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Form 10-Q for ANTEON INTERNATIONAL CORPORATION filed on October 31, 2003
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 EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
--------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
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 by Rule 12b-2 of the Exchange Act). Yes [ ] No[ X ]
As of the close of business on October 28, 2003, there were 35,243,575
outstanding shares of the registrant's common stock, par value $0.01 per share.
CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF
SEPTEMBER 30, 2003 AND DECEMBER 31, 2002 1
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003
AND 2002 2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 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 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 26
ITEM 4 CONTROLS AND PROCEDURES 26
PART II. OTHER INFORMATION REQUIRED IN REPORT
ITEM 1. LEGAL PROCEEDINGS 27
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 27
ITEM 5. OTHER INFORMATION 27
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 27
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)
September 30,
2003 December 31,
(Unaudited) 2002
------------------ ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,724 $ 4,266
Accounts receivable, net 207,228 189,059
Deferred tax asset 1,415 --
Prepaid expenses and other current assets 15,248 15,071
------------------ -----------------
Total current assets 226,615 208,396
Property and equipment, net 12,424 9,992
Goodwill, net 212,693 138,619
Intangible and other assets, net 10,027 7,685
------------------ -----------------
Total assets $ 461,759 $ 364,692
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Term loan, current portion $ 3,798 $ 3,798
Subordinated notes payable 2,500 2,500
Accounts payable 36,697 47,630
Due to related parties 102 --
Deferred tax liability -- 2,230
Accrued expenses 85,668 57,603
Income tax payable 3,797 7,738
Other current liabilities 355 806
Deferred revenue 5,160 5,701
------------------ -----------------
Total current liabilities 138,077 128,006
Term loan, less current portion 14,554 17,403
Revolving facility 57,400 7,000
Senior subordinated notes payable 75,000 75,000
Noncurrent deferred tax liabilities, net 9,107 7,808
Other long term liabilities 16 490
------------------ -----------------
Total liabilities 294,154 235,707
Minority interest in subsidiaries 206 156
Stockholders' equity :
Preferred stock, $.01 par value 15,000,000 shares authorized, none
issued and outstanding as of September 30, 2003 -- --
Common stock, $.01 par value 175,000,000 shares authorized, 35,152,087
shares issued and outstanding as of September 30, 2003 352 344
Stock subscription receivable (12) (12)
Additional paid-in capital 114,781 106,849
Accumulated other comprehensive loss (206) (509)
Retained earnings 52,484 22,157
------------------ -----------------
Total stockholders' equity 167,399 128,829
------------------ -----------------
Total liabilities and stockholders' equity $ 461,759 $ 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 nine months ended
September 30, September 30,
2003 2002 2003 2002
------------ ------------ ----------- ------------
Revenues $ 279,080 $ 214,314 $ 761,764 $ 608,880
Costs of revenues 240,689 184,585 656,695 526,278
----------- ----------- ------------ ----------
Gross profit 38,391 29,729 105,069 82,602
----------- ----------- ------------ ----------
Operating expenses:
General and administrative expenses 14,969 12,704 42,388 34,085
Other intangibles amortization 723 476 1,763 1,430
----------- ----------- ------------ ----------
Total operating expenses 15,692 13,180 44,151 35,515
----------- ----------- ------------ ----------
Operating income 22,699 16,549 60,918 47,087
Other income -- 57 -- 417
Secondary offering expenses 798 -- 798 --
Interest expense, net of interest income of $45, $147, $187
and $240, respectively 3,831 3,223 10,384 18,306
Minority interest in (earnings) losses of subsidiaries (18) 5 (50) (3)
----------- ----------- ------------ ----------
Income before provision for income taxes 18,052 13,388 49,686 29,195
Provision for income taxes 7,109 5,222 19,359 11,386
----------- ----------- ------------ ----------
Net income $ 10,943 $ 8,166 $ 30,327 $ 17,809
=========== =========== ============ ==========
Basic earnings per common share: $ 0.31 $ 0.24 $ 0.87 $ 0.57
=========== =========== ============ ==========
Basic weighted average shares outstanding 34,970,108 34,184,263 34,709,666 31,430,331
Diluted earnings per common share: $ 0.30 $ 0.22 $ 0.82 $ 0.53
=========== =========== ============ ==========
Diluted weighted average shares outstanding 37,084,351 36,554,674 36,816,366 33,915,068
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 nine months ended September 30,
-------------------------------------------------
2003 2002
---------------------- -----------------------
OPERATING ACTIVITIES:
Net income $ 30,327 $ 17,809
Adjustments to reconcile net income to net cash (used for)
provided by operating activities
Interest rate swap termination -- (1,903)
Depreciation and amortization of property and equipment 2,986 3,382
Other intangibles amortization 1,763 1,430
Amortization of deferred financing fees 1,078 2,124
Loss on disposals of property and equipment 135 79
Deferred income taxes (3,307) 3,638
Minority interest in earnings of subsidiaries 50 3
Changes in assets and liabilities 7,794 (41,663)
---------------- ----------------
NET CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES 40,826 (15,101)
---------------- ----------------
INVESTING ACTIVITIES:
Purchases of property, equipment and other assets (2,241) (2,476)
Proceeds from the sale of building -- 1,802
Acquisitions, net of cash acquired (92,369) --
---------------- ----------------
NET CASH USED FOR INVESTING ACTIVITIES (94,610) (674)
---------------- ----------------
FINANCING ACTIVITIES:
Principal payments on notes payable (38) (34)
Payment of credit facility amendment fee (249) (604)
Principal payments on term loan (2,849) (24,903)
Proceeds from revolving facility 737,100 642,400
Principal payments on revolving facility (686,700) (641,100)
Redemption of senior subordinated notes payable -- (25,000)
Proceeds from issuance of common stock, net of expenses 4,078 80,983
Principal payments on subordinated notes payable to stockholders -- (7,499)
Proceeds from certain stockholders related to secondary offering 900 --
Payment of subordinated notes payable-related party -- (4,369)
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 52,242 19,874
---------------- ----------------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents (1,542) 4,099
Cash and cash equivalents, beginning of period 4,266 1,930
---------------- ----------------
Cash and cash equivalents, end of period $ 2,724 $ 6,029
================ ================
Supplemental disclosure of cash flow information (in thousands):
Interest paid $ 8,325 $ 14,200
================ =================
Income taxes paid, net $ 22,715 $ 1,244
================ =================
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
SEPTEMBER 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 has
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 nine months ended September
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 on March 11, 2003
(Commission File No. 001-31258).
(2) Organization and Business
Anteon International Corporation, a Delaware Corporation, "Anteon" or the
"Company," and its subsidiaries provide professional information technology
solutions and advanced systems engineering services to government clients. The
Company designs, integrates, maintains and upgrades information systems for
national defense, intelligence, emergency response and other government
missions. The Company also provides many of its clients with the systems
analysis, integration and program management skills necessary to manage their
mission systems development and operations. 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) Reclassification Pursuant to SFAS 145
In April 2002, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("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 can no longer 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 are 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 $4.2 million ($2.6
million net of tax) of losses previously recorded as an extraordinary item for
the nine months ended September 30, 2002 to interest expense.
(4) Acquisition of 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 $724,000. 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 $4.8 million of contracts and related customer relationships and
$500,000 for the value of a non-compete agreement. The preliminary value of the
contracts and related customer relationships is based, in part, on an
independent appraisal and other studies that are being performed by the Company.
The contracts and related customer relationships have an expected useful life of
approximately 5.3 years. The non-compete agreement value was based on the
consideration paid for the agreement and is being amortized straight-line over
the three year term of the agreement. In accordance with SFAS No. 142, Goodwill
and Other Intangible Assets, goodwill arising from the transaction is not being
amortized.
5
The total purchase price paid, including transaction costs and other deal
related costs, of $92.4 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 (797)
Deferred revenue (2,777)
Contracts and customer relationships 4,751
Goodwill 74,073
Non-compete agreement 500
-------------
Total consideration $ 92,369
=============
(5) 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. Stock options and
related compensation expense on stock options granted to non-employees are not
significant.
6
The following table illustrates the effect on net income and earnings per
share for the three and nine months ended September 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
September 30, 2003 Ended September
30,
2002
-------------------- ------------------
(in thousands, except per share data)
Net income, as reported $ 10,943 $ 8,166
Add: stock-based compensation recorded -- --
Deduct: total stock-based compensation expense determined
under the fair value method, net of tax 715 580
-------------------- ------------------
Pro forma net income $ 10,228 $ 7,586
Earnings Per Share:
Basic-as reported $ 0.31 $ 0.24
==================== ==================
Basic-Pro forma $ 0.29 $ 0.22
==================== ==================
Diluted-as reported $ 0.30 $ 0.22
==================== ==================
Diluted-Pro forma $ 0.28 $ 0.21
==================== ==================
Nine Months Ended Nine Months
September 30, 2003 Ended September
30, 2002
-------------------- ------------------
(in thousands, except per share data)
Net income, as reported $ 30,327 $ 17,809
Add: stock-based compensation recorded -- --
Deduct: total stock-based compensation expense determined
under the fair value method, net of tax 1,940 1,457
-------------------- ------------------
Pro forma net income $ 28,387 $ 16,352
Earnings Per Share:
Basic-as reported $ 0.87 $ 0.57
==================== ==================
Basic-Pro forma $ 0.82 $ 0.52
==================== ==================
Diluted-as reported $ 0.82 $ 0.53
==================== ==================
Diluted-Pro forma $ 0.77 $ 0.48
==================== ==================
(6) Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended September 30, 2003
and 2002 was approximately $11.0 million and $8.1 million, respectively.
Comprehensive income (loss) for the nine months ended September 30, 2003 and
2002 was approximately $30.6 million and $19.0 million, respectively. Other
comprehensive income (loss) for the three months ended September 30, 2003 and
2002 includes foreign currency translation gains (losses) of approximately
$17,000 and $17,000, respectively, and increases (decreases) in the fair value
of interest rate swaps of approximately $104,000 and $(101,000), respectively,
net of tax. Comprehensive income (loss) for the nine months ended September 30,
2003 and 2002, includes foreign currency translation gains of approximately
$52,000 and $11,000, respectively, and increases (decreases) in the fair value
of interest rate swaps of approximately $251,000 and $1.2 million, respectively,
net of tax. For the nine months ended September 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 nine months ended September 30, 2002 included 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.
7
(7) Computation of Earnings Per Share
For the three months ended
September 30, 2003
Weighted average
Income shares Per Share
(Numerator) (Denominator) Amount
------------ -------------- -----------
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 10,943 34,970,108 $ 0.31
================= ===============
Stock options -- 2,114,243 --
Diluted earnings per share:
Net income $ 10,943 37,084,351 $ 0.30
================= ===============
For the three months ended
September 30, 2002
Weighted average
Income shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------------ --------------
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 8,166 34,184,263 $ 0.24
================= ===============
Stock options -- 2,370,411 --
Diluted earnings per share:
Net income $ 8,166 36,554,674 $ 0.22
================= ===============
8
For the nine months ended
September 30, 2003
Weighted average
Income shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 30,327 34,709,666 $ 0.87
================= ===============
Stock options -- 2,106,700 --
Diluted earnings per share:
Net income $ 30,327 36,816,366 $ 0.82
================= ===============
For the nine months ended
September 30, 2002
Weighted average
Income shares Per Share
(Numerator) (Denominator) Amount
---------------- -------------------- ----------------
(in thousands, except share and per share data)
Basic earnings per share:
Net income $ 17,809 31,430,331 $ 0.57
================= ===============
Stock options -- 2,484,737 --
Diluted earnings per share:
Net income $ 17,809 33,915,068 $ 0.53
================== ===============
(8) 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, 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.
Non-guarantor subsidiaries include the Company's foreign subsidiaries. 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.
9
As of September 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 $ (2) $ 1,226 $ 1,500 $ -- $ 2,724
Accounts receivable, net -- 206,362 866 -- 207,228
Other current assets 1,166 15,181 316 -- 16,663
Property and equipment, net 2,214 10,091 119 -- 12,424
Due from parent (105,765) 105,994 (229) -- --
Investments in and advances to
subsidiaries 30,780 (17,130) -- (13,650) --
Goodwill, net 169,021 43,672 -- -- 212,693
Intangible and other assets, net 76,087 1,940 -- (68,000) 10,027
------------ ------------- ------------ ------------ ------------
Total assets $ 173,501 $ 367,336 $ 2,572 $ (81,650) $ 461,759
============ ============= ============ ============ ============
Indebtedness $ 95,853 $ 125,399 $ -- $ (68,000) $ 153,252
Accounts payable 684 35,785 228 -- 36,697
Accrued expenses and other current
liabilities 4,630 84,724 568 -- 89,922
Deferred revenue -- 4,394 766 -- 5,160
Other long-term liabilities -- 9,123 -- -- 9,123
------------ ------------- ------------ ------------ ------------
Total liabilities 101,167 259,425 1,562 (68,000) 294,154
Minority interest in subsidiaries -- -- 206 -- 206
Total stockholders' equity (deficit) 72,334 107,911 804 (13,650) 167,399
------------ ------------- ------------ ------------ ------------
Total liabilities and stockholders'
equity (deficit) $ 173,501 $ 367,336 $ 2,572 $ (81,650) $ 461,759
============ ============= ============ ============ ============
10
For the nine months ended September 30, 2003
Consolidated
Unaudited Condensed Consolidated Statements Anteon Anteon
of Operations International Guarantor Non-Guarantor Elimination International
Corporation Subsidiaries Subsidiaries Entries Corporation
--------------- --------------- -------------- ------------ ------------
(in thousands)
Revenues $ -- $ 753,527 $ 8,376 $ (139) $ 761,764
Costs of revenues -- 649,342 7,492 (139) 656,695
------------ ------------- ------------ ------------ ------------
Gross profit -- 104,185 884 -- 105,069
Total operating expenses 2,379 64,055 535 (22,818) 44,151
------------ ------------- ------------ --------------- ------------
Operating income (loss) (2,379) 40,130 349 22,818 60,918
Other income (loss) 7,229 15,589 -- (22,818) --
Secondary offering expenses 798 -- -- -- 798
Interest expense (income), net 3,646 6,749 (11) -- 10,384
Minority interest in earnings of
subsidiaries -- -- (50) -- (50)
------------ ------------- ------------ ------------ ------------
Income before provision for income taxes 406 48,970 310 -- 49,686
Provision for income taxes 161 19,086 112 -- 19,359
------------ ------------- ------------ ------------ -------------
Net income $ 245 $ 29,884 $ 198 $ -- $ 30,327
============ ============= ============ ============ ============
11
For the nine months ended September 30, 2003
-----------------------------------------------------------------------
Consolidated
Unaudited Condensed Consolidated Statements of Cash Flows Anteon Anteon
International Guarantor Non-Guarantor International
Corporation Subsidiaries Subsidiaries Corporation
--------------- -------------- ---------------- --------------
(in thousands)
OPERATING ACTIVITIES:
Net income $ 245 $ 29,884 $ 198 $ 30,327
Adjustments to reconcile net income to net cash (used
for) provided by operating activities
Depreciation and amortization of property and equipment 503 2,428 55 2,986
Other intangibles amortization 1,582 181 -- 1,763
Amortization of deferred financing fees 995 83 -- 1,078
Loss on disposals of property and equipment -- 135 -- 135
Deferred income taxes -- (3,307) -- (3,307)
Minority interest in earnings of subsidiaries -- -- 50 50
Changes in assets and liabilities 87,063 (79,894) 625 7,794
--------------- ------------- ------------- --------------
NET CASH PROVIDED (USED FOR) BY OPERATING ACTIVITIES 90,388 (50,490) 928 40,826
--------------- ------------- ------------- --------------
INVESTING ACTIVITIES:
Purchases of property equipment and other assets (352) (1,837) (52) (2,241)
Acquisitions, net of cash acquired (92,150) (219) -- (92,369)
--------------- ------------- ------------- --------------
NET CASH USED FOR INVESTING ACTIVITIES (92,502) (2,056) (52) (94,610)
--------------- ------------- ------------- --------------
FINANCING ACTIVITIES:
Principal payments on notes payable -- (38) -- (38)
Payment of credit facility amendment fee -- (249) -- (249)
Principal payments on term loan (2,849) -- -- (2,849)
Proceeds from revolving facility -- 737,100 -- 737,100
Principal payments on revolving facility -- (686,700) -- (686,700)
Proceeds from issuance of common stock, net of expenses 4,078 -- -- 104,078
Proceeds from certain stockholders related to secondary
offering 900 -- -- 900
--------------- ------------- ------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,129 50,113 -- 52,242
--------------- ------------- ------------- --------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) in cash and cash equivalents 15 (2,433) 876 (1,542)
Cash and cash equivalents, beginning of period (17) 3,659 624 4,266
--------------- ------------- ------------- --------------
Cash and cash equivalents, end of period $ (2) $ 1,226 $ 1,500 $ 2,724
=============== ============= ============= ==============
12
For the nine months ended September 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 $ -- $ 610,905 $ 3,556 $ (5,581) $ 608,880
Costs of revenues 10 528,650 3,199 (5,581) 526,278
------------- -------------- ------------- ------------ --------------
Gross profit (loss) (10) 82,255 357 -- 82,602
------------- -------------- ------------- ------------ --------------
Total operating expenses 1,792 40,500 265 (7,042) 35,515
------------- -------------- ------------- ------------ --------------
Operating income (loss) (1,802) 41,755 92 7,042 47,087
Other income (loss) 4,609 2,850 -- (7,042) 417
Interest expense (income), net 12,482 5,836 (12) -- 18,306
Minority interest in earnings of
subsidiaries -- -- (3) -- (3)
------------- -------------- ------------- ------------ --------------
Income (loss) before provision for inco me
taxes (9,675) 38,769 101 -- 29,195
Provision for (benefit from) income taxes (4,193) 15,491 88 -- 11,386
------------- -------------- ------------- ------------ --------------
Net income (loss) $ (5,482) $ 23,278 $ 13 $ -- $ 17,809
============= ============== ============= ============ ==============
13
For the nine months ended September 30, 2002
--------------------------------------------------------------------------
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 (loss) $ (5,482) $ 23,278 $ 13 $ 17,809
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 502 2,832 48 3,382
Other intangibles amortization 1,266 164 -- 1,430
Amortization of deferred financing fees 2,124 -- -- 2,124
Loss on disposals of property and equipment -- 79 -- 79
Deferred income taxes 2,537 1,101 -- 3,638
Minority interest in earnings of subsidiaries -- -- 3 3
Changes in assets and liabilities (1,117) (41,129) 583 (41,663)
--------- ---------- --------- -----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES (2,073) (13,675) 647 (15,101)
--------- ---------- --------- -----------
INVESTING ACTIVITIES:
Purchases of property, equipment and other assets (198) (2,234) (44) (2,476)
Proceeds from the sale of building -- 1,802 -- 1,802
--------- ---------- --------- ------------
NET CASH USED FOR INVESTING ACTIVITIES (198) (432) (44) (674)
--------- ---------- --------- -----------
FINANCING ACTIVITIES:
Principal payments on notes payable -- (34) -- (34)
Payment of credit facility amendment fee (604) -- -- (604)
Principal payments on term loan (24,903) -- -- (24,903)
Proceeds from revolving facility -- 642,400 -- 642,400
Principal payments on revolving facility (18,700) (622,400) -- (641,100)
Redemption of senior subordinated notes payable (25,000) -- -- (25,000)
Proceeds from issuance of common stock, net of
expenses 80,983 -- -- 80,983
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 (92) 19,966 -- 19,874
--------- ---------- --------- -----------
CASH AND CASH EQUIVALENTS:
Net increase (decrease) in cash and cash equivalents (2,363) 5,859 603 4,099
Cash and cash equivalents, beginning of period 3,347 (1,668) 251 1,930
--------- ---------- --------- -----------
Cash and cash equivalents, end of period $ 984 $ 4,191 $ 854 $ 6,029
========= ========== ========= ===========
(9)
14
Segment Information
Although the Company is organized by strategic business units, the Company
considers each of its government contracting business 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.
(10) Interest Rate Swap Agreements
In the nine months ended September 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 nine months ended September 30, 2002 includes losses of $1.9
million associated with these cancellations.
As of September 30, 2003, the fair value of the Company's interest rate
swap agreements, with a notional value of $10.0 million, resulted in a net
liability of approximately $350,000 and has been included in other current
liabilities. Over the next twelve months, approximately $350,000 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.
(11) 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 arbitrator issued a revised decision dated September 26, 2003
which eliminated the permanent injunction against the Company hiring certain
subcontractor employees and reaffirmed the continued applicability of the
subcontract provision addressing the parties' rights and obligations with
respect to the solicitation for hire of employees of the other party.
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.
(12) Secondary Offering Expenses
On September 22, 2003, certain of the Company's stockholders sold 6,600,000
shares of the Company's common stock in an underwritten offering pursuant to a
registration statement on Form S-3 filed with the SEC (Commission File Nos.
333-108147 and 333-108858). In connection with this offering, the Company
incurred approximately $798,000 of expenses in the third quarter of 2003, which
amounts were reimbursed by certain of the selling stockholders and recorded by
the Company as a contribution to paid-in-capital. In the fourth quarter of 2003,
the underwriters of this offering partially exercised their over-allotment
option with respect to additional shares held by the selling stockholders. As a
result, on October 16, 2003, certain of the selling stockholders sold an
additional 297,229 shares of the Company's common stock in a second closing
pursuant to the same underwritten offering. Expenses incurred by the Company in
connection with the second closing will also be reimbursed by certain of the
selling stockholders and recorded by the Company as a contribution to
paid-in-capital in the fourth quarter of 2003.
(13) New Accounting Pronouncements
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 addresses how to determine whether an
arrangement involving multiple deliverables contains more than one unit of
accounting. It also addresses how arrangement consideration should be measured
and allocated to the separate units of accounting in an arrangement. EITF 00-21
does not apply to deliverables in arrangements to the extent the accounting for
such deliverables is within the scope of other existing higher-level
authoritative accounting literature. The effective date of EITF 00-21 for the
Company is July 1, 2003. The adoption of EITF 00-21 did not have a significant
impact on the Company's consolidated financial statements.
15
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 interests qualifying
as VIEs that were created after February 1, 2003 is July 1, 2003. For those
interests created before February 1, 2003, the effective date is December 31,
2003. The Company does not have any interests qualifying as VIEs created after
February 1, 2003, including residual value guarantees or fixed purchase options
under leases as of September 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. The adoption of SFAS No. 150 did not have an impact on the financial
condition or the operating results of the Company.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We acquired Information Spectrum, Inc., or "ISI," on May 23, 2003. Unless
otherwise indicated, financial statement information presented in this quarterly
report includes the results of ISI from the date of acquisition; any other data
and information excludes ISI.
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 and
our industry'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:
o estimated remaining contract value;
o our expectations regarding the U.S. federal government's procurement
budgets and reliance on outsourcing of services; and
o 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. In evaluating these statements, you should
specifically consider various factors, including the following:
o the integration of acquisitions, including ISI, without disruption to our
other business activities;
o changes in general economic and business conditions;
o changes in federal government procurement laws, regulations, policies, and
budgets;
o the number and type of contracts and task orders awarded to us;
o technological changes;
o the ability to attract and retain qualified personnel;
o competition;
o and our ability to retain our contracts during any rebidding process.
GENERAL
We are a leading provider of information technology solutions and advanced
systems engineering services to government clients as measured by revenue. 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 have a broad client and contract base and a diverse contract mix. We
currently serve over 1,000 U.S. federal government clients in more than 50
government agencies, as well as state and foreign governments. For the nine
months ended September 30, 2003, approximately 81% of our revenues were derived
from the Department of Defense, or "DOD," and DOD-related intelligence agencies,
and approximately 17% from civilian agencies of the U.S. federal government. For
the nine months ended September 30, 2003, we estimate that approximately 89% of
our revenues were from contracts where we were the lead, or "prime," contractor.
Our diverse contract base has approximately 470 active contracts, and more than
3,000 active task orders. For the three and nine months ended September 30,
2003, our largest contract or task order accounted for approximately 7% and 8%
of our revenues, respectively. We also have a diverse mix of contract types,
with approximately 39%, 32%, and 29% of our revenues for the nine months ended
September 30, 2003 derived from time and materials, cost-plus, and fixed price
contracts, respectively. In addition, we generally do not pursue fixed price
software development contracts that may create financial risk. Additionally, we
have contracts with an estimated remaining contract value of $5.4 billion as of
September 30, 2003, of which $591.5 million is funded backlog. Our contracts
have a weighted-average term of approximately eight years.
17
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.
Revenue Recognition
For the nine months ended September 30, 2003, we estimate that
approximately 98% of our revenues were derived from services and approximately
2% from product sales. 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 U.S. 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
U.S. 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 U.S. federal government contracts based on
allowable contract costs, as mandated by the U.S. federal government's cost
accounting standards. The costs we incur under U.S. federal government contracts
are subject to regulation and audit by certain agencies of the U.S. federal
government. Historically, contract cost disallowances resulting from government
audits have not 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 was
approximately 39% time and materials, 32% cost-plus and 29% fixed price (a
substantial majority of which were fixed price level of effort) during the nine
months ended September 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 U.S. federal government's objective in
negotiating such contracts is to seldom allow for operating profits in excess of
15%. 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.
18
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.
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 $212.7 million and $138.6
million at September 30, 2003 and December 31, 2002, respectively. For the nine
months ended September 30, 2003, goodwill increased by approximately $74.1
million as a result of the acquisition of ISI in May 2003. 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 analyses as of September 30, 2002 and 2003, noting no
indications of impairment for any of our reporting units.
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 September 30, 2003 and
December 31, 2002, respectively. Of the $18.2 million at September 30, 2003,
approximately $7.7 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. 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.
During the nine months ended September 30, 2003, we recognized an impairment
charge of approximately $135,000, included in general and administrative
expenses in the accompanying consolidated statement of operations, to write-down
the carrying value of a building to its estimated fair market value.
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.
19
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 $724,000. 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
$4.8 million of contracts and related customer relationships, and $500,000 for
the value of a non-compete agreement. The preliminary value of the contracts and
related customer relationships is based, in part, on an independent appraisal
and other studies that are being performed by the Company. The contracts and
related customer relationships have an expected useful life of approximately 5.3
years. The non-compete agreement value was based on the consideration paid for
the agreement and is being amortized straight-line over the three year term of
the agreement. In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill arising from the transaction is not being amortized.
The total purchase price paid, including transaction and other deal related
costs, of $92.4 million was preliminarily allocated to the assets acquired and
liabilities assumed as follows (in thousands):
Historical net assets of ISI $ 13,045
Goodwill 74,073
Non-compete agreement 500
Contracts and customer relationships 4,751
---------------
Total consideration $ 92,369
===============
20
Statements of Operations
The following is a description of certain line items from our statement of
operations.
Revenues for the three and nine months ended September 30, 2003 include the
operations of ISI for the 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 consist of contract backlog acquired as part of our
acquisitions of Analysis & Technology, Inc., Sherikon, Inc., and the training
division of SIGCOM, Inc. and contracts and related customer relationships
acquired as part of our acquisition of 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.
FUNDED BACKLOG AND 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
effective management of costs makes 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 by approximately $1.1 billion from $4.3 billion at
December 31, 2002 to $5.4 billion at September 30, 2003, of which $591.5 million
was funded backlog as of September 30, 2003.
Our total estimated contract value, at a given time, represents the
aggregate estimated contract revenue expected to be earned by us over the
remaining life of our contracts. When we and one or more other companies are
each awarded awarded a contract for the same scope of work, 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 U.S. federal government operates under annual appropriations,
agencies of the U.S. 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
realized future revenues. 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 commence 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.
21
RESULTS OF OPERATIONS
Our historical consolidated financial statements included herein do not
reflect the full impact of the operating results of our acquisition of ISI,
since its operating results are only included with our results from the date of
acquisition.
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 September 30,
2003 2002
------------------------------- ------------------------
($ in thousands)
Revenues $ 279,080 100.0% $ 214,314 100.0%
Costs of revenues 240,689 86.2 184,585 86.1
----------------- ----------- ---------------- ------------
Gross profit 38,391 13.8 29,729 13.9
----------------- ----------- ---------------- ------------
Operating expenses:
General and administrative expenses 14,969 5.4 12,704 5.9
Amortization 723 0.3 476 0.2
----------------- ----------- ---------------- ------------
Total operating expenses 15,692 5.7 13,180 6.1
----------------- ----------- ---------------- ------------
Operating income 22,699 8.1 16,549 7.8
Other income, net -- -- 57 --
Secondary offering expenses 798 0.3 -- --
Interest expense, net 3,831 1.4 3,223 1.5
Minority interest in (earnings) losses of subsidiaries (18) -- 5 --
----------------- ----------- ---------------- ------------
Income before income taxes 18,052 6.4 13,388 6.3
Provision for income taxes 7,109 2.5 5,222 2.4
----------------- ----------- ---------------- ------------
Net income $ 10,943 3.9% $ 8,166 3.9%
================= ============ ================ =============
For the Nine Months Ended September 30,
2003 2002
---------------------------- -----------------------
($ in thousands)
Revenues $ 761,764 100.0% $ 608,880 100.0%
Costs of revenues 656,695 86.2 526,278 86.4
----------------- ----------- ---------------- ------------
Gross profit 105,069 13.8 82,602 13.6
----------------- ----------- ---------------- ------------
Operating expenses:
General and administrative expenses 42,388 5.6 34,085 5.6
Amortization 1,763 0.2 1,430 0.3
----------------- ----------- ---------------- ------------
Total operating expenses 44,151 5.8 35,515 5.9
----------------- ----------- ---------------- ------------
Operating income 60,918 8.0 47,087 7.7
Other income, net -- -- 417 0.1
Secondary offering expenses 798 0.1
Interest expense, net 10,384 1.4 18,306 3.0
Minority interest in earnings of subsidiaries (50) -- (3) --
----------------- ----------- ---------------- ------------
Income before income taxes 49,686 6.5 29,195 4.8
Provision for income taxes 19,359 2.5 11,386 1.9
----------------- ----------- ---------------- ------------
Net income $ 30,327 4.0% $ 17,809 2.9%
================= ============ ================ =============
22
REVENUES
For the three months ended September 30, 2003, revenues increased by $64.8
million, or 30.2%, to $279.1 million from $214.3 million for the three months
ended September 30, 2002. For the nine months ended September 30, 2003, revenues
increased by $152.9 million, or 25.1% to $761.8 million, from $608.9 million for
the nine months ended September 30, 2002. The increase in revenues was
attributable to organic growth and the acquisition of ISI. We define organic
growth as the increase in revenues excluding the revenues associated with
acquisitions, divestitures and closures of businesses in comparable periods. We
believe organic growth is a useful supplemental measure to revenue. Management
uses organic growth as part of its evaluation of core operating results and
underlying trends. For the three and nine month periods ended September 30,
2003, our organic growth was 14.5%, or $31.0 million, and 17.7%, or $107.6
million, respectively. The increase in revenue 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, our Professional
Engineering Services schedule contract, and our other GSA contracts.
COSTS OF REVENUES
For the three months ended September 30, 2003, costs of revenues increased
by $56.1 million, or 30.4%, to $240.7 million from $184.6 million for the three
months ended September 30, 2002. Costs of revenues as a percentage of revenues
increased to 86.2% from 86.1% for the three months ended September 30, 2003.
Cost of revenues as a percentage of revenue increased due to a modification of
our treatment of certain overhead expenses which were reclassified as general
and administrative expenses as requested by the government in the third quarter
of 2002. For the nine months ended September 30, 2003, costs of revenues
increased by $130.4 million, or 24.8%, to $656.7 million, from $526.3 million
for the nine months ended September 30, 2002. For the nine months ended
September 30, 2003, costs of revenues as a percentage of revenues decreased to
86.2% from 86.4% for the nine months ended September 30, 2002. The costs of
revenues increase was due in part to the corresponding growth in revenues
resulting from organic growth and the acquisition of ISI. The majority of the
increase in cost of revenues for the three and nine month periods ended
September 30, 2003 was due to a $29.6 million and $58.2 million increase in
direct labor and fringe costs and $22.0 million and $67.2 million increase in
other direct contract costs, respectively. The increases in direct labor and
fringe costs and other direct contract costs were offset in part by reductions
in certain overhead expenses.
For the three months ended September 30, 2003, gross profit increased $8.7
million, or 29.3%, to $38.4 million from $29.7 million for the three months
ended September 30, 2002. Gross margin was 13.8% compared to 13.9 % for the
comparable period in 2002. The decrease in gross margin for the three months
ended September 30, 2003 was primarily attributable to a modification of our
treatment of certain overhead expenses which were reclassified as general and
administrative expenses as requested by the government in the third quarter of
2002. For the nine months ended September 30, 2003, gross profit increased $22.5
million, or 27.2%, to $105.1 million from $82.6 million for the nine months
ended September 30, 2002. Gross margin was 13.8% compared to 13.6% for the
comparable period in 2002. The increase in gross margin for the nine months
ended September 30, 2003 was primarily a result of the impact of certain
indirect cost reductions.
GENERAL AND ADMINISTRATIVE EXPENSES
For the three months ended September 30, 2003, general and administrative
expenses increased $2.3 million, or 18.1%, to $15.0 million from $12.7 million
for the three months ended September 30, 2002. The increase was primarily
attributable to the corresponding growth in revenue. General and administrative
expenses for the three months ended September 30, 2003, as a percentage of
revenues, decreased to 5.4% from 5.9% from the comparable period in 2002. The
decrease in general and administrative expenses as a percentage as of revenues
was attributable to a modification of our treatment of certain overhead expenses
which were reclassified as general and administrative expenses as requested by
the government in the third quarter of 2002. For the nine month period ended
September 30, 2003, general and administrative expenses increased $8.3 million,
or 24.3%, to $42.4 million from $34.1 million for the nine months ended
September 30, 2002. General and administrative expenses for the nine months
ended September 30, 2003, as a percentage of revenues, remained constant at 5.6%
from the comparable period in 2002.
AMORTIZATION
For the three months ended September 30, 2003, amortization expenses
increased $247,000, or 51.9%, to $723,000 from $476,000 for the comparable
period in 2002. Amortization as a percentage of revenues for the three months
ended September 30, 2003 increased to 0.3% from 0.2% for the three months ended
September 30, 2002. For the nine months ended September 30, 2003, amortization
expenses increased $333,000, or 23.3%, to $1.8 million from $1.4 million for the
comparable period in 2002. Amortization as a percentage of revenues decreased to
0.2% from 0.3%. The increase in amortization expense for the three and nine
months ended September 30, 2003 is attributable to the amortization of the
intangible assets related to the ISI acquisition.
23
OPERATING INCOME
For the three months ended September 30, 2003, operating income increased
$6.2 million, or 37.6%, to $22.7 million from $16.5 million for the three months
ended September 30, 2002. Operating income as a percentage of revenues increased
to 8.1% for the three months ended September 30, 2003 from 7.8% for the
comparable period in fiscal 2002. For the nine month period ended September 30,
2003, operating income increased $13.8 million, or 29.4%, to $60.9 million from
$47.1 million for the nine month period ended September 30, 2002. Operating
income as a percentage of revenues increased to 8.0% for the nine month period
ended September 30, 2003 from 7.7% for the same period in 2002.
OTHER INCOME
For the three months ended September 30, 2003, we did not have any other
income. Other income for the three and nine months ended September 30, 2002
included a gain on the sale of assets of DisplayCheck, a previously discontinued
business, and receipt of insurance proceeds for misappropriated equipment
previously recorded as a loss.
SECONDARY OFFERING EXPENSES
On September 22, 2003, certain of our stockholders sold 6,600,000 shares of
our common stock in an underwritten offering pursuant to a registration
statement on Form S-3 filed with the SEC (Commission File Nos. 333-108147 and
333-108858). In connection with this offering, we incurred approximately
$798,000 of expenses in the third quarter of 2003, which amounts were reimbursed
by certain of the selling stockholders and recorded by us as a contribution to
paid-in capital. In the fourth quarter of 2003, the underwriters of this
offering partially exercised their over-allotment option with respect to
additional shares held by the selling stockholders. As a result, on October 16,
2003, certain of the selling stockholders sold an additional 297,229 shares of
our common stock in a second closing pursuant to the same underwritten offering.
Expenses incurred by us in connection with the second closing will also be
reimbursed by certain of the selling stockholders and recorded by us as a
contribution to paid-in capital in the fourth quarter of 2003.
INTEREST EXPENSE, NET
For the three months ended September 30, 2003, interest expense, net of
interest income, increased $608,000, or 18.8%, to $3.8 million from $3.2 million
for the three months ended September 30, 2002. The increase is primarily
attributable to the increased borrowings under our Credit Facility in
conjunction with the ISI acquisition. For the nine months ended September 30,
2003, interest expense, net of interest income, decreased $7.9 million, or
43.2%, to $10.4 million from $18.3 million for the nine months ended September
30, 2002. The decrease in interest expense was due primarily to a reduction in
our debt, which was paid down with proceeds from our initial public offering, or
"IPO," and from increased operating cash flow. Interest expense for the nine
months ended September 30, 2002 reflected the impact of certain items that did
not occur in the nine months ended September 30, 2003. These items include the
recognition of previously unrecognized losses of $1.9 million related to the
termination of $30.0 million of interest rate swap agreements and $4.2 million
of losses previously recorded as an extraordinary item in conjunction with the
early extinguishment of debt.
PROVISION FOR INCOME TAXES
As a result of our acquisition of ISI and certain non-deductible secondary
offering expenses we incurred (referred to above), our effective tax rate for
the three and nine months ended September 30, 2003 was 39.4% and 39.0%,
respectively, compared with an effective tax rate of 39.0% for the three and
nine months ended September 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows for the Nine Months Ended September 30, 2003
We generated $40.8 million in cash from operations for the nine months
ended September 30, 2003. In comparison, we used $15.1 million in cash from
operations for the nine months ended September 30, 2002. This increase in cash
flow was primarily attributable to an increase in net income and improved
working capital turnover, offset by an increase in deferred income taxes. Total
days sales outstanding in accounts receivable, or "DSO," at September 30, 2003
decreased to 67 days from 78 days as of December 31, 2002. The improvement in
total DSO from December 31, 2002 to September 30, 2003 was attributable to our
improved billing and collection processes and an improvement in government
payment cycles as a result for the nine months ended September 30, 2003.
Accounts receivable totaled approximately $207.2 million at September 30, 2003,
an increase of approximately $18.2 million, from $189.0 million at December 31,
2002 and represented 44.9% of the total assets at that date. In our acquisition
of ISI, we purchased approximately $21.4 million of accounts receivable. For the
nine months ended September 30, 2003, net cash used for investing activities was
$94.6 million, which was attributable to purchases of property, plant and
equipment and approximately $92.4 million for the acquisition of ISI. Cash
provided by financing activities was $52.2 million for the nine months ended
September 30, 2003, due to the additional borrowings under the revolving loan
portion of our Credit Facility for the acquisition of ISI.
24
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. We used
the net proceeds from the IPO to repay debt outstanding under our prior credit
facility, repay in full certain of our subordinated promissory notes and redeem
$25.0 million principal amount of our 12% Notes. 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, a company we acquired in 2002. 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.
Historically, our primary liquidity requirements have been for debt
service under our Credit Facility and 12% Notes and for acquisitions and working
capital requirements. We have funded these requirements primarily through
internally generated operating cash flow and funds borrowed under our existing
Credit Facility. On October 21, 2002, we entered into an amended and restated
credit agreement related to our Credit Facility. Our Credit Facility permits the
revolving loan portion of our Credit Facility to increase to a maximum of $200.0
million. As of September 30, 2003, $187.5 million of the revolving loan was
committed to by participants in our Credit Facility. 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 excess cash flow (as defined
in the Credit Facility); and (ii) repurchase certain amounts of our subordinated
debt from net cash proceeds of issuances of equity securities. In addition, the
Credit Facility provides flexibility to raise additional financing to fund
future acquisitions. 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. In addition, the Credit Facility 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
limitation on capital expenditures. For the periods ended September 30, 2003,
and December 31, 2002, we were in compliance with all of the financial
covenants. At September 30, 2003, total debt outstanding under our Credit
Facility was approximately $75.8 million, consisting of $18.4 million of term
loan and $57.4 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 were approximately $113.0 million as of September
30, 2003. Under certain conditions related to excess annual cash flow, and our
ratio of net senior debt to EBITDA, 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. We did not have any capital
commitments greater than $1.5 million as of September 30, 2003.
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 and payment. Our principal sources of cash to fund our working capital
needs are cash generated from operating activities and borrowings under our
Credit Facility.
We have relatively low capital investment requirements. Capital
expenditures were $2.2 million and $2.5 million for the nine months ended
September 30, 2003 and 2002, respectively, primarily for leasehold improvements
and office equipment. We use off-balance sheet financing, primarily to finance
certain capital expenditures. Operating leases are used primarily to finance the
purchase of computers, servers, phone systems and to a lesser extent, other
fixed assets like furnishings. At September 30, 2003, we had equipment worth
approximately $16.2 million under operating leases. Had we not used operating
leases, we would have used our existing line of credit to purchase these assets.
Other than the operating leases described above, and facilities leases, we do
not have any other off- balance sheet financing.
Our business acquisition expenditures in the nine months ended September
30, 2003 were $92.4 million for the acquisition of ISI. This acquisition was
financed primarily through borrowings under our Credit Facility.
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 September 30, 2003.
25
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 Facility is affected by changes in market
interest rates. We manage these fluctuations in part through interest rate swaps
that are currently in place and our focus on reducing the amount of outstanding
debt through cash flow.
On January 29, 2002, we cancelled approximately $30 million of interest
swap agreements and recognized previously unrecognized losses of $1.9 million in
interest expense for the quarter ended March 31, 2002. As of September 30, 2003,
the fair value of our remaining interest rate swap agreements resulted in a net
liability of approximately $350,000 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 $316,000 and $182,000 for the
nine months ended September 30, 2003 and 2002, respectively.
ITEM 4. CONTROLS AND PROCEDURES
Our management, with the participation of our chief executive officer and
chief financial officer (our principal executive officer and principal financial
officer), evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
September 30, 2003. Based on this evaluation, our chief executive officer and
chief financial officer concluded that, as of September 30, 2003, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to us, including our consolidated subsidiaries, is made known to our
chief executive officer and chief financial officer by others within those
entities, particularly during the period in which this report was being prepared
and (2) effective, in that they provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.
No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
quarter ended September 30, 2003 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
26
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 us 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 arbitrator issued a
revised decision dated September 26, 2003 which eliminated the permanent
injunction against our hiring certain subcontractor employees and reaffirmed the
continued applicability of the subcontract provision addressing the parties'
rights and obligations with respect to the solicitation for hire of employees of
the other party.
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
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended
31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of
the Securities Exchange Act of 1934, as amended
32.1 Certification by Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification by Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
27
B. REPORTS ON FORM 8-K
(1) On July 29, 2003, the Company filed a Current Report on Form 8-K/A,
pursuant to Item 2 (Acquisition or Disposition of Assets), providing
the financials statements required under Item 7. In accordance with
Item 7 (a) (4), the required financial statements provided were the
Audited Financial Statements for Information Spectrum, Inc. as of
November 30, 2002, 2001, and 2000 and for each of the three years in
the period ended November 30, 2002 and the related Independent
Auditors' Report thereon, and the Unaudited Balance Sheet as of
February 28, 2003 and the Unaudited Statements of Operations and Cash
Flows for the three months ended February 28, 2003 and 2003. In
accordance with Item (7) (b) (2), the Unaudited Pro Forma Condensed
Consolidated Statements of Operations, Unaudited Pro Forma Condensed
Consolidated Balance Sheet, and Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements were provided.
28
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: October 31, 2003 By: /s/: Joseph M. Kampf
------------------ -------------------------------------------
Joseph M. Kampf - President and
Chief Executive Officer
Date: October 31, 2003 By: /s/: Charles S. Ream
------------------ -------------------------------------------
Charles S. Ream - Executive Vice President
and Chief Financial Officer
29