UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-44510
COMPUTER TECHNOLOGY ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-0797618
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6903 ROCKLEDGE DRIVE, BETHESDA, MARYLAND 20817
(Address of principal executive offices) (Zip Code)
(301) 581-3200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES[X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of JUNE 30, 1998.
COMMON STOCK, $.01 PAR VALUE 8,704,933
(Class) (Number of Shares)
<PAGE>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
June 30, 1998 and December 31, 1997
Consolidated Statements of Operations
Three months and six months ended June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II. -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
* * * * * *
Signature
<PAGE>
PART I. -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's except for share amounts)
DECEMBER 31, 1997 JUNE 30, 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 33,300 39,080
Other current assets 1,222 328
Recoverable income taxes 3,576 215
------- ------
Total current assets 38,098 39,623
Furniture and equipment, net 3,044 3,556
Other assets, net 4,146 3,616
------- -------
$45,288 $46,795
======= =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's except for share amounts)
DECEMBER 31, 1997 JUNE 30, 1998
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--line of credit $7,445 $10,822
Current portion of long-term debt 1,667 1,667
Accounts payable 5,788 6,988
Accrued expenses 3,156 3,062
Excess of billings over costs and
contract prepayments 2,738 3,309
Other current liabilities 270 270
Accrued tender offer 2,019 -
Deferred income taxes 2,427 2,800
------ ------
Total current liabilities 25,510 28,918
Long-term debt, less current portion 3,333 2,500
Other long-term liabilities 635 500
Stockholders' equity:
Preferred stock, $1.00 par value
1,000,000 shares authorized and none
issued - -
Common Stock, $.01 par value,
20,000,000 shares autorized and 100 100
10,000,000 shares issued
Capital in excess of par value 7,869 7,879
Retained earnings 14,528 13,828
------ ------
22,497 21,807
Notes receivable from employees (698) (698)
Treasury stock, at cost
(1,248,980 shares in 1997 and
1,295,067 shares in
1998) (5,989) (6,232)
------ ------
Total stockholders' equity 15,810 14,877
------- -------
$45,288 $46,795
======= =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($000's Except for Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
JUNE 30, JUNE 30,
-------- --------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenues $23,144 $27,415 $43,560 $52,733
Cost of contract revenues 19,348 21,713 36,401 41,689
Selling, general and
administrative expenses 2,192 3,620 4,003 6,858
Other expenses 261 161 338 769
--- --- --- ---
Operating profit 1,343 1,921 2,818 3,417
Interest expense 267 294 543 565
--- --- --- ---
Income before income taxes 1,076 1,627 2,275 2,852
Income taxes 402 611 853 1,070
--- --- --- ---
INCOME FROM CONTINUING
OPERATIONS 674 1,016 1,422 1,782
Loss from discontinued operations
net of income taxes (689) (1,388) (1,399) (2,482)
----- ------- ------- -------
Net income (loss) $ ( 15) $ (372) $ 23 $ (700)
======== ======== ======= ========
Earnings (loss) per share:
CONTINUING OPERATIONS $ 0.07 $ 0.12 $ 0.15 $ 0.20
DISCONTINUED OPERATIONS (0.07) (0.16) (0.15) (0.28)
------- ------- ------- -------
$ 0.00 $(0.04) $ 0.00 $(0.08)
Earnings (loss) per share ====== ======= ====== =======
- -assuming dilution:
CONTINUING OPERATIONS $ 0.07 $ 0.12 $ 0.15 $ 0.20
DISCONTINUED OPERATIONS (0.07) (0.16) (0.15) (0.28)
------- ------- ------- -------
$ 0.00 $(0.04) $ 0.00 $(0.08)
====== ======= ====== =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($000's)
(Unaudited)
SIX MONTHS ENDED
JUNE 30,
----------------
1997 1998
------- -------
<S> <C> <C>
Operating activities:
Net income (loss) $ 23 $ (700)
Non-cash expenses, net 2,679 860
Changes in assets and liabilities, net
8,920 576
----- ---
Net cash provided by operating 11,622 736
Investing activities:
Investments in furniture and
equipment (1,492) (965)
Financing activities:
Net borrowings (repayments) under bank
line of credit agreement (7,821) 3,377
Purchases of treasury stock - (2,315)
Repayment of long-term debt - (833)
Other financing activities, net <90> -
---- -------
Net cash provided by (used in)
financing activities (7,911) 229
------- -------
Net increase (decrease) in cash and cash
equivalents $2,219 $ -
====== =======
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. Basis of Presentation
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of June 30, 1998 and the results of its operations and
its cash flows for the periods ended June 30, 1997 and 1998. The results of
operations presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998.
The accompanying financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1997 which
are contained in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
The provision for income taxes in the statements of operations has been
computed using the estimated annual effective tax rate expected to be
applicable for the full year.
Certain prior year balances have been reclassed to conform with the
current period presentation.
The loss from discontinued operations for 1998 reflects an adjustment of
$2.1 million for the final settlement of the sales price of the Company's
Space and Telecommunications business, which was sold in the third quarter of
1997, and a binding arbitration award of $2.0 million to a former employee of
that business. The amounts are presented net of income tax benefit in the
Condensed Statements of Operations. Net revenues of the Space and
Telecommunications business for the three months and six months ended June 30,
1997 were $16.0 million and $36.4 million, respectively.
<PAGE>
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------
1997 1998
------------------------
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 674 $ 1,016
Loss from discontinued operations (689) (1,388)
-------------------------
Net income (loss) for both basic and diluted
earnings per share $ (15) $ (372)
=========================
Denominator:
Denominator for basic earnings per share ---
Weighted average shares outstanding
9,234,410 8,705,611
Dilutive potential common shares:
Employee stock options 391,022 228,775
--------- ---------
Denominator for diluted earnings per share ---
Adjusted weighted average shares and assumed
conversions 9,625,432 8,934,386
========= =========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
1997 1998
--------------------------
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 1,422 $ 1,782
Loss from discontinued operations (1,399) (2,482)
--------------------------
Net income (loss) for both basic and diluted
earnings per share $ 23 $ (700)
==========================
Denominator:
Denominator for basic earnings per share ---
Weighted average shares outstanding
9,234,410 8,711,883
Dilutive potential common shares:
Employee stock options 391,022 340,225
-------------------------
Denominator for diluted earnings per share ---
Adjusted weighted average shares and assumed
conversions 9,625,432 9,052,108
=========================
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
and Results of Operations
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly Report contains forward-
looking statements relating to such matters as anticipated financial
performance, business prospects and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operation, performance, development and
results of the Company's business include, but are not limited to, those
matters discussed herein in the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The words
"believe," "expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect management's analysis only
as of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
RESULTS OF OPERATIONS
The following tables set forth certain items in the Company's
Consolidated Statements of Operations as a percentage of contract revenues:
<TABLE>
<CAPTION>
Three months Six months
ended ended
JUNE 30, JUNE 30,
------------- -------------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenues 100.0% 100.0% 100.0% 100.0%
Cost of contract revenues 83.6 79.2 83.6 79.1
Selling, general and administrative
expenses 9.5 13.2 9.2 13.0
Other expenses 1.1 0.6 0.8 1.4
--- --- --- ---
Operating profit 5.8 7.0 6.4 6.5
Interest expense 1.1 1.1 1.2 1.1
--- --- --- ---
Income before income taxes 4.7 5.9 5.2 5.4
Provision for income taxes 1.8 2.2 2.0 2.0
--- --- --- ---
Income from continuing operations 2.9 3.7 3.2 3.4
Loss from discontinued operations (3.0) (5.1) (3.2) (4.7)
----- ----- ----- -----
Net income (loss) (0.1) (1.4) (0.0) (1.3)
===== ===== ===== =====
</TABLE>
The following tables set forth certain items in the Company's Statements of
Operations by operating segment:
<TABLE>
<CAPTION>
Three Months Ended Six months ended
JUNE 30, JUNE 30,
(In thousands of dollars)
-------- --------
1997 1998 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Contract revenues:
Federal $19,280 $16,015 $36,790 $33,554
Commercial 3,864 11,400 6,770 19,179
------- ------- ------- -------
$23,144 $27,415 $43,560 $52,733
Operating profit (loss):
Federal $1,013 $ 393 $2,119 $1,647
Commercial 591 1,689 1,037 2,539
------ ------ ------ ------
1,604 2,082 3,156 4,186
Other expenses (261) (161) (338) (769)
------ ------ ------ ------
$1,343 $1,921 $2,818 $3,417
====== ====== ====== ======
</TABLE>
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997
CONTRACT REVENUES. Contract revenues increased 19% to $27.4 million for
the three months ended June 30, 1998 from $23.1 million for the three months
ended June 30, 1997, as a result of a 295% increase in commercial contract
revenues. Contract revenues increased 21% to $52.7 million for the six months
ended June 30, 1998 from $43.6 million for the six months ended June 30, 1997,
as a result of a 283% increase in commercial contract revenues.
Federal contract revenues decreased 17% for the three months ended June
30, 1998 and 9% for the six months ended June 30, 1998 from the comparable
periods in 1997. Decreases in revenues on the GSA Eastern Zone contract, which
ended in the third quarter of 1997, and on the Technical Engineering and
Management Support IV (TEMS IV) program at Hanscom Air Force Base, which is
winding down, and smaller decreases in other Federal programs, were partially
offset by increases in contract revenues on a medical information systems
contract for the Department of Defense and on General Services Administration
(GSA) Schedule contracts.
Commercial contract revenues increased to $11.4 million, or 42% of total
contract revenues, for the three months ended June 30, 1998 from $3.9 million,
or 17% of total contract revenues, for the three months ended June 30, 1997.
Commercial contract revenues increased to $19.2 million, or 36% of total
contract revenues, for the six months ended June 30, 1998 from $6.8 million,
or 16% of total contract revenues, for the six months ended June 30, 1997. The
increase is primarily attributable to new Year 2000 conversion contracts with
the States of Iowa, Kansas, Texas and others and commercial companies such as
Cessna Aircraft and Wells Fargo Bank.
COST OF CONTRACT REVENUES. Cost of contract revenues increased to $21.7
million, or 79.2% of contract revenues, for the three months ended June 30,
1998, from $19.3 million, or 83.6% of contract revenues, for the comparable
period in 1997. Cost of contract revenues increased to $41.7 million, or 79.1%
of contract revenues, for the six months ended June 30, 1998, from $36.4
million, or 83.6% of contract revenues, for the comparable period in 1997.
This decrease in cost of contract revenues as a percentage of contract
revenues resulted primarily from the increase of higher margin commercial
contracts as a percentage of overall contract revenues.
SG&A. Selling, general and administrative expenses (SG&A) increased to
$3.6 million, or 13.2% of contract revenues, for the three months ended June
30, 1998, from $2.2 million, or 9.5% of contract revenues, for the comparable
period in 1997. SG&A increased to $6.9 million, or 13.0% of contract revenues,
for the six months ended June 30, 1998, from $4.0 million, or 9.2% of contract
revenues, for the comparable period in 1997. The increase in SG&A reflects the
Company's continued investment in infrastructure and in the initiatives
required to implement the Company's marketing strategies and increased focus
on commercial markets.
OTHER EXPENSES. Other expenses increased to $0.8 million in 1998 from
$0.3 million in 1997 due to additional reserves and write-downs of certain
contract receivables.
OPERATING PROFIT. As a result of the foregoing, the Company had an
operating profit of $1.9 million and $3.4 million for the three and six months
ended June 30, 1998 and an operating profit of $1.3 million and $2.8 million
for the comparable periods in 1997.
LOSS FROM DISCONTINUED OPERATIONS. The loss from discontinued operations
for 1998 reflects an adjustment of $2.1 million for the final settlement of
the sales price of the Company's Space and Telecommunications business, which
was sold in the third quarter of 1997, and a binding arbitration award of $2.0
million to a former employee of that business. The amounts are presented net
of income tax benefit in the Condensed Statements of Operations.
LIQUIDITY AND CAPITAL RESOURCES
Operations provided $0.7 million of cash during the first six months of
1998, primarily from the net income after adjustment for non-cash expenses of
$0.2 million income tax refunds of $4.2 million and other working capital
changes of $1.9 million offset by the increase in accounts receivable of $5.6
million. Cash used in investing activities was $1.0 million for purchases of
furniture and equipment. Cash provided by financing activities was $0.2
million, primarily from net borrowings under the bank line of credit agreement
of $3.4 million offset by $2.3 million for purchases of treasury stock and
$0.8 million for repayments of long-term debt.
The Company has a credit facility with a bank providing the ability to
borrow up to $20 million, including a revolving facility of $15 million and a
$5 million term facility. At June 30, 1998, there was $10.8 million
outstanding on the revolving facility and $4.2 million outstanding on the term
facility.
The Company believes that cash flow from operations and available bank
borrowings will provide adequate funds for continued operations for the next
twelve months.
OTHER MATTERS
The "Year 2000" issue concerns the potential exposures related to
existing computer programs that use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the Year 2000.
The Company has evaluated, and continues to evaluate, the potential cost
associated with becoming Year 2000 compliant. The Company believes that its
principal payroll and human resources related systems, which are licensed from
and maintained by third party software development companies, are Year 2000
compliant. The Company is in the process of selecting new financial systems
which management expects to be Year 2000 compliant. Management does not
anticipate that the remaining costs associated with assuring that its internal
systems will be Year 2000 compliant will be material to its business,
operations or financial condition.
<PAGE>
PART II. -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was formally notified of the binding arbitration award of
$2.0 million regarding a profit sharing agreement with a former
employee during the quarterly period ending June 30, 1998. There were
no other material developments during the quarterly period ended June
30, 1998. See Item 3 of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 for further discussion of legal
proceedings.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
At a meeting of the Company's Board of Directors on August 3, 1998, he
name of the Company was formally changed back to Computer Technology
Associates, Inc., the Company's original name, from CTA Incorporated.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBER DOCUMENT LOCATION
3.1 Certificate of Incorporated by reference
Incorporation from Exhibit 3.1 to Amendment
No. 4 to Form S-1 filed on April 3,
1992
3.2 By-laws Incorporated by reference
from Exhibit 3.2 to Amendment
No. 4 to Form S-1 filed on April 3,
1992
27 Financial Data Electronic Filing Only
Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMPUTER TECHNOLOGY ASSOCIATES, INC.
AUGUST 14, 1998 /S/ GREGORY H. WAGNER
Gregory H. Wagner
Executive Vice President,
Chief Financial Officer,
Principal Accounting Officer
and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CAPTION> RESTATED
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 0 2235
<SECURITIES> 0 0
<RECEIVABLES> 42366 55554
<ALLOWANCES> 3286 2762
<INVENTORY> 0 0
<CURRENT-ASSETS> 39623 60179
<PP&E> 11207 25394
<DEPRECIATION> 7651 15749
<TOTAL-ASSETS> 46795 81957
<CURRENT-LIABILITIES> 28918 46838
<BONDS> 0 0
<COMMON> 100 100
0 0
0 0
<OTHER-SE> 14777 17629
<TOTAL-LIABILITY-AND-EQUITY> 46795 81957
<SALES> 52733 43560
<TOTAL-REVENUES> 52733 43560
<CGS> 41689 36401
<TOTAL-COSTS> 41689 36401
<OTHER-EXPENSES> 7627 4341
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 565 543
<INCOME-PRETAX> 2852 2275
<INCOME-TAX> 1070 853
<INCOME-CONTINUING> 1782 1422
<DISCONTINUED> (2482) (1399)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (700) 23
<EPS-PRIMARY> (.08) .00
<EPS-DILUTED> (.08) .00
</TABLE>
