations under capital leases $4,765,098
</TABLE> =========
Accumulated depreciation on building and land held under
capital leases was $711,310 at December 31, 1997.
Total rental expense under operating leases was approximately
$217,200 and $158,000 for the years ended December 31, 1997
and 1996, respectively.
Effective March 1, 1997, the Company terminated three
separate capital leases totaling 55,510 square feet for its
Hollywood, Maryland site. A single capital lease was
negotiated for the existing and additional space totaling
75,510 square feet. The new lease provides for minimum lease
payments of approximately $1,200,000 per year for seven years
and contains a clause for inflationary increases.
7. RELATED PARTY TRANSACTIONS
The Company leases land and office facilities from Southern
Maryland Property Management Associates (SMPMA). Five
officers of the Company own 100% of SMPMA. Amounts paid
under these capital leases were approximately $1,128,100 and
$766,000 for the years ended December 31, 1997 and 1996,
respectively. At December 31, 1996, the Company held a
$39,000 note receivable from SMPMA that is reflected in
prepaid expenses and other assets in the accompanying balance
sheet. The note is noninterest-bearing and is payable on
demand.
In addition, the Company has guaranteed SMPMA's $3.2 million
consolidation loan on the leased land and office facilities.
8. INCENTIVE STOCK OPTIONS
The Company periodically grants options to its employees to
purchase its common stock at exercise prices at fair value on
the grant date. Ownership of common stock acquired through
these options is contingent upon the shareholder's continued
employment and full-time active participation in the Company.
Accordingly, a shareholder's death, employment termination,
or voluntary request to dispose of common stock will cause
the stock to be sold back to the Company at current book
value.
Stock option activity for the years ended December 31, 1997
and 1996, is summarized as follows:
<TABLE>
<S> <C> <C>
Number
of Exercise
Shares Price
Shares under option, January 1, 1996 $8.87 -
5,050 $10.67
Granted - -
Exercised (3,325) 8.87 -
10.67
Expired (500) 10.67
------
Shares under option, December 31, 1996 1,225 10.67
Granted - -
Exercised (1,125) 10.67
Expired (100) 10.67
------
Shares under option, December 31, 1997 - -
======
</TABLE>
The Company accounts for its stock-based compensation plan
under APB No. 25. No compensation expense has been
recognized in connection with the options, as all options
have been granted with an exercise price equal to the fair
value of the Company's common stock on the date of grant.
The Company adopted Statement of Financial Accounting
Standards No. 123 (SFAS 123) "Accounting for Stock Based
Compensation" for disclosure purposes in 1996. For SFAS 123
purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black Scholes
option pricing model with the following weighted average
assumptions: risk-free interest rate of 5.00% to 6.20%,
expected lives of 4 months to 29 months, expected volatility
of zero, and a dividend rate of zero percent. Using these
assumptions, the fair value of the stock options granted in
1995 is $4,694, which would be amortized as compensation
expense over the vesting period of the options. No stock
options were granted in 1996 or 1997. The options generally
vest equally over 4 to 29 months. Had compensation expense
been determined consistent with SFAS 123, utilizing the
assumptions detailed above, the Company's net earnings for
the year ended December 31, 1997 and 1996, would have been
reduced to the following pro forma amounts:
<TABLE>
<S> <C> <C>
1997 1996
Net Income:
As reported $1,038,389 $1,230,993
Pro forma $1,038,092 $1,229,870
</TABLE>
The resulting pro forma compensation cost may not be
representative of that expected in future years.
9. 401(k) PLAN
The Company has a defined contribution 401(k) plan that
covers all employees who have worked for the Company at least
1,000 hours in a consecutive twelve month period and who have
attained age 21. Under the provisions of the plan, the
Company, at its discretion, may contribute up to 15% of each
participant's current compensation and employees may
contribute up to 6% of their compensation. The Company's
expense under this plan was approximately $994,600 and
$893,000 in 1997 and 1996, respectively.
10.COMMITMENTS AND CONTINGENCIES
The Company is not involved in any lawsuits, claims or
administrative proceedings which management believes will
have a material adverse effect on the Company's operations
and liquidity.
11.SUBSEQUENT EVENT
On March 17, 1998, Comptek Research, Inc. announced that a
letter of intent had been signed to acquire all of the stock
of the Company. Comptek Research is a domestic and
international supplier of technically advanced electronics
and data communications systems to government and industry.
The sale is pending the completion of due diligence and the
signing of a stock purchase agreement.
PRB ASSOCIATES, INC., AND SUBSIDIARIES
Financial Statements for the Years Ended
December 31, 1996 and 1995, and
Independent Auditors' Report
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
PRB Associates, Inc., and Subsidiary:
We have audited the accompanying consolidated balance sheets of
PRB Associates, Inc., and Subsidiary (the Company) as of December
31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of PRB Associates,
Inc., and Subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting
principles.
March 21, 1997
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<S> <C> <C>
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $3,390,002 $2,387,388
Accounts receivable 6,647,330 6,859,879
Inventories 115,541 371,678
Prepaid expenses and other 202,866 176,459
Refundable income taxes 674,000 488,000
---------- ----------
Total current assets 11,029,739 10,283,404
PROPERTY AND EQUIPMENT:
Furniture and equipment 3,630,906 2,698,184
Building, land, and equipment under 5,400,203 5,246,005
capital lease
Leasehold improvements 226,206 207,979
---------- ----------
Total property and equipment 9,257,315 8,152,168
Less: Accumulated depreciation and (4,754,640) (3,932,741)
amortization ---------- ----------
Net property and equipment 4,502,675 4,219,427
---------- ----------
DEFERRED INCOME TAXES 244,000 221,000
OTHER ASSETS 45,262 41,436
---------- ----------
TOTAL ASSETS $15,821,676 $14,765,267
========== ==========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS (continued)
DECEMBER 31, 1996 AND 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
CURRENT LIABILITIES:
Accounts payable and accrued expenses $1,363,609 $1,707,113
Accrued salaries and employee benefits 1,983,840 1,617,903
Deferred income taxes 436,600 436,000
Current portion of obligations under 427,223 363,689
Capital lease ---------- ----------
Total current liabilities 4,211,272 4,124,705
---------- ----------
OBLIGATION UNDER CAPITAL LEASES 3,308,651 3,592,096
---------- ----------
MINORITY INTEREST IN NET ASSETS OF 1,356 -
SUBSIDIARY ---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value -
Authorized, 1,500,000 Shares;
Issued and outstanding, 563,055 and
560,730 shares for 1996 and 1995, 5,631 5,607
respectively
Additional paid-in capital 397,827 363,629
Retained earnings 7,896,939 6,679,230
---------- ----------
Total stockholders' equity 8,300,397 7,048,466
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $15,821,676 $14,765,267
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<S> <C> <C>
1996 1995
CONTRACT REVENUES $27,307,114 $24,441,556
EXPENSES:
Direct costs 14,198,624 12,980,971
Fringe benefits 4,365,885 3,802,669
Overhead expenses 3,201,390 2,713,312
General and administrative expenses 3,091,115 2,903,009
Interest expense 491,810 423,440
---------- ----------
25,348,824 22,823,401
---------- ----------
EARNINGS FROM OPERATIONS 1,958,290 1,618,155
INTEREST AND OTHER INCOME 120,559 163,963
MINORITY INTEREST IN NET EARNINGS OF (1,356) -
SUBSIDIARY ---------- ----------
EARNINGS BEFORE INCOME TAXES 2,077,493 1,782,118
INCOME TAX PROVISION 846,500 677,000
---------- ----------
NET EARNINGS $1,230,993 $1,105,118
========== ==========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<S> <C> <C> <C> <C>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings
BALANCE, JANUARY 1, 1995 549,830 $5,498 $286,333 $5,577,154
Net earnings - - - 1,105,118
Redemption of common (300) (3) (156) (3,042)
stock
Exercise of common stock
Options, including
income
Tax benefit 11,200 112 77,452 -
------- ----- ------- ----------
BALANCE, DECEMBER 31, 1995 560,730 5,607 363,629 6,679,230
Net earnings - - - 1,230,993
Redemption of common (1,000) (10) (707) (13,284)
stock
Exercise of common stock
Options, including
income
Tax benefit 3,325 34 34,905 -
------- ----- ------- ---------
BALANCE, DECEMBER 31, 1996 563,055 $5,631 $397,827 $7,896,939
======= ===== ======= =========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<S> <C> <C>
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $1,230,993 $1,105,118
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 835,588 722,456
Loss on disposal of property and 1,088 2,183
equipment
Minority interest in net income of 1,356 -
subsidiary
(Increase) decrease in accounts 212,549 (101,866)
receivable
Decrease in inventories 256,137 203,053
Increase in prepaid expenses and other (26,407) (49,007)
Increase in refundable income taxes (186,000) (488,000)
(Increase) decrease in other assets (3,826) 6,017
Increase (decrease) in accounts (343,504) 371,903
payable and accrued expenses
Increase in accrued salaries and 365,937 164,472
employee benefits
(Decrease) increase in income taxes - (987,388)
payable
(Decrease) increase in deferred income (22,400) 18,000
taxes --------- --------
Net cash provided by 2,321,511 966,941
operating activities --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (965,726) (423,757)
--------- --------
Net cash used in (965,726) (423,757)
investing activities --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock
and exercise of common stock options,
including
income tax benefit 34,939 77,564
Principal payments on capital lease (374,109) (319,132)
obligations
Redemption of common stock (14,001) (3,201)
--------- --------
Net cash used in (353,171) (244,769)
financing activities --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,002,614 298,415
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,387,388 2,088,973
--------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $3,390,002 $2,387,388
========= =========
SUPPLEMENTAL DISCLOSURES:
Cash Payments for interest 491,810 423,440
========= =========
Cash payments for income taxes, net of $1,055,300 $2,134,400
refunds received ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease assets acquired and $154,198 $25,350
obligations incurred ========= =========
See notes to financial statements.
</TABLE>
PRB ASSOCIATES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - PRB Associates, Inc., and Subsidiary
(the Company) is primarily a defense contractor specializing
in the end-to-end development of computer-based systems for
mission planning and command and control. Software
engineering is the Company's key technical discipline,
although the Company has significant hardware and systems
integration expertise as well. Approximately ninety percent
of the Company's revenue is derived from contracts with the
U.S. Department of Defense, with the balance derived from
international defense-related contracts and commercial sales.
International customers include Pacific Rim and Middle East
countries.
Revenue Recognition - The majority of the Company's services
are performed under various firm-fixed-price and cost-plus-
fixed-fee contracts. Revenues on firm-fixed-price contracts
are recognized on the percentage-of-completion basis, based
upon costs incurred in relation to total estimated costs.
Revenues for cost-type contracts are recognized as costs are
incurred, plus a proportionate amount of fee earned.
Provisions for estimated losses on uncompleted contracts are
made in the period that such losses are determined.
Contract costs for services provided to the U.S. Government,
including indirect expenses, are subject to audit and
subsequent adjustment by negotiation between the Company and
the Government. All contract revenues are recorded in
amounts that are expected to be realized upon final
settlement.
Audits of the Company's costs have been completed by the
Defense Contract Audit Agency (DCAA) through 1992.
Subsequent years are subject to DCAA audit. The Company is
of the opinion that any DCAA audit adjustments for subsequent
years would not have a material effect on the financial
position or results of operations of the Company.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements and the reported amount of
revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Income Taxes - The Company follows Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for
Income Taxes." Under SFAS 109, deferred income taxes are
recognized for the future tax consequences of differences
between tax bases of assets and liabilities and financial
reporting amounts, based upon enacted tax laws and statutory
tax rates applicable to the periods in which the differences
are expected to affect taxable income. Income tax expense is
the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
Inventories - Inventories are stated at cost, which
approximates market value. Cost is recorded on a specific
identification basis.
Property and Equipment - Furniture and equipment are recorded
at cost and are depreciated using the straight-line method
over the estimated useful lives of the assets, which are
three to five years. Property and equipment under capital
lease is amortized over the life of the related property,
which is three to fifteen years or the term of the lease,
whichever is shorter. Leasehold improvements are amortized
over the remaining terms of the related leases using the
straight-line method. Repair and maintenance costs are
expensed as incurred.
Cash and Cash Equivalents - For purposes of the statement of
cash flows, the Company considers its temporary investments
with original maturities of three months or less as cash
equivalents.
2. ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1996 and 1995, consist of
the following:
<TABLE>
<S> <C> <C>
1996 1995
United States Government:
Billed $2,406,787 $2,061,182
Unbilled (net of unliquidated
progress payments of
$3,935,679 for 1995) (4,240,543) 4,798,697
--------- ---------
$6,647,330 $6,859,879
</TABLE> ========= =========
Unbilled accounts receivable include approximately $1,875,200
and $2,990,000 of retainages at December 31, 1996 and 1995,
respectively.
In accordance with industry practice, accounts receivable
relating to long-term contracts and unbilled amounts pending
DCAA audit completion are classified as current assets, even
though a portion of these amounts is not expected to be
realized in one year.
3. NOTE PAYABLE
The Company has a $1.5 million line of credit agreement with
a bank that bears interest at the bank's prime lending rate
plus 3/4%. There were no amounts outstanding at December 31,
1996 and 1995. The line of credit is collateralized by
certain eligible accounts receivable and expires on May 31,
1997.
4. INCOME TAXES
The Company's provision (benefit) for income taxes for the
years ended December 31, 1996 and 1995, consists of the
following:
<TABLE>
<S> <C> <C>
1996 1995
Current - Federal $737,000 $545,000
- State 159,000 114,000
------- -------
896,000 659,000
------- -------
Deferred - Federal (45,000) 14,000
- State (4,500) 4,000
------- -------
(49,500) 18,000
------- -------
Income Tax Provision $846,500 $677,000
</TABLE> ======= =======
Actual tax expense differs from that computed by applying the
Federal Statutory income tax rate of 34 percent to earnings
before income taxes due primarily to the effect of state
taxes, net of Federal benefit.
Deferred income tax assets and liabilities at December 31,
1996 and 1995, reflect the net tax effects of temporary
differences between the financial reporting and the tax bases
of assets and liabilities pursuant to SFAS No. 109.
Components of the Company's deferred tax assets and
liabilities as of December 31, 1996 and 1995, are as follows:
<TABLE>
<S> <C> <C>
1996 1995
Current deferred tax assets
(liabilities):
Retentions on fixed price contracts $(764,000) $(717,000)
Annual leave 100,900 106,000
Accrued bonuses 215,000 175,000
State taxes 11,500 -
--------- --------
Net current deferred tax $(436,600) $(436,000)
liabilities ========= =========
Noncurrent deferred tax assets
(liabilities):
Capital leases $(670,000) $(490,000)
Depreciation 914,000 711,000
-------- --------
Net noncurrent deferred tax $244,000 $221,000
assets ======= ========
</TABLE>
5. FORMATION OF SUBSIDIARY
On July 30, 1996, PRB Associates, Inc., along with two other
partners, formed a limited liability corporation, Devoe &
Matthews, LC, that develops commercial software. PRB
Associates, Inc., contributed $250,000 for an 80 percent
equity share. Results of operations of Devoe & Matthews, LC,
are included in the consolidated financial statements from
July 30, 1996, through December 31, 1996. All intercompany
transactions have been eliminated in consolidation.
6. LEASES
The Company has lease agreements, principally for land,
office facilities, and a communications system, expiring at
various dates through 2007. These leases are primarily with
related parties (Note 7). Some of the leases include renewal
provisions at the option of the Company, and some contain
escalation provisions requiring rent increases based on the
Consumer Price Index.
Aggregate minimum rental payments due under non-cancelable
leases with initial or remaining lease terms greater than one
year at December 31, 1996, are as follows:
<TABLE>
<S> <C> <C>
Year ending Capital Operating
December 31, Leases Leases
1997 $765,564 $128,983
1998 712,089 70,568
1999 551,664 36,780
2000 551,664 33,715
2001 551,664 -
Thereafter 2,228,856 -
--------- -------
$5,361,501 $270,046
=======
Less amount representing interest (1,625,627)
---------
Present value of minimum rental 3,735,874
commitments
Less current portion of obligations
under
capital leases 427,223
---------
Obligations under capital leases $3,308,651
</TABLE> =========
Accumulated depreciation on building and equipment held under
capital leases was $2,400,660 at December 31, 1996.
Total rental expense under operating leases was approximately
$158,000 and $146,000 for the years ended December 31, 1996
and 1995, respectively.
Effective March 1, 1997, the Company terminated three
separate capital leases totaling 55,510 square feet for its
Hollywood, Maryland site. A single capital lease was
negotiated for the existing and additional space totaling
75,510 square feet. The new lease provides for minimum lease
payments of $1,200,000 per year for seven years and contains
a clause for inflationary increases.
7. RELATED PARTY TRANSACTIONS
The Company leases land, office facilities, and a
communication system from Southern Maryland Property
Management Associates (SMPMA). Five officers of the Company
own 100% of SMPMA. Amounts paid under these capital leases
were approximately $766,000 and $743,000 for the years ended
December 31, 1996 and 1995, respectively. At December 31,
1996 and 1995, the Company held a $39,000 note receivable
from SMPMA that is reflected in prepaid expenses and other
assets in the accompanying balance sheet. The note is non-
interest-bearing and is payable on demand.
In addition, the Company has guaranteed SMPMA's $3.2 million
consolidation loan on the leased land and office facilities.
8. INCENTIVE STOCK OPTIONS
The Company periodically grants options to its employees to
purchase its common stock at exercise prices at fair value on
the grant date. Ownership of common stock acquired through
these options is contingent upon the shareholder's continued
employment and full-time active participation in the Company.
Accordingly, a shareholder's death, employment termination,
or voluntary request to dispose of common stock will cause
the stock to be sold back to the Company at current book
value.
Stock option activity for the years ended December 31, 1996
and 1995, is summarized as follows:
<TABLE>
<S> <C> <C>
1996 1995
Outstanding, beginning of year $5,050 $8,600
New options granted - 8,550
Exercised ($5.50 - $10.67)
(3,325) (11,200)
Expired ($10.67) (500) (900)
------ -------
Outstanding and exercisable, end of year $1,225 $5,050
($5.50 - $10.67) ====== =======
</TABLE>
The Company accounts for its stock-based compensation plans
under APB No. 25. No compensation expense has been
recognized in connection with the options, as all options
have been granted with an exercise price equal to the fair
value of the Company's common stock on the date of grant.
The Company adopted SFAS No. 123 for disclosure purposes in
1996. For SFAS No. 123 purposes, the fair value of each
option grant has been estimated as of the date of grant using
the Black Scholes option pricing model with the following
weighted average assumptions: risk-free interest rate of
5.00% to 6.20%, expected lives of 4 months to 29 months, and
a dividend rate of zero percent. Using these assumptions,
the fair value of the stock options granted in 1995 is
$4,694, which would be amortized as compensation expense over
the vesting period of the options. The options generally
vest equally over 4 to 29 months. Had compensation expense
been determined consistent with SFAS No. 123, utilizing the
assumptions detailed above, the Company's net earnings for
the year ended December 31, 1996 and 1995, would have been
reduced to the following pro forma amounts:
<TABLE>
<S> <C> <C>
1996 1995
Net Income:
As reported $1,230,993 $1,105,118
Pro forma $1,229,870 $1,103,723
</TABLE>
The Company did not grant options during the year ended
December 31, 1996. The resulting pro forma compensation cost
may not be representative of that expected in future years.
9. 401(K) PROFIT SHARING PLAN
The Company has a defined contribution, profit sharing plan
that covers all employees who have worked for the Company at
least 1,000 hours in a consecutive twelve month period and
who have attained age 21. Under the provisions of the plan,
the Company, at its discretion, may contribute up to 15% of
each participant's current compensation and employees may
contribute up to 6% of their base compensation. The
Company's expense under this plan was approximately $893,000
and $725,000 in 1996 and 1995, respectively.
PRB ASSOCIATES, INC., AND SUBSIDIARIES
Financial Statements for the Four Months Ended
April 30, 1998 and 1997
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
April 30, 1998 and 1997
(In Thousands)
Assets
<S> <C> <C>
April 30, April 30,
1998 1997
Current assets:
Cash $ 1,419 $ 2,324
Securities available for sale 428 226
Accounts receivable 7,908 6,750
Inventories 67 111
Prepaid expenses and other 309 131
Refundable income taxes 964 590
-------- --------
Total current assets 11,095 10,132
-------- --------
Net equipment and leasehold improvements 7,246 4,599
-------- --------
Other assets 403 264
-------- --------
Total Assets $ 18,744 $ 14,995
======== ========
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets (Continued)
April 30, 1998 and 1997
(In Thousands)
Liabilities and Shareholders' Equity
<S> <C> <C>
April 30, April 30,
1998 1997
Current liabilities:
Current portion of capitalized lease $ 688 $ 291
obligation
Accounts payable 1,126 855
Accrued expenses 266 94
Accrued salaries and employee benefits 2,063 1,653
Deferred income taxes 298 124
----- ------
Total current liabilities 4,441 3,017
----- ------
Long-term liabilities:
Capitalized lease obligation, net of current 4,566 3,308
portion
Deferred income taxes 95 -
----- ------
Total long-term liabilities 4,661 3,308
----- ------
Minority interest in net assets of (60) (4)
subsidiaries ------ ------
Shareholders' equity:
Unrealized holding gain for securities 167 -
available for sale
Common stock 6 6
Additional paid-in capital 683 390
Retained earnings 8,846 8,278
------ ------
Total shareholders' equity 9,702 8,674
------ ------
Total Liabilities and Shareholders' Equity $ 18,744 $ 14,995
====== ======
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
For the Four Months Ended April 30, 1998 and 1997
(In Thousands)
<S> <C> <C>
April 30, April 30,
1998 1997
Net sales $ 10,437 $ 8,987
Expenses:
Cost of sales 4,907 4,362
General and administrative expenses 5,043 3,869
Other income - (4)
------- -------
Operating profit 487 760
Interest expense, net (149) (90)
Minority interest in loss of subsidiaries 17 7
------- -------
Income before income taxes 355 677
Provision for income taxes (142) (271)
------ -------
Net income $ 213 $ 406
====== ======
</TABLE>
<TABLE>
<CAPTION>
PRB ASSOCIATES, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Four Months Ended April 30, 1998 and 1997
(In Thousands)
<S> <C> <C>
April 30, April 30,
1998 1997
Reconciliation of net earnings to net cash
used in
Operating activities:
Net earnings $213 $406
Adjustments to reconcile net earnings to net
cash
Used in operating activities:
Depreciation and amortization 537 301
Gain on other assets (1) (2)
Other non-cash charges 288 -
Minority interest in loss of subsidiaries (17) (7)
Unrealized holding gain for securities 59 -
available for sale
Deferred income taxes 144 (289)
Changes in assets and liabilities:
Securities available for sale (61) (226)
Accounts receivable (1,336) 343
Inventories (38) 5
Prepaid expenses and other (73) 74
Refundable income taxes 196 84
Accounts payable and accrued liabilities (647) (1,188)
------ -------
Net cash used in operating activities (736) (499)
------ -------
Cash flows from investing activities:
Acquisition of property and equipment (307) (398)
Capitalized software development costs (396) -
------ -------
Net cash used in investing activities (703) (398)
------ -------
Cash flows from financing activities:
Principal payments on capital lease (213) (136)
obligations
Redemption of common stock (135) (33)
Draws by minority partners of subsidiary (8) -
------ -------
Net cash used in financing activities (356) (169)
------ -------
Net decrease in cash (1,795) (1,066)
Cash and cash equivalents, beginning of 3,214 3,390
period ------ -------
Cash and cash equivalents, end of period $ 1,419 $ 2,324
</TABLE> ===== =====
PRB ASSOCIATES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
For the Four Months Ended April 30, 1998 and 1997
1. In the opinion of Management, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments, consisting of normal recurring items, necessary to
present fairly the financial position, results of operations and
cash flows for the periods shown. The financial data included
herein was compiled in accordance with the same accounting
policies applied to the Company's unaudited annual financial
statements, which should be read in conjunction with these
statements.
The results of operations for the four months ended April 30,
1998 and April 30, 1997, are not necessarily indicative of the
results to be expected for the full year.
2.Receivables include costs and estimated earnings in excess
of billings on uncompleted contracts which primarily represent
revenues recognized on contracts, including retainage, for which
billings could not be presented under the terms of the contracts
at the balance sheet dates. The receivables relating to long-
term contracts and unbilled amounts are classified as current
assets, even though a portion of these amounts is not to be
realized in one year.
3.Inventories are stated at cost, which approximates market
value. Inventories consist of parts only.
4.During the four months ended April 30, 1998 and April 30,
1997, there was no stock option activity.
(b) Pro Forma Financial Information.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance
Sheet and the Unaudited Pro Forma Condensed Consolidated
Statements of Operations give effect to the acquisition of PRB
Associates, Inc., and Subsidiaries ("PRB"),(the "acquisition") by
the registrant, Comptek Research, Inc., (the "Company") as if the
acquisition, as further described below, had occurred on March
31, 1998 for the Unaudited Pro Forma Condensed Consolidated
Balance Sheet and April 1, 1997 for the Unaudited Pro Forma
Condensed Consolidated Statements of Operations.
The unaudited pro forma condensed consolidated financial
statements are not necessarily indicative of the financial
position or either future results of operations or results that
might have been achieved if the foregoing transaction had been
consummated as of the indicated dates. The unaudited pro forma
condensed consolidated financial statements should be read in
conjunction with the related notes thereto and the Company's
historical consolidated financial statements in its Annual Report
on Form 10-K for the fiscal year ended March 31, 1998, filed with
the Securities and Exchange Commission.
The unaudited pro forma condensed consolidated financial
statements, presented below, incorporate the following
transaction, financing and accounting terms of the acquisition
based on a preliminary allocation of the purchase price. On May
14, 1998. the Company acquired all the outstanding shares of PRB,
a privately-held corporation. The purchase price of $20 million
was financed through borrowings under a revised credit facility
and notes. The Company will account for the acquisition as a
purchase, with assets acquired and liabilities assumed recorded
at their estimated fair values at the date of acquisition. The
excess of the purchase price over the fair value of tangible and
intangible net assets acquired will be recorded as goodwill and
amortized over a period of 25 years.
<TABLE>
<CAPTION>
Comptek Research, Inc. and Subsidiaries and
PRB Associates, Inc. and Subsidiaries
Unaudited Pro Forma
Condensed Consolidated Statements of Operations
For the Year Ended March 31, 1998
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consoli-
dated PRB
Comptek Associates, Com-
Research Inc. and bined
, Inc. Subsidi- Un- Un-
For the aries For Audited audited
Year the Year Pro Pro
Ended Ended Forma Forma
March December Adjust- Note State-
31, 1998 31, 1997 ments Ref. ment
Net sales $72,008 $29,474 ($182) (4) $101,300
Costs and expenses:
Costs of sales 57,849 23,783 (326) (4) 81,306
Selling, general and 8,644 3,625 (140) (4) 12,845
administrative
(711) (7)
1,200 (7)
(340) (8)
567 (2)
Research and development 772 --- 3 (4) 775
Other income (100) (44) (144)
-----------------------------------------
Operating profit 4,843 2,110 (435) 6,518
Interest expense, net (421) (390) 62 (4) (1,651)
559 (7)
(169) (3)
(1,292) (3)
Minority interest in loss --- 36 (49) (4) (13)
of subsidiary -----------------------------------------
Income before provision for 4,422 1,756 (1,324) 4,854
income taxes
Provision for income taxes (1,727) (718) 443 (5) (2,002)
----------------------------------------
Net income $2,695 $1,038 ($881) $2,852
=======================================
Net income per share:
Basic $0.52 $0.55
=======================================
Diluted $0.51 $0.54
=======================================
Weighted average number of
common shares:
Basic 5,184 --- --- 5,184
=======================================
Diluted 5,316 --- --- 5,316
=======================================
See accompanying notes to the unaudited pro forma condensed consolidated
financial statements
</TABLE>
<TABLE>
<CAPTION>
Comptek Research, Inc. and Subsidiaries and
PRB Associates, Inc. and Subsidiaries
Unaudited Pro Forma
Condensed Consolidated Balance Sheet
(In thousands)
PRB
Comptek Associates, Consoli-
Research Inc., and dated
, Inc. Subsidi- Un- Un-
For the aries For audited audited
Year the Year Pro Pro
Ended Ended Forma Forma
March December Adjust- Note State-
31, 1998 31, 1997 ments Ref. ment
<S> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and equivalents $550 $3,214 ($100) (4) $3,664
Short-term investments --- 368 368
Receivables 16,050 6,571 (250) (6) 22,311
(60) (4)
Inventory 1,786 29 1,815
Refundable income taxes --- 1,160 1160
Other assets 311 236 14 (4) 561
---------------------------------------
Total current assets 18,697 11,578 (396) 29,879
Net equipment and leasehold 2,370 7,432 (337) (4) 4,201
improvements
(5,264) (7)
Goodwill 4,207 --- 11,141 (10) 15,673
75 (11)
250 (12)
Other assets 653 7 655 (4) 660
(263)
(392)
---------------------------------------
Total assets $25,927 $19,017 $5,469 $50,413
=======================================
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term $1,064 --- 2512 (3) $3,576
debt
Accounts payable 4,288 1,363 (114) (4) 5,537
Accrued salaries and 3,092 2,508 (13) (4) 5,587
benefits
Other accrued liabilities 1,854 231 (13) (4) 2,422
350 (8)
Deferred income taxes 1,620 125 1,745
Capital lease --- 659 (659) (9) ---
----------------------------------------
Total current liabilities 11,918 4,886 2,063 18,867
Deferred income taxes 204 124 (89) (15) 239
Long-term debt, excluding 2,558 --- 17,488 (3) 20,046
current installments
Capital lease --- 4,765 (4,765) (9) ---
Minority interest --- (35) 49 (4) 14
----------------------------------------
Total Liabilities 14,680 9,740 14,746 39,166
========================================
Common stock 110 5 (5) (14) 110
Additional paid-in-capital 15,776 401 (401) (14) 15,956
180 (13)
Unrealized gain for --- 108 (108) (14) ---
securities
Loan to officer (168) --- (180) (13) (348)
Retained earnings (914) 8,763 (8,763) (14) (914)
Treasury stock (3,557) --- (3,557)
----------------------------------------
Total shareholders' equity 11,247 9,277 (9,277) 11247
----------------------------------------
Total liabilities and $25,927 $19,017 $5,469 $50,413
shareholders' equity ========================================
See accompanying notes to the unaudited pro forma combined financial
statements
</TABLE>
Comptek Research, Inc. and Subsidiaries
Notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements
1. The accompanying unaudited pro forma condensed consolidated
financial statements of the Comptek Research, Inc., (the
"Company") are presented to reflect the acquisition of PRB
Associates, Inc., and Subsidiaries, ("PRB"). On May 14, 1998,
the Company completed the acquisition of all the outstanding
stock of PRB in exchange for $19 million in cash and $1 million
in promissory notes. The unaudited pro forma condensed
consolidated balance sheet as of March 31, 1998 gives effect to
the acquisition as if it had occurred on March 31, 1998. The
unaudited pro forma condensed consolidated statements of
operations for the year ended March 31, 1998 give effect to the
acquisition as if the transaction occurred April 1, 1997.
2. The acquisition is accounted for as a purchase.
Accordingly, assets acquired and liabilities assumed are
recorded at their estimated fair values at the date of
acquisition. The pro forma financial statements reflects a
preliminary allocation of the purchase price based on information
presently available. The excess of the purchase price over the
fair value of net assets acquired is recorded as goodwill and
amortized over a period of 25 years. The pro forma adjustment
represents amortization of certain intangible assets in
connection with the acquisition as follows: a) the excess of the
PRB purchase price over the fair market value of the net assets
acquired totaling $11 million; b) the capitalized debt issuance
costs related to the revised credit facility of $75,000; c) a
three- year, not-to-compete agreements for the principal owners
totaling $250,000; and d) the value of restricted stock,
$180,000, awarded to a key executive of PRB which vests over a
two-year employment period.
3. In connection with the acquisition, the Company's existing
credit facility was revised and includes the following:
a) A new $12 million revolving credit agreement bearing
interest at the prime rate or 1.5% above LIBOR (at the
Company's option). Borrowings under this agreement mature
March 31, 2001. Subsequent to the acquisition,
approximately $4 million was outstanding with the remaining
available for working capital requirements.
b) A new $15 million seven-year term loan bearing interest at
1.75% above LIBOR. Principal payments are based upon a ten-
year amortization with a final principal payment due at the
end of the term for the outstanding principal amount.
c) Remaining in place, the five-year term loan, with an
outstanding balance of $3 million as of March 31, 1998,
bearing interest at a fixed rate of 8.5%.
The unaudited pro forma adjustment adds $1,292,000 in interest
expense that would have been incurred under the revised credit
facility. Borrowings under the revised credit facility were
assumed to accrue at an average rate of interest of 7.3% for
the fiscal year ended March 31, 1998. Additionally, interest
income of $169,000 earned by PRB during the fiscal year ended
December 31, 1997 was removed. Excess cash was assumed to be
used to reduce outstanding debt at the time of the
acquisition.
4.After the completion of the acquisition of PRB, and consistent
with the Company's intentions at the acquisition date,
SimWright, Inc. ("SimWright"), an 84.22% consolidated
affiliate of PRB, offered and sold additional common shares.
As a result of this offering, PRB's equity ownership was
diluted to 42%. Accordingly, SimWright is accounted for as an
equity investment and is no longer consolidated with the
financial statements of PRB. This adjustment removes the
consolidated effects of SimWright at December 31, 1997. As
of December 31, 1997, PRB held a note due from SimWright in
the amount of $655,000, and was recorded net of PRB's
ownership percentage in the net losses of SimWright of
$263,000 for the fiscal year ended December 31, 1997. At the
time of the acquisition, due to the financial condition of
SimWright, the Company recorded the remaining balance of
$392,000 at a fair market value of zero.
5. Represents the income tax benefit associated with the
additional expenses recorded as a result of the acquisition.
Goodwill amortization of $443,000 is not a tax deductible
expense.
6. Represents an adjustment to record assets at their
estimated fair market value on the date of acquisition.
7. The facility that PRB occupies in Hollywood, Maryland
was previously accounted for as a capital lease. In
connection with the acquisition, the Company negotiated a
lease which will be accounted for as an operating lease. As a
result, the associated capital lease amounts are removed from
the financial statements. Adjustments were made as follows:
a) removal of the short term and long term capital lease
obligation of $659,999 and $4,765,000 respectively; b) removal
of the net fixed asset of $5,264,000 representing the
depreciated base of the building under capital lease; c) the
reduction of $711,000 of S,G&A expense representing building
depreciation; and d) the reduction of $559,000 of associated
interest expense. The Company entered into a new three-year
lease with annual lease payments of $1,200,000.
8. At the time of the acquisition two principal owners
retired. This adjustment represents the reduction in net
salary expense as a result of this transition.
9. An accrual is recorded representing the Company's
estimated outside transaction costs, including debt issuance
costs, associated with the acquisition.
10.Represents the excess of the PRB purchase price over
the fair market value of the net assets acquired. This
intangible asset will be amortized using the straight-line
method over a period of 25 years.
11.Represents the debt issuance costs associated with the
revised credit facility. This intangible asset will be
amortized using the straight-line method over the term of the
note which is seven years.
12.Not-to-compete agreements were entered into between the
Company and the prior owners of PRB. This intangible asset
will be amortized using the straight-line method over the
contract period which is three years.
13.In connection with the continued employment of a key
executive of PRB, the Company awarded 20,000 shares of restricted
stock based upon a quarterly vesting schedule commencing August
1, 1998, with the last vesting date occurring on May 1, 2000.
This adjustment represents the value associated with the
restricted stock and will be amortized quarterly over a two-year
period as unrestricted ownership of the stock vests.
14.Reflects the elimination of PRB's shareholders equity.
15.Represents the associated net deferred income tax adjustment
for all pro forma adjustments.
(c) Exhibit No. Description
23.01 Consent of Deloitte & Touche, LLP, Independent
Auditors
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 hereunto duly authorized.
COMPTEK RESEARCH, INC
Date: July 25, 1998 By: /S/ John J. Sciuto
John J. Sciuto
Chairman, President and CEO
Exhibit 23.01
Deloitte & Touche, LLP
Suite 700
8201 Greensboro Drive
McLean, VA 22102
The Board of Directors
Comptek Research, Inc.
2732 Transit Road
Buffalo, NY 14224
Gentlemen:
We consent to the incorporation by reference in the registration
statements (Nos. 33-54170, 33-82536, and 333-11437) on Form S-8,
and in the registration statement (No. 333-2387) on Form S-3 of
Comptek Research, Inc., of our report dated March 27, 1998 with
respect to the consolidated balance sheets of PRB Associates,
Inc., and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the two-year
period ended December 31, 1997, which appears in this Form 8-K/A
of Comptek Research, Inc. dated July 27, 1998.
/s/Deloitte & Touche, LLP
Deloitte & Touche, LLP
McLean, Virginia
July 27, 1998
