SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 2000.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to __________________
Commission file number : 1-8502
Comptek Research, Inc.
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(Exact name of registrant as specified in its charter)
New York 16-0959023
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(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification No.)
2732 Transit Road, Buffalo, New York 14224-2523
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 677-4070
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each Class which registered
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Common Stock, $.02 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
Not Applicable
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of 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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing sale price of the Common Stock on May 31,
2000, as reported by the American Stock Exchange, the aggregate
market value of the voting stock held by non-affiliates of the
Registrant (the "Company" or "Comptek") was approximately $89.7
million. Solely for purposes of this calculation, all persons
who are executive officers or directors of the Company have been
deemed to be affiliates.
The number of shares outstanding of the Registrant's common
stock, $.02 par value, was 6,234,044 at May 31, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of the Comptek
Research, Inc. Proxy Statement for the Annual Meeting of
Shareholders to be held July 27, 2000 (the "Company's 2000
Definitive Proxy Statement").
The Company's 2000 definitive Proxy Statement is to be filed,
pursuant to Regulation 14A under the Securities Exchange Act of
1934, with the Commission within 120 days of the close of the
Company's fiscal year ended March 31, 2000.
TABLE OF CONTENTS
Page No.
PART I
Item 1. Business
General 6
Products and Services 7
Sales and Marketing 9
Customers 10
Sales to Foreign Customers 10
Backlog 11
Engineering and Manufacturing 11
Competition 12
Independent Research and Development 12
Patents and Trade Secrets 12
Employees 13
Officers of Registrant 13
Risk Factors Which May Affect Business 14
Item 2. Properties
Facilities 16
Equipment and Leasehold Improvements 17
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of
Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 18
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 20
TABLE OF CONTENTS (Continued)
Page No.
Item 8. Financial Statements and Supplementary Data
Consolidated Balance Sheets 28
Consolidated Statements of Income 29
Consolidated Statements of Cash Flows 30
Consolidated Statements of Shareholders' Equity 31
Notes to Consolidated Financial Statements 32
Independent Auditors' Report 46
Item 9.Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 47
PART III
Item 10. Directors and Executive Officers of
the Registrant 47
Item 11. Executive Compensation 47
Item 12. Security Ownership of Certain Beneficial
Owners and Management 47
Item 13. Certain Relationships and Related Transactions 47
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 47
Signatures 49
Schedule II 51
Index to Exhibits 52
Exhibits 57
In this report, references to "we," "us," "our," "Company" and
"Comptek" refer to Comptek Research, Inc. and its subsidiaries,
unless the context otherwise requires.
Note Regarding Forward-Looking Statements
This report contains forward-looking statements that are
based on current expectations, estimates and projections about
the Company and the defense industry, and management's beliefs
and assumptions. The use of words herein such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates,"
"likely" and similar expressions are intended to identify
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, and are subject to the safe harbors created
thereby. These statements are based on a number of assumptions
that could ultimately prove inaccurate and, therefore, there can
be no assurances that they will prove to be accurate. The
reader's particular attention is directed to the sub-heading
"Forward Looking Information and Cautionary Statement" contained
in Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the sub-
heading "Risk Factors Which May Affect Business" at the end of
Part I, Item I for a discussion of risk and other factors.
Business
General
Comptek is a leading developer and integrator of surveillance and
communications systems for the defense electronics market. We
provide systems engineering, operational support and project
management services for the development of tactical electronic
warfare ("EW") systems, EW simulation/stimulation and training,
command and control, and mission planning systems. We also
design and build sensor test and support equipment, software, and
other products or systems. Our products and services enhance the
operational performance and readiness of existing weapons as well
as extend their useful lives and survivability. We have been
involved in either the development, lifecycle support or testing
of nearly all of the major EW systems that have been fielded by
either the U.S. Air Force or U.S. Navy since 1974, including
systems for B-1B and B-2A bombers; EF-111, EA-6B and F/A-18
aircraft; and navy surface combatants, including AEGIS class
destroyers and cruisers.
Expansion through acquisitions and increased international
activities have both been, and continue to be, important
elements of our business strategy. Over the last four
years, we have acquired the defense business operations of
three private companies. In March 1996, we acquired
Advanced Systems Development, Inc., a highly specialized
developer of electronic warfare simulation/stimulation, training
and software validation systems related to electronic
surveillance. Largely as a result of the acquisition of Advanced
Systems Development, Inc., we substantially increased our
presence in international markets. Effective May 1, 1998, we
completed our acquisition of PRB Associates, Inc., a leader in
the development of military mission planning and precision
targeting systems. On March 26, 1999, we completed the purchase
of the business operations and substantially all of the related
assets and liabilities of Amherst Systems, Inc. ("Amherst"), a
firm specializing in simulation/stimulation and evaluation
systems for electronic defense applications. As a result,
Amherst contributed twelve months of operating activity in fiscal
2000, significantly affecting our consolidated financial results.
In November 1999, we acquired the software development tools, test
equipment, and certain other assets of Phase Two Industries, Inc.,
a supplier of real-time signal processing software, software
laboratories, and threat file processing used in the development and
testing of electronic warfare systems.
Comptek focuses on highly specialized areas within the defense
electronics market. We have expertise in signal processing,
development of software programs for real-time processing, design
of high-speed digital processing hardware, generation of embedded
software for digital signal processors, development of wideband
radio frequency and microwave systems, data reduction and
extraction, data filtering and processing and display and the
integration and engineering of complex systems. Our principal
activities are segmented as follows:
- Tactical Systems
- EW Simulation/Stimulation and Training Systems
- Engineering and Technical Services
On June 12, 2000, subsequent to fiscal year end, the Company
entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Northrop Grumman Corporation ("Northrop") and
Yavapai Acquisition Corporation ("Yavapai"), a wholly owned
subsidiary of Northrop, providing for the merger of Yavapai with
and into the Company (the "Merger"). Upon consummation of the
Merger, (i) the Company will become a wholly owned subsidiary of
Northrop, and (ii) each outstanding share of common stock of the
Company will be converted into common stock of Northrop and the
right to receive cash in lieu of fractional shares of Northrop
common stock.
The amount of Northrop common stock to be received by the
Company's shareholders shall be determined by dividing $20.75 by
the average closing price on the New York Stock Exchange for
Northrop common stock during the 20 trading days ending two
business days prior to the effective date of the Northrop
registration statement. In no event will the exchange ratio be
more than .2804:1 or less than .2470:1. Should the average
closing price of Northrop common stock fall below $74.00 per
share during this 20-day period, the Company has the right to
terminate the transaction, subject to Northrop's discretionary
right to enhance the exchange ratio so that Company shareholders
receive a minimum value of $20.75 per common share.
Outstanding unvested options issued under the Company's 1992
Equity Incentive Plan, the 1998 Equity Incentive Stock Plan, and
the Non-Employee Director Stock Option Plan immediately vest and
become exercisable upon a change of control. In addition, the
Company will pay certain key executives severance benefits on
termination of employment following a change of control. The
aggregate costs associated with these executives' severance
benefits are not currently determinable. The Company has also
agreed to compensate these executives for one half of the taxable
income resulting from exercise of stock options or from
dispositions in connection with a change of control. In
addition, the Company has agreed to reimburse these executives
for excise tax, if any, that results from a change of control.
The Company's obligation to these executives for tax consequences
is not expected to exceed $4.0 million.
The Company also has change of control severance agreements with
certain other employees that are triggered upon change of control
and termination of employment. The aggregate costs of such
benefits are not currently determinable.
Products and Services
Tactical Systems
Comptek supplies EW systems used for intercepted radar signal
processing, threat analysis and counter-measures. We also
provide real-time command and control data-link processing and
display systems, mission planning systems, and airspace
management systems. These systems are designed to operate in
today's complex electronic environments, giving military
commanders the ability to make timely situational assessments and
decisions. Our areas of expertise include systems design and
integration, hardware specification and signal processing
software development. Our expertise is applied toward the
following requirements:
Shipboard Systems. We have been a supplier to the U.S. Navy of
surface EW systems and software since 1974, when it developed
operational software for the AN/SLQ-32 shipboard EW system. The
AN/SLQ-32 system is a surface navy shipboard electronic defense
system used to detect and identify radar signals. It has the
capability to jam these signals and generate false radar targets.
The AN/SLQ-32 system is the primary U.S. Navy shipboard EW system
and was operational on U.S. Navy surface warships deployed in the
Persian Gulf War. In addition to providing lifecycle maintenance
and support for the AN/SLQ-32, we are also developing processing
components for the next generation shipboard EW system, the
Advanced Integrated Electronic Warfare System ("AIEWS").
Airborne Systems. Our involvement in airborne EW includes
production of test and support equipment, and design and
development of operational software. We have been involved
either in the development or lifecycle maintenance of nearly
every U.S. airborne EW system developed over the last 20 years.
We have developed real-time signal processing algorithms used to
identify hostile radars, and have assisted the U.S. and foreign
air forces with the development of improved software for a wide
variety of combat aircraft installed radar warning receivers.
This expertise has enabled us to develop and manufacture
specialized support and test equipment used in maintaining the
software in modern digital radar warning receivers and self-
protection jammers.
Mission Planning. We develop mission planning systems that are
used to automate complex planning functions for routing, fuel,
ordnance, and tactics for combat aircraft and weapons. We have
been manufacturing and enhancing these systems for over 15 years
and are currently prime contractor for the Tactical Support
Centers ("TSC") and Tactical EA-6B Mission Support ("TEAMS")
contracts. Under these contracts, we develop, integrate and
implement software modules in electronic systems designed to
support EA-6B, P-3 Orion and B-2A aircraft. We are also involved
in the development of the Navy's Tactical Aircraft Mission
Planning System, focusing on planning software for sophisticated
weapons such as the High-Speed Anti-Radiation Missile ("HARM")
that was used extensively in the Persian Gulf War and more
recently employed in the Balkins. From these systems, we
expanded our business base to the Air Force Mission Support
System program and currently has contracts to develop mission
planning software for the B-2A, Joint Defensive Planner and
several precision guided weapons.
Air Combat Measurement Instrumentation Systems. We provide
systems for target tracking, data fusion, and range
instrumentation data correlation. These systems are used to
support military air-to-air and air-to-ground training providing
battle damage assessment and weapons tactics information for
flight crew training.
Command and Control Systems. We develop command and control
systems that monitor national airspace; control land, air and
maritime forces; and coordinate threat response. Based on the
latest military software technology, these systems can display a
comprehensive real-time air, sea and land picture to coordinators
and decision makers. Additionally, a variety of air and sea
surveillance platforms can be data-linked to the system, creating
a nation- or theater-wide command and control capability. We
provide a full range of DoD, North Atlantic Treaty Organization
and proprietary data link processing, translation, interface and
display technology and products.
Sales from the Tactical Systems business area were $42.1 million,
or 29.0% of total sales, for the fiscal year ended March 31,
2000.
Electronic Warfare Simulation/Stimulation and Training
We specialize in the design, development, and manufacture of
electronic environment simulators and stimulators for trainers,
jammers and radar warning receiver evaluation subsystems.
Simulators can replicate battle environments, aircraft cockpits
or operator stations to provide effective training at costs
significantly less than necessary for large-scale exercises in
either a lab, test chamber or on a range. EW stimulation
equipment can replicate radar and communication signals.
Simulation/stimulation is a core capability that can be applied
in a variety of applications, including testing, training,
maintenance and research. Our systems are designed with discrete
hardware and software modules, allowing for ease of upgrade and
lifecycle support.
Our products provide static and dynamic scenarios to simulate a
radar threat environment of up to 2,000 complex emitters,
including early warning, airborne early warning, missile,
airborne intercept, anti-aircraft artillery and communication and
jammer signals. Our simulation/stimulation systems have been
used to test, validate and train the operators of a number of
airborne and shipboard systems including radar warning receivers,
radar counter-measures equipment, radars, and infrared sensor
systems used in B-1B, B-2A, EF-111 and F/A-18 aircraft and AEGIS
class destroyers and cruisers.
We supply fully integrated simulation/stimulation systems for
laboratory use. These laboratory-based systems are capable of
dynamically generating a wide range of realistic radio frequency
and other EW threats for testing, training and maintenance of EW
systems for aircraft and ships.
Sales from the EW Simulation/Stimulation and Training Systems
area were $64.7 million, or 44.5% of total sales, for the fiscal
year ended March 31, 2000.
Engineering and Technical Services
We provide a wide range of engineering and technical services
including systems design and integration, software development
and test, project management and support for the design,
operation, maintenance and upgrade of weapon and information
systems. We provide these services primarily for government
customers and large defense contractors in select market segments
including EW, command and control, and naval sea systems. Our
service professionals have expertise in numerous technical
disciplines, including signal processing, real-time software
development, and database design, and have developed systems
using a variety of operating systems, software languages and
processing hardware platforms.
Our services include software development and support; threat
library development and management; platform and system lifecycle
upgrades; engineering, technical and program management support;
EW technology development; shipboard "topside" design, evaluation
and vulnerability analysis; weapon system performance
requirements analysis; theater air defense engineering; program
facilities planning; and independent verification of new product
development.
We provide technical services primarily to the following
customers:
Naval Air Warfare Center. We provide support for the Naval Air
Warfare Center, Weapons Division, Point Mugu, California. Such
support includes EW software systems and laboratory support for
all U.S. Navy tactical aircraft. We received our first contract
from the U.S. Navy in April 1989. We were awarded a two year
follow-on contract in August 1998, representing approximately
$28.7 million in potential revenue.
Naval Sea Systems Command. We provide engineering services to
NAVSEA including engineering design support for combat system
engineering and program management support. In May 1997, we were
awarded a follow-on contract with a potential value of
approximately $50.0 million which includes four additional one-
year options, exercisable by the U.S. Navy. The U.S. Navy
exercised has exercised the first three one-year options in May
1998, June 1999 and June 2000.
Sales from the Engineering and Technical Services area were $38.6
million, or 26.5% of total sales, for the fiscal year ended March
31, 2000.
Sales and Marketing
Comptek's marketing efforts emphasize its experience and
knowledge in the engineering, software development, testing and
evaluation of computer controlled command and control systems and
the sophisticated systems and software which it has developed for
EW and related EW support systems.
Domestic Marketing Efforts. Through our existing contractual
base with both the U.S. Navy and U.S. Air Force, our internal
marketing and business development personnel identify and
initiate new business opportunities and develop strategies for
obtaining new contracts. In anticipation of customer
requirements, technical program managers support our marketing
efforts by identifying emerging and upgrade requirements, and by
formulating proposals for submission to customers.
Marketing activities are conducted primarily by our operating
subsidiaries, with tactical systems, electronic warfare
simulation/stimulation and C4I/ EW technical services being the
primary areas of focus. Domestic marketing efforts target two
principal customer groups:
- Department of Defense military agencies, and
- Prime defense contractors, such as Lockheed Martin, Boeing,
Northrop Grumman and Raytheon.
In each case, we have established, or will work to develop, close
working relationships with a potential customer in order to
facilitate long-term and mutually beneficial business
arrangements. We believe that past performance is an important
criterion for our selection by customers to perform future work.
International Marketing Efforts. One of the key elements of our
strategic plan is to gain access to what we perceive as a
burgeoning foreign EW simulation/stimulation and tactical EW
system upgrade market. Foreign marketing is conducted primarily
by our own experienced marketing and technical marketing support
staffs, augmented to a large extent by a network of country
specific foreign sales representatives. In certain instances,
products ultimately intended for foreign military use are
purchased directly by the U.S. Government for use by a specified
foreign customer under the U.S. Government's Foreign Military
Sales (FMS) Program.
Customers
During the fiscal year ended March 31, 2000, 89.5% of our
revenues were attributable to contracts with departments and
agencies of the U.S. Government (including both prime and
subcontracts). The remaining 10.5% of revenues was derived from
sales of military related products and services directly to
foreign governments and corporations. Approximately 3.3% of
sales, which are attributable to U.S. Government contracts, are
in response to foreign requirements and result in government-to-
government transfers under the FMS program. No single contract
accounted for over 10.0% of our revenues in fiscal 2000.
Our customers currently include all of the branches of the U.S.
Armed Forces. Our present prime contractor relationships include
Boeing, GEC-Marconi, Lockheed Martin, Northrop Grumman and
Raytheon. Foreign customers have primarily been located in
Australia, Canada, France, Germany, Israel, Italy, Japan, Sweden,
Switzerland, and the United Kingdom.
Substantially all of our U.S. Government contracts (including
both prime and subcontracts) are multi-year contracts which
result from a competitive bidding process. Government contracts
contain provisions permitting termination at any time at the
convenience of the Government upon payment to Comptek of costs
incurred plus a profit related to the work performed to date of
termination. All of our contracts contain these provisions.
Comptek, as a Government contractor, is subject to various
statutes and regulations governing defense contracts generally,
certain of which carry substantial penalty provisions, including
denial of future Government contracts. Our books and records are
subject to audit by the Defense Contract Accounting Agency (the
"DCAA"). These audits can result in adjustments to contract
costs and fees. Each of the Company's subsidiaries are audited
by the DCAA individually. The U.S. Government has completed
audits for Comptek Federal Systems, Inc. through our fiscal year
ended March 31, 1998; Comptek Amherst Systems through April 30,
1997; and Comptek PRB Associates, Inc. through December 31, 1997.
Sales to Foreign Customers
Our net sales attributable to foreign requirements include sales
directly to foreign governments and foreign prime contractors, as
well as sales under the FMS Program and similar U.S. sponsored
military aid programs. FMS sales are included in our contracts
with U.S. Government departments and agencies and are funded by
the U.S. Government. Our principal foreign customers are
governments and prime contractors in Western Europe, the Middle
East and the Pacific Rim region, which are generally deemed to be
friendly to the U.S. Government. Contracts with foreign
customers are subject to the risks inherent in dealing with
foreign governments including unexpected changes in regulatory
requirements, problems and delays in collecting accounts
receivable, tariffs and other trade barriers, difficulties in
staffing and managing foreign operations, longer payment cycles
and political instability.
For fiscal years 2000, 1999 and 1998, $20.2 million, $17.2
million and $15.9 million (representing 13.8%, 18.0% and 22.1%
respectively, of our net sales) were attributable to foreign
requirements. Sales directly to foreign customers for fiscal
years 2000 were 10.5%, 1999 were 12.8%, and 1998 were 13.4% of our net
sales.
Although the loss of all of our foreign business could have a
materially adverse impact on Comptek's results of operations and
financial condition, it is management's opinion that this risk is
remote and that the loss of any single contract with a foreign
customer would not be material.
Backlog
The Company's funded backlog and contract backlog of orders at
March 31, 2000, 1999, and 1998, were as follows (in thousands):
March 31, March 31, March 31,
2000 1999 1998
------------------------------------
Funded Backlog $70,552 $101,346 $29,157
Contract Backlog $159,990 $188,480 $103,538
Funded backlog includes orders from prime contracts and contracts
with the U.S. Government, which are incrementally funded by the
procuring Government office or agency. Contract backlog, which
includes funded backlog, represents the aggregate contract
revenues remaining to be earned by the Company at a given time
over the life of the contract, whether or not fully funded.
Backlog does not include option years until they are exercised by
the customer. Backlog may not be indicative of net sales in any
particular period because of timing differences associated with
receipt of contracts, modifications and extensions, as well as
customer schedule and staffing requirements.
The Company operates within three business segments: EW
Simulation/Stimulation And Training Systems, Tactical Systems,
and Engineering and Technical Services (see Item 8 "Notes to
Consolidated Financial Statements" - Note 10 "Business Segments"
for more information). March 31, 2000, 1999 and 1998 segment
backlog is as follows (in thousands):
March 31, 2000
Engineering
Simulation Tactic and
And Tactical Technical
Training Systems Services
-------------------------------
Funded Backlog $15,410 $17,032 $38,110
Contract Backlog $55,200 $57,302 $47,488
March 31, 1999
Simulation Tactic and
And Tactical Technical
Training Systems Services
-------------------------------
Funded Backlog $67,451 $18,586 $15,309
Contract Backlog $71,199 $59,168 $58,113
March 31, 1998
Simulation Tactic and
And Tactical Technical
Training Systems Services
-------------------------------
Funded Backlog $16,752 $933 $11,472
Contract Backlog $20,082 $17,307 $66,149
Engineering and Manufacturing
Our technical personnel generally produce the software and
systems we sell and also perform the software engineering
services; however, from time to time, we engage subcontractors
and specialized consultants to perform limited portions of this
work.
Our systems are manufactured from standard hardware components
and items, such as printed circuit boards and fabricated metal
parts that either we build or have built to our specifications by
various outside suppliers. We may also use commercial-off-the-
shelf equipment or components for various systems. We purchase
computer hardware pursuant to standard original equipment
manufacturer and Value Added Reseller arrangements, which enable
us to obtain discounts on these products based on the volume
purchased. In some cases, the customer furnishes the computer
hardware, which we modify as part of the project. We try to have
multiple sources for all materials and components. However, due
to the advanced nature of some of our products, certain
components may be available for short periods from only a single
source.
Competition
The defense industry is dominated by several large and mid-sized
companies, all of whom have much greater resources than Comptek.
These competitors include Boeing, Lockheed Martin, Raytheon, BAE
Systems, United Industrial Corporation, Unisys, TRW, Condor
Systems and CSC. The size and reputation of many
of these companies may give them an advantage in
competing for contracts. We also compete with several small
companies which can sometimes take advantage of special
government programs such as small business and small
disadvantaged business set-asides. In fiscal 1998 and earlier,
we were able to qualify for small business status when the
standard selected was 750 employees or less. As a result of our
acquisition of PRB in May 1998 and Amherst in March 1999, our
total number of employees has increased to approximately 1,200,
which is likely to result in our not qualifying for small
business status in most circumstances.
For the fiscal year ended March 31, 2000, $943,000 of our sales
were attributable to contracts which were previously awarded as a
small business set-aside. This is primarily the result of the
Acquisition of Amherst. For its fiscal year ended March 26, 1999
and April 30, 1998, Amherst recorded approximately 4.5% and
10.0%, respectively, of its sales on small business set-aside
contracts or small business innovative research grants. For
fiscal year ended March 31, 1999, none of our sales were
attributable to contracts, which were previously awarded as a
small business set-aside.
Independent Research and Development
In addition to research and development efforts performed on
specific contracts, we engage in independent research and
development directed at improvements to existing product lines as
well as the development of new products. Under applicable U.S.
Government regulations, independent research and development is
in many instances eligible for reimbursement by the Government as
an indirect expense on cost-reimbursable type contracts.
During the past three fiscal years, our total research and
development expense and amount of research and development
expense eligible for reimbursement by the U.S. Government was as
follows:
Fiscal Year
2000 1999 1998
---------------------------------
Total Company Sponsored R&D $3,204,000 $2,364,000 $772,000
Eligible for Reimbursement $2,257,000 $1,945,000 $454,000
Patents and Trade Secrets
We do not believe that patents and licenses are material in the
conduct of our business as a whole and believe that research,
development and engineering skills are more significant. We currently
hold six U.S. patents and have one U.S. patent application pending.
We intend to consider the benefits of patents as to
products which may be developed. Our personnel and various
customers, suppliers and consultants are covered by trade secret
agreements and other similar contractual arrangements.
We are restricted in our use of applicable inventions, processes
and proprietary data developed during the performance of U.S.
Government contracts. Depending upon the category of work:
(a) the Company may retain the principal rights and the
Government takes an irrevocable, non-exclusive, transferable
royalty-free license, and
(b) the Government may acquire a non-exclusive commercial
license to use the Company's technology, or
(c) the final determination of rights may be made in the best
public interest by a government contracting officer.
Employees
We believe that our continued success will be largely dependent
upon our ability to continue to attract and retain highly trained
professional and technical personnel. As of March 31, 2000, we
had approximately 1,200 employees. Their principal areas of
expertise include engineering, electronics, computer technology
and management sciences.
Officers of Registrant
The following table sets forth as of May 31, 2000, the names
and ages of the executive officers of the Company and
the principal positions and offices held by each such person.
Name Age Positions
--------------------------------------------------------
John J. Sciuto 57 Chairman, President and CEO
Christopher A. 48 Executive Vice President,
Head General
Counsel and Secretary
Bradley H. 39 Senior Vice President and
Feldmann Chief Operating Officer
Laura L. Benedetti 34 Senior Vice President, Chief
Financial Officer, and
Treasurer
James D. Morgan 63 Vice President, Chief
Scientist and a Director
Edward E. Eberl 48 President of Comptek Amherst
Systems, Inc.
(operating subsidiary)
Chris Boehm 43 President of Comptek Federal
Systems, Inc.
(operating subsidiary)
Lawrence M. 55 President of Comptek PRB
Schadegg Associates, Inc. operating
subsidiary)
Mr. Sciuto was named President and Chief Executive Officer of
Comptek on April 1, 1996 and President and Chief Executive
Officer of Comptek Federal Systems in April 1992. Since joining
Comptek in 1986, Mr. Sciuto has held positions of Vice President
for Surface Navy Electronics Warfare and Senior Vice President
for Defense Electronics, and Division President and Chief
Operating Officer for Comptek Federal Systems. In April 1997, he
was elected to the position of Chairman of the Board of
Directors.
Mr. Head has been Comptek's Vice President and General Counsel
since 1985. In 1991, he was designated Executive Vice President.
Mr. Head also served as Chief Financial Officer from April 1992
to June 1993. He has also served as Secretary of Comptek since
1985.
Mr. Feldmann joined Comptek on June 7, 1999, as Senior Vice
President and Chief Operating Officer. He was employed by Cubic
Defense Systems, Inc., a subsidiary of Cubic Corporation, in
several program and general management positions of increasing
responsibility from 1989 until joining Comptek. Immediately
prior to Comptek, he was Senior Vice President and Chief
Operating Officer of Cubic Defense Systems.
Ms. Benedetti was appointed Chief Financial Officer in February
1999 and Senior Vice President as of April 2000. Ms. Benedetti
has been Vice President of Finance of Comptek since April 1,
1997, Treasurer since 1992, and Principal Financial and
Accounting Officer since 1995.
Mr. Morgan is Vice President and Chief Scientist of Comptek.
Prior to joining Comptek in April 1990, Mr. Morgan was Vice
President of Barrister Information Systems Corporation from 1982
to 1990, a former subsidiary spun off in 1982. Mr. Morgan, a
founder of Comptek, has been a director since its formation in
1968.
Mr. Eberl was named President of Comptek Amherst Systems, Inc. in
June 1999. Prior to being named President, Mr. Eberl was Vice
President - Technical Operations and Product Manager for the
combat electromagnetic environment simulator (CEESIM) for Amherst
Systems, Inc. (Amherst), now a subsidiary of Comptek. He has
more than 20 years experience in the design and development of
real-time simulation systems and had been with Amherst since its
inception.
Mr. Boehm was named President of Comptek Federal Systems, Inc. on
May 16, 2000. Prior to his appointment as President, Mr. Boehm
was employed by Litton/PRC, Inc. (Litton) for over 15 years in
several positions, including President and General Manager of the
Migration Solutions Business Unit and as Executive Manager for
Litton's National Intelligence Systems division.
Mr. Schadegg became an executive officer of Comptek as a result
of Comptek's acquisition of PRB Associates, Inc. in May 1998. He
has been President of PRB, now a subsidiary of Comptek, since
1978. Previously, Mr. Schadegg served as a Naval Flight Officer
in the U.S. Navy.
Risk Factors Which May Affect Business
Risk and uncertainties which could materially affect our business
include the following:
We are dependent on future military spending because
substantially all of our sales are derived from military
requirements.
We are subject to changes in national defense policies and
priorities and changes in government appropriations. In recent
years, a reduction in the defense budgets of many countries has
caused many defense-related government contractors to experience
declining revenues. There can be no assurance that a continued
decline in worldwide military spending will not affect our
ability to increase revenues and may result in declines in future
revenues and may have a material adverse impact on our business,
financial condition or results of operations.
We are heavily dependent on U.S. Government contracts and as a
U.S. Government contractor we are subject to specialized rules
and regulations.
Historically in excess of 85.0% of our revenues have been
attributable to contracts with departments and agencies of the
U.S. Government, specifically the Department of Defense. As a
contractor and subcontractor to the U.S. Government, we are
subject to various laws and regulations that are more restrictive
than those applicable to non-government contractors. U.S.
Government contracts are subject to special risks, such as:
- delay in funding;
- early termination;
- reduction or modification due to changes in policies or as
the result of budgetary constraints, political changes or other
factors that do not depend on Comptek;
- the U.S. Government's rights to technical data and to audit
financial data; and
- the ability of U.S. Government and its agencies unilaterally
to suspend contractors from receiving new contracts pending
resolution of alleged violations of procurement laws or
regulations.
Government agencies often have complex and time-consuming
procurement procedures. We generally obtain military contracts
through a competitive bidding process in which, in many
instances, numerous bidders participate. There can be no
assurance that we will continue to be successful in having our
bids accepted which would affect our ability to increase revenues
and may result in declines in future revenues.
Our risk of sustaining a loss is greater with a fixed-price
contract as opposed to a cost-plus contract. Our percentage of
fixed-price contracts is increasing.
For the fiscal year ended March 31, 2000, approximately 44.2% of
our sales were recorded on fixed-price contracts, as opposed to
cost-plus or cost-sharing contracts. For fiscal year 1999, our
sales on fixed-price contracts represented 29% of sales. Under
fixed-price contracts, we assume the risk that increased or
unexpected costs may reduce profits or cause a loss. To the
extent that actual costs exceed the projected costs on which bids
or contract prices are based, Comptek could sustain a loss under
the contract. Since a majority of the contracts we acquired from
Amherst Systems, Inc. are fixed-price, we expect the percentage
of fixed-price work to increase and therefore increase our
exposure to potential losses on individual contracts.
The integration of our recent acquisitions and the making of
future acquisitions could adversely impact our current
operations.
Our acquisitions of Advanced Systems Development in March 1996,
of PRB Associates in May 1998, and of the business operations of
Amherst Systems in March 1999 are part of a business development
strategy which seeks internally- and externally-generated sales
growth in niche markets. While there are currently no
commitments with respect to any future acquisitions, we
frequently evaluate the strategic opportunities available to us
and expect to pursue acquisitions of additional complementary
products, technologies or businesses. Such acquisitions may
result in the diversion of our attention from the day-to-day
business operations and may include numerous other risks,
including:
- difficulties in the integration of the operations and
products:
- integration and retention of personnel of the acquired
companies; and
- financial risks,
Future acquisitions by us may result in:
- dilutive issuances of equity securities;
- the incurrence of additional debt;
- reduction of existing cash balances; and
- amortization expenses related to goodwill and other
intangible assets and other charges to operations.
To service our substantial debt and make future acquisitions, we
will require a significant amount of cash. Our ability to
generate cash and borrow on acceptable terms depends on many
factors beyond our control.
At March 31, 2000, our bank debt was $22.9 million and our total
funded debt was $39.0 million. Our future growth will depend in
part on additional acquisitions and our ability to obtain
additional financing on acceptable terms. We will from time to
time seek additional funding through public or private financing,
including equity or debt financing. If additional funds are
raised by issuing equity securities, our stockholders may
experience dilution. There can be no assurance that we will be
successful in securing additional financing or that adequate
funding will be available and, if available, will be on terms
that are acceptable to us. Further, debt may continue to
increase and there can be no assurance that we will generate
sufficient cash flow to meet our principal and interest payment
obligations.
Our ability to sell products and services internationally are
subject to U.S. Government export controls that could prevent, or
significantly delay, our making international sales.
We have recently placed greater emphasis on international sales
and have increased marketing expenses in order to compete in
international markets. Our products and services are subject to
export control regulations of the U.S. Government. In most
instances a specific export license is required for the sale of
our products and services directly to international customers.
Failure to receive, or a delay in receiving, these export
licenses would greatly limit our ability to increase sales.
Direct sales to foreign governments and international customers
were 10.5% of total sales in fiscal 2000.
In addition to competing against large defense contractors with
greater financial resources we also have many small competitors
that receive certain preference in bidding for which we do not
qualify.
The defense industry is dominated by several large companies, all
of whom have much greater resources than we have. These
competitors include the Boeing Company, Lockheed Martin
Corporation, Raytheon Company, BAE Systems North America, Inc.,
Northrop Grumman Corporation, United Industrial Corporation,
Unisys Corporation, Computer Sciences Corporation, TRW, Inc., and
Condor Systems, Inc. The size and reputation of many of these
companies may give them an advantage in competing for contracts.
We also compete with several small companies that can sometimes
take advantage of special government programs, such as small
business and small disadvantaged business set-asides whereby
competition is limited to qualifying small and small
disadvantaged businesses. In fiscal 1998 and earlier, we were
able to qualify for small business status when the standard used
was 750 employees or less. As a result of our acquisition of PRB
Associates, Inc. in May 1998, our total number of employees
increased to approximately 900, which is likely to result in our
not qualifying for small business status in most circumstances,
except where that standard used is 1,500 employees or less. As a
result of the acquisition of Amherst Systems, Inc., we now have
approximately 1,200 employees. Since we no longer qualify for
these bidding preferences, our competitive bidding position has
been affected and, in certain instances makes it more difficult
for us to win new contracts.
Item 2. PROPERTIES
Facilities
We currently maintain leased facilities in 25 different U.S.
locations, which are used, in our operations. We do not own any
real property. We lease an aggregate of more than 375,000 square
feet pursuant to lease terms ranging from one to five years.
Corporate Headquarters. Our corporate offices are co-located
with one of its engineering, program management, and research and
development facilities located in West Seneca, a suburb of
Buffalo, New York. This facility has approximately 39,000 square
feet of which approximately 3,000 square feet are used by the
corporate staff. The balance is used for program management,
engineering, contract bid and proposal activities, research and
development, and related administrative functions of the Engineering
and Technical Services Segment. The lease for this facility continues
through July 31, 2003.
Elmhurst, New York Facility. This location supports assembly and
test operations in a 23,000 square foot building in East
Elmhurst, New York, subject to a lease term expiring March 31,
2005. This facility is the site of our Advanced Systems Division
and is used primarily in support of the Electronic Warfare
Simulation/Stimulation and Training Segment.
Hollywood, Maryland Facility. Our largest facility, comprising
75,500 square feet, is located in Hollywood, Maryland in close
proximity to the U.S. Naval Air Station at Patuxent River,
Maryland. From this site, our technical staff provides products
based on the latest systems integration technologies and life-
cycle hardware and software engineering theories, as well as a
full range of scientific, engineering and technical support
capabilities to the military and industrial customers.
Activities performed at this location relate to the Tactical
Systems Segment. The lease for the Hollywood, Maryland office
expires April 30, 2001.
Comptek Amherst Facilities. We currently have leases for ten
facilities aggregating approximately 105,000 square feet under
leases expiring on various dates. It's principal administrative,
engineering, product development and manufacturing facility is
located in a 50,000 square foot facility in Williamsville, New
York. This facility is subject to a lease which continues
through May 31, 2004 and is now used to support the Electronic
Warfare Simulation/Stimulation and Training Segment.
California Operations. We maintain four office locations in
California, generally in close proximity to customers. These
offices range in size from 3,507 square feet to 23,741 square
feet and provide engineering and program management in support of
several programs, including the EA-6B Mission Support program,
the U.S. Navy's C2P program, and the ECMS program. These offices
support both the Engineering and Technical Service Segment and
the Tactical Systems Segment.
Washington, D.C, Metro. We currently maintain three leased
office locations in the Washington, D.C., Metro area in an
aggregate of 25,791 square feet. Of this total, 22,833 square
feet is subject to leases, which expire on or before August 31,
2001. These offices support all three of the Company's business
segments, the Engineering and Technical Service Segment, Tactical
Systems Segment and the Electronic Warfare Simulation/Stimulation
and Training Segment.
Other Locations. Our other leased properties are generally
located in close proximity to military bases. We use these
facilities to provide engineering services, program management,
and administration on contracts. These facilities range in size
from 560 square feet to 10,376 square feet and support all three
of Comptek's current business segments.
Equipment and Leasehold Improvements
Our equipment and leasehold improvements include: computer
equipment and related tools used in the design, development,
testing and simulation of systems and programs; office furniture
and fixtures; office trailers located at military bases; and
leasehold improvements undertaken to accommodate computers and
other equipment.
Item 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings and claims
which have arisen in the ordinary course of business that
have not been finally adjudicated. These action when ultimately
concluded and determined will not, in the opinion of management,
have a material adverse impact on Comptek's financial
position, results of operations, and liquidity.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Item is not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Stock Market And Dividend Information
Our common stock is listed on the American Stock Exchange under
the symbol CTK. The table below sets forth market price
information for fiscal years 1999 and 2000 (April 1, 1998 through
March 31,2000):
Quarter
Ended High Low
----------------------------
6/26/98 10 8 1/2
9/24/98 9 3/4 7 5/8
12/24/98 8 15/16 7 1/4
3/31/99 8 13/16 7 1/2
6/30/99 9 5/8 7 3/4
9/30/99 9 7 13/16
12/31/99 14 3/4 7 7/8
3/31/00 17 7/8 10 1/4
At May 31, 2000, there were 6,234,044 shares of common stock
outstanding, held by approximately 897 shareholders of record,
with the total number of shareholders estimated to be
approximately 2,100.
No cash dividends were paid in fiscal years 2000 or 1999.
Dividend restrictions are detailed in the Notes to the
Consolidated Financial Statements on page 36 of Item 8.
Recent Sales of Unregistered Securities
During fiscal year ended March 31, 2000, there were no sales of
unregistered securities.
Item 6. SELECTED FINANCIAL DATA(1)
Selected Financial Data(1)
(In thousands, except per-share data)
Year Ended March 31, 2000 1999 1998 1997 1996
-----------------------------------------------------------------------
Income Statement Data
Net sales 145,442 95,495 72,008 76,469 55,168
Operating profit 12,430 7,155 4,843 4,216 931
Income before loss 5,342 3,380 2,695 2,173 428
associated with ARIA
Wireless Systems, Inc.
Net income (loss) 5,342 3,380 2,695 2,173 (8,552)
Net income (loss) per 0.99 0.67 0.52 0.42 (1.90)
share - basic
Balance Sheet Data
Working capital 4,619 12,026 6,779 8,238 8,298
Total assets 103,162 98,773 27,498 24,792 25,861
Long-term debt 39,017 53,640 3,622 5,375 8,677
Shareholders' equity 29,994 15,099 11,247 10,572 8,245
Shareholders' equity 4.82 2.96 2.25 2.02 1.60
per outstanding share
----------------------------------------------------------------------
Quarterly Financial 1st 2nd 3rd 4th Total
Data (unaudited) Quarter Quarter Quarter Quarter Year
(In thousands, except
per-share data)
----------------------------------------------------------------------
Fiscal 2000
Net sales $38,069 $33,658 $35,776 $37,939 $145,442
Operating profit 2,503 2,350 3,517 4,060 12,430
Net income 1,035 827 1,584 1,896 5,342
Net income per share - 0.20 0.16 0.30 0.31 0.99
basic
Net income per share - 0.18 0.15 0.23 0.27 0.83
diluted
Fiscal 1999
Net sales $20,251 $23,452 $24,288 $27,504 $95,495
Operating profit 1,368 1,691 1,951 2,145 7,155
Net income 683 765 899 1,033 3,380
Net income per share - 0.14 0.15 0.18 0.20 0.67
basic
Net income per share - 0.13 0.15 0.17 0.20 0.65
diluted
----------------------------------------------------------------------
(1) The above financial data includes the results of the
following acquisitions: a) Advanced Systems Development, Inc.
since March 1, 1996; b) PRB Associates, Inc. since May 1, 1998;
and c) Amherst Systems, Inc. since March 26, 1999.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Comptek designs and develops specialized systems, software, and
proprietary products intended for the global military electronics
market. These defense-related systems provide management
information and implement offensive and defensive responses in
combat situations. In addition, we supply EW
simulation/stimulation, training, and software validation systems
related to electronic surveillance. We also develop systems and
provide engineering and technical services for the maintenance
and upgrade of EW and command, control, communication, computers,
and intelligence (C4I) systems for several U.S. Air Force and
U.S. Navy platforms.
The Company conducts its operations as three business segments:
Tactical Systems, EW Simulation and Training Systems ("Simulation
and Training"), and Engineering and Technical Services
("Services"). We provide our products and services primarily
through three types of contracts: fixed-price, cost-
reimbursement, and time-and-materials. Fixed-price contracts
require us to provide products and perform services at a
stipulated price. Under cost-reimbursement contracts, we are
reimbursed for all actual costs incurred in performing the
contract, to the extent that such costs are within the contract
ceiling and allowable under the terms of the contract, plus a fee
or profit. Time-and-materials contracts reimburse us for the
number of labor hours expended at an established hourly rate
negotiated in the contract, plus the incurred cost of materials.
Comptek assumes greater financial risk on fixed-price contracts
than on either cost-reimbursement or time-and-materials
contracts. However, fixed-price contracts typically provide us
with greater profit opportunities due to our ability to control
costs in such contracts.
On June 12, 2000, subsequent to fiscal year end, the Company
entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Northrop Grumman Corporation ("Northrop") and
Yavapai Acquisition Corporation ("Yavapai"), a wholly owned
subsidiary of Northrop, providing for the merger of Yavapai with
and into the Company (the "Merger"). Upon consummation of the
Merger, (i) the Company will become a wholly owned subsidiary of
Northrop, and (ii) each outstanding share of common stock of the
Company will be converted into common stock of Northrop and the
right to receive cash in lieu of fractional shares of Northrop
common stock.
The amount of Northrop common stock to be received by the
Company's shareholders shall be determined by dividing $20.75 by
the average closing price on the New York Stock Exchange for
Northrop common stock during the 20 trading days ending two
business days prior to the effective date of the Northrop
registration statement. In no event will the exchange ratio be
more than .2804:1 or less than .2470:1. Should the average
closing price of Northrop common stock fall below $74.00 per
share during this 20-day period, the Company has the right to
terminate the transaction, subject to Northrop's discretionary
right to enhance the exchange ratio so that Company shareholders
receive a minimum value of $20.75 per common share.
Outstanding unvested options issued under the Company's 1992
Equity Incentive Plan, the 1998 Equity Incentive Stock Plan, and
the Non-Employee Director Stock Option Plan immediately vest and
become exercisable upon a change of control. In addition, the
Company will pay certain key executives severance benefits on
termination of employment following a change of control. The
aggregate costs associated with these executives' severance
benefits are not currently determinable. The Company has also
agreed to compensate these executives for one half of the taxable
income resulting from exercise of stock options or from
dispositions in connection with a change of control. In
addition, the Company has agreed to reimburse these executives
for excise tax, if any, that results from a change of control.
The Company's obligation to these executives for tax consequences
is not expected to exceed $4.0 million.
The Company also has change of control severance agreements with
certain other employees that are triggered upon change of control
and termination of employment. The aggregate costs of such
benefits are not currently determinable.
After the completion of the fiscal quarter ended June 30, 2000,
and the issuance of the first quarter shares to the participating
employees, the Company's Employee Stock Purchase Plan will be
suspended.
The Merger Agreement contains, among other things, customary
provisions requiring the operation of the business of the Company
in the ordinary course consistent with past practice pending
closing.
The transaction is subject to the completion of certain closing
requirements by the parties and to the customary regulatory
approvals.
In March 1999, Comptek completed an acquisition of the business
operations, assets, and related liabilities of Amherst Systems,
Inc. ("Amherst"). As a result, Amherst contributed 12 months of
operating activity in fiscal 2000, significantly affecting our
consolidated financial results. Amherst manufactures computer-
controlled simulation/stimulation equipment and systems that are
used to test military avionics equipment, including radar warning
receivers, radar countermeasures equipment, radar, and infrared
sensor systems. Amherst operates primarily under the EW
Simulation and Training Systems segment (Simulation and
Training).
The U.S. Department of Defense (DoD) is our principal customer,
accounting for approximately 90% of sales in fiscal 2000, and 87%
of sales in both fiscal years 1999 and 1998. We expect future DoD
spending for military electronics to increase as major systems
are upgraded or replaced. In this DoD spending environment,
competition for new procurements is intense and industry
consolidation by mergers and acquisitions is commonplace.
Contract backlog at March 31, 2000, was $160.0 million. Backlog
decreased 15.1% from March 31, 1999, primarily due to the
completion of work on several programs in the Simulation and
Training segment and a shift by DoD customers to procure services
via General Services Administration (GSA) Schedules, rather than
through multi-year services contracts.
Results of Operations
Selected Financial Data
The following table sets forth certain items from the
Consolidated Statements of Income as a percentage of total net
sales for the periods indicated.
Year Ended March 31, 2000 1999 1998
31,
Net sales 100.0% 100.0% 100.0%
Gross margin 24.8% 24.0% 19.7%
Selling, general, 14.0% 14.1% 11.9%
and administrative
Research and development 2.2% 2.5% 1.1%
Operating profit 8.5% 7.5% 6.7%
Interest expense 2.5% 1.6% 0.6%
Net income 3.7% 3.5% 3.7%
Fiscal Year Ended March 31, 2000, Compared with Fiscal Year Ended
March 31, 1999
Net Sales. Net sales increased to $145.4 million in the fiscal
year ended March 31, 2000, from $95.5 million for the fiscal year
ended March 31, 1999, representing a gain of 52.3%.
The Simulation and Training segment's net sales totaled $64.7
million in fiscal 2000, compared with $20.7 million in fiscal
1999, an increase of 211.9%. This increase resulted primarily
from the acquisition of Amherst in March 1999. The Simulation and
Training segment currently comprises the former Amherst and
Comptek's Advanced Systems Division ("ASD"). Net sales
attributable to the former Amherst amounted to approximately
$50.3 million but were offset by decreases in ASD's portion of
the segment sales. This offsetting decrease was principally due
to a drop in orders related to ASD during the first six months of
fiscal 2000. During the last six months of the fiscal year, ASD
recorded increases in net sales compared to the prior year as a
result of concentrated efforts by management to increase the
volume and profitability of the business.
The Tactical Systems segment's net sales increased to $42.1
million in fiscal 2000 from $38.5 million in fiscal 1999, a gain
of 9.5%. This resulted from an increase in product sales for the
current year. In addition, we purchased PRB Associates, Inc.,
("PRB") effective May 1, 1998, and as a result, only 11 months of
PRB operations are included in the fiscal 1999 consolidated
financial statements.
The Services segment reported net sales for fiscal 2000 of $38.6
million, compared with $36.3 million in fiscal 1999, an increase
of 6.4%. This increase is associated with fluctuations in the
timing of contract performance and the associated receipt of
delivery orders under those contracts.
Sales made directly to foreign prime contractors and governments
amounted to $15.3 million or 10.5% of total sales in fiscal 2000,
compared with $12.2 million or 12.8% in fiscal 1999. The
Company's international sales typically involve product lines
from the Simulation and Training segment under fixed-price
contracts. Indirect international sales, via the U.S. Foreign
Military Sales Program, amounted to $4.9 million or 3.3% of total
sales in fiscal 2000, compared with $5.0 million or 5.2% in
fiscal 1999. The increase in total foreign sales, direct and
indirect, is due to the acquisition of Amherst, which contributed
$5.8 million in total foreign sales in fiscal 2000.
Gross Margin. Gross margin increased to $36.0 million in fiscal
2000 from $23.0 million in fiscal 1999, representing a gain of
56.8%. Gross margin percentage increased in fiscal 2000 to 24.8%
from 24.0% in fiscal 1999. Because of the increased systems sales
in both the Tactical Systems and Simulation and Training
segments, the Company's systems sales as a percentage of total
Company sales increased in fiscal 2000. Systems sales typically
produce higher-than-average gross margins for the Company.
Selling, General, and Administrative (SG&A) Expenses. SG&A
expenses rose to $20.4 million in fiscal 2000 from $13.4 million
in fiscal 1999, representing an increase of 51.5%. The
acquisition of Amherst was responsible for the overall rise in
SG&A expenditures for fiscal 2000. The increase in Comptek's
systems-based work, while producing higher gross margins,
requires a higher level of expenditures in marketing and bidding
efforts to win new contracts. The amortization of goodwill and
other intangibles arising from the Amherst acquisition also
increased SG&A expenses.
Research and Development (R&D) Expenses. R&D expenses increased
to $3.2 million in fiscal 2000 from $2.4 million in fiscal 1999,
representing a gain of 35.5%. R&D efforts in both periods were
directed primarily at enhancing and maintaining existing products
and systems. R&D efforts are concentrated mainly in the Tactical
Systems and Simulation and Training segments.
Operating Profit. Operating profit rose to $12.4 million in
fiscal 2000 from $7.2 million in fiscal 1999, representing an
increase of 73.7%. As a percentage of sales, operating profit
rose to 8.5% in fiscal 2000 from 7.5% in fiscal 1999.
The Simulation and Training segment's operating profits increased
to $5.5 million in fiscal 2000 from $2.1 million in fiscal 1999,
representing a gain of 159.7%. This increase resulted primarily
from the Amherst acquisition, which added $5.0 million of
operating profit in the current year. Contributing to these
current-year results for Amherst was an incremental margin of
approximately $750,000 on a fixed-price contract as certain
development and test milestones were completed at lower-than-
anticipated costs. Also during the fiscal year, certain manpower
and expenditure reductions were implemented that positively
impacted the year's operating results. These events were offset
in part by a loss of approximately $860,000 on an existing
simulation and training fixed-priced contract, which was reported
earlier in the year.
The Tactical Systems segment's operating profits totaled $3.6
million for the fiscal year ended March 31, 2000, compared with
$3.2 million for the fiscal year ended March 31, 1999, a gain of
11.1%. This resulted from an increase in product sales during
fiscal 2000.
The Services segment's operating profits amounted to $3.4 million
for fiscal 2000, compared with $1.8 million for fiscal 1999, an
increase of 85.7%. These increases resulted primarily from mix of
work in the current fiscal year. The Services segment experienced
increased work on higher-margin contracts.
Interest Expense. Interest expense rose to $3.7 million in fiscal
2000 from $1.5 million in fiscal 1999, an increase of 140.1%.
This is attributable to the financing costs associated with the
Amherst acquisition. During fiscal 2000, $10.0 million of the
convertible subordinated debentures were converted into the
Company's common stock. The fiscal 2000 interest expense
associated with these convertibles was $850,000. Accordingly, we
anticipate interest expense for fiscal year 2001 to be less than
that for fiscal 2000.
Income Taxes. Income taxes increased to $3.4 million in fiscal
2000 from $2.3 million in fiscal 1999, representing an increase
of 52.4%. We reported an overall effective tax rate of 39.1% in
fiscal 2000, compared with a rate of 40.0% in fiscal 1999. The
fiscal 2000 effective tax rate is the net result of the receipt
of a tax refund of approximately $75,000 and the recording of an
effective tax rate of 40.0% on the operations.
Net Income. Net income rose to $5.3 million, or $0.83 per diluted
share, in fiscal 2000 from $3.4 million, or $0.65 per diluted
share, in fiscal 1999, representing an increase of 58.0%.
Fiscal Year Ended March 31, 1999, Compared with Fiscal Year Ended
March 31, 1998
Net Sales. Net sales increased to $95.5 million during the fiscal
year ended March 31, 1999, from $72.0 million for the fiscal year
ended March 31, 1998, representing an increase of 32.6%.
The Simulation and Training segment's net sales totaled $20.7
million in fiscal 1999, compared with $18.2 million in fiscal
1998, a gain of 13.7%. This increase is attributable to work
performed under two international simulation contracts totaling
approximately $10.0 million. These contracts were awarded at the
close of fiscal 1998.
The Tactical Systems segment's net sales rose to $38.5 million in
fiscal 1999 from $7.1 million in fiscal 1998, an increase of
442.3%. The acquisition of PRB in May 1998 accounted for $31.1
million of this increase. The majority of PRB sales are
attributable to domestic activities with the DoD.
The Services segment reported fiscal 1999 net sales of $36.3
million, compared with $46.7 million in fiscal 1998, a decrease
of 22.3%. This decrease resulted primarily from a reduction in
subcontractor work on our Electronic Combat Mission Support
(ECMS) contract with the U.S. Navy. The U.S. Navy continues to
contract a large portion of the subcontractor work on this
contract directly with subcontractors, rather than passing the
work through our ECMS contract as it had done in previous years.
Sales on the ECMS contract decreased to $6.8 million, or 7.1% of
sales, compared with $17.2 million, or 23.9% of sales, in fiscal
1998. The period of performance for the ECMS contract ran through
August 31, 1998, and was extended by the Navy in August 1998 to
include an additional two years, with a potential value of $28.7
million. Because our role in managing work essentially performed
by subcontractors under ECMS is limited in scope, the profit
margin we realize on such sales is relatively low. Accordingly,
the substantial decrease in sales volume has little impact on
profits.
Sales made directly to foreign prime contractors and governments
totaled $12.2 million or 12.8% of total sales in the fiscal year
ended March 31, 1999, compared with $9.7 million or 13.4% in the
fiscal year ended March 31, 1998. The Company's international
sales typically involve product lines from the Simulation and
Training segment under fixed-price contracts. Indirect
international sales, via the U.S. Foreign Military Sales Program,
represented $5.0 million or 5.2% of total sales in fiscal 1999,
compared with $6.2 million or 8.7% in fiscal 1998. The percentage
of net sales attributable to foreign requirements decreased in
fiscal 1999 primarily due to the acquisition of PRB, which
contributed 32.6% of net sales for the period while contributing
only $1.0 million, or 5.8%, in foreign sales.
Gross Margin. Gross margin increased to $23.0 million in the
fiscal year ended March 31, 1999, from $14.2 million in the
fiscal year ended March 31, 1998, representing a gain of 62.2%.
Gross margin percentage increased in fiscal 1999 to 24.0% from
19.7% in fiscal 1998. As a result of the PRB acquisition and the
increased systems sales in both the Tactical Systems and
Simulation and Training segments, overall systems sales as a
percentage of total sales increased in fiscal 1999. Systems sales
typically produce higher-than-average gross margins for the
Company. In addition, the overall gross margin percentage
improved in fiscal 1999 with the completion of a multi-year
contract in the Services segment at a higher-than-anticipated
profit percentage. The reduction in Services' ECMS net sales had
a minimal impact on gross margin due to its "pass-through"
nature.
Selling, General, and Administrative (SG&A) Expenses. SG&A
expenses rose to $13.4 million in fiscal 1999 from $8.5 million
in fiscal 1998, representing an increase of 57.4%. The
acquisition of PRB brought about this overall increase in SG&A
expenditures, which included the amortization of goodwill and
other intangibles. While the Tactical Systems segment had sales
that produced higher gross margins, this systems-based work
generally requires a higher level of expenditures in marketing
and bidding efforts to win new contracts.
Research and Development (R&D) Expenses. R&D expenses increased
to $2.4 million in the fiscal year ended March 31, 1999, from
$772,000 in the fiscal year ended March 31, 1998, representing a
gain of 206.2%. R&D efforts, which are concentrated mainly in the
Tactical Systems and Simulation and Training segments, were
directed in both periods primarily at enhancing and maintaining
existing products and systems. The addition of PRB operations in
May 1998 accounted for approximately $1.5 million in R&D
expenditures for fiscal 1999. In prior years, the majority of
operations were services-based, which typically resulted in
relatively small R&D investments.
Operating Profit. Operating profit increased to $7.2 million in
fiscal 1999 from $4.8 million in fiscal 1998, representing a gain
of 47.7%. As a percentage of sales, operating profit rose to 7.5%
in fiscal 1999 from 6.7% in fiscal 1998.
The Simulation and Training segment's operating profits increased
to $2.1 million in fiscal 1999 from $1.8 million in fiscal 1998,
representing a gain of 14.9%. This resulted primarily from an
increase in sales volume. Operating profit as a percentage of
sales rose slightly to 10.1% in fiscal 1999 from 10.0% in fiscal
1998.
The Tactical Systems segment's operating profits totaled $3.2
million for fiscal 1999, compared with $897,000 for fiscal 1998,
an increase of 260.8%. This is attributable to the May 1998
acquisition of PRB, which contributed approximately $2.3 million
in operating profit in fiscal 1999.
The Services segment's operating profits amounted to $1.8 million
for fiscal 1999, compared with $2.1 million for fiscal 1998, a
decrease of 14.2%. This decrease resulted primarily from a step-
up in marketing and bidding efforts prompted by a reduction in
sales base during fiscal 1999 and 1998.
Interest Expense. Interest expense rose to $1.5 million in fiscal
1999 from $421,000 in the fiscal year ended March 31, 1998,
representing an increase of 261.3%. This is attributable to
financing costs associated with the acquisition of PRB.
Income Taxes. Income taxes rose to $2.3 million in fiscal 1999
from $1.7 million in fiscal 1998, an increase of 30.5%. We
reported an overall effective tax rate of 40.0% in the fiscal
year ended March 31, 1999, compared with 39.0% for the fiscal
year ended March 31, 1998. This slight increase is the net result
of the nondeductible goodwill created by the PRB acquisition,
offset in part by increased sales in our foreign sales
corporation (FSC). The FSC allows a partial exemption of income
generated by international sales from federal income taxes.
Net Income. Net income increased to $3.4 million, or $0.65 per
diluted share, in fiscal 1999 from $2.7 million, or $0.51 per
diluted share, in fiscal 1998, representing a gain of 25.4%.
Liquidity and Capital Resources
The table below summarizes cash flow information for the years
indicated.
(In millions)
-------------------------------------------------------------
Year Ended March 31, 2000 1999 1998
-------------------------------------------------------------
Net cash provided by operating
activities $8.6 $6.5 $5.7
Net cash used in investing activities (4.3) (37.8) (1.7)
Net cash provided by (used in) (4.6) 33.1 (3.9)
financing activities
--------------------------------------------------------------
Total change in cash $(0.3) $1.8 $.1
--------------------------------------------------------------
The increase in cash flow from operating activities for fiscal
2000 is primarily driven by the increase in net income.
Operations required working capital, net of the effects of
acquisitions, of $2.9 million in fiscal 2000 and provided working
capital of $390,000 in fiscal 1999.
Investing activities required cash of $4.3 million in fiscal 2000
primarily for purchase of capital equipment and development of
software. In 1999, investing activities required cash of $37.8
million, which was used primarily to acquire PRB in May 1998 and
Amherst in March 1999. Capital equipment was purchased totaling
$2.6 million and $1.3 million, and cash in the amounts of $1.7
million and $778,000 was used to develop software, in fiscal
years 2000 and 1999 respectively.
During fiscal 2000, we reduced our total long-term debt by $4.7
million, compared with an increase of $33.9 million during fiscal
1999. In that year, the purchase of all outstanding shares of PRB
stock for $20.0 million was financed with borrowings under the
senior credit facility and notes payable to the sellers. Total
payments for the acquisition, net of cash received, amounted to
$17.9 million. The acquisition of the operations, assets, and
associated liabilities of Amherst for a purchase price of $30.0
million was financed through the placement of $15.0 million in
convertible subordinated debentures, borrowings under the senior
credit facility, and notes payable to the seller. Total cash
payments for the Amherst acquisition, net of cash received,
amounted to $19.4 million. Long-term debt, debentures, and the
revolving credit facility were used to finance the acquisitions
of PRB and Amherst in fiscal 1999.
Cash generated from the sale of treasury shares to our employees
through the Employee Stock Purchase Plan was used to repurchase
69,566; 72,682; and 354,764 shares of the Company's common stock
for the treasury in fiscal 2000, 1999, and 1998 respectively.
During fiscal 2000, holders of $10.0 million in the 8.5%
convertible subordinated debentures converted their debt
instruments into Comptek common stock at a conversion price of
$9.50 per share. As a result of these conversions and the
repayment of debt, total debt-to-equity ratio decreased to 2.4 to
1 at March 31, 2000, from 5.5 to 1 at March 31, 1999, and 1.4 to
1 at March 31, 1998. Total debt-to-equity increased in fiscal
1999 relative to fiscal 1998 as a result of additional debt
incurred from the acquisitions.
We are reviewing the Company's current requirements for working
capital, capital expenditure demands, stock repurchases, and
repayment of long-term debt with a view to ensuring that cash
flow from operations and the available borrowing capacity are
sufficient to cover these requirements for the next fiscal year.
We anticipate that some modification, specifically, an increase
in borrowing capacity under the current credit facility will be
required, primarily because of the $10.0 million in subordinated
notes due March 26, 2001, and letter-of-credit requirements.
Other Activities
The Company holds 159,000 shares of ARIA Wireless Systems, Inc.
("ARIA") common stock. As of March 31, 2000, the ARIA common
shares were quoted on the OTC Bulletin Board at a last trade
price of $1.00 per share. There can be no assurance, however,
that the Company would achieve such a price upon any sale of its
ARIA shares. Due to the limited available financial and market
information, the Company's equity interest in ARIA has not been
given any accounting value in the Company's consolidated
financial statements.
Inflation
Inflation continues to have minimal effect upon our results.
Where competitive conditions and government regulations permit,
we seek to reduce the potential impact of inflation by
negotiating price escalation clauses into contracts.
Recently Issued Accounting Standards
The Company will adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," for the fiscal quarter
beginning April 1, 2001. SFAS No. 133 requires that all
derivatives be recorded on the balance sheet at fair value and
establishes new accounting rules for hedging instruments. Because
we currently have minimal hedging activity and a lack of
derivative instruments, we do not anticipate that the adoption of
SFAS No. 133 will have a significant effect on our earnings or
financial position.
In March 2000, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation-an interpretation of
APB Opinion No. 25." Interpretation 44, among other things,
requires that certain fixed stock option awards may need to be
accounted for as variable options in the event of certain term
modifications. As a result of option modifications adopted by the
Company after December 15, 1998, certain fixed options will be
subject to variable plan accounting after July 1, 2000. The
effect of adoption is not yet determinable.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of
its plans to become Year 2000-ready. In late 1999, the Company
completed its remediation and testing of systems. As a result of
those planning and implementation efforts, the Company
experienced no significant disruptions in mission-critical
information technology or non-information technology systems and
believes those systems to have responded successfully to the Year
2000 date change. The Company knows of no material problems
resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties.
The Company will continue to monitor its mission-critical
computer applications and those of its suppliers and vendors
throughout the year 2000 to ensure that any latent Year 2000
matters that may arise are addressed promptly.
Qualitative and Quantitative Disclosure of Market Risk
Comptek's revolving credit note and Term Note II have variable
interest rates based on LIBOR. On March 31, 2000, $21.9 million
was outstanding under these facilities. If LIBOR were to change
by 10%, the impact on total interest expense would amount to
approximately $79,000 annually. In order to provide interest-rate
protection for the variable-rate long-term debt, we have entered
into an interest rate swap agreement that converts $7.5 million
of this outstanding debt to a fixed rate of 7.86%. A 10% change
in LIBOR would not have a material impact on the fair value of
the interest-rate swap or on the Company's results from
operations or cash flows. At March 31, 2000, the carrying value
of Comptek's long-term debt was $39.0 million compared with an
estimated fair value of $39.6 million. A 10% increase in the
rates offered to the Company would result in a projected fair
value at March 31, 2000, of $ 39.6 million.
Forward-Looking Information and Cautionary Statement
The 2000 Annual Report, including this Management's Discussion
and Analysis, contains forward-looking statements about Comptek's
plans and management's expectations, including the Company's role
in the defense industry and our views on the growth prospects for
the Company. These forward-looking statements are subject to
risks and uncertainties. Plans may also change based upon
changing business conditions. The reader is cautioned that such
risks and uncertainties could cause actual future results to
differ materially from those inferred by the forward-looking
statements. Since the Company's primary customer group is the
U.S. Government (90% of revenues for 2000 are attributable to DoD
prime and subcontracts), future results could be materially
affected by: the Government's redirection, contract modification
or termination, or similar actions, to stop or delay contract
performance; Government budgetary actions; or contracting and
payment practices of current and future customers. Some
additional uncertainties, among others, that also need to be
considered are: the likelihood that actual future revenues that
are realized may differ from those inferred from existing total
backlog; the ability of the Company to attract and retain highly
skilled technical and professional employees; the availability of
capital; the ability to expand sales in international markets;
and the ability to complete future acquisitions without adversely
affecting the Company's financial condition. The Company may also
be adversely affected by changes in domestic and international
economic conditions, technological developments, and intense
competition. The reader is further cautioned that risks and
uncertainties exist that have not been mentioned herein due to
their unforeseeable nature but which may nevertheless impact the
Company's future operations and results.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
Comptek Research, Inc., and Subsidiaries
(In thousands, except share and per-share data)
Year Ended March 31, 2000 1999
---------------------------------------------------------
Assets
Current assets:
Cash and equivalents $2,128 $2,376
Receivables 37,866 36,099
Inventories 5,213 5,744
Other 5,373 1,018
---------------------------------------------------------
Total current assets 50,580 45,237
Equipment and leasehold improvements, 7,099 7,034
net
Other assets 45,483 46,502
---------------------------------------------------------
Total assets $103,162 $98,773
---------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $12,959 $4,030
Accounts payable 6,126 7,482
Accrued salaries and benefits 12,957 9,040
Other accrued expenses 4,029 3,804
Customer advances 8,278 7,646
Deferred income taxes 1,612 1,209
Total current liabilities 45,961 33,211
Deferred income taxes 1,149 853
----------------------------------------------------------
Long-term debt, excluding current 26,058 49,610
installments
Commitments and Contingencies
(notes 3 and 7)
Shareholders' equity:
Preferred stock, $.01 par value, - -
3,000,000 shares authorized;
none issued and outstanding; terms
established at issuance
Common stock, $.02 par value, 133 110
10,000,000 shares authorized;
6,696,204 and 5,537,763 shares issued
in 2000 and 1999 respectively
Additional paid-in capital 26,035 16,190
Stock related awards and loans (153) (296)
Retained earnings 7,808 2,466
-----------------------------------------------------------
33,823 18,470
Less cost of treasury shares (3,829) (3,371)
-----------------------------------------------------------
Total shareholders' equity 29,994 15,099
-----------------------------------------------------------
Total liabilities and
shareholders' equity $103,162 $98,773
-----------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
Comptek Research, Inc., and Subsidiaries
(In thousands, except per-share data)
Year Ended March 31, 2000 1999 1998
--------------------------------------------------------
Net sales $145,442 $95,495 $72,008
Operating costs and
expenses:
Cost of sales 109,443 72,530 57,849
Selling, general, and 20,365 13,446 8,544
administrative
Research and development 3,204 2,364 772
--------------------------------------------------------
Operating profit 12,430 7,155 4,843
Interest expense 3,652 1,521 421
--------------------------------------------------------
Income before income taxes 8,778 5,634 4,422
Income taxes 3,436 2,254 1,727
--------------------------------------------------------
Net income $5,342 $3,380 $2,695
--------------------------------------------------------
Net income per share:
Basic $.99 $.67 $.52
--------------------------------------------------------
Diluted $.83 $.65 $.51
--------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Comptek Research, Inc., and Subsidiaries
(In thousands)
Year Ended March 31, 2000 1999 1998
---------------------------------------------------------------
Operating Activities
Net income $5,342 $3,380 $2,695
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 5,122 2,604 1,204
Deferred income taxes 860 (141) 1,359
Non-cash charges and credits, net 215 286 127
Other assets - - 247
Changes in assets and liabilities
providing (using) cash, excluding
effects of acquisitions:
Receivables (3,187) (1,641) (516)
Inventories 568 (815) (405)
Other current assets (4,427) 813 162
Accounts payable and accrued 3,522 1,219 854
expenses
Customer advances 632 814 -
---------------------------------------------------------------
Net cash provided by operating 8,647 6,519 5,727
activities
---------------------------------------------------------------
Investing Activities
Expenditures for equipment and (2,587) (1,292) (1,135)
leasehold improvements
Software costs (1,733) (778) (567)
Payment from (subsidiary loan to) 50 (51) 50
officer for stock purchase
Acquisition of businesses, net of (160) (36,268) -
cash acquired
Proceeds from sale of assets 129 567 -
---------------------------------------------------------------
Net cash used in investing (4,301) (37,822) (1,652)
activities
---------------------------------------------------------------
Financing Activities
Net proceeds from (repayment of) (747) 6,212 (700)
revolving debt
Proceeds from issuance of long- - 15,000 -
term debt
Proceeds from issuance of - 15,000 -
convertible subordinated
debentures
Repayment of long-term debt (3,957) (2,305) (1,053)
Payment of debt issuance costs - (1,027) -
Repurchase of common stock (661) (635) (2,719)
Proceeds from sale of common 350 716 -
stock held in treasury
Proceeds from issuance of common 421 168 522
stock
---------------------------------------------------------------
Net cash provided by (used in) (4,594) 33,129 (3,950)
financing activities
---------------------------------------------------------------
Net increase (decrease) in cash (248) 1,826 125
and equivalents
Cash and equivalents at beginning 2,376 550 425
of year
---------------------------------------------------------------
Cash and equivalents at end of $2,128 $2,376 $550
year
---------------------------------------------------------------
Supplemental disclosures of cash flow information (note 9)
See accompanying Notes to Consolidated Financial Statements.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Comptek Research, Inc., and Subsidiaries
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Related Retained Total
Common Stock Additional Awards Earnings Share-
Issued Treasury Paid-in and Accumulated holders'
(In thousands) Shares Amount Shares Amount Capital Loans Deficit) Equity
------------------------------------------------------------------------------------
Shareholders' 5,369 $107 125 $(838) $15,130 $(218) $(3,609) $10,572
Equity, March
31, 1997
Exercise of 15 - - - 79 - - 79
stock options
Sale of common 94 3 - - 567 - - 570
stock
Repurchase of - - 355 (2,719) - - - (2,719)
common stock
Payment from - - - - - 50 - 50
officer for
stock purchase
1998 net - - - - - - 2,695 2,695
income
------------------------------------------------------------------------------------
Shareholders' 5,478 $100 480 $(3,557) $15,776 $(168) $(914) $11,247
Equity, March
31, 1998
Exercise of 40 - - - 168 - - 168
stock options
Sale of common - - (122) 821 58 - - 879
stock
Repurchase of - - 72 (635) - - - (635)
common stock
Loan to - - - - - (27) - (27)
officer for
stock purchase
Stock issued 20 - - - 188 (101) - 87
to officer
1999 net - - - - - - 3,380 3,380
income
------------------------------------------------------------------------------------
Shareholders' 5,538 $110 430 $(3,371) $16,190 $(296) $2,466 $15,099
Equity, March
31, 1999
Exercise of 92 2 10 (93) 512 - - 421
stock options
Sale of common 13 - (40) 296 161 - - 457
stock
Repurchase of - - 70 (661) - - - (661)
common stock
Payment from - - - - - 50 - 50
officer for
stock purchase
Stock issued - - - - - 93 - 93
to officer
Conversion of 1,053 21 - - 9,172 - - 9,193
debentures
2000 net - - - - - - 5,342 5,342
income
------------------------------------------------------------------------------------
Shareholders' 6,696 $133 470 $(3,829) $26,035 $(153) $7,808 $29,994
Equity, March
31, 2000
------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Comptek Research, Inc., and Subsidiaries
March 31, 2000, 1999, and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions related to the
reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Consolidation
The consolidated financial statements include the accounts of
Comptek Research, Inc., and its wholly owned subsidiaries ("the
Company" or "Comptek"). All significant intercompany balances and
transactions are eliminated in consolidation.
Revenue Recognition
The Company's operations consist of furnishing computer-
technology-related systems, products, and services used in
information evaluation and data communications primarily for
military applications. The Company provides systems, products,
and services under prime contracts and subcontractual
arrangements. The Company performs primarily under three types of
contracts: 1) cost-reimbursement; 2) fixed-price; and 3) time-and-
materials. Revenue from cost-reimbursement contracts is
recognized to the extent of costs incurred, plus a proportionate
amount of fee earned. Fixed-price contract revenue is recognized
on the percentage completion method based on costs incurred in
relation to total estimated costs. Revenue on time-and-materials
contracts is recognized when the Company incurs labor accounted
for at an established hourly rate negotiated in the contract,
plus the cost of materials. Certain contracts have terms
extending beyond the Company's financial reporting year.
Revisions in costs and estimated earnings are reflected in the
year during which the additional data becomes known. Provisions
for estimated losses on contracts are recorded in the period in
which such losses are determined. The Engineering and Technical
Services ("Services") segment operates primarily under cost-
reimbursement and time-and-materials contracts, while Tactical
Systems and EW Simulation and Training Systems ("Simulation and
Training") segments operate primarily under fixed-priced and cost-
reimbursement contracts.
The Company's U.S. Government contracts are subject to government
audit of direct and indirect costs. All such incurred cost audits
have been completed through March 31, 1997. Management does not
anticipate any material adjustment to the consolidated financial
statements as a result of such audits.
Cash Equivalents
Cash equivalents consist of liquid, short-term investments with
an original maturity of three months or less.
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market (net realizable value).
Equipment and Leasehold Improvements
Machinery and equipment and furniture and fixtures are stated at
cost and are depreciated, using the straight-line method, over
estimated useful lives of five to ten years. Improvements to
leased property, also stated at cost, are amortized using the
straight-line method over the remaining lease term or the useful
life of the improvement, whichever is shorter.
Intangible Assets Arising from Business Acquisitions
These assets, consisting of the fair value of identifiable
intangible assets and the excess of cost over the fair value of
net assets acquired (goodwill), are carried at the lower of cost
or net realizable value and are amortized on the straight-line
method over the period of estimated benefit, generally ranging
from 2 to 25 years. Net realizable value of intangibles is
determined based on the projected operating cash flows of the
underlying business.
Capitalized Software Costs
The Company capitalizes software costs upon establishing
technological feasibility. Technological feasibility is
established upon completion of a detailed program design or, in
its absence, a working model. Capitalization ceases and
amortization commences when the product is available for general
release. Software costs are capitalized and subsequently reported
at the lower of unamortized cost or estimated net realizable
value and are amortized based on current and estimated future
revenue for each product with minimum straight-line amortization
over the estimated economic life of the product with a maximum
amortization period of five years.
Income Taxes
Deferred taxes represent the tax effect of the differences
between financial statement and tax bases of assets and
liabilities, and for loss and credit carryforwards. Measurement
of deferred tax assets and liabilities is based upon current tax
laws. The tax effects of deductions attributable to employees'
disqualifying dispositions of shares obtained from incentive
stock options are reflected in additional paid-in capital.
Financial Instruments
The estimated fair values of financial instruments approximate
their carrying amounts in the balance sheet, except as discussed
further in note 3. Comptek uses a derivative financial instrument
for the purpose of hedging interest rate exposures that exist as
a part of its ongoing business operations. We do not hold or
issue financial instruments for trading purposes. Instruments
used as hedges are intended to reduce the risk associated with
the exposure being hedged. Comptek is exposed to credit loss in
the event of nonperformance by the counter parties to the
instruments; however, we do not expect nonperformance by counter
parties. The interest rate differential to be paid or received on
the swap is recognized in the statement of income as incurred as
a component of interest expense. The cash flows related to the
derivative financial instrument are classified in the statement
of cash flows in a manner consistent with the transaction being
hedged.
Stock-Based Compensation
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees." The Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," which establishes
a fair-value-based method of accounting for stock-based
compensation plans or, alternatively, requires certain pro forma
fair-value-based disclosure. The Company has adopted the
disclosure alternative under SFAS No. 123.
Earnings per Common Share
Basic earnings per share is computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per share takes into account
the potential dilution that could occur if dilutive convertible
debentures and options were exercised, resulting in the issuance
of common stock.
New Accounting Standards
The Company will adopt SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," for the fiscal quarter
beginning April 1, 2001. SFAS No. 133 requires all derivatives to
be recorded on the balance sheet at fair value and establishes
new accounting rules for hedging instruments. Because we
currently have minimal hedging activity and a lack of derivative
instruments, we do not anticipate that the adoption of SFAS No.
133 will have a significant effect on our earnings or financial
position.
In March 2000, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation-an interpretation of
APB Opinion No. 25." Interpretation 44, among other things,
requires that certain fixed stock option awards may need to be
accounted for as variable options in the event of certain term
modifications. As a result of option modifications adopted by the
Company after December 15, 1998, certain fixed options will be
subject to variable plan accounting after July 1, 2000. The
effect of adoption is not yet determinable.
(2) OTHER FINANCIAL DATA
Following are details concerning certain balance sheet accounts.
Receivables
(In thousands)
March 31, 2000 1999
-----------------------------------------------
Long-term contracts:
Amounts billed $12,967 $11,699
Unbilled costs and 23,512 19,218
estimated earnings
Retainage and holdbacks 1,359 4,534
-----------------------------------------------
Total long-term contract 37,838 35,451
receivables
Other trade 135 670
-----------------------------------------------
Total receivables 37,973 36,121
Less allowance for (107) (22)
doubtful accounts
-----------------------------------------------
Receivables $37,866 $36,099
-----------------------------------------------
Unbilled contract receivables consist primarily of revenue
recognized on contracts for which billings have not been
presented under the terms of the contracts at the balance sheet
dates. It is anticipated that such unbilled amounts on March 31,
2000, will be received upon presentment of billings or completion
of contracts.
The U.S. Department of Defense ("DoD") is our primary customer,
accounting for approximately 90% of sales in fiscal 2000 and 87%
of sales in both fiscal years 1999 and 1998. On March 31, 2000,
$27.5 million of total receivables were from U.S. customers,
primarily DoD, and $10.4 million were from international
customers. On March 31, 1999, $24.6 million of total receivables
were from U.S. customers, primarily DoD, and $11.5 million were
from international customers.
Inventories
(In thousands)
March 31, 2000 1999
-------------------------------------------
Finished goods $317 $330
Work-in-progress 1,907 2,300
Parts stock 2,989 3,114
-------------------------------------------
Total inventories $5,213 $5,213
Equipment and Leasehold Improvements
(In thousands)
March 31, 2000 1999
---------------------------------------------
Cost:
Machinery and equipment $14,595 $13,369
Furniture and fixtures 1,100 1,061
Leasehold improvements 1,717 1,654
----------------------------------------------
Total cost 17,412 16,084
Less accumulated (10,313) (9,050)
depreciation
----------------------------------------------
Equipment and leasehold $7,099 $7,034
improvements, net
----------------------------------------------
Other Assets
(In thousands)
March 31, 2000 1999
-----------------------------------------------
Goodwill, net of $40,337 $41,645
accumulated amortization
of $2,972 at March 31,
2000 and $1,180 at March
31, 1999
Identifiable intangible 1,980 3,229
assets arising from
business acquisitions,
net of accumulated
amortization of $626 at
March 31, 2000, and $76
at March 31, 1999
Software costs, net of 2,574 1,436
accumulated amortization
of $360 at March 31,
2000, and $204 at March
31, 1999
Other 592 192
-----------------------------------------------
Total other assets $45,483 $46,502
-----------------------------------------------
At March 31, 2000, Other Current Assets include approximately
$3.1 million of prepaid 401(k) retirement savings plan
contributions.
(3) LONG-TERM DEBT
Long-term debt consists of the following.
(In thousands)
March 31, 2000 1999
-------------------------------------------
Bank credit facility:
Revolving credit note $9,645 $10,392
Term note I 1,000 2,000
Term note II 12,250 13,750
-------------------------------------------
Total bank credit 22,895 26,142
facility
Convertible 5,000 15,000
subordinated
debentures
Subordinated notes 10,000 11,000
Capital lease 856 1,201
obligations
Other 266 297
Total long-term debt 39,017 53,640
-------------------------------------------
Less current (12,959) (4,030)
installments
-------------------------------------------
Long-term debt, $26,058 $49,610
excluding current
installments
-------------------------------------------
The Company has a bank credit facility, which consists of a
revolving credit note with a maximum borrowing line of $30
million and two term notes, all secured by substantially all of
the Company's assets.
The revolving credit agreement provides for interest, at the
Company's option, at the bank's prime rate or LIBOR plus an
applicable margin based on a ratio of funded debt to earnings
before income taxes, depreciation, and amortization (EBITDA)
minus capital expenditures (7.5% at March 31, 2000). In addition,
there is a fee of 0.25% per annum on any unused portion of the
revolving credit line. Amounts drawn under the revolving credit
facility may be converted into a four-year term loan at the
Company's discretion at any time prior to its maturity on June
30, 2001. Commitments under letters of credit reducing
availability under the revolving credit agreement amounted to
$10.5 million.
Term note I is a five-year term loan bearing interest at a fixed
rate of 8.5%. The final principal payment of $1,000,000 is due in
fiscal year 2001.
Term note II is a seven-year term loan bearing interest at LIBOR
plus an applicable margin based on a ratio of funded debt to
EBITDA minus capital expenditures (7.8% at March 31, 2000).
Annual principal payments of $1,500,000 are due through maturity
on June 1, 2005. Additionally, the Company has entered into an
interest rate swap agreement that converts $7.5 million of
principal to a fixed rate of 7.86% with a termination date of
June 1, 2003.
The Bank Credit Facility stipulates that the Company maintain
minimum levels of working capital, tangible net worth, funded
debt-to-EBITDA, senior funded debt-to-EBITDA, and EBITDA-to-fixed
charges. Additionally, the Company may not exceed prescribed
levels of capital expenditures and operating lease expense, and
is restricted from the payment of cash dividends on common stock.
At March 31, 2000, the Company was in compliance with all debt
covenants.
In connection with the financing of the acquisition of Amherst
Systems, Inc., on March 26, 1999, the Company sold $15 million of
8-1/2% convertible subordinated debentures ("the Debentures").
During fiscal 2000, holders of $10.0 million of the Debentures
converted their debt instruments into common stock of the Company
at a conversion price of $9.50. Interest on the Debentures is
payable semiannually on April 1 and October 1 of each year,
commencing October 1, 1999. The Debentures mature on April 1,
2004. The Debentures may, at the holder's option, be converted
into shares of common stock of the Company at any time prior to
redemption or maturity at a conversion price of $9.50 per share.
The Debentures are not redeemable by the Company prior to March
1, 2002. Thereafter, the Company may redeem the Debentures at any
time together with accrued and unpaid interest at the following
premiums on or after: (1) March 1, 2002 - 103.4%, (2) March 1,
2003 - 101.7%; (3) March 1, 2004 and thereafter - 100%. The
Debentures are unsecured obligations of the Company, subordinated
in right of payment to all present and future senior
indebtedness, including the Company's borrowings under its credit
facility. The Debentures do not contain any financial covenants
or similar restrictions with respect to the Company.
The Company issued subordinated promissory notes to the sellers
to partially finance the acquisition of Amherst Systems, Inc. as
follows: (1) $3,500,000 note bearing 5.5% interest due March 26,
2001; and (2) $6,500,000 note bearing 5.5% interest due March 26,
2001. Furthermore, at March 31, 1999, the Company owed $1,000,000
under a 5.5% note to the sellers of PRB Associates, Inc., which
was repaid in fiscal 2000.
We are reviewing the Company's current requirements for working
capital, capital expenditure demands, stock repurchases, and
repayment of long-term debt with a view to ensuring that cash
flow from operations and the available borrowing capacity are
sufficient to cover these requirements for the next fiscal year.
We anticipate that some modifications to the current credit
facility, primarily due to the $10.0 million subordinated notes
due March 26, 2001 and to letter of credit requirements, will be
required.
Assuming conversion of the revolving credit note to term debt,
the maturities of long-term debt at March 31, 2000, are:
$12,959,000 in 2001; $3,681,000 in 2002; $4,201,000 in 2003;
$3,911,000 in 2004; $8,911,000 in 2005; and $5,354,000
thereafter.
The fair value of long-term debt is estimated based on quoted
market prices and discounted cash flow analysis using current
rates offered to Comptek for debt with the same remaining
maturities. At March 31, 2000, the estimated fair value of long-
term debt was $39.6 million.
Capital lease obligations relate primarily to computer equipment
purchases and are payable as follows.
(In thousands)
Year Ending March 31,
-------------------------------------------
2001 $ 401
2002 321
2003 235
-------------------------------------------
Total minimum lease 957
payments
Less amounts (101)
representing interest
ranging from 5.04% to
9.75%
-------------------------------------------
Present value of net 856
minimum lease payments
Less current (348)
installments of capital
leases
-------------------------------------------
Obligations under $508
capital leases,
excluding current
installments
-------------------------------------------
(4) INCOME TAXES
The composition of income taxes is as follows.
(In thousands)
Year Ended March 31, 2000 1999 1998
-------------------------------------------------------------
Current:
Federal $2,053 $1,975 $225
State 523 420 143
-------------------------------------------------------------
Total current 2,576 2,395 368
-------------------------------------------------------------
Deferred:
Federal 780 (65) 1,200
State 80 (76) 159
-------------------------------------------------------------
Total deferred 860 (141) 1,359
-------------------------------------------------------------
Total income taxes $3,436 $2,254 $1,727
-------------------------------------------------------------
Total income taxes differ from the amount computed by applying
the Federal statutory rate (34%) to income before income taxes as
follows.
(In thousands)
Year Ended March 31, 2000 1999 1998
--------------------------------------------------------------
Income taxes at the Federal $2,984 $1,916 $1,503
statutory rate
State tax effect 398 227 198
Foreign sales corporation (176) (107) (70)
benefit
Amortization of non- 232 240 81
deductible goodwill
General business credits (106) (101) -
Other 104 79 15
-------------------------------------------------------------
Total income taxes $3,436 $2,254 $1,727
-------------------------------------------------------------
The tax effects of loss and credit carryforwards and temporary
differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant
portions of the deferred tax assets and liabilities as of March
31, 2000, and 1999 are as follows.
(In thousands)
March 31, 2000 1999
----------------------------------------------------------
Deferred tax assets:
Tax loss and credit $271 $398
carryforwards
Accrued expenses, not 321 954
currently deductible
Capital loss 3,217 3,217
carryforward
Other, net 305 375
----------------------------------------------------------
Total gross deferred tax assets 4,114 4,944
Valuation allowance (3,830) (3,830)
----------------------------------------------------------
Net deferred tax assets 284 1,114
----------------------------------------------------------
Deferred tax liabilities:
Receivables on engineering contracts (1,925) (2,455)
Capitalized software (936) (426)
Depreciation (184) (295)
----------------------------------------------------------
Total gross deferred tax liabilities (3,045) (3,176)
----------------------------------------------------------
Net deferred tax liability $(2,761) $(2,062)
----------------------------------------------------------
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will be realized. In making this
assessment, management primarily considers the effect of taxable
temporary differences, projected future earnings, and, with
respect to the capital loss carryforward, the likelihood of
capital gains. The Company currently has a $3.8 million deferred
tax asset valuation allowance, which relates primarily to the
capital loss carryforward.
At March 31, 2000, the Company has state loss carryforwards of
$271,000 that expire in 2001. In addition, the capital loss
carryforward expires in 2001.
(5) SHAREHOLDERS' EQUITY
Stock Ownership Plans
Pursuant to the Company's 1992 Equity Incentive Plan and 1998
Equity Incentive Plan, options to purchase shares have been
granted to certain key employees. The Company may award up to
1,298,000 shares in the form of stock options, restricted stock,
performance shares, and other equity awards under both plans.
Through March 31, 2000, stock options, restricted stock, and
equity awards related to incentive compensation have been issued
pursuant to the plans. All options are granted with an exercise
price not below fair market value at date of grant, have a term
of 10 years, and become exercisable in either equal quarterly or
equal annual increments over a period of one to five years.
The Company's Non-Employee Director Stock Option Plan allows the
Company to award up to 300,000 shares in the form of non-
qualified stock options. Each non-employee director automatically
receives options to purchase shares of common stock, as follows:
(1) 1,000 shares on becoming a non-employee director; (2) 1,000
shares following each annual meeting; and (3) 5,000 shares at the
beginning of the calendar quarter immediately following such
director's first acquiring ownership of at least 5,000 shares.
The Plan also allows for discretionary grants by the Board of
Directors. All options are exercisable at a price not below fair
market value at date of grant, and have a term of 10 years.
Options granted on an automatic basis shall be exercisable in
full as of the date of grant. Options granted at the discretion
of the Board of Directors shall be exercisable as determined by
the Board at the time of grant.
The following is a summary of stock option activity for both of
these plans.
The following is a summary of stock option activity for both of
these plans.
<TABLE>
March 31, 2000 1999 1998
------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Number Number Number
of Weighted of Weighted of Weighted
Shares Average Shares Average Shares Average
Under Exercise Under Exercise Under Exercise
Options Price Options Price Options Price
-------------------------------------------------------------------------------
Outstand 619,295 $7.08 553,227 $5.27 436,459 $6.54
ing at
beginning
of year
Granted 405,800 9.06 118,278 8.97 150,000 6.08
Exercised (102,009) 5.77 (40,060) 8.74 (15,098) 5.25
Canceled (26,669) 7.15 (12,150) 5.70 (18,134) 5.63
------------------------------------------------------------------------------
Outstand- 896,417 $8.15 619,295 $7.08 553,227 $5.27
ing at
end of
year
-------------------------------------------------------------------------------
Exercis- 473,840 $7.95 305,846 $7.40 206,151 $7.65
able at
end of
year
-------------------------------------------------------------------------------
</TABLE>
At March 31, 2000, the range of exercise prices and weighted
average contractual life of outstanding and exercisable options
was $4.125 to $17.63 and 7.67 years respectively.
At March 31, 2000, 25,780 shares were available for future grants
under the Equity Incentive Plans. Under the Non-Employee Director
Stock Option Plan, 101,000 shares were available at March 31,
2000 for future grants.
Under the Company's Employee Stock Purchase Plan, each employee
whose customary employment is more than 20 hours per week is
eligible to purchase the Company's stock at a 15% discount. In
fiscal 2000, 40,291 shares were purchased by employees, at prices
ranging from $6.80 to $11.37 per share. In fiscal 1999, 104,586
shares were purchased by employees, at prices ranging from $6.69
to $7.43 per share. In fiscal 1998, 73,310 shares were purchased
by employees, at prices ranging from $4.89 to $6.64 per share.
The Company has calculated the pro forma disclosures required
under SFAS No. 123 for options granted in 2000, 1999, and 1998
using the Black-Scholes option-pricing model. The following
assumptions were used in this model: optionees were stratified
into three groups based on historical exercise behavior; risk-
free interest rate ranged from 6.06% to 6.47%; volatility ranged
from 42% to 48%; the expected life of the option was three, five,
or ten years respectively for each group; and there was no
expected dividend yield.
Had the Company adopted SFAS No. 123, the weighted average fair
value of options granted in 2000, 1999, and 1998 would have
equaled $4.14, $4.69, and $3.38 respectively. In addition, had
the Company determined compensation cost based on the fair value
provisions of SFAS No. 123, net income would have totaled
$4,505,000 for fiscal 2000, or $.71 per diluted share; $2,651,000
for fiscal 1999, or $.51 per diluted share; and $1,930,000 for
fiscal 1998, or $.36 per diluted share.
Shareholder's Rights Plan
In 1999, the Company's Board of Directors adopted a shareholder's
rights plan (the "Rights Plan") and distributed to shareholders
one preferred stock purchase right for each outstanding share of
common stock. Each right will entitle shareholders to buy one-
hundredth of a share of the Company's new Series A Junior
Participating Preferred Stock at an initial exercise price of
$45. The rights expire on April 29, 2009, and may be redeemed by
the Company for $.01 per right at any time until 10 days
following a public announcement that a 20 percent position has
been acquired. The time limit may be extended by the Directors.
The Company is authorized to issue 3,000,000 shares of preferred
stock, none of which have been issued. In connection with the
Merger Agreement (see note 11), the Company agreed to amend the
Rights Plan so that it would not be triggered by the Merger
Agreement.
(6) EMPLOYEE BENEFIT PLANS
Retirement Savings Plan
The Company maintains three separate 401(k) retirement savings
plans for the benefit of eligible individuals employed by the
Company or one of its subsidiaries. Benefits provided by each
plan vary based on the line of business, but in each instance
provide for a Company match of employee contributions. In
addition, the Comptek Research and Comptek PRB plans provide for
an annual discretionary contribution to the accounts of plan
participants. The Company's aggregate expenses for these
retirement savings plans totaled $2,631,000 for fiscal 2000;
$1,714,000 for fiscal 1999; and $621,000 for fiscal 1998.
Incentive Compensation
Officers and certain key employees of the Company participate in
a plan that provides for additional compensation based primarily
on the Company's attainment of certain predetermined performance
measures. Total expense under this plan amounted to $2,713,000 in
2000; $2,220,000 in 1999; and $1,455,000 in 1998.
For certain individuals with incentive compensation levels that
exceeded $4,000 in 1999 and 1998, at least 25% of their total
award was paid in the form of Company stock.
(7) COMMITMENTS AND CONTINGENCIES
The Company conducts its operations from leased facilities and
also leases certain equipment; substantially all of these are
classified as operating leases. The Company leases one facility
from a current executive officer. The lease provides for an
annual net rent of $1,200,000 and expires on April 30, 2001.
All leases expire prior to the year 2006. It is expected that in
the normal course of business, leases that expire will be renewed
or replaced. The aggregate minimum lease commitment under non-
cancelable leases with a remaining term greater than one year as
of March 31, 2000, totaled $16,287,000, payable as follows:
$4,917,000 in 2001; $3,333,000 in 2002; $2,804,000 in 2003;
$2,078,000 in 2004; and $3,155,000 for the years thereafter.
Rental expense incurred from operating leases (exclusive of real
estate taxes, insurance, and other expenses payable under the
terms of the leases) amounted to $5,373,000 in 2000; $3,034,000
in 1999; and $1,671,000 in 1998.
The Company is involved in various legal proceedings and claims
that have arisen in the ordinary course of business and that have
not been finally adjudicated. These actions, when ultimately
concluded and determined, will not, in the opinion of management,
have a material adverse impact on the Company's financial
position, results of operations, or
liquidity.
(8) EARNINGS PER COMMON SHARE
The table below reconciles the effect that potentially dilutive
securities have on earnings per share.
(In thousands)
Year Ended March 31, 2000 1999 1998
-------------------------------------------------------------
Net income $5,342 $3,380 $2,695
-------------------------------------------------------------
Weighted average shares 5,421 5,044 5,184
outstanding - basic
-------------------------------------------------------------
Basic earnings per share $0.99 $0.67 $0.52
-------------------------------------------------------------
Net income $5,342 $3,380 $2,695
After tax equivalent of 510 - -
interest expense on 8.5%
convertible subordinated
debentures
-------------------------------------------------------------
Income for purposes of $5,852 $3,380 $2,695
computing diluted net
earnings per share
-------------------------------------------------------------
Weighted average shares 5,421 5,044 5,184
outstanding
Incremental shares from
assumed conversions:
Stock options 235 167 132
Convertible subordinated 1,397 - -
debentures
-------------------------------------------------------------
Weighted average and 7,053 5,211 5,316
equivalent shares outstanding
- diluted
-------------------------------------------------------------
Diluted earnings per share $0.83 $0.65 $0.51
-------------------------------------------------------------
(9) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(In thousands)
Year Ended March 31, 2000 1999 1998
-------------------------------------------------------
Cash operating activities:
Interest paid $3,510 $1,473 $423
Income taxes paid 2,949 1,242 916
-------------------------------------------------------
Noncash investing and
financing activities:
Equity awards $200 $250 $127
Conversion of subordinated 10,000 - -
debentures including debt
issuance costs
-------------------------------------------------------
Noncash liabilities of
businesses acquired:
Fair value of noncash assets $ - $66,572 $ -
acquired
Less cash paid, net of cash - (36,268) -
acquired
Less subordinated promissory - (11,000) -
notes issued
-------------------------------------------------------
Liabilities assumed or $ - $19,304 $ -
incurred
-------------------------------------------------------
(10) BUSINESS SEGMENTS
The Company's business segments comprise EW Simulation and
Training Systems, Tactical Systems, and Engineering and Technical
Services.
The EW Simulation and Training Systems segment designs, develops,
and manufactures electronic environment simulators and
stimulators for trainers, jammers, and radar warning receiver
evaluation subsystems. Simulation technology can be employed in a
variety of applications, including testing, training,
maintenance, and research. This segment typically operates under
fixed-price and cost-reimbursement contracts. No Simulation and
Training segment contract accounted for more than 10% of total
Company sales during any period presented.
The Tactical Systems segment designs and produces technically
advanced systems and products. These systems include operational
and diagnostic software. Specific areas of specialty include
electronic warfare (EW) radar signal processing, EW threat
analysis, EW countermeasures, real-time command and control data
link processing and display, mission planning, and airspace
management systems. This segment typically operates under fixed-
price and cost-reimbursement contracts. No Tactical Systems
segment contract accounted for more than 10% of total Company
sales during any period presented.
The Services segment provides engineering and technical support,
including program management, software verification and
validation, and training predominantly to the U.S. Department of
Defense and primarily under cost-reimbursement and time-and-
materials contracts. Services operations are located in the U.S.,
typically near to or on U.S. military command installations. In
2000 and 1999, no Services contract accounted for more than 10%
of total Company sales. In 1998, significant Services contracts
included Naval Air Systems Command for Electronic Combat Missions
Systems (ECMS); and the Naval Sea Systems Command (NAVSEA). The
ECMS contract contributed 24% of total Company sales in 1998, and
the NAVSEA contract accounted for 11% of total Company sales in
1998.
Sales made directly to foreign prime contractors and governments
amounted to $15.3 million or 10.5% of total sales in fiscal 2000,
compared with $12.2 million or 12.8% in fiscal 1999. The
Company's international sales typically involve product lines
from the Simulation and Training segment under fixed-price
contracts. Indirect international sales, via the U.S. Foreign
Military Sales Program, represented $4.9 million or 3.3% of total
sales in fiscal 2000, compared with $5.0 million or 5.2% in
fiscal 1999. "Corporate" accounts for corporate, general, and
administrative expenses. These expenses are generally recoverable
from contract revenues by allocation to operations. General
corporate assets principally include cash; prepaid expenses; and
property, plant, and equipment.
The following table summarizes segment information.
(In thousands)
Year Ended March 31, 2000 1999 1998
-------------------------------------------------------------
Net Sales:
Simulation and Training Systems $64,694 $20,742 $18,245
Tactical Systems 42,147 38,487 7,053
Engineering and Technical 38,601 36,266 46,710
Services
-------------------------------------------------------------
$145,442 $95,495 $72,008
Operating Profit:
Simulation and Training Systems $5,465 $2,104 $1,831
Tactical Systems 3,595 3,236 897
Engineering and Technical 3,370 1,815 2,115
Services
-------------------------------------------------------------
$12,430 $7,155 $4,843
Identifiable Assets:
Simulation and Training Systems $68,128 $63,012 $7,160
Tactical Systems 24,524 21,556 2,325
Engineering and Technical 8,629 13,417 17,430
Services
Corporate 1,881 788 583
-------------------------------------------------------------
$103,162 $98,773 $27,498
Capital Expenditures (including
Capitalized Software):
Simulation and Training Systems $2,769 $267 $400
Tactical Systems 631 1,297 631
Engineering and Technical 616 440 654
Services
Corporate 304 66 17
-------------------------------------------------------------
$4,320 $2,070 $1,702
Depreciation/Amortization:
Simulation and Training Systems $3,021 $532 $475
Tactical Systems 1,406 1,415 43
Engineering and Technical 645 637 670
Services
Corporate 50 20 16
-------------------------------------------------------------
$5,122 $2,604 $1,204
(11) SUBSEQUENT EVENT
On June 12, 2000, subsequent to fiscal year end, the Company
entered into an Agreement and Plan of Merger ("the Merger
Agreement") with Northrop Grumman Corporation ("Northrop") and
Yavapai Acquisition Corporation ("Yavapai"), a wholly owned
subsidiary of Northrop that provides for the merger of Yavapai
with and into the Company (the "Merger"). Upon consummation of
the Merger, (i) the Company will become a wholly owned subsidiary
of Northrop and (ii) each outstanding share of common stock of
the Company will be converted into common stock of Northrop and
the right to receive cash in lieu of fractional shares of
Northrop common stock.
The amount of Northrop common stock to be received by the
Company's shareholders shall be determined by dividing $20.75 by
the average closing price on the New York Stock Exchange for
Northrop common stock during the 20 trading days ending two
business days prior to the effective date of the Northrop
registration statement. In no event will the exchange ratio be
more than .2804:1 or less than .2470:1. Should the average
closing price of Northrop common stock be less than $74.00 per
share during this 20-day period, the Company has the right to
terminate the transaction, subject to Northrop's discretionary
right to enhance the exchange ratio so that Company shareholders
receive a minimum value of $20.75 per common share.
Outstanding unvested options issued under the Company's 1992
Equity Incentive Plan, the 1998 Equity Incentive Stock Plan, and
the Non-Employee Director Stock Option Plan immediately vest and
become exercisable upon a change of control. In addition, the
Company will pay certain key executives severance benefits on
termination of employment following a change in control. The
aggregate costs associated with these executives' severance
benefits are not currently determinable. The Company has also
agreed to compensate these executives for one half of the taxable
income resulting from exercise of stock options or from
dispositions in connection with a change in control. In
addition, the Company has agreed to reimburse these executives
for excise tax, if any, that results from a change in control.
The Company's obligation to these executives for tax consequences
is not expected to exceed $4.0 million.
The Company also has change of control severance agreements with
certain other employees that are triggered upon change of control
and termination of employment. The aggregate costs for such
benefits are not currently determinable.
After the completion of the fiscal quarter ended June 30, 2000,
and the issuance of the first quarter shares to the participating
employees, the Company's Employee Stock Purchase Plan will be
suspended.
The Merger Agreement contains, among other things, customary
provisions requiring the operation of the business of the Company
in the ordinary course consistent with past practice pending
closing.
The transaction is subject to the completion of certain closing
requirements by the parties and to the customary regulatory
approvals.
Independent Auditors' Report
The Board of Directors and Shareholders of Comptek Research,
Inc.:
We have audited the accompanying consolidated balance sheets of
Comptek Research, Inc. and subsidiaries as of March 31, 2000 and
1999, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the
three-year period ended March 31, 2000. These consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free from 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, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Comptek Research, Inc. and subsidiaries as of March
31, 2000 and 1999, and the results of their operations and cash
flows for each of the years in the three-year period ended March
31, 2000, in conformity with accounting principles generally
accepted in the United States of America.
KPMG LLP
May 17, 2000
Buffalo, New York
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
This Item is not applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information under the caption "ELECTION OF DIRECTORS" in the
Company's 2000 Definitive Proxy Statement is incorporated herein
by reference. Also see Part I of the Report, under the caption
"Officers of the Registrant" for additional information relating
to the Company's executive officers.
Item 11. EXECUTIVE COMPENSATION
The information under the caption "COMPENSATION AND RELATED
MATTERS" in the Company's 2000 Definitive Proxy Statement is
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
This information under the caption "PRINCIPAL SHAREHOLDERS" in
the Company's 2000 Definitive Proxy Statement is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the sub-caption "CERTAIN TRANSACTIONS" in
the Company's 2000 Definitive Proxy Statement is incorporated
herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
Included in Part II, Item 8, of this report:
Consolidated Balance Sheets as of March 31, 2000 and 1999
Consolidated Statements of Income for the years ended
March 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
March 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for the
years ended March 31, 2000, 1999 and 1998
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2)
The following financial statement schedule and independent
auditors' report thereon should be read in conjunction with
the financial statements incorporated by reference in
conjunction with the financial statements incorporated by
reference in Item 8 in this Form 10-K:
Page No.
II - Valuation and Qualifying Accounts. . . . . . . 51
Schedules other than that listed above are omitted
since they are inapplicable or not required under the
instructions.
(3) Exhibits:
See Exhibit Index filed herewith on pages 52 through
54 of this Report
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last
quarter of the fiscal year ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
COMPTEK RESEARCH, INC.
DATE: June 27, 2000 By:/s/John J. Sciuto
______________________________
John J. Sciuto, Chairman,
President, and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, the report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated:
Signatures Title Date
Chairman, President
and
Chief Executive
/s/John J. Sciuto Officer June 27, 2000
John J. Sciuto
Chief Financial
Officer, Senior
Vice President
and Treasurer
(principal
accounting and
/s/Laura L. Benedetti financial officer) June 27, 2000
Laura L. Benedetti
/s/Joseph A. Alutto Director June 27, 2000
Joseph A. Alutto
/s/John R. Cummings Director June 27, 2000
John R. Cummings
/s/G. Wayne Hawk Director June 27, 2000
G. Wayne Hawk
/s/Patrick J. Martin Director June 27, 2000
Patrick J. Martin
/s/James D. Morgan Director June 27, 2000
James D. Morgan
/s/Henry P. Semmelhack Director June 27, 2000
Henry P. Semmelhack
Independent Auditors' Report on Financial Statement Schedule
The Board of Directors and Shareholders of
Comptek Research, Inc.:
Under date of May 17, 2000, we reported on the consolidated
balance sheets of Comptek Research, Inc. and subsidiaries as of
March 31, 2000 and 1999, and the related consolidated statements
of income, shareholders' equity, and cash flows for each of the
years in the three-year period ended March 31, 2000. In
connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related
consolidated financial statement schedule as listed in Item
14(a)(2) of this annual report on Form 10-K. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express and opinion on this
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
May 17, 2000
Buffalo, New York
Schedule II
COMPTEK RESEARCH, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(In Thousands)
Years ended March 31, 2000, 1999, and 1998
Balance Charge- Balance
at offs, at End
Description Beginning Additions Disposals of Period
of Period and
Transfer
Allowance for
Doubtful Accounts
and Note
Year ended $150 $22 $-- $172
March 31, 1998
Year ended $172 $-- $150 $22
March 31, 1999
Year ended $22 $85 $-- $107
March 31, 2000
Inventory Reserves
Year ended $-- $25 $-- $25
March 31, 1998
Year ended $25 $60 $25 $60
March 31, 1999
Year ended $60 $22 $-- $82
March 31, 2000
INDEX TO EXHIBITS
____________
Exhibit Page No. or
No. Description of Exhibit Location
-----------------------------------------------------------------
2.1 Acquisition of Advanced Systems Development , (b)
Inc.
2.2 Acquisition of PRB Associates, Inc. (f)
2.3 Acquisition of Amherst Systems, Inc. (i)
3.1 Restated Certificate of Incorporation of (c)
Registrant, as amended.
3.2 Restated By-laws of Registrant, as amended. (g)
3.2a Amendment to Restated By-laws of Registrant. (m)
4.1a Indenture dated March 24, 1999 between the (j)
Registrant and The Bank of New York, as
trustee.
4.1b Form of Debenture (included in Exhibit 4.1a) (j)
4.1c Form of Registration Rights Agreement. (j)
10.1 Registrant's 1992 Equity Incentive Plan, as (a)
amended.
10.1a Registrant's 1998 Equity Incentive Stock Plan (h)
10.1b Form of incentive stock option agreement and (e)
non-qualified stock agreement issued under
Registrant's Equity Incentive Plans to plan
participants, including executive officers.
10.1c Non-Qualified Stock Option Agreement dated (e)
June 20, 1996 by and between Registrant and
John J. Sciuto.
10.2 1994 Stock Option Plan for Non-Employee (k)
Directors, as amended.
10.3 Employment agreement between Registrant and (g)
John J. Sciuto.
10.3a Employment agreement between Registrant and (g)
Christopher A. Head.
10.3b Employment agreement between Registrant and (g)
Laura L. Benedetti.
10.3c Employment agreement between Registrant and (g)
James D. Morgan.
10.3d Loan Agreement , dated July 9, 1996, between (d)
Comptek Federal Systems, Inc. (wholly-owned
subsidiary of the Registrant) and John J.
Sciuto.
10.3e Loan Agreement, dated February 3, 1999, (k)
between Comptek Federal Systems, Inc. (wholly-
owned subsidiary of the Registrant) and John
J. Sciuto.
10.3f Employment Agreement between PRB Associates, (g)
Inc. (wholly-owned subsidiary of the
Registrant) and Lawrence M. Schadegg.
10.3g Restricted Stock Agreement between Registrant (g)
and Lawrence M. Schadegg.
10.3h Employment Agreement between Registrant and (l)
Bradley H. Feldmann.
10.3i Employment Agreement between Comptek Amherst (l)
Systems, Inc. (wholly owned subsidiary of the
Registrant) and Edward G. Eberl.
10.3j Form of Indemnification Agreement between (n)
Registrant and its Directors and Officers.
10.3k Form of Change of Control Agreement between (n)
Registrant and Certain Employees.
10.3l Change of Control Severance Plan between (n)
Registrant and Certain Employees
10.3m Amendment to Change of Control Severance Plan 59
between Registrant and Certain Employees
10.3n Form of Gross-Up Letter Issued to Laura L. 61
Benedetti, Bradley H. Feldmann, Christopher
A. Head, and John J. Sciuto
10.3o Letter Agreement Regarding Repayment of Stock 64
Loan between Registrant and John J. Sciuto
10.5 Interest Rate Swap Agreement, dated May 1, (g)
1998, between Registrant and KeyBank, N.A.
10.5a Loan Agreement, dated May 14, 1998, between (g)
Registrant and Manufacturers and Traders Trust
Company
10.5b Loan Agreement, dated March 24, 1999, as (k)
amended, between Registrant and Manufacturers
and Traders Trust Company
10.5c Demand Note dated July 16, 1999 for $1,000,000 (n)
between Registrant and Manufacturers and
Traders Trust Company.
10.5d Demand Note dated September 2, 1999 for (n)
$3,000,000 between Registrant and
Manufacturers and Traders Trust Company.
10.5e Amendment to Loan Agreement, dated March 31, 57
2000, between Registrant and Manufactures and
Traders Trust Company
10.6 Real property lease between Registrant and (k)
Southern Maryland Property Management
Associates, premises at 43865 Airport View
Drive, Hollywood, MD
10.6a Real property lease between Registrant and (k)
Charles E. Dowdell and Nancy L. Dowdell, as
individuals, premises at 30 Wilson Road,
Williamsville, NY
11 Reconciliation of Basic and Diluted EPS (k)
Computations
21 List of Subsidiaries. 55
23 Consent of Independent Auditors. 56
27 Financial Data Schedule. 66
INDEX TO EXHIBITS
_______________
LOCATION OF EXHIBIT
(a) Designates Exhibit annexed to the Company's Form 10-Q for
the quarter ended September 29, 1995
(b) Designates Exhibit annexed to the Company's Form 8-K filed
March 22, 1996 and Form 8-K/A filed May 13, 1996.
(c) Designates Exhibit annexed to the Company's Form 10-K for
the year ended March 31, 1996.
(d) Designates Exhibit annexed to the Company's Form 10-Q for
the quarter ended September 27, 1996.
(e) Designates Exhibit annexed to the Company's Form 10-K for
the year ended March 31, 1997.
(f) Designates Exhibit annexed to the Company's Form 8-K filed
May 28, 1998
(g) Designates Exhibit annexed to the Company's Form 10-K for
the year ended March 31, 1998.
(h) Designates Exhibit annexed to the Company's 1998 Definitive
Proxy Statement filed July 8, 1998.
(i) Designates Exhibit annexed to the Company's Form 8-K filed
on April 12, 1999.
(j) Designates Exhibit annexed to the Company's Registration
Statement, #333-77045, filed April 26, 1999.
(k) Designates Exhibit annexed to Amendment No. 1 to the
Company's Registration Statement, #333-77045, filed June
25, 1999.
(l) Designates Exhibit annexed to Company's Form 10-Q filed for
the quarter ended October 1, 1999.
(m) Designates Exhibit annexed to Company's Form 10-Q filed for
the quarter ended July 2, 1999.
(n) Designates Exhibit annexed to Company's Form 10-Q filed for
the quarter ended December 31, 1999.
INDEX TO EXHIBITS
_______________
The following exhibits constitute management contracts or
compensation plans under Category 10(iii)(A) of Regulation S-K:
10.1 Registrant's 1992 Equity Incentive Plan, as amended.
10.1a Registrant's 1998 Equity Incentive Stock Plan
10.1b Form of incentive stock option agreement and non-qualified
stock agreement issued under Registrant's Equity Incentive
Plans to plan participants, including executive officers.
10.1c Non-Qualified Stock Option Agreement dated June 20, 1996 by
and between Registrant and John J. Sciuto.
10.2 1994 Stock Option Plan for Non-Employee Directors, as
amended.
10.3 Employment Agreement between Registrant and John J. Sciuto.
10.3a Employment Agreement between Registrant and Christopher A.
Head.
10.3b Employment Agreement between Registrant and Laura L.
Benedetti.
10.3c Employment Agreement between Registrant and James D.
Morgan.
10.3d Loan Agreement between Comptek Federal Systems, Inc.
(wholly-owned subsidiary of the Registrant) and John J.
Sciuto.
10.3e Loan Agreement , dated February 3, 1999, between Comptek
Federal Systems, Inc. (wholly-owned subsidiary of the
Registrant) and John J. Sciuto
10.3f Employment Agreement between PRB Associates, Inc. (wholly
owned subsidiary of the Registrant) and Lawrence M.
Schadegg.
10.3g Restricted Stock Agreement between Registrant and Lawrence
M. Schadegg.
10.3h Employment Agreement between Registrant and Bradley H.
Feldmann.
10.3i Employment Agreement between Comptek Amherst Systems, Inc.
(wholly owned subsidiary of the Registrant) and Edward G.
Eberl.
10.3j Form of Indemnification Agreement between Registrant and
its Directors and Officers.
10.3k Form of Change of Control Agreement between Registrant and
Certain Employees.
10.3n Form of Gross-Up Letter Issued to Laura L. Benedetti, Bradley
H. Feldmann, Christopher A. Head, and John J. Sciuto
10.3o Letter Agreement Regarding Repayment of Stock Loans between
Registrant and John J. Sciuto
LIST OF SUBSIDIARIES
__________
Place of
Ownership Percentage Incorporation or Subsidiary Doing
Organization Business As
100% New York Comptek Amherst Systems,
Inc.
100% New York Comptek Federal Systems,
Inc.
100% Maryland Comptek PRB Associates,
Inc.
100% Virgin Islands Comptek Research, Ltd.
(U.S.)
80% Florida DeVoe and Matthews,
L.C., a subsidiary of
Comptek PRB Associates,
Inc.
100% Ontario, Canada Telemus, Inc
Independent Auditors' Consent
The Board of Directors
Comptek Research, Inc.:
We consent to the incorporation by reference in the registration
statements (Nos. 33-54170, 33-82536, 333-86333 and 333-62753) on
Form S-8 of Comptek Research, Inc. of our report dated May 17,
2000, relating to the consolidated balance sheets of Comptek
Research, Inc. and subsidiaries as of March 31, 2000 and 1999,
and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year
period ended March 31, 2000, and related schedule, which reports
appear in the March 31, 2000 annual report on Form 10-K of
Comptek Research, Inc.
KPMG LLP
Buffalo, New York
June 27, 2000
Exhibit 10.5e
Amendment to Loan Agreement, dated March 31, 2000
Between Registrant and Manufacturers and Traders Trust Company
Manufacturers and Traders Trust Company
One Fountain Plaza, Buffalo, NY 14203-1495
(716) 842-4200 Fax: (716) 848-7318
Western New York Commercial Banking Department
March 31, 2000
Ms. Toi O'Brien
Assistant Treasurer
Comptek Research, Inc.
2372 Transit Road
Buffalo, NY 14224
RE: REVOLVING CREDIT AGREEMENT
Dear Toi:
I am pleased to inform you that Manufacturers and Traders Trust
Company has extended the Revolving Loan Maturity Date as defined
in Section 1.rr of a Corporate Revolving and Term Loan Agreement,
dated March 24, 1999, between Manufacturers and Traders Trust
Company and Comptek Research, Inc. from January 31, 2000 to June
30, 2001.
Also pursuant to your request, the maximum permitted annual
capital expenditure limitation contained in Section 8e. of the
above mentioned Loan Agreement has been increased to $5,000,000.
Congratulations on the company's continued strong performance!
Please feel free to contact me if you require any further
information.
Very truly yours,
/s/Mark E. Hoffman
Mark E. Hoffman
Vice President
MEH:hck
Exhibit 10.3m
Amendment to Change of Control Severance Plan
Between Registrant and Certain Employees
Amendment
To
The Comptek Research, Inc.
Employee Change of Control Severance Plan
__________________
The Comptek Research, Inc. Employee change of Control Severance
Plan (the "Plan") was amended by the Compensation Committee of
the Board of Directors effective April 17, 2000, to add the
following provision at the end of Section 3.1 of the Plan:
A Participant shall be entitled to participate in
each of the Employer's employee benefits plans, policies
or arrangements, which provide for insurance or medical
benefits, on the same basis as was provided to the
Employee prior to the occurrence of an event under
Section 3.2 for a period equal to the longer of (i) three
months or (ii) the number of months of Monthly Base Pay
used to determine the Participant's Severance Amount.
Exhibit 10.3n
Form of Gross-Up Letter Issued to
Laura L. Benedetti, Bradley H. Feldmann
Christopher A. Head, and John J. Sciuto
March 20, 2000
PERSONAL AND CONFIDENTIAL
[Named Executive Officer]
Dear :
Re: Agreement Regarding Stock Options
This is to confirm that in the event (i) you are required or elect to
exercise any option granted to you under the Comptek Research, Inc. 1992
Equity Incentive Stock Plan, the Comptek Research, Inc. 1998 Equity Incentive
Stock Plan or under any other future plan or arrangement granting you
options to purchase shares of Comptek Research, Inc. (collectively the
"Stock Plans") and to sell or otherwise dispose of the shares received, (ii)
any option granted to you under any Stock Plan is paid to you in cash or
(iii) you receive a payment in cancellation of any option granted to you under
the Stock Plans which event, in any of the instances describe above, directly
or indirectly results from or occurs in connection with, or in anticipation
of, a Change of Control as hereinafter defined, you will be entitled to the
following:
Payment of an amount equal to 50% of the amount you must include as
income as a result of the (i) exercise of the option (ii) the sale or
disposition of the shares acquired by the option and (iii) the payment
in cancellation of the option. Payment of this amount shall be made by
Comptek Research, Inc. no later than 5 days following the occurrence of
the Change of Control.
For purposes of this letter agreement a "Change of Control" shall have the
same meaning as in the Change of Control Agreement by and between Comptek
Research, Inc. and you, dated December 29, 1999.
Payments made to you under this letter agreement will not reduce or
offset any amounts otherwise payable to you under the Change of Control
Agreement or other plan, agreement or arrangement. Comptek Research, Inc. is
entitled to withhold from all payments under this letter agreement any amounts
that are required to be deducted or withheld under any provision of law
(including, but not limited to, Social Security payments and income tax with-
holding) now in effect or that may become effective any time.
The terms of this letter agreement will be governed by the laws of the
State of New York and will be binding on Comptek Research, Inc. and its
successors (who consent to jurisdiction in the State of New York with respect
to the subject matter of this letter agreement) and will inure to the benefit
of your heirs. If any provision of this letter agreement is held invalid or
unenforceable for any reason, all other provisions will remain in effect.
Very truly yours,
COMPTEK RESEARCH, INC.
By:________________________
Joseph A. Alutto, Chairman
of the Compensation Committee
Agreed to and accepted by:
_________________________
Date:____________________
Exhibit 10.3o
Letter Agreement Regarding Repayment of
Stock Loans between Registrant and John J. Sciuto
March 20, 2000
Mr. John J. Sciuto
Comptek Research, Inc.
2732 Transit Road
West Seneca, NY 14224
Re: Repayment of Stock Loans
Dear John:
This is to confirm that in the event of a "Change of Control" as defined in
the Change of Control Agreement by and between Comptek Research, Inc. and you,
dated December 29, 1999, you will be entitled to the following:
Payment of an amount equal to the then outstanding balance of the loans
provided to you by Comptek Federal Systems, Inc. for the purchase of
Comptek Research, Inc. common shares represented by the promissory
notes dated July 9, 1996, and February 3, 1999. Payment of this amount
shall be made by Comptek Research, Inc. no later than five days
following the occurrence of the Change of Control.
Payments made to you under this letter agreement will not reduce or offset any
amounts otherwise payable to you under the Severance Plan or other plan,
agreement or arrangement. Comptek Research, Inc. is entitled to withhold from
all payments under this letter agreement any amounts that are required to be
deducted or withheld under any provision of law (including, but not limited to,
Social Security payments and income tax withholding) now in effect or that may
become effective any time.
The terms of this letter agreement will be governed by the laws of the State
of New York and will be binding on Comptek Research, Inc. and its successors
(who consent to jurisdiction in the State of New York with respect to the
subject matter of this letter agreement) and will inure to unenforceable for
any reason, all other provisions will remain in effect.
Very truly yours,
COMPTEK RESEARCH, INC.
By:___________________________
Joseph A. Alutto, Chairman
of the Compensation Committee
Agreed to and accepted by:
/s/John J. Sciuto
Date: 27 March 00
