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Form 10-Q for ANTEON INTERNATIONAL CORPORATION filed on August 1, 2003
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-31258
ANTEON INTERNATIONAL CORPORATION
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3880755
----------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3211 Jermantown Road, Fairfax, Virginia 22030-2801
- --------------------------------------------------------------------------------
(Address of principal executive office)
(Zip Code)
(703) 246-0200
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------------------------------------------------
(Former name, former address, and former
fiscal year, if changed since last report.)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of the close of business on July 28, 2003, there were 34,910,541 outstanding
shares of the registrant's common stock, par value $.01 per share.
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2003 AND DECEMBER 31, 2002 1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND
2002 3
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 24
ITEM 4. CONTROLS AND PROCEDURES 25
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 25
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 26
ITEM 5. OTHER INFORMATION 26
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 26
i
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A Delaware Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, 2003 December 31,
(Unaudited) 2002
----------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,829 $ 4,266
Accounts receivable, net 212,713 189,059
Deferred tax asset 644 --
Prepaid expenses and other current assets 14,887 15,071
----------------- -----------------
Total current assets 232,073 208,396
Property and equipment, net 12,952 9,992
Goodwill 213,634 138,619
Intangible and other assets, net 9,872 7,685
----------------- -----------------
Total assets $ 468,531 $ 364,692
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Term loan, current portion $ 3,798 $ 3,798
Subordinated notes payable, current portion 2,500 2,500
Accounts payable 45,045 47,630
Accrued expenses 71,768 57,603
Income tax payable 5,044 7,738
Other current liabilities 536 806
Deferred tax liability -- 2,230
Deferred revenue 12,131 5,701
----------------- -----------------
Total current liabilities 140,822 128,006
Term loan, less current portion 15,504 17,403
Revolving facility 76,400 7,000
Senior subordinated notes payable, less current portion 75,000 75,000
Noncurrent deferred tax liabilities, net 8,434 7,808
Other long term liabilities 1,191 490
----------------- -----------------
Total liabilities 317,351 235,707
Minority interest in subsidiaries 188 156
Stockholders' equity:
Preferred stock, $.01 par value; 15,000,000 shares authorized, none issued
and outstanding as of June 30, 2003 and December 31, 2002 -- --
Common stock, $.01 par value; 175,000,000 shares authorized, 34,814,582 and
34,419,049 shares issued and outstanding as of June 30, 2003 and
December 31, 2002, respectively. 348 344
Stock subscription receivable (12) (12)
Additional paid-in capital 109,442 106,849
Accumulated other comprehensive loss (327) (509)
Retained earnings 41,541 22,157
----------------- -----------------
Total stockholders' equity 150,992 128,829
----------------- -----------------
Total liabilities and stockholders' equity $ 468,531 $ 364,692
================= =================
See accompanying notes to unaudited condensed consolidated financial statements.
1
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A Delaware Corporation)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
For the three months ended For the six months ended
June 30, June 30,
---------------------------------- ---------------------------------
2003 2002 2003 2002
------------ --------------- ------------- ------------
Revenues $ 254,093 $ 201,938 $ 482,684 $ 394,566
Costs of revenues 218,830 174,674 416,006 341,693
-------------- -------------- ------------- ------------
Gross profit 35,263 27,264 66,678 52,873
-------------- -------------- ------------- ------------
Operating expenses:
General and administrative expenses 14,446 10,766 27,419 21,381
Amortization of intangible assets 563 477 1,040 954
------------- -------------- ------------- ------------
Total operating expenses 15,009 11,243 28,459 22,335
------------- -------------- ------------- ------------
Operating income 20,254 16,021 38,219 30,538
Other income -- 354 -- 360
Interest expense, net of interest income of $71, $36,
$141 and $79, respectively 3,363 7,349 6,553 15,083
Minority interest in (earnings) losses of subsidiaries (20) 1 (32) (8)
-------------- -------------- ------------- ------------
Income before provision for income taxes 16,871 9,027 31,634 15,807
Provision for income taxes 6,562 3,518 12,250 6,164
-------------- -------------- ------------- ------------
Net income $ 10,309 $ 5,509 $ 19,384 $ 9,643
============== ============== ============= ============
Basic earnings per common share: $ 0.30 $ 0.16 $ 0.56 $ 0.32
============== ============== ============= ============
Basic weighted average shares outstanding 34,693,543 33,891,090 34,577,286 30,030,543
Diluted earnings per common share: $ 0.28 $ 0.15 $ 0.53 $ 0.30
============== ============== ============= ============
Diluted weighted average shares outstanding 36,729,783 36,554,219 36,680,559 32,573,390
See accompanying notes to unaudited condensed consolidated financial statements.
2
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A Delaware Corporation)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the six months ended June 30,
2003 2002
---------------------- -----------------------
OPERATING ACTIVITIES:
Net income $ 19,384 $ 9,643
Adjustments to reconcile net income to net cash provided (used for) by
operating activities:
Interest rate swap termination -- (1,903)
Depreciation and amortization of property and equipment 1,828 2,343
Amortization of intangible assets 1,040 954
Amortization of deferred financing fees 708 1,844
Loss on disposals of property and equipment 1 79
Deferred income taxes (2,893) 1,470
Minority interest in earnings (losses) of subsidiaries 32 8
Changes in assets and liabilities 3,672 (16,438)
----------------- ---------------
NET CASH PROVIDED (USED FOR) BY OPERATING ACTIVITIES 23,772 (2,000)
----------------- ---------------
INVESTING ACTIVITIES:
Purchases of property, equipment and other assets (1,477) (1,286)
Costs of acquisition, net of cash acquired (91,810) --
----------------- ---------------
NET CASH USED FOR INVESTING ACTIVITIES (93,287) (1,286)
----------------- ---------------
FINANCING ACTIVITIES:
Principal payments on notes payable (25) (24)
Payment of credit facility amendment fee (249) (604)
Principal payments on term loan (1,899) (23,953)
Proceeds from revolving credit facility 484,800 443,500
Principal payments on revolving credit facility (415,400) (454,300)
Redemption of senior subordinated notes payable -- (25,000)
Proceeds from issuance of common stock, net of expenses 2,351 78,945
Principal payments on subordinated notes payable to stockholders -- (7,499)
Payment of non-compete agreement (500) --
Payment of subordinated notes payable-related party -- (4,369)
----------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 69,078 6,696
----------------- ---------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents (437) 3,410
Cash and cash equivalents, beginning of period 4,266 1,930
----------------- ---------------
Cash and cash equivalents, end of period $ 3,829 $ 5,340
================= ===============
Supplemental disclosure of cash flow information (in thousands):
Interest paid $ 6,443 $ 13,335
================= ===============
Income taxes paid, net $ 16,717 $ 857
================= ===============
See accompanying notes to unaudited condensed consolidated financial statements.
3
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A Delaware Corporation)
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Supplemental disclosure of non-cash investing and financing activities:
In March 2002, in connection with the Company's initial public offering
("IPO") of shares of its common stock, a $22.5 million principal amount
subordinated convertible promissory note of the Company held by Azimuth Tech. II
LLC, now one of the Company's principal stockholders, was converted pursuant to
its terms into 4,629,232 shares of the Company's common stock at a conversion
price of $4.86 per share.
In March 2002, the Company exchanged approximately 90,060 shares held by
minority interest holders in Anteon International Corporation, a Virginia
corporation, at December 31, 2001 into 180,120 shares of the Company's common
stock.
4
ANTEON INTERNATIONAL CORPORATION AND SUBSIDIARIES
(A Delaware Corporation)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(1) Basis of Presentation
The information furnished in the accompanying Unaudited Condensed
Consolidated Balance Sheets, Unaudited Condensed Consolidated Statements of
Operations and Unaudited Condensed Consolidated Statements of Cash Flows have
been prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring adjustments, considered necessary for a fair presentation of such
information. The operating results for the three and six months ended June 30,
2003 may not be indicative of the results of operations for the year ending
December 31, 2003, or any future period. This financial information should be
read in conjunction with the Company's December 31, 2002 audited consolidated
financial statements and footnotes thereto, included in the Annual Report on
Form 10-K filed with the Securities and Exchange Commission by the Company on
March 11, 2003 (Commission File No. 001-31258).
(2) Organization and Business
Anteon International Corporation, a Delaware Corporation, or "Anteon" or
the "Company," and its subsidiaries provide professional information technology,
systems and software development, high technology research and systems
integration services primarily to the U.S. government and its agencies. The
Company is subject to all of the risks associated with conducting business with
the U.S. federal government, including the risk of contract termination for the
convenience of the government. In addition, government funding continues to be
dependent on congressional approval of program level funding and on contracting
agency approval for the Company's work. The extent to which the Company's
existing contracts will be funded in the future cannot be determined.
(3) Acquisition of the Information Spectrum, Inc.
On May 23, 2003, the Company purchased all of the outstanding stock of
Information Spectrum, Inc. ("ISI"), a provider of credential card technologies,
military logistics and training systems, based in Annandale, Virginia, for a
total purchase price of approximately $91.6 million, excluding transactions
costs of approximately $665,000. The transaction was accounted for in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, whereby the net tangible and identifiable intangible assets
acquired and liabilities assumed were recognized at their estimated fair market
values at the date of acquisition, based on preliminary estimates made by
management. The identifiable intangible assets consisted of $3.5 million for
contracts and related customer relationships and $500,000 for a non-compete
agreement. The contracts and related customer relationships were valued based on
an independent appraisal and have an expected useful life of approximately 5.3
years. The non-compete value was based on the consideration paid for the
agreement and is being amortized straight-line over the three year term of the
agreement. Goodwill arising from the transaction is not being amortized in
accordance with SFAS No. 142, Goodwill and Other Intangible Assets. The total
purchase price paid, including transaction costs and other deal related costs,
of $92.3 million was preliminarily allocated to the assets acquired and
liabilities assumed as follows (in thousands):
Accounts receivable 21,400
Prepaid and other current assets 2,156
Property and equipment 3,312
Other assets 120
Current income tax receivable 818
Accounts payable and accrued expenses (11,187)
Deferred income tax, net (547)
Deferred revenue (2,777)
Contracts and related customer relationships 3,500
Goodwill 75,015
Non-compete agreement 500
-----------------
Total consideration $ 92,310
=================
Certain of the estimates related to the Company's acquisition of ISI are
preliminary as the Company is awaiting the finalization of appraisals and other
studies before the identification and valuation of intangible assets can be
complete, which is expected in the third quarter of 2003.
5
(4) Accounting for Stock-Based Compensation
The Company accounts for employee stock-based compensation plans using the
intrinsic value based method of accounting prescribed by APB Opinion No. 25, or
"APB No. 25," Accounting for Stock Issued to Employees. The Company has an
employee stock option plan. Compensation expense for stock options granted to
employees is recognized based on the difference, if any, between the fair value
of the Company's common stock and the exercise price of the option at the date
of grant. The Company discloses the pro forma effect on net income (loss) as if
the fair value based method of accounting as defined in SFAS No. 123, Accounting
for Stock-based Compensation, had been applied.
The Company accounts for stock options granted to non-employees using the
fair value method of accounting as prescribed by SFAS No. 123. Compensation
expense related to stock options granted to non-employees is not significant.
The following table illustrates the effect on net income and earnings per
share for the three and six months ended June 30, 2003 and 2002 as if the
Company had applied the fair value recognition provisions of SFAS No. 123 to
stock-based employee compensation:
Three Months Ended Three Months
June 30, 2003 Ended June 30,
2002
-------------------- ------------------
(in thousands, except per share data)
Net Income, as reported $ 10,309 $ 5,509
Add: stock-based compensation recorded -- --
Deduct: total stock-based compensation expense determined
under the fair value method, net of tax 640 554
-------------------- ------------------
Pro forma net income $ 9,669 $ 4,955
Earnings Per Share:
Basic-as reported $ 0.30 $ 0.16
==================== ==================
Basic-Pro forma $ 0.28 $ 0.15
==================== ==================
Diluted-as reported $ 0.28 $ 0.15
==================== ==================
Diluted-Pro forma $ 0.26 $ 0.14
==================== ==================
Six Months Ended Six Months Ended
June 30, 2003 June 30, 2002
-------------------- ------------------
(in thousands, except per share data)
Net Income, as reported $ 19,384 $ 9,643
Add: stock-based compensation recorded -- --
Deduct: total stock-based compensation expense determined
under the fair value method, net of tax $ 1,225 $ 877
-------------------- ------------------
Pro forma net income $ 18,159 $ 8,766
Earnings Per Share:
Basic-as reported $ 0.56 $ 0.32
==================== ==================
Basic-Pro forma $ 0.53 $ 0.29
==================== ==================
Diluted-as reported $ 0.53 $ 0.30
==================== ==================
Diluted-Pro forma $ 0.50 $ 0.27
==================== ==================
(5) Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended June 30, 2003 and
2002 was approximately $10.5 million and $5.5 million, respectively.
Comprehensive income (loss) for the six months ended June 30, 2003 and 2002 was
approximately, $19.6 million and $10.9 million, respectively. Other
comprehensive income for the three months ended June 30, 2003 and 2002 includes
foreign currency translation income (losses) of approximately $67,000 and
$27,000, respectively, and increases (decreases) in the fair value of interest
rate
6
swaps of approximately $85,000 and $4,000, net of tax. Comprehensive income
(loss) for the six months ended June 30, 2003 and 2002 includes foreign currency
translation gains (losses) of approximately $35,000 and $(6,000), respectively,
and increases (decreases) in the fair value of interest rate swaps of
approximately $147,000 and $1.3 million, net of tax. For the six months ended
June 30, 2002, the Company exercised its cancellation rights under certain
interest rate swap agreements and cancelled $30.0 million of such agreements.
These interest rate swap agreements related primarily to term loan obligations
that have been permanently reduced. Interest expense for the six months ended
June 30, 2002 includes losses of $1.9 million associated with these
cancellations. Prior to cancellation, losses associated with these interest rate
swap agreements were recorded as a component of accumulated other comprehensive
loss.
(6) Computation of Earnings Per Share
For the three months ended
June 30, 2003
Income Weighted average shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 10,309 34,693,543 $ 0.30
=============== ==============
Stock options -- 2,036,240 --
Diluted earnings per share:
Net income $ 10,309 36,729,783 $ 0.28
=============== ==============
For the three months ended
June 30, 2002
Income Weighted average shares Per Share
(Numerator) (Denominator) Amount
(in thousands,except share and per share data)
Basic earnings per share:
Net income $ 5,509 33,891,090 $ 0.16
=============== ==============
Stock options -- 2,663,129 --
Diluted earnings per share:
Net income $ 5,509 36,554,219 $ 0.15
=============== ==============
7
For the six months ended
June 30, 2003
Income Weighted average shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 19,384 34,577,286 $ 0.56
=============== ==============
Stock options -- 2,103,273 --
Diluted earnings per share:
Net income $ 19,384 36,680,559 $ 0.53
=============== ==============
For the six months ended
June 30, 2002
Income Weighted average shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 9,643 30,030,543 $ 0.32
=============== ==============
Stock options -- 2,542,847 --
Diluted earnings per share:
Net income $ 9,643 32,573,390 $ 0.30
=============== ==============
(7) Domestic Subsidiaries Summarized Financial Information
Under the terms of the Company's 12% senior subordinated notes due
2009, or "12% Notes," and the Company's Credit Facility, the Company's wholly
owned domestic subsidiaries (the "Guarantor Subsidiaries") are guarantors of the
12% Notes and the Company's Credit Facility. Such guarantees are full,
unconditional and joint and several. Separate unaudited condensed financial
statements of the Guarantor Subsidiaries are not presented because the Company's
management has determined that they would not be material to investors. The
following supplemental financial information sets forth, on a combined basis,
condensed balance sheets, statements of operations and statements of cash flows
information for the Guarantor Subsidiaries, the Company's non-guarantor
subsidiaries and for the Company.
8
As of June 30, 2003
------------------------------------------------------------------------------------
Consolidated
Unaudited Condensed Consolidated Anteon Anteon
Balance Sheets International Guarantor Non-Guarantor Elimination International
Corporation Subsidiaries Subsidiaries Entries Corporation
----------- ------------ ------------ ----------- --------------
(in thousands)
Cash and cash equivalents $ (23) $ 651 $ 3,201 $ -- $ 3,829
Accounts receivable, net -- 211,702 1,011 -- 212,713
Other current assets 1,134 11,912 2,485 -- 15,531
Property and equipment, net 2,350 10,466 136 -- 12,952
Due from parent (113,467) 113,660 (193) -- --
Investments in and advances to subsidiaries 30,780 (12,130) -- (18,650) --
Goodwill, net 169,962 43,672 -- -- 213,634
Intangible and other assets, net 75,841 2,031 -- (68,000) 9,872
------------- --------- ------------ ------------ -------------
Total assets $ 166,577 $ 381,964 6,640 $ (86,650) $ 468,531
============ ========== =========== ============ =============
Indebtedness $ 96,802 $ 144,400 $ -- $ (68,000) $ 173,202
Accounts payable 555 42,973 1,517 -- 45,045
Accrued expenses and other current
liabilities 2,104 74,708 536 -- 77,348
Deferred revenue -- 9,376 2,755 -- 12,131
Other long-term liabilities -- 8,695 930 -- 9,625
------------- --------- ----------- ------------ -------------
Total liabilities 99,461 280,152 5,738 (68,000) 317,357
Minority interest in subsidiaries -- -- 188 -- 188
Total stockholders' equity (deficit) 67,116 101,814 714 (18,650) 150,992
------------- --------- ----------- ------------ -------------
Total liabilities and stockholders' equity
(deficit) $ 166,577 $ 381,964 $ 6,640 $ (86,650) $ 468,531
============= ========= =========== ============ =============
9
For the six months ended June 30, 2003
-------------------------------------------------------------------------------------
Consolidated
Unaudited Condensed Consolidated Anteon Anteon
Statements of Operations International Guarantor Non-Guarantor Elimination International
Corporation Subsidiaries Subsidiaries Entries Corporation
--------------- -------------- ----------------- ------------- --------------
(in thousands)
Revenues $ -- $ 477,360 $ 5,450 $ (126) $ 482,684
Costs of revenues -- 411,311 4,821 (126) 416,006
-------- ---------- ---------- --------- ----------
Gross profit -- 66,049 629 -- 66,678
Total operating expenses 1,513 41,579 408 (15,041) 28,459
-------- ---------- ---------- --------- ----------
Operating income (loss) (1,513) 24,470 221 15,041 38,219
Other income (loss) 4,797 0,244 -- (15,041) --
Interest expense (income), net 2,520 4,040 (7) -- 6,553
Minority interest in earnings of
subsidiaries -- -- (32) -- (32)
-------- ---------- ---------- --------- ----------
Income before provision for income taxes 764 30,674 196 -- 31,634
Provision for income taxes 290 11,890 70 -- 12,250
-------- ---------- ---------- --------- ----------
Net income $ 474 $ 18,784 $ 126 $ -- $ 19,384
======== ========== ========== ========= =============
10
For the six months ended June 30, 2003
----------------------------------------------------------------------------
Unaudited Condensed Consolidated Statements of Cash Consolidated
Flows Anteon Anteon
International Guarantor Non-Guarantor International
Corporation Subsidiaries Subsidiaries Corporation
----------------- ----------------- ------------------- ----------------
(in thousands)
Operating Activities:
Net income $ 474 $ 18,784 $ 126 $ 19,384
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization of property and
equipment 376 1,420 32 1,828
Amortization of intangible assets 913 127 -- 1,040
Amortization of deferred financing fees 657 51 -- 708
Loss on disposals of property and equipment -- 1 -- 1
Deferred income taxes -- (2,893) -- (2,893)
Minority interest in earnings of subsidiaries -- -- 32 32
Changes in assets and liabilities 89,575 (88,335) 2,432 3,672
------------- ------------ ------------- --------------
Net cash provided by (used for) operating
activities 91,995 (70,845) 2,622 23,772
------------- ------------ ------------- --------------
Investing activities:
Purchases of property, equipment and other assets (362) (1,070) (45) (1,477)
Costs of acquisition, net of cash acquired (92,091) 281 -- (91,810)
------------- ------------ ------------- --------------
Net cash used for investing activities (92,453) (789) (45) (93,287)
------------- ------------ ------------- --------------
Financing activities:
Principal payments on notes payable -- (25) -- (25)
Payment of credit facility amendment fee -- (249) -- (249)
Principal payments on term loan (1,899) -- -- (1,899)
Proceeds from revolving credit facility -- 484,800 -- 484,800
Principal payments on revolving credit facility -- (415,400) -- (415,400)
Proceeds from issuance of common stock, net of
expenses 2,351 -- -- 2,351
Payment of non-compete agreement -- (500) -- (500)
------------- ------------ ------------- --------------
Net cash provided by financing activities 452 68,626 -- 69,078
------------- ------------ ------------- --------------
Net increase (decrease) in cash and cash equivalents (6) (3,008) 2,577 (437)
Cash and cash equivalents, beginning of period (17) 3,659 624 4,266
------------- ------------ ------------- --------------
Cash and cash equivalents, end of period $ (23) $ 651 $ 3,201 $ 3,829
============= ============ ============= ==============
11
For the six months ended June 30, 2002
-------------------------------------------------------------------------------------
Consolidated
Unaudited Condensed Consolidated Anteon Anteon
Statements of Operations International Guarantor Non-Guarantor Elimination International
Corporation Subsidiaries Subsidiaries Entries Corporation
--------------- -------------- ----------------- ------------- --------------
(in thousands)
Revenues $ -- $ 396,518 $ 2,826 $ (4,778) $ 394,566
Costs of revenues 20 343,861 2,590 (4,778) 341,693
----------- ------------- ------------- ------------- --------------
Gross profit (loss) (20) 52,657 236 -- 52,873
Total operating expenses 994 23,852 184 (2,695) 22,335
----------- ------------- ------------- ------------- --------------
Operating income (loss) (1,014) 28,805 52 2,695 30,538
Other income (loss) 2,703 352 -- (2,695) 360
Interest expense (income), net 12,724 2,369 (10) -- 15,083
Minority interest in earnings of
subsidiaries -- -- (8) -- (8)
----------- ------------- ------------- ------------- --------------
Income (loss) before provision for income
taxes (11,035) 26,788 54 -- 15,807
Provision for (benefit from) income taxes (4,304) 10,445 23 -- 6,164
----------- ------------- ------------- ------------- --------------
Net income (loss) $ (6,731) $ 16,343 $ 31 $ -- $ 9,643
=========== ============= ============= ============= ==============
12
For the six months ended June 30, 2002
----------------------------------------------------------------------------
Unaudited Condensed Consolidated Statements of Consolidated
Cash Flows Anteon Anteon
International Guarantor Non-Guarantor International
Corporation Subsidiaries Subsidiaries Corporation
----------------- ----------------- ------------------- ----------------
(in thousands)
Operating Activities:
Net income (loss) $ (6,731) $ 16,343 $ 31 $ 9,643
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Interest rate swap termination (1,903) -- -- (1,903)
Depreciation and amortization of property and
equipment 377 1,935 31 2,343
Amortization of intangible assets 844 110 -- 954
Amortization of deferred financing fees 1,844 -- -- 1,844
Loss on disposals of property and equipment -- 79 -- 79
Deferred income taxes 2,537 (1,067) -- 1,470
Minority interest in earnings of subsidiaries -- -- 8 8
Changes in assets and liabilities (6,555) (10, 531) 648 (16,438)
------------- -------------- -------------- ---------------
Net cash provided by (used for) operating activities (9,587) 6,869 718 (2,000)
------------- -------------- -------------- ---------------
Investing activities:
Purchases of property, equipment and other assets (24) (1,226) (36) (1,286)
------------- -------------- -------------- ---------------
Net cash used for investing activities (24) (1,226) (36) (1,286)
------------- -------------- -------------- ---------------
Financing activities:
Principal payments on notes payable -- (24) -- (24)
Payment of credit facility amendment fee (604) -- -- (604)
Principal payments on term loan (23,953) -- -- (23,953)
Proceeds from revolving credit facility 443,500 -- -- 443,500
Principal payments on revolving credit facility (454,300) -- -- (454,300)
Redemption of senior subordinated notes payable (25,000) -- -- (25,000)
Proceeds from issuance of common stock, net of
expenses 78,945 -- -- 78,945
Principal payments on subordinated notes payable
to stockholders (7,499) -- -- (7,499)
Payment of subordinated notes payable-related
party (4,369) -- -- (4,369)
------------- -------------- -------------- ---------------
Net cash provided by (used for) financing activities 6,720 (24) -- 6,696
------------- -------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents (2,891) 5,619 682 3,410
Cash and cash equivalents, beginning of period 3,348 (1,669) 251 1,930
------------- -------------- -------------- ---------------
Cash and cash equivalents, end of period $ 457 $ 3,950 $ 933 $ 5,340
============= ============== ============== ===============
13
(8) Segment Information
Although the Company is organized by strategic business units, the Company
considers each of its government contracting units to have similar economic
characteristics, provide similar types of services and have a similar customer
base. Accordingly, the Company's government contracting segment aggregates the
operations of all of the Company's strategic business units.
(9) Interest Rate Swap Agreements
In the six months ended June 30, 2002, the Company exercised its
cancellation rights under certain interest rate swap agreements and cancelled
$30.0 million of such agreements. These interest rate swap agreements related
primarily to term loan obligations that have been permanently reduced. Interest
expense for the six months ended June 30, 2002 includes losses of $1.9 million
associated with these cancellations.
As of June 30, 2003, the fair value of the Company's interest swap
agreements, with a notional value of $15.0 million, resulted in a net liability
of approximately $519,000, which has been included in other current liabilities.
Over the next twelve months, approximately $519,000 of losses related to the
interest rate swaps are expected to be reclassified into remaining interest
expense as a yield adjustment of the hedged debt obligation.
(10) Legal Proceedings
The Company is involved in various legal proceedings in the ordinary course
of business.
On December 18, 2002, an arbitrator issued a decision requiring the Company
to continue to issue task orders to a subcontractor under a subcontract for so
long as the Company's customer continues to issue task orders to the Company for
these services. The arbitrator's decision also enjoined the Company from
interviewing, offering employment to, hiring or otherwise soliciting employees
of the subcontractor who work on this particular project. The arbitrator's
decision also denied the subcontractor's claim for monetary damages and the
Company's counter-demand. The Company subsequently filed an action to vacate or
modify that portion of the arbitrator's decision enjoining it from hiring
certain subcontractor employees under any circumstances, since the prohibition
extends the scope of the parties' pre-existing contractual obligations. The
court vacated the portion of the arbitrator's decision relating to the scope of
the injunction and referred the issue back to the arbitrator for further
consideration. The Company expects the arbitrator to rule on this matter in the
third quarter of 2003.
The Company cannot predict the ultimate outcome of these matters, but does
not believe that they will have a material impact on its financial position or
results of operations.
(11) New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board issued Statement
145, or "SFAS No. 145," Rescission of FASB Statements No. 4, 44, and 64,
Amendment to FASB Statement 13, and Technical Corrections. SFAS No. 145
addresses the reporting of gains and losses from extinguishment of debt and
rescinds FASB Statements 4 and 64. Under the new standard, only gains and losses
from extinguishments meeting the criteria of Accounting Principles Board Opinion
No. 30 would be classified as extraordinary items. Thus, gains or losses arising
from extinguishments of debt that are part of the Company's recurring operations
would not be reported as extraordinary items. Upon adoption, previously reported
extraordinary gains or losses not meeting the requirements for classification as
such in accordance with Accounting Principles Board Opinion No. 30 would be
required to be reclassified for all periods presented. The Company adopted SFAS
No. 145 as of January 1, 2003, and as a result, the Company reclassified
approximately $3.9 million (2.3 million net of tax) and $4.2 million ($2.6
million net of tax) of losses previously recorded as an extraordinary item for
the three and six months ended June 30, 2002, respectively, to interest expense.
14
In December 2002, the Emerging Issue Task Force, or "EITF", issued a
consensus on Issue 00-21, or "EITF 00-21," Accounting for Revenue Arrangements
with Multiple Deliverables. EITF 00-21 provides guidance on determining whether
a revenue arrangement contains multiple deliverable items and if so, requires
revenue be allocated among the different items based on fair value. EITF 00-21
also requires that revenue on any item in a revenue arrangement with multiple
deliverables not delivered completely must be deferred until delivery of the
item is completed. The effective date of EITF 00-21 for the Company is July 1,
2003. The Company does not believe that the adoption of EITF 00-21 will have a
significant impact on its consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, or "Interpretation
no. 45," Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. Interpretation No. 45
requires certain disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees, including product
warranties. The disclosure provisions of Interpretation No. 45 were effective as
of the fourth quarter of 2002. Interpretation No. 45 also requires a guarantor
to recognize, at inception, for all guarantees issued or modified after December
31, 2002, a liability for the fair value of the obligations it has undertaken in
issuing a guarantee. The adoption of the fair value provisions of Interpretation
No. 45 did not have an impact on the Company's consolidated financial statements
as there were no guarantees or modifications of guarantees for the three months
and six months ended June 30, 2003.
In January 2003, the FASB issued Interpretation No. 46, or "Interpretation
No. 46," Consolidation of Variable Interest Entities. Interpretation No. 46
provides guidance for identifying a controlling interest in a Variable Interest
Entity, or "VIE," established by means other than voting interests.
Interpretation No. 46 also requires consolidation of a VIE by an enterprise that
holds such a controlling interest. The effective date for Interpretation No. 46
is July 1, 2003. The Company does not believe that it has any interests
qualifying as VIE's as of June 30, 2003. As a result, Interpretation No. 46 will
not have an impact on its consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, Amendment to Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
and hedging relationships designated after June 30, 2003. The adoption of SFAS
No. 149 did not have a material impact on the financial condition or the
operating results of the Company.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how certain free standing financial instruments with
characteristics of both liabilities and equity are classified and measured.
Financial instruments within the scope of SFAS No. 150 are required to be
recorded as liabilities (or assets in certain circumstances) which may require
reclassification of amounts previously reported in equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The cumulative effect of a change in accounting
principle should be reported for financial instruments created before the
issuance of this Statement and still existing at the beginning of the period of
adoption. There was no impact on the Company related to SFAS No. 150 as of June
30, 2003 and the Company is currently assessing the impact of the adoption of
this statement on future periods.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
relate to future events or our future performance. These statements involve
known and unknown risks, uncertainties and other factors that may cause our
Company's actual results, levels of activity, performance or achievements to be
materially different from any results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some
cases, you can identify forward-looking statements by terminology like "may",
"will", "should", "expects", "plans", "projects", anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of these
terms or other comparable terminology. Such forward-looking statements include,
but are not limited to, funded backlog, estimated contract value, our
expectations regarding the federal government's procurement budgets and reliance
on outsourcing of services, and our financial condition and liquidity, as well
as future cash flows and earnings.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this quarterly report to conform these statements to actual results and do
not intend to do so. These statements are only predictions. Actual events or
results may differ materially. The factors that could cause actual results to
differ materially include the following: the integration of acquisitions without
disruption to our other business activities; changes in general economic and
business conditions; changes in federal government procurement laws,
regulations, policies, and budgets; the number and type of contracts and task
orders awarded to us; technological changes; our ability to attract and retain
qualified personnel; competition; and our ability to retain our contracts during
any rebidding process.
GENERAL
We provide information technology solutions and systems engineering and
integration services to government clients. We design, integrate, maintain and
upgrade state-of-the-art information systems for national defense, intelligence,
emergency response and other high priority government missions. We also provide
many of our government clients with the systems analysis, integration and
program management skills necessary to manage their mission systems development
and operations.
We currently serve over 800 U.S federal government clients, as well as
state and foreign governments. For the six months ended June 30, 2003, excluding
ISI, we estimate that approximately 90% of our revenue was from contracts where
we were the lead, or "prime" contractor. We provide our services under long-term
contracts that have a weighted average term of eight years. We have obtained ISO
9001 registration for our quality management systems at key facilities and have
achieved Software Engineering Institute (SEI) Level 3 certification for our
software development facility's processes. Our contract base is well diversified
among government agencies. No single award contract or task order accounted for
more than 9.1% and 7.8% of revenues for the three and six months ended June 30,
2003, respectively.
DESCRIPTION OF CRITICAL ACCOUNTING POLICIES
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires management to make estimates and judgments that affect the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, management evaluates its estimates including those related to
uncollected accounts receivable and other contingent liabilities, revenue
recognition and goodwill and other intangible assets. Management bases its
estimates on historical experience and on various other factors that are
believed to be reasonable at the time the estimates are made. Actual results may
differ from these estimates under different assumptions or conditions.
Management believes that our critical accounting policies which require more
significant judgments and estimates in the preparation of our consolidated
financial statements are revenue recognition, costs of revenues, goodwill
impairment, long-lived assets and identifiable intangible asset impairment and
business combinations.
16
Revenue Recognition
For the six months ended June 30, 2003, we estimate that approximately 98%
of our revenues were derived from services and approximately 2% from product
sales, excluding ISI. Services are performed under contracts that may be
categorized into three primary types: time and materials, cost-plus
reimbursement and firm fixed price. Revenue for time and materials contracts is
recognized as time is spent at hourly rates, which are negotiated with the
customer. Time and materials contracts are typically more profitable than
cost-plus contracts because of our ability to negotiate rates and manage costs
on those contracts. Revenue is recognized under cost-plus contracts on the basis
of direct and indirect costs incurred plus a negotiated profit calculated as a
percentage of costs or as a performance-based award fee. Cost-plus type
contracts provide relatively less risk than other contract types because we are
reimbursed for all direct costs and certain indirect costs, such as overhead and
general and administrative expenses, and are paid a fee for work performed. For
cost-plus award fee type contracts, we recognize the expected fee to be awarded
by the customer at the time such fee can be reasonably estimated, based on
factors such as our prior award experience and communications with the customer
regarding our performance, including any interim performance evaluations
rendered by the customer. Revenues are recognized under substantially all fixed
price contracts based on the percentage-of-completion basis, using the
cost-to-cost method for all services provided. For non-service-related fixed
price contracts, revenues are recognized as units are delivered (the
units-of-delivery method).
We recognize revenues under our federal government contracts when a
contract is executed, the contract price is fixed and determinable, delivery of
the services or products has occurred, the contract is funded and collectibility
of the contract price is considered probable. Our contracts with agencies of the
federal government are subject to periodic funding by the respective contracting
agency. Funding for a contract may be provided in full at inception of the
contract or ratably throughout the term of the contract as the services are
provided. From time to time we may proceed with work based on customer direction
pending finalization and signing of contractual funding documents. We have an
internal process for approving any such work. All revenue recognition is
deferred during periods in which funding is not received. Costs incurred during
such periods are deferred if the receipt of funding is assessed as probable. In
evaluating the probability of funding being received, we consider our previous
experiences with the customer, communications with the customer regarding
funding status, and our knowledge of available funding for the contract or
program. If funding is not assessed as probable, costs are expensed as they are
incurred.
We recognize revenues under our federal government contracts based on
allowable contract costs, as mandated by the federal government's cost
accounting standards. The costs we incur under federal government contracts are
subject to regulation and audit by certain agencies of the federal government.
Contract cost disallowances resulting from government audits have not
historically been significant. We may be exposed to variations in profitability,
including potential losses, if we encounter variances from estimated fees earned
under award fee contracts and estimated costs under fixed price contracts.
We generally do not pursue fixed price software development work that may
create material financial risk. We do, however, provide services under fixed
price labor hour and fixed price level of effort contracts, which represent
similar levels of risk as time and materials contracts. Our contract mix,
excluding ISI, was approximately 40% time and materials, 32% cost-plus and 28%
fixed price (a substantial majority of which were firm fixed price level of
effort) during the six months ended June 30, 2003. The contract mix can change
over time depending on contract awards and acquisitions. Under cost-plus
contracts, operating profits are statutorily limited to 15% but typically range
from 5% to 7%. Under fixed price and time and materials contracts, margins are
not subject to statutory limits. However, the federal government's objective in
negotiating such contracts is to seldom allow for operating profits in excess of
15% and, due to competitive pressures, operating profits on such contracts are
often less than 10%.
We maintain reserves for uncollectible accounts receivable which may arise
in the normal course of business. Historically, we have not had significant
write-offs of uncollectible accounts receivable. However, we do perform work on
many contracts and task orders, where on occasion, issues may arise, which could
lead to accounts receivable not being fully collected.
Costs of Revenues
Our costs are categorized as either direct or indirect costs. Direct costs
are those that can be identified with and allocated to specific contracts and
tasks. They include labor, fringe (vacation time, medical/dental, 401K plan
matching contribution, tuition assistance, employee welfare, worker's
compensation and other benefits), subcontractor costs, consultant fees, travel
expenses and materials. Indirect costs are either overhead or general and
administrative expenses. Indirect costs cannot be identified with specific
contracts or tasks, and to the extent that they are allowable, they are
allocated to contracts and tasks using appropriate government-approved
methodologies. Costs determined to be unallowable under the Federal Acquisition
Regulations cannot be allocated to projects. Our principal unallowable costs are
interest expense, amortization expense for separately identified intangibles
from acquisitions and certain general and administrative expenses. A key element
to our success has been our ability to control indirect and unallowable costs,
enabling us to profitably execute our existing contracts and successfully bid
for new contracts. In addition, with the acquisition of new companies, we have
been able to manage our indirect costs and improve operating margins by
integrating the indirect cost structures and realizing opportunities for cost
synergies.
17
Goodwill Impairment
Goodwill relating to our acquisitions represents the excess of cost over
the fair value of net tangible and separately identifiable intangible assets
acquired, and has a carrying amount of approximately $213.6 and $138.6 million
at June 30, 2003 and December 31, 2002, respectively. For the three and six
months ended June 30, 2003, approximately $75.0 million of additional goodwill
was added from the acquisition of ISI in May 2003. For acquisitions completed
prior to July 1, 2001, and until the adoption of SFAS No. 141 and SFAS No. 142
on January 1, 2002, goodwill was amortized on a straight-line basis over periods
ranging from twenty to thirty years. Determination of the amortization period
was dependent on the nature of the operations acquired. Effective January 1,
2002, we adopted SFAS No. 142, and no longer amortize goodwill, but rather test
our goodwill for impairment at least annually using a fair value approach.
We completed our transition analysis under SFAS No. 142 as of June 30, 2002
and our annual impairment analysis as of September 30, 2002, noting no
indications of impairment for any of our reporting units. As of June 30, 2003,
there have been no events or circumstances that would indicate an impairment
test should be performed sooner than our planned annual test as of September 30,
2003.
Long-Lived Assets and Identifiable Intangible Asset Impairment
The carrying amount of long-lived assets and identifiable intangible assets
was approximately $18.2 million and $12.7 million at June 30, 2003 and December
31, 2002, respectively. Of the $18.2 million at June 30, 2003, approximately
$6.8 million of the assets are related to our acquisition of ISI. Long-lived
assets and identifiable intangible assets, excluding goodwill, are evaluated for
impairment when events occur that suggest that such assets may be impaired. Such
events could include, but are not limited to, the loss of a significant customer
or contract, decreases in federal government appropriations or funding of
certain programs, or other similar events. None of these events occurred for the
six months ended June 30, 2003. We determine if an impairment has occurred based
on a comparison of the carrying amount of such assets to the future undiscounted
net cash flows, excluding charges for interest. If considered impaired, the
impairment is measured by the amount by which the carrying amount of the assets
exceeds their estimated fair value, as determined by an analysis of discounted
cash flows using a discounted interest rate based on our cost of capital and the
related risks of recoverability.
In evaluating impairment, we consider, among other things, our ability to
sustain our current financial performance on contracts and tasks, our access to
and penetration of new markets and customers and the duration of, and estimated
amounts from, our contracts. Any uncertainty of future financial performance is
dependent on the ability to maintain our customers and the continued funding of
our contracts and tasks by the government. Over the past four years, we have
been able to win nearly all of our contracts that have been recompeted. In
addition, we have been able to sustain financial performance through indirect
cost savings from our acquisitions, which have generally resulted in either
maintaining or improving margins on our contracts and tasks. If we are required
to record an impairment charge in the future, it would have an adverse impact on
our results of operations.
Business Combinations
We apply the provisions of SFAS No. 141, Business Combinations, whereby the
net tangible and separately identifiable intangible assets acquired and
liabilities assumed are recognized at their estimated fair market values at the
acquisition date. The purchase price in excess of the estimated fair market
value of the net tangible and separately identifiable intangible assets acquired
represents goodwill. The allocation of the purchase price related to our
business combinations involves significant estimates and management judgment
that may be adjusted during the allocation period, but in no case beyond one
year from the acquisition date. Costs incurred related to successful business
combinations are capitalized as costs of business combinations, while costs
incurred by us for unsuccessful or terminated acquisition opportunities are
expensed when we determine that such opportunities will no longer be pursued.
Costs incurred related to anticipated business combinations are deferred.
On May 23, 2003, we purchased all of the outstanding stock of Information
Spectrum, Inc. ("ISI"), a provider of credential card technologies, military
logistics and training systems, based in Annandale, Virginia, for a total
purchase price of approximately $91.6 million, excluding transaction costs of
approximately $665,000. The transaction was accounted for in accordance with
SFAS No. 141, Business Combinations, whereby the net tangible and identifiable
intangible assets acquired and liabilities assumed were recognized at their
estimated fair market values at the date of acquisition, based on preliminary
estimates made by management. The identifiable intangible assets consisted of
$3.5 million in contracts and related customer relationships and $500,000 for a
non-compete agreement. The contract backlog was valued based on an independent
appraisal and has an expected useful life of approximately 5.3 years. The
non-compete value was based on the consideration paid for the agreement and is
being amortized straight-line over the three year term of the agreement.
Goodwill arising from the transaction is not being amortized in accordance with
SFAS No. 142, Goodwill and Other Intangible Assets.
18
The total purchase price paid, including transaction and other deal related
costs, of $92.3 million was preliminarily allocated to the assets acquired and
liabilities assumed as follows (in thousands):
Historical net assets of ISI $ 13,295
Goodwill 75,015
Non-compete agreement 500
Contracts and related customer relationships 3,500
-------------------
Total consideration $ 92,310
==================
Certain of the estimates related to our acquisition of ISI are preliminary
as we are awaiting the finalization of appraisals and other studies before the
identification and valuation of intangible assets can be completed, which is
expected in the third quarter of 2003.
19
Statements of Operations
The following is a description of certain line items from our statement of
operations.
Revenues for the three and six months ended June 30, 2003 include the
operations of ISI for the five week period beginning May 23, 2003, the date of
the acquisition.
Costs of revenues include direct labor and fringe costs for program
personnel and direct expenses incurred to complete contracts and task orders.
Costs of revenues also include depreciation, overhead, and other direct contract
costs, which comprise subcontract work, consultant fees, and materials. Overhead
consists of indirect costs relating to operational managers, rent/facilities,
administration, travel and other expenses.
General and administrative expenses are primarily for corporate functions
such as management, legal, finance and accounting, contracts and administration,
human resources, company management information systems and depreciation, and
also include other unallowable costs such as marketing, certain legal fees and
reserves.
Amortization expenses relate to intangible assets from our acquisitions.
These intangible assets represent contract backlog acquired as part of our
acquisitions of Analysis & Technology, Inc., Sherikon, Inc., the training
division of SIGCOM, Inc., and ISI. Amortization expenses also include costs
associated with a non-compete agreement related to the ISI acquisition.
Interest expense is primarily for our 12% Notes, our term loan and
revolving credit facility, our subordinated debt and subordinated convertible
promissory notes held by our stockholders prior to their repayment or conversion
in connection with our IPO, and other miscellaneous interest costs.
Other income is from non-core business items such as gains on the sales and
closures of businesses and investments.
Backlog/ESTIMATED CONTRACT VALUE
Each year a significant portion of our revenue is derived from existing
contracts with our government clients, and a portion of the revenue represents
work related to maintenance, upgrade or replacement of systems under contracts
or projects for which we are the incumbent provider. Proper management of
contracts is critical to our overall financial success and we believe that we
manage costs effectively, making us competitive on price. Historically, we
believe that our demonstrated performance record and service excellence have
enabled us to maintain our position as an incumbent service provider on more
than 90% of our contracts that have been recompeted. We have increased our total
estimated contract value, including ISI, by approximately $884.4 million, from
$4.3 billion at December 31, 2002, to $5.2 billion at June 30, 2003, of which
$556.6 million was funded backlog as of June 30, 2003. Our total estimated
contract value represents the aggregate estimated contract revenue expected to
be earned by us at a given time over the remaining life of our contracts. When
more than one company is awarded a contract for a given work requirement, we
include in total estimated contract value only our estimate of the contract
revenue we expect to earn over the remaining term of the contract. Funded
backlog is based upon amounts actually appropriated by a customer for payment
for goods and services. Because the federal government operates under annual
appropriations, agencies of the federal government typically fund contracts on
an incremental basis. Accordingly, the majority of the total estimated contract
value is not funded backlog. Our estimated contract value is based on our
experience under contracts and we believe our estimates to be reasonable.
However, there can be no assurance that our existing contracts will result in
actual revenues in any particular period or at all. These amounts could vary
depending upon government budgets and appropriations. In addition, we are
periodically asked to work at-risk on projects. At-risk means that the customer
has asked us to work, or to continue working, on a project even though there are
no funds appropriated and released for payment. In most cases, the government is
in the process of funding the contract or tasks and makes the request to avoid
disruptions to the project. Historically, we have not recorded any significant
write-offs because funding was not ultimately received.
20
RESULTS OF OPERATIONS
The following table sets forth our results of operations based on the
amounts and percentage relationship of the items listed to contract revenues
during the period shown:
For the Three Months Ended June 30,
2003 2002
-----------------------------------------------------------------------
($ in thousands)
Revenues $ 254,093 100.0% $ 201,938 100.0%
Costs of revenues 218,830 86.1 174,674 86.5
----------------- ----------- -------------- -----------
Gross profit 35,263 13.9 27,264 13.5
----------------- ----------- -------------- -----------
Operating expenses:
General and administrative expenses 14,446 5.7 10,766 5.4
Amortization of intangible assets 563 0.2 477 0.2
----------------- ----------- -------------- -----------
Total operating expenses 15,009 5.9 11,243 5.6
----------------- ----------- -------------- -----------
Operating income 20,254 8.0 16,021 7.9
Other income, net -- 354 0.2
Interest expense, net 3,363 1.3 7,349 3.6
Minority interest in (earnings) losses of subsidiaries (20) -- 1 --
----------------- ----------- -------------- -----------
Income before income taxes 16,871 6.7 9,027 4.5
Provision for income taxes 6,562 2.6 3,518 1.8
----------------- ----------- -------------- -----------
Net income $ 10,309 4.1% $ 5,509 2.7%
================= =========== ============== ============
For the Six Months Ended June 30,
2003 2002
-----------------------------------------------------------------------
($ in thousands)
Revenues $ 482,684 100.0% $ 394,566 100.0%
Costs of revenues 416,006 86.2 341,693 86.6
----------------- ----------- -------------- ------------
Gross profit 66,678 13.8 52,873 13.4
----------------- ----------- -------------- ------------
Operating expenses:
General and administrative expenses 27,419 5.7 21,381 5.4
Amortization of intangible assets 1,040 0.2 954 0.3
----------------- ----------- -------------- ------------
Total operating expenses 28,459 5.9 22,335 5.7
----------------- ----------- -------------- ------------
Operating income 38,219 7.9 30,538 7.7
Other income, net -- 360 0.2
Interest expense, net 6,553 1.4 15,083 3.9
Minority interest in (earnings) losses of subsidiaries (32) -- (8) --
----------------- ----------- -------------- ------------
Income before income taxes 31,634 6.5 15,807 4.0
Provision for income taxes 12,250 2.5 6,164 1.6
----------------- ----------- -------------- ------------
Net income $ 19,384 4.0% $ 9,643 2.4%
================= =========== ============== ==============
21
REVENUES
For the three months ended June 30, 2003, revenues increased by $52.2
million, or 25.8%, to $254.1 million from $201.9 million for the three months
ended June 30, 2002. For the six months ended June 30, 2003, revenues increased
by $88.1 million, or 22.3%, to $482.7 million from $394.6 million for the six
months ended June 30, 2002. The revenues attributable to ISI, which we acquired
on May 23, 2003, totaled approximately $11.6 million for the three and six
months ended June 30, 2003, indicating organic growth of 20.1% and 19.4% for the
three and six months ended June 30, 2003, respectively. The increase in revenue
for the three months and six months ended June 30, 2003 was primarily driven by
growth in the following contracts: Secretary of the Air Force Technical and
Analytical Support, Battlefield Information Collection Exploitation Systems,
contracts with the U.S. Army for military operations on urban terrain, ANSWER
and our Professional Engineering Services schedule contract, and our other
General Services Administration contracts.
COSTS OF REVENUES
For the three months ended June 30, 2003, costs of revenues increased by
$44.1 million, or 25.3%, to $218.8 million from $174.7 million for the three
months ended June 30, 2002. Costs of revenues as a percentage of revenues
decreased to 86.1% for the three months ended June 30, 2003 from 86.5% for the
three months ended June 30, 2002. For the six months ended June 30, 2003, costs
of revenues increased by $74.3 million, or 21.7%, to $416.0 million from $341.7
million for the six months ended June 30, 2002. For the six months ended June
30, 2003, costs of revenues as a percentage of revenues decreased to 86.2% from
86.6% for the six months ended June 30, 2002. The increase in costs of revenues
was due primarily to the corresponding growth in revenues resulting from
internal growth and the revenues attributable to ISI. The majority of the
increase in cost of revenues for the three and six month periods ended June 30,
2003 was due to an $18.0 million and $28.6 million increase in direct labor and
fringe and a $26.1 million and $45.7 million increase in other direct contract
costs, respectively.
For the three months ended June 30, 2003, gross profit increased $8.0
million, or 29.3%, to $35.3 million from $27.3 million for the three months
ended June 30, 2002. For the six month period ended June 30, 2003, gross profit
increased $13.8 million, or 26.1%, to $66.7 million from $52.9 million for the
six month period ended June 30, 2002. Gross margin for the three months ended
June 30, 2003 was 13.9% compared to 13.5% for the corresponding period in 2002.
The increase in gross margin was primarily driven by continued indirect cost
control and an increase in higher margin time and material contacts offset by
increases in direct labor, fringe and other direct costs. Gross margin for the
six months ended June 30, 2003 was 13.8% compared to 13.4% for the corresponding
period in 2002. Gross margin for the six months ended June 30, 2003 was also
driven primarily by indirect cost control and an increase in higher margin time
and material contracts offset and by an increase in other direct costs. In
addition, the increase in both periods was partially a result of a modification
of our treatment of certain overhead expenses which were reclassified as general
and administrative expenses as requested by the government.
GENERAL and ADMINISTRATIVE EXPENSES
For the three months ended June 30, 2003, general and administrative
expenses increased $3.6 million, or 33%, to $14.4 million from $10.8 million for
the three months ended June 30, 2002. General and administrative expenses for
the three months ended June 30, 2003, as a percentage of revenues, increased to
5.7% from 5.4%. For the six month period ended June 30, 2003, general and
administrative expenses increased $6.0 million, or 28%, to $27.4 million from
$21.4 million for the six months ended June 30, 2002. General and administrative
expenses for the six months ended June 30, 2003, as a percentage of revenues,
increased to 5.7% from 5.4%. The increase was primarily attributable to the
corresponding growth in revenue and a modification of our treatment of certain
overhead expenses which were reclassified as general and administrative expenses
as requested by the government.
AMORTIZATION
For the three months ended June 30, 2003, amortization expenses increased
$86,000, or 18.0%, to $563,000 from $477,000 for the comparable period in 2002.
The increase in amortization expense is due to the amortization of intangible
assets resulting from the ISI acquisition. Amortization as a percentage of
revenues for the three months ended June 30, 2003 remained constant at 0.2%. For
the six months ended June 30, 2003, amortization expenses increased $86,000, or
9.0%, to $1,040,000 from $954,000 for the comparable period in 2002.
Amortization as a percentage of revenues decreased to 0.2% from 0.3% for the six
months ended June 30, 2003.
OPERATING INCOME
For the three months ended June 30, 2003, operating income increased $4.2
million, or 26.4%, to $20.2 million from $16.0 million for the three months
ended June 30, 2002. Operating income as a percentage of revenues increased to
8.0% for the three months ended June 30, 2003 from 7.9% for the same period in
fiscal 2002. For the six month period ended June 30, 2003, operating income
increased $7.7 million, or 25%, to $38.2 million from $30.5 million for the six
month period ended June 30, 2002. Operating income as a percentage of revenues
increased to 7.9% for the six month period ended June 30, 2003 from 7.7% for the
same period in 2002, primarily as a result of an increase in revenues and gross
profit.
22
OTHER INCOME
For the three and six months ended June 30, 2003, we did not have any other
income. Other income for the three and six months ended June 30, 2002, includes
a gain on the sale of Displaycheck assets, a previously closed business, and
receipt of insurance proceeds for lost equipment previously recorded as a loss.
INTEREST EXPENSE, NET
For the three month period ended June 30, 2003, interest expense, net of
interest income, decreased $3.9 million, or 53.4%, to $3.4 million from $7.3
million for the three months ended June 30, 2002. For the six months ended June
30, 2003, interest expense, net of interest income, decreased $8.5 million, or
56.3%, to $6.6 million from $15.1 million for the six months ended June 30,
2002. The expense during this period included interest on the 12% Notes, term
loan and revolving loan portions of our Credit Facility. The decrease in
interest expense was due primarily to a reduction in our debt using proceeds
from our IPO on March 15, 2002, and interest earned on excess funds available
from the proceeds of the IPO. The decrease in interest expense was offset, in
part by fees of $1.9 million related to the 2002 termination of $30.0 million of
interest rate swap agreements.
PROVISION FOR INCOME TAXES
As a result of our tax planning strategies and our acquisition of ISI, our
effective tax rate for the three and six months ended June 30, 2003 was 39.0%
and 38.7%, respectively, compared with an effective tax rate of 39.0% for the
three and six months ended June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows for the Six Months Ended June 30, 2003 and 2002
We generated $23.8 million in cash from operations for the six months ended
June 30, 2003. By comparison, we used $2.0 million in cash from operations for
the six months ended June 30, 2002. This increase in cash flows was primarily
attributable to an improvement in working capital and net income, offset by an
increase in deferred income taxes. Total days sales outstanding at June 30, 2003
remained constant at 71 days, excluding ISI, as compared to June 30, 2002.
Accounts receivable totaled $212.7 million at June 30, 2003 and represented
45.4% of total assets at that date. Accounts receivables increased $23.7 million
which includes ISI receivables of 20.2 million for the six months ended June 30,
2003. For the six months ended June 30, 2003, net cash used for investing
activities was $93.3 million, which was attributable to purchases of property,
plant and equipment and approximately $91.8 million for the acquisition of ISI.
Cash provided by financing activities was $69.1 million for the six months ended
June 30, 2003 due to the additional borrowings under the revolving loan portion
of our Credit Facility for the acquisition of ISI.
On March 15, 2002, we completed our IPO with the sale of 4,687,500 shares
of our common stock. Our net proceeds were approximately $75.2 million, based on
an IPO price of $18.00 per share, after deducting underwriting discounts and
commissions of $5.9 million and offering costs and expenses of $3.3 million. We
used the net proceeds from the IPO to: repay $11.4 million of our debt
outstanding under the term loan portion of our prior credit facility;
temporarily pay down $39.5 million on the revolving loan portion of our prior
credit facility on March 15, 2002 (the revolving loan was subsequently increased
on April 15, 2002 to redeem $25.0 million principal amount of our 12% Notes);
redeem $25.0 million principal amount of our 12% Notes on April 15, 2002, and to
pay accrued interest of $1.3 million thereon and the associated $3.0 million
prepayment premium (pending the permanent use of such net proceeds, we used such
funds to temporarily reduce the revolving portion of our prior credit facility);
to repay in full our $7.5 million principal amount subordinated promissory note
held by Azimuth Technologies, L.P., one of our principal stockholders, including
$50,000 aggregate principal amount of our subordinated promissory notes, held by
present members of our management; and to repay $4.4 million of our subordinated
notes, relating to accrued interest on our $22.5 million principal amount
subordinated convertible promissory note formerly held by Azimuth Tech. II LLC,
one of our principal stockholders. The remainder of the net proceeds to us from
the IPO, approximately $12.5 million, was temporarily invested in short-term
investment grade securities (which were subsequently liquidated) and used to
repay amounts outstanding under the revolving portion of our prior credit
facility. We also used $2.5 million of the IPO proceeds temporarily to repay
debt under the revolving portion of our prior credit facility with the intention
of repaying in full, on or before October 20, 2002, a $2.5 million principal
amount promissory note held by former stockholders of Sherikon, Inc. On October
18, 2002, we asserted an indemnification claim against the former shareholders
of Sherikon, Inc. in an aggregate amount exceeding the $2.5 million promissory
note. We are treating this indemnification claim as a set off against the $2.5
million promissory note obligation.
23
Our Credit Facility permits the revolving loan portion of our Credit
Facility to increase to a maximum of $200 million. As of June 30, 2003, $187.5
million of the revolving loan has been committed to by participants in our
Credit Facility. During the three months ended June 30, 2003, we increased the
amount committed to by participants in our Credit Facility by approximately
$42.5 million. The Credit Facility also permits us to elect from time to time to
(i) repurchase certain amounts of our subordinated debt and outstanding common
stock from our share of excess cash flow (as defined in the Credit Facility);
and (ii) repurchase certain amounts of our subordinated debt from our share of
net cash proceeds of issuances of equity securities. In addition, the Credit
Facility provides flexibility to raise additional financing to fund future
acquisitions.
Historically, our primary liquidity requirements have been for debt service
under our Credit Facility and 12% Notes and for working capital and acquisitions
requirements. We have funded these requirements primarily through internally
generated operating cash flow and funds borrowed under our existing Credit
Facility. Our Credit Facility expires June 23, 2005. The facility consists of a
term loan and a revolving line of credit. Borrowings from the revolving line of
credit can be made based upon a borrowing base consisting of a portion of our
eligible billed and unbilled receivable balances and our ratio of net debt to
EBITDA (as defined in the Credit Facility). The Credit Facility contains
affirmative and negative covenants customary for such financings. The Credit
Facility also contains financial covenants customary for such financing,
including, but not limited to: maximum ratio of net debt to EBITDA; maximum
ratio of senior debt to EBITDA and a limitation on capital expenditures. For the
period ended June 30, 2003, we complied with all of the financial covenants. At
June 30, 2003, total debt outstanding under our Credit Facility was
approximately $95.7 million, consisting of $19.3 million of term loan, and $76.4
million outstanding under the revolving loan portion of our Credit Facility. The
total funds available to us under the revolving loan portion of our Credit
Facility as of June 30, 2003 were approximately $70.0 million. Under certain
conditions related to excess annual cash flow, as defined in our Credit
Facility, and the receipt of proceeds from certain asset sales and debt or
equity issuances, we are required to prepay, in amounts specified in our Credit
Facility, borrowings under the term loan. In addition, borrowings under the
Credit Facility mature on June 23, 2005, and we are scheduled to pay quarterly
installments of approximately $950,000 under the term portion with the balance
due when the Credit Facility matures on June 23, 2005. As of June 30, 2003, we
did not have any capital commitments greater than $1.5 million.
Our principal working capital need is for funding accounts receivable,
which has increased with the growth in our business and the delays in government
funding. Our principal sources of cash to fund our working capital needs are
cash generated from operating activities and borrowings under our revolving
credit facility.
We have relatively low capital investment requirements. Capital
expenditures were $1.5 million and $1.3 million for the six months ended June
30, 2003 and 2002, respectively, primarily for leasehold improvements and office
equipment. We use operating leases to fund some of our equipment needs,
primarily for personal computers. As of June 30, 2003, we had equipment worth
approximately $14.3 million on lease.
We intend to, and expect over the next twelve months to be able to, fund
our operating cash, capital expenditure and debt service requirements through
cash flow from operations and borrowings under our credit facility. Over the
longer term, our ability to generate sufficient cash flow from operations to
make scheduled payments on our debt obligations will depend on our future
financial performance, which will be affected by a range of economic,
competitive and business factors, many of which are outside our control.
INFLATION
We do not believe that inflation has had a material effect on our business
in the three months ended June 30, 2003.
ITEM 3. QUANTITATIVE and QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have interest rate exposure relating to certain of our long-term
obligations. While the interest rate on the remaining $75 million principal
amount of our 12% Notes is fixed at 12%, the interest rate on both the term and
revolving portions of our credit facilities is affected by changes in market
interest rates. We manage these fluctuations, in part, through focusing on
reducing the amount of outstanding debt through cash flow and through interest
rate swaps. In addition, we have implemented a cash flow management plan
focusing on billing and collecting receivables to pay down debt.
On January 29, 2002, the Company cancelled approximately $30 million of
interest swap agreements and recognized losses of $1.9 million in interest
expense for the three months ended March 31, 2002. As of June 30, 2003, the fair
value of the Company's interest swap agreements resulted in a net liability of
$519,000 and has been included in other current liabilities.
A 1% change in interest rates on variable rate debt would have resulted in
our interest expense fluctuating by approximately $144,000 and $104,000 for the
six months ended June 30, 2003 and 2002, respectively.
24
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of disclosure controls and procedures. Our Chief
Executive Officer and Chief Financial Officer (our principal executive officer
and principal financial officer, respectively) have concluded, based upon their
evaluation as of a date within 90 days prior to the date of filing of this
quarterly report, that our disclosure controls and procedures are effective to
ensure that material. information required to be disclosed by us in reports
filed or submitted by us under the Securities Exchange Act of 1934, as amended,
is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms, and includes controls and procedures
designed to ensure that material information required to be disclosed by us in
such reports is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) Changes in internal controls. There have been no significant changes in
our internal controls or in other factors that could significantly affect these
controls subsequent to the date of our evaluation.
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal proceedings in the ordinary course of
business.
On December 18, 2002, an arbitrator issued a decision requiring us to
continue to issue task orders to a subcontractor under a subcontract for so long
as our customer continues to issue task orders to us for these services. The
arbitrator's decision also enjoined us from interviewing, offering employment
to, hiring or otherwise soliciting employees of the subcontractor who work on
this particular project. The arbitrator's decision also denied the
subcontractor's claim for monetary damages and our counter-demand. We
subsequently filed an action to vacate or modify that portion of the
arbitrator's decision enjoining it from hiring certain subcontractor employees
under any circumstances, since the prohibition extends the scope of the parties'
pre-existing contractual obligations. The court vacated the portion of the
arbitrator's decision relating to the scope of the injunction and referred the
issue back to the arbitrator for further consideration. We expect the arbitrator
to rule on this matter in the third quarter of 2003.
We cannot predict the ultimate outcome of these matters, but do not believe
that they will have a material impact on our financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Stockholders was held on May 15, 2003. The stockholders
(1) re-elected directors Robert A. Ferris, Dr. William J. Perry, General Henry
Hugh Shelton, USA (ret.) and Thomas J. Tisch to terms of office expiring at the
2006 Annual Meeting of Stockholders; (2) approved and adopted the Amended and
Restated Anteon International Corporation Omnibus Stock Plan; and (3) ratified
the selection of KPMG LLP as the Company's independent auditors for the fiscal
year ending December 31, 2003.
The following directors were not required to stand for re-election at the
meeting (the year in which each director's term expires is indicated in
parenthesis): Joseph M. Kampf (2004), Steven M. Lefkowitz (2004), Dr. Paul G.
Kaminski (2004), Frederick J. Iseman (2005), Thomas M. Cogburn (2005), Gilbert
F. Decker (2005).
The following table sets forth the votes cast with respect to each of these
matters:
MATTER FOR AGAINST WITHHELD ABSTAIN
---------------- --------- ------------- -------------- -----------
Re-election of Robert A. Ferris 26,734,077 5,592,277
Re-election of William J. Perry 27,818,590 4,507,764
Re-election of Gen. Henry Hugh Shelton, USA (ret.) 26,792,941 5,533,413
Approval and adoption of Amended and Restated Anteon
International Corporation Omnibus Stock Plan 25,874,520 6,447,153 4,681
Ratification of selection of KPMG LLP as independent
auditors 26,190,111 6,131,993 4,250
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
10.25 Stock Purchase Agreement, by and among Anteon International
Corporation, Information Spectrum, Inc., the Shareholders of
Information Spectrum, Inc. and Mark Green as the
Shareholder's Representative, dated April 22, 2003
(incorporated by reference to Exhibit 2.1 to Anteon
International Corporation's Current Report on Form 8-K filed
on May 29, 2003).
99.1 Certification of Joseph M. Kampf
99.2 Certification of Charles S. Ream
B. REPORTS ON FORM 8-K
o Form 8-K filed on April 23, 2003 (Commission No. 001-31258), Item 5
"Other Events and Required FD Disclosure", Item 7, no financial
statements were included.
o Form 8-K filed on April 30, 2003 (Commission No. 001-31258), Item 5
"Other Events", Item 7, no financial statements were included.
o Form 8-K filed on April 30, 2003 (Commission No. 001-31258), Item 12
"Results of Operations and Financial Condition", Item 7, no financial
statements were included.
o Form 8-K filed on May 28, 2003 (Commission No. 001-31258), Item 2
"Acquisition or Disposition of Assets", Item 7, no financial
statements were included
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANTEON INTERNATIONAL CORPORATION
Date:August 1, 2003 /s/ Joseph M. Kampf
------------------- -----------------------------------------------
Joseph M. Kampf - President and
Chief Executive Officer
Date:August 1, 2003 /s/ Charles S. Ream
------------------- -----------------------------------------------
Charles S. Ream - Executive Vice President and
Chief Financial Officer
Certifications
I, Joseph M. Kampf, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anteon International
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 1, 2003 By: /s/ Joseph M. Kampf
- --------------------- ----------------------------------------------
Joseph M. Kampf - President and
Chief Executive Officer
Certifications
I, Charles S. Ream, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Anteon International
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: August 1, 2003 By: /s/ Charles S. Ream
- --------------------- ----------------------------------------------
Charles S. Ream - Executive Vice President and
Chief Financial Officer