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 MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 333-64373
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 MARCH 31, 1999.
COMMON STOCK, $.01 PAR VALUE 8,593,320
(Class) (Number of Shares)
<PAGE>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
INDEX
PART 1. -- FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 1
Condensed Consolidated Income Statements
Three months ended March 31, 1999 and 1998 3
Condensed Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
PART II. -- OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
* * * * * *
Signature 11
i
<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, 1998 MARCH 31, 1999
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ - $ -
Accounts receivable, net 48,909 46,708
Other current assets 1,145 1,182
------ ------
Total current assets 50,054 47,890
Furniture and equipment, net 3,748 3,799
Other assets, net 3,546 3,546
------- -------
$57,348 $55,235
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
1
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($000's except for share amounts)
DECEMBER 31, 1998 MARCH 31, 1999
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable--line of credit $16,223 $ 16,733
Current portion of long-term debt 1,667 1,667
Accounts payable 10,576 7,086
Accrued expenses 4,156 4,477
Excess of billings over costs and
contract prepayments 1,109 466
Other current liabilities 240 104
Income taxes payable 19 731
Deferred income taxes 3,822 3,822
------ ------
Total current liabilities 37,812 35,086
Long-term debt, less current portion 1,667 1,250
Other long-term liabilities 2,135 2,050
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 authorized and
10,000,000 shares issued 100 100
Capital in excess of par value 7,855 7,842
Retained earnings 15,438 16,514
------ ------
23,393 24,456
Notes receivable from employees (698) (698)
Treasury stock, at cost
(1,415,905 shares in 1998 and
1,406,,680 shares in 1999) (6,961) (6,909)
------- -------
Total stockholders' equity 15,734 16,849
$57,348 $55,235
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
($000's Except for Per Share Amounts)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1998 1999
-------- -------
<S> <C> <C>
Contract revenues $25,318 $28,534
Cost of contract revenues 19,976 21,654
Selling, general and administrative expenses 3,238 4,422
Other expenses 608 411
--- ---
Operating profit 1,496 2,047
Interest expense 271 254
--- ---
Income before income taxes 1,225 1,793
Income taxes 459 717
--- ---
Income from continuing operations 766 1,076
Loss from discontinued operations (1,094) -
------ ------
Net income (loss) $ (328) $1,076
Earnings (loss) per share:
Continuing operations $ 0.09 $ 0.13
Discontinued operations (0.13) 0.00
------ ------
$(0.04) $ 0.13
Earnings (loss) per share-assuming dilution:
Continuing operations $ 0.08 $ 0.12
Discontinued operations (0.12) 0.00
------ ------
$(0.04) $ 0.12
</TABLE>
See accompanying notes to the unaudited condensed consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
COMPUTER TECHNOLOGY ASSOCIATES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($000's)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
1998 1999
<S> <C> <C>
Operating activities:
Net income (loss) $ (328) $1,076
Non-cash expenses, net 1,877 679
Changes in assets and liabilities, net (1,448) (1,028)
----- -----
Net cash provided by operating activities 101 727
Investing activities
Investments in furniture and equipment (204) (513)
Financing activities:
Net borrowings under bank line of credit
agreement 2,822 510
Purchases of treasury stock (2,302) (315)
Repayment of long-term debt (417) (417)
Other financing activities, net - 8
----- ----
Net cash provided by (used in) financing
activities 103 (214)
Net increase (decrease) in cash and cash
equivalents $ - $ -
</TABLE>
SEE ACCOMPANYING NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
4
<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 March 31, 1999 and the results of its operations and
its cash flows for the periods ended March 31, 1998 and 1999. The results of
operations presented are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999.
The accompanying financial statements should be read in conjunction with
the audited financial statements for the year ended December 31, 1998 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.
NOTE 2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
------------- ---------
(IN THOUSANDS, EXCEPT
FOR SHARE DATA)
Numerator:
<S> <C> <C>
Income from continuing operations $ 766 $ 1,076
Loss from discontinued operations (1,094) -
------- -----
Net income (loss) for both basic and
diluted earnings per share $ (328) $ 1,076
Denominator:
Denominator for basic earnings per
share --- Weighted average shares
outstanding 8,728,482 8,590,450
Dilutive potential common shares:
Employee stock options 453,132 413,764
--------- ---------
Denominator for diluted earnings per
share --- Adjusted weighted average
shares and assumed conversions 9,181,614 9,004,214
</TABLE>
5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FORWARD-LOOKING STATEMENTS
This filing may contain "forward-looking" statements, as that term is defined
in the Private Securities Litigation Reform Act of 1995. Such statements
include, but are not limited to, statements concerning expectations of the
Company's future performance in terms of revenue and earnings. There can be no
assurance that actual results will not differ materially from those projected
or suggested in such forward-looking statements. Factors which could cause a
material difference in results include, but are not limited to, the following:
regional and national economic conditions; changes in interest rates; changes
in government spending policies and/or decisions concerning specific programs;
individual business decisions of customers and clients; developments in
technology; competitive factors and pricing pressures; changes in government
laws and regulations; acts of God; and the Company's ability to achieve the
objectives of its business plans.
RESULTS OF OPERATIONS
The following tables set forth certain items in the Company's Income
Statements as a percentage of contract revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1998 1999
------ ------
<S> <C> <C>
Contract revenues......................... 100.0% 100.0%
Cost of contract revenues................. 78.9 75.9
Selling, general and administrative
expenses.................................. 12.8 15.5
Other expenses............................ 2.4 1.4
----- -----
Operating profit.......................... 5.9 7.2
Interest expense.......................... 1.1 0.9
--- ---
Income before income taxes................ 4.8 6.3
Provision for income...................... 1.8 2.5
--- ---
Income from continuing operations......... 3.0 3.8
Loss from discontinued operations......... (4.3) 0.0
----- ---
Net income (loss)......................... (1.3) 3.8
</TABLE>
6
<PAGE>
The following tables set forth certain items in the Company's Income
Statements by operating segment:
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
1998 1999
(In thousands of dollars)
Contract revenues:
<S> <C> <C>
Systems $17,539 $19,593
Software 7,779 8,941
------- -------
$25,318 $28,534
Operating profit (loss):
Systems $1,254 $3,611
Software 850 (1,153)
------ ------
2,104 2,458
Other expenses (608) (411)
------ ------
$1,496 $2,047
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 1998
CONTRACT REVENUES. Contract revenues increased 13% to $28.5 million for the
three months ended March 31, 1999 from $25.3 million for the three months
ended March 31, 1998.
Systems engineering contract revenues increased 11.7% to $19.6 million for the
three months ended March 31, 1999 from $17.5 million for the three months
ended March 31, 1998. Significant increases in Year 2000 embedded systems
contract revenues were offset by a decrease in contract revenue of $2.5
million on a medical information systems contract for the Department of
Defense and smaller decreases in other Federal programs.
Software engineering contract revenues increased 14.9% to $8.9 million for the
three months ended March 31, 1999 from $7.8 million for the three months ended
March 31, 1998. The increase is primarily attributable to new Year 2000
conversion orders with the State of Kansas as well as new orders from other
state governments and commercial companies.
COST OF CONTRACT REVENUES. Cost of contract revenues increased to $21.7
million, or 75.9% of contract revenues, in 1999 from $20.0 million, or 78.9%
of contract revenues, in 1998. This decrease in cost of contract revenues as a
percentage of contract revenues resulted primarily from the increase of higher
margin embedded systems contracts as a percentage of overall contract
revenues.
7
SG&A. Selling, general and administrative expenses (SG&A) for 1999 increased
to $4.4 million, or 15.5% of contract revenues, from $3.2 million, or 12.8% of
contract revenues, in 1998. 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, as well as increased focus on
commercial markets.
OTHER EXPENSES. Other expenses decreased to $0.4 million, or 1.4% of contract
revenues, in 1999 from $0.6 million, or 2.4% of contract revenues, in 1998.
OPERATING PROFIT. As a result of the foregoing, the Company had an operating
profit of $2.0 million, or 7.2% of contract revenues, in 1999, and $1.5
million, or 5.9% of contract revenues, in 1998. The Systems Engineering Group
had an increase in its operating profit of 188%, from $1.3 million in 1998 to
$3.6 million in 1999. This significant increase is due primarily to the higher
margin embedded systems contracts. The Software Engineering Group experienced
an operating loss of $1.2 million in 1999 compared to an operating profit of
$0.8 million in 1998. The operating loss is due to a loss of $2.1 million
recorded on a contract with the State of Texas that is expected to be
completed in the third quarter of 1999 and no additional losses are
anticipated.
LIQUIDITY AND CAPITAL RESOURCES
Operations provided $0.7 million of cash during the first quarter of 1999,
primarily from net earnings $1.1 million and non-cash expenses of $0.7 million
offset by changes in assets and liabilities of $1.1 million. Cash used in
investing activities was $0.5 million for purchases of furniture and
equipment. Cash used in financing activities was $0.2 million, primarily from
net borrowings under the bank line of credit agreement of $0.5 million offset
by $0.3 million for purchases of treasury stock and $0.4 million for
repayments of long-term debt.
The Company has a credit facility with a bank providing the availability to
borrow up to $23 million, including a revolving facility of $18 million and a
$5 million term facility. At March 31, 1999, there was $16.7 million
outstanding on the revolving facility and $2.9 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.
8
<PAGE>
OTHER MATTERS
THE COMPANY HAS ASSIGNED CERTAIN INDIVIDUALS TO IDENTIFY AND CORRECT YEAR
2000 COMPLIANCE ISSUES. INFORMATION TECHNOLOGY ("IT") SYSTEMS WITH NON-
COMPLIANT CODE ARE EXPECTED TO BE MODIFIED OR REPLACED WITH SYSTEMS THAT ARE
YEAR 2000 COMPLIANT. THE INDIVIDUALS ARE ALSO RESPONSIBLE FOR INVESTIGATING
THE READINESS OF SUPPLIERS, CUSTOMERS AND OTHER THIRD PARTIES ALONG WITH THE
DEVELOPMENT OF CONTINGENCY PLANS WHERE NECESSARY.
All IT systems have been inventoried and assessed for compliance, and detailed
plans are in place for required system modifications or replacements. Systems
conversion and testing activities are underway with approximately two-thirds
of the systems already compliant. IT systems are expected to be fully
compliant by the end of the third quarter of 1999. Inventories and
assessments of non-IT systems have been completed. Progress of the Year 2000
compliance program is continuously being monitored by senior management.
THE COMPANY HAS IDENTIFIED CRITICAL SUPPLIERS, CUSTOMERS AND OTHER THIRD
PARTIES AND HAS SURVEYED THEIR YEAR 2000 REMEDIATION PROGRAMS. RISK
ASSESSMENTS AND CONTINGENCY PLANS, WHERE NECESSARY, WILL BE FINALIZED IN THE
THIRD QUARTER OF 1999.
Incremental costs directly related to Year 2000 issues are estimated to be
$650,000 to be incurred between 1998 and 1999 of which $420,000 (or 65%) has
been spent to date. Approximately 10% of the total estimated spending
represents costs to modify existing systems. Costs incurred prior to 1998
were immaterial. This estimate assumes that the Company will not incur
significant Year 2000 related costs on behalf of suppliers, customers or other
third parties.
THE COMPANY'S MOST LIKELY POTENTIAL RISK IS THE INABILITY OF SOME CUSTOMERS TO
ORDER AND PAY ON A TIMELY BASIS. CONTINGENCY PLANS FOR YEAR 2000-RELATED
INTERRUPTIONS ARE BEING DEVELOPED AND WILL INCLUDE, BUT NOT BE LIMITED TO, THE
DEVELOPMENT OF EMERGENCY BACKUP AND RECOVERY PROCEDURES, REMEDIATION OF
EXISTING SYSTEMS PARALLEL WITH INSTALLATION OF NEW SYSTEMS AND IDENTIFICATION
OF ALTERNATE SUPPLIERS. ALL PLANS ARE EXPECTED TO BE COMPLETED BY THE END OF
THE THIRD QUARTER OF 1999.
THE COMPANY'S YEAR 2000 EFFORTS ARE ONGOING AND ITS OVERALL PLAN, AS WELL
AS THE CONSIDERATION OF CONTINGENCY PLANS, WILL CONTINUE TO EVOLVE AS NEW
INFORMATION BECOMES AVAILABLE. WHILE THE COMPANY ANTICIPATES NO MAJOR
INTERRUPTION OF ITS BUSINESS ACTIVITIES, THAT WILL BE DEPENDENT IN PART, UPON
THE ABILITY OF THIRD PARTIES TO PROPERLY REMEDIATE THEIR IT AND NON-IT SYSTEMS
IN A TIMELY MANNER. ALTHOUGH THE COMPANY HAS IMPLEMENTED THE ACTIONS
DESCRIBED ABOVE TO ADDRESS THIRD PARTY ISSUES, IT HAS NO ABILITY TO INFLUENCE
THE COMPLIANCE ACTIONS OF SUCH PARTIES. ACCORDINGLY, WHILE THE COMPANY
BELIEVES ITS ACTIONS IN THIS REGARD SHOULD HAVE THE EFFECT OF REDUCING YEAR
2000 RISKS, IT IS UNABLE TO ELIMINATE THEM OR ESTIMATE THE ULTIMATE EFFECT
YEAR 2000 RISKS WILL HAVE ON THE COMPANY'S OPERATING RESULTS.
9
<PAGE>
PART II. -- OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
There were no material developments during the quarterly
period ended March 31, 1999. See Item 3 of the Registrant'sAnnual
Report on Form 10-K for the year ended December 31,1998 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
On May 4, 1999, Computer Technology Associates, Inc. merged with
Rey Consulting Group, Inc. The merger will be accounted for as a
purchase. The purchase price was $2,950,000 in cash and 384,616
shares of the Registrant's common stock. Rey Consulting Group will
operate as a wholly owned subsidiary of the Registrant.
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. 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
27 Financial Data Electronic Filing Only
Schedule
(b) No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
10
<PAGE>
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.
MAY 14,1999 /S/ GREGORY H. WAGNER
Gregory H. Wagner
Executive Vice President,
Chief Financial Officer,
Principal Accounting Officer
and Treasurer
11
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<CAPTION>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 49049
<ALLOWANCES> 2341
<INVENTORY> 0
<CURRENT-ASSETS> 47890
<PP&E> 9453
<DEPRECIATION> 5654
<TOTAL-ASSETS> 55235
<CURRENT-LIABILITIES> 35086
<BONDS> 0
<COMMON> 100
0
0
<OTHER-SE> 16749
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<SALES> 28534
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<CGS> 21654
<TOTAL-COSTS> 21654
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<EPS-PRIMARY> .13
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</TABLE>
