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 SEPTEMBER 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 SEPTEMBER 30, 1998.
COMMON STOCK, $.01 PAR VALUE 8,664,662
(Class) (Number of Shares)
<PAGE>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX
PART I. -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
September 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
Three months and nine months ended September 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows
Nine months ended September 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 SEPTEMBER 30, 1998
<UNAUDITED>
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 33,300 41,116
Other current assets 1,222 735
Recoverable income taxes 3,576 -
------ ------
Total current assets 38,098 41,851
Furniture and equipment, net 3,044 3,591
Other assets, net 4,146 1,669
------- -------
$45,288 $47,111
</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 SEPTEMBER 30,
1998
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--line of credit $7,445 $ 9,296
Current portion of long-term debt 1,667 1,667
Accounts payable 5,788 6,621
Accrued expenses 3,156 4,321
Excess of billings over costs and
contract prepayments 2,738 3,795
Other current liabilities 270 175
Accrued tender offer 2,019 -
Income taxes payable - 590
Deferred income taxes 2,427 2,800
------ ------
Total current liabilities 25,510 29,265
Long-term debt, less current portion 3,333 2,083
Other long-term liabilities 635 -
Stockholders' equity:
Preferred stock, $.01 par value
1,000,000 shares authorized and
none issued - -
Common Stock, $.01 par value, 100 100
20,000,000 shares authorized and
10,000,000 shares issued
Capital in excess of par value 7,869 7,858
Retained earnings 14,528 14,976
22,497 22,934
Notes receivable from employees (698) (698)
Treasury stock, at cost
(1,248,980 shares in 1997 and
1,335,338 shares in 1998) (5,989) (6,473)
------- -------
Total stockholders' equity 15,810 15,763
------- -------
$45,288 $47,111
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($000's Except for Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Contract revenues $26,090 $30,372 $69,650 $83,105
Cost of contract revenues 22,392 23,723 58,793 65,412
Selling, general and
administrative expenses 2,588 4,033 6,591 10,891
Other expenses 203 489 541 1,258
----- ----- ----- ------
Operating profit 907 2,127 3,725 5,544
Interest expense 786 289 1,329 854
--- ----- ----- -----
Income before income taxes 121 1,838 2,396 4,690
Income taxes 46 690 899 1,760
---- ----- ----- -----
INCOME FROM CONTINUING
OPERATIONS 75 1,148 1,497 2,930
Income(loss) from discontinued
operations, net of income taxes 2,925 - 1,526 (2,482)
------- ------ ------ ------
Net income $ 3,000 $1,148 $3,023 $ 448
Earnings (loss) per share:
CONTINUING OPERATIONS $ 0.01 $ 0.13 $ 0.16 $ 0.34
DISCONTINUED OPERATIONS 0.32 0.00 0.16 (0.29)
------ ------ ------ ------
$ 0.33 $ 0.13 $ 0.32 $ 0.05
Earnings (loss) per share
- -assuming dilution:
CONTINUING OPERATIONS $ 0.01 $ 0.13 $ 0.16 $ 0.32
DISCONTINUED OPERATIONS 0.32 0.00 0.16 (0.27)
------ ------ ------ ------
$ 0.33 $ 0.13 $ 0.32 $ 0.05
</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)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
<S> <C> <C>
Operating activities:
Net income (loss) $3,023 $ 448
Non-cash expenses, net (16,446) 2,090
Changes in assets and
liabilities, net 12,436 1,556
------ -----
Net cash provided by operating
activities ( 987) 4,094
Investing activities
Proceeds from sale of
Discontinued operations 11,689 -
Proceeds from sale of
Division 438 -
Investments in furniture and
equipment (2,076) (1,577)
------ -------
Net cash provided by operating (1,577)
activities 10,051
Financing activities:
Net borrowings (repayments)
under bank line of credit
agreement (8,979) 1,851
Purchases of treasury stock - (2,639)
Repayment of long-term debt - (1,750)
Other financing activities,
net (94) 21
------ -------
Net cash provided by (used
in) financing activities (9,073) (2,517)
------- -------
Net increase (decrease) in cash and
cash equivalents $(9) $ -
</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 September 30, 1998 and the results of its operations
and its cash flows for the periods ended September 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 nine months ended
September 30, 1997 were $32.7 million and $69.1 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
SEPTEMBER 30,
1997 1998
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 75 $ 1,148
Loss from discontinued operations 2,925 -
----- -----
Net income (loss) for both basic
and diluted earnings per share $ 3,000 $ 1,148
Denominator:
Denominator for basic earnings per
share --- Weighted average shares
outstanding 9,089,719 8,701,457
Dilutive potential common shares:
Employee stock options 892,367 371,091
--------- ---------
Denominator for diluted earnings per
share --- Adjusted weighted average
shares and assumed conversions 9,982,086 9,072,548
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1998
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 1,497 $ 2,930
Loss from discontinued operations 1,526 (2,482)
--------- --------
Net income (loss) for both basic
and diluted earnings per share $ 3,023 $ 448
Denominator:
Denominator for basic earnings per
share --- Weighted average shares
outstanding 9,091,614 8,706,064
Dilutive potential common shares:
Employee stock options 214,963 446,602
--------- ---------
Denominator for diluted earnings per
share --- Adjusted weighted average
shares and assumed conversions 9,603,577 9,152,666
</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 Nine months
ended ended
SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Contract revenues 100.0% 100.0% 100.0% 100.0%
Cost of contract revenues 85.8 78.1 84.4 78.7
Selling, general and administrative
expenses 9.9 13.3 9.5 13.1
Other expenses 0.8 1.6 0.8 1.5
---- ---- ---- ----
Operating profit 3.5 7.0 5.3 6.7
Interest expense 3.0 1.0 1.9 1.0
--- --- --- ---
Income before income taxes 0.5 6.0 3.4 5.7
Provision for income taxes 0.2 2.3 1.3 2.1
--- --- --- ---
Income from continuing operations 0.3 3.7 2.1 3.6
Income (loss) from discontinued 11.2 0.0 2.2 (3.1)
operations
---- --- --- ---
Net income 11.5 3.7 4.3 0.5
</TABLE>
The following tables set forth certain items in the Company's Statements of
Operations by operating segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED Nine months ended
(In thousands of dollars) SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Contract revenues:
$20,711 $17,884 $57,501 $53,306
Systems
5,379 12,488 12,149 29,799
Software
------- ------- ------- -------
$26,090 $30,372 $69,650 $83,105
Operating profit (loss):
$1,524 $1,204 $3,643 $3,491
Systems
(414) 1,412 623 3,311
Software
1,110 2,616 4,266 6,802
Other (203) (489) (541) ( 1,258)
expenses
----- ------ ------ ------
$907 $2,127 $3,725 $5,544
</TABLE>
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997
CONTRACT REVENUES. Contract revenues increased 16% to $30.4 million for the
three months ended September 30, 1998 from $26.1 million for the three months
ended September 30, 1997, as a result of a 172% increase in commercial
contract revenues. Contract revenues increased 19% to $83.1 million for the
nine months ended September 30, 1998 from $69.7 million for the nine months
ended September 30, 1997, as a result of a 177% increase in commercial
contract revenues. Commercial contract revenues increased to $14.6 million, or
48% of total contract revenues, for the three months ended September 30, 1998
from $5.4 million, or 21% of total contract revenues, for the three months
ended September 30, 1997. Commercial contract revenues increased to $33.6
million, or 40% of total contract revenues, for the nine months ended
September 30, 1998 from $12.1 million, or 17% of total contract revenues, for
the nine months ended September 30, 1997.
Systems engineering contract revenues decreased 14% for the three months ended
September 30, 1998 and 7% for the nine months ended September 30, 1998 from
the comparable periods in 1997. Decreases in revenues on the General Services
Administration (GSA) Eastern Zone contract, which ended in the third quarter
of 1997 and on the Range Instrumentation Development (RID) program and on the
Technical Engineering and Management Support IV (TEMS IV) program at Hanscom
Air Force Base, which are winding down, and smaller decreases in other Federal
programs, were partially offset by increases in contract revenues on GSA
Schedule contracts.
<PAGE>
Software engineering contract revenues increased 132% for the three months
ended September 30, 1998 and 145% for the nine months ended September 30, 1998
from the comparable periods in 1997. The increase is primarily attributable to
new Year 2000 conversion contracts with the States of Iowa, Kansas, Michigan,
Texas and others and commercial companies such as Cessna Aircraft and Norrell.
COST OF CONTRACT REVENUES. Cost of contract revenues increased to $23.7
million, or 78.1% of contract revenues, for the three months ended September
30, 1998, from $22.4 million, or 85.8% of contract revenues, for the
comparable period in 1997. Cost of contract revenues increased to $65.4
million, or 78.7% of contract revenues, for the nine months ended September
30, 1998, from $58.8 million, or 84.4% 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 $4.0
million, or 13.3% of contract revenues, for the three months ended September
30, 1998, from $2.6 million, or 9.9% of contract revenues, for the comparable
period in 1997. SG&A increased to $10.9 million, or 13.1% of contract
revenues, for the nine months ended September 30, 1998, from $6.6 million, or
9.5% 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 $0.5 million for the three months
ended September 30, 1998 from $0.2 million for the comparable period in 1997
and to $1.3 million for the nine months ended September 30, 1998 from $0.5
million for the comparable period in 1997. The increases are 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 $2.1 million and $5.5 million for the three and nine months ended
September 30, 1998 and an operating profit of $0.9 million and $3.7 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operations provided $4.1 million of cash during the first nine months of 1998,
primarily from the net income after adjustment for non-cash expenses of $2.5
million income tax refunds of $4.3 million and other working capital changes
of $3.8 million offset by the increase in accounts receivable of $5.6 million.
Cash used in investing activities was $1.6 million for purchases of furniture
and equipment. Cash provided by financing activities was $2.5 million,
primarily from net borrowings under the bank line of credit agreement of $1.9
million offset by $2.6 million for purchases of treasury stock and $1.8
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 September 30, 1998, there was $9.3 million
outstanding on the revolving facility and $3.8 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
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NUMBERDOCUMENTLOCATION
3.1Certificate of
Incorporated by reference
Incorporation from
Exhibit 3.1 to Amendment
No. 1 to Form S-1 filed on November
6, 1998
3.2 By-laws Incorporated by reference
from Exhibit 3.2 to Amendment
No. 1 to Form S-1 filed on November
6, 1998
1 Financial Data Electronic Filing Only
Schedule
(b) No reports on Form 8-K were filed during the quarter ended
September 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.
NOVEMBER 13, 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> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 0 1564
<SECURITIES> 0 0
<RECEIVABLES> 43307 35595
<ALLOWANCES> 2191 3418
<INVENTORY> 0 0
<CURRENT-ASSETS> 41851 42171
<PP&E> 8422 10045
<DEPRECIATION> 4831 7761
<TOTAL-ASSETS> 47111 48376
<CURRENT-LIABILITIES> 29265 26944
<BONDS> 0 0
<COMMON> 100 100
0 0
0 0
<OTHER-SE> 15663 20629
<TOTAL-LIABILITY-AND-EQUITY> 47111 48376
<SALES> 83105 69650
<TOTAL-REVENUES> 83105 69650
<CGS> 65412 58793
<TOTAL-COSTS> 65412 58793
<OTHER-EXPENSES> 12149 7132
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 854 1329
<INCOME-PRETAX> 4690 2396
<INCOME-TAX> 1760 899
<INCOME-CONTINUING> 2930 1497
<DISCONTINUED> (2482) 1526
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 448 3023
<EPS-PRIMARY> .05 .32
<EPS-DILUTED> .05 .32
</TABLE>
