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 June 30, 2002
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 0-23173
OAO TECHNOLOGY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 52-1973990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7500 Greenway Center Drive
Greenbelt, Maryland 20770
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (301) 486-0400
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 |_|
As of August 1, 2002, the registrant had outstanding 17,474,059 shares of
its Common Stock, par value $0.01 per share.
1
OAO TECHNOLOGY SOLUTIONS, INC.
Quarterly Report on Form 10-Q for the Three and Six Months Ended June 30, 2002
INDEX
Page Reference
--------------
COVER PAGE ......................................................... 1
INDEX .............................................................. 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (Unaudited) as of
June 30, 2002 and December 31, 2001 ........................ 3
Condensed Consolidated Statements of Operations and
Comprehensive Income (Unaudited) for the Three and Six
Months Ended June 30, 2002 and 2001 ........................ 4
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Six Months Ended June 30, 2002
and 2001 ................................................... 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) ................................................ 6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................ 11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK ....................................................... 17
PART II - OTHER INFORMATION ........................................ 18
Item 4. Submission of Matters to a Vote of Security Holders ........ 18
Item 6. Exhibits and Reports on Form 8-K ........................... 18
SIGNATURES ......................................................... 19
2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
OAO TECHNOLOGY SOLUTIONS, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
June 30, December 31,
------------------------------
2002 2001
------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,461 $ 9,060
Accounts receivable, net 34,864 36,602
Note receivable, OAO Corporation -- 1,714
Deferred income taxes 2,089 4,040
Income tax receivable 2,435 358
Other current assets 1,603 1,305
------------------------------
Total current assets 51,452 53,079
Property and equipment, net 5,058 5,220
Purchased and developed software for sale, net 1,314 1,737
Deposits and other assets 1,549 1,355
Deferred income taxes 207 898
Intangible assets, net 11,962 12,268
------------------------------
Total assets $ 71,542 $ 74,557
==============================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Term loan, current portion $ 1,800 $ 1,800
Accounts payable 7,424 6,893
Accrued expenses 5,787 5,108
Accrued compensation and benefits 9,706 10,513
Income tax payable 346 460
Unearned revenue 2,255 2,022
Current portion of capital lease obligations 706 959
------------------------------
Total current liabilities 28,024 27,755
Capital lease obligations, net of current portion and other 1,617 1,644
Term loan, net of current portion 5,942 6,753
Shareholders' equity:
Preferred stock, par $.01 per share, 10,000,000 shares authorized;
none issued and outstanding -- --
Common stock, par $.01 per share, 50,000,000 shares authorized;
17,474,059 and 18,702,710 shares issued and outstanding
as of June 30, 2002 and December 31, 2001, respectively 175 187
Additional paid-in capital 38,751 41,703
Accumulated other comprehensive net loss (1,026) (848)
Shareholder receivable (2,933) (2,933)
Retained earnings 992 296
------------------------------
Total shareholders' equity 35,959 38,405
------------------------------
Total liabilities and shareholders' equity $ 71,542 $ 74,557
==============================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
OAO TECHNOLOGY SOLUTIONS, INC.
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited)
(in thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
--------------------------------------------
2002 2001 2002 2001
--------------------------------------------
Revenues $ 42,983 $ 40,380 $ 83,300 $ 79,895
Direct costs 35,538 32,740 68,325 65,741
(Gain) loss on prepaid software licenses (1,418) 5,085 (1,418) 5,085
--------------------------------------------
8,863 2,555 16,393 9,069
Selling, general and administrative expenses 6,774 8,383 13,665 14,496
Severance and other termination costs 1,339 -- 1,339 --
--------------------------------------------
Income (loss) from operations 750 (5,828) 1,389 (5,427)
Interest income 26 168 50 373
Interest expense (129) (28) (234) (32)
--------------------------------------------
Income (loss) before income taxes 647 (5,688) 1,205 (5,086)
Provision (benefit) for income taxes 272 (2,417) 509 (2,162)
---------------------------------------------
Net income (loss) 375 (3,271) 696 (2,924)
Other comprehensive income (loss):
Net change in fair value of cash flow hedge (109) -- (89) --
Foreign currency translation adjustment 89 88 (89) 181
--------------------------------------------
Comprehensive income (loss) $ 355 $ (3,183) $ 518 $ (2,743)
============================================
Net income (loss) per common share:
Basic $ 0.02 $ (0.18) $ 0.04 $ (0.16)
============================================
Diluted $ 0.02 $ (0.18) $ 0.04 $ (0.16)
============================================
Weighted average number of shares outstanding:
Basic 17,755 18,302 18,089 18,196
============================================
Diluted 17,969 18,302 18,458 18,196
============================================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
OAO TECHNOLOGY SOLUTIONS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six months ended
June 30,
------------------------
2002 2001
------------------------
Cash Flows from Operating Activities:
Net income $ 696 $ (2,924)
Adjustment to reconcile net income to net
cash provided by operating activities:
(Gain) loss on prepaid software licenses (1,418) 5,085
Severance and other termination costs 277 --
Depreciation and amortization 1,979 1,909
Deferred income taxes 2,642 --
Change in assets and liabilities:
Accounts receivable 1,738 (972)
Other current assets and income tax receivable (2,375) (2,982)
Deposits and other assets (194) 94
Accounts payable 531 310
Accrued expenses and accrued compensation and benefits 832 1,055
Income tax payable (114) --
Unearned revenue 233 362
Other long-term liabilities 169 --
------------------------
Net cash provided by operating activities 4,996 1,937
------------------------
Cash Flows from Investing Activities:
Proceeds from repayment of note receivable, OAO Corporation 1,714 --
Expenditures for property and equipment (1,088) (725)
------------------------
Net cash provided by (used in) investing activities 626 (725)
------------------------
Cash Flows from Financing Activities:
Net repayments under revolving credit agreement -- (4,000)
Repurchase of common stock (3,149) --
Payments on term loan (900) --
Proceeds from sale of common stock 366 429
Proceeds from sale-leaseback transactions -- 312
Payments on capital lease obligations (449) (414)
------------------------
Net cash used in financing activities (4,132) (3,673)
------------------------
Effect of exchange rate changes on cash (89) (122)
------------------------
Net increase (decrease) in cash and cash equivalents 1,401 (2,583)
Cash and cash equivalents, beginning of period 9,060 11,779
------------------------
Cash and cash equivalents, end of period $ 10,461 $ 9,196
========================
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
OAO TECHNOLOGY SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization and Basis of Presentation
OAO Technology Solutions, Inc. ("the Company" or "OAOT") is a global
provider of information technology services that address the enterprise-wide
challenges of Fortune 1000 companies, mid-market organizations, health benefit
organizations, and the public sector. The Company began its operations in 1993
as a division of OAO Corporation, was incorporated in March 1996 and was spun
off from OAO Corporation in April 1996. The Company operates two business
segments: Managed IT Solutions and Healthcare IT Solutions.
The condensed consolidated financial statements included herein have been
prepared by the Company without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC") and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date, but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K filed with the SEC for the year ended December 31, 2001 and the
Company's other filings with the SEC. The results of operations for the three
and six month periods ended June 30, 2002 are not necessarily indicative of the
results to be expected for the full year.
2. Revenue Recognition
The Company provides services under various contracts, primarily to large
commercial customers. Revenue under fixed-price contracts is recorded under the
percentage-of-completion method based on costs incurred in relation to estimated
total costs. Revenues under time-and-materials contracts are recorded at the
contracted rates plus other direct costs as they are incurred. Service revenues
are generally recognized ratably over the period of the related contract. Losses
on contracts, if any, are recognized as soon as they become known.
The Company recognizes software revenue under the provisions of Statement
of Position (SOP) No. 97-2, "Software Revenue Recognition" (as amended by SOP
No. 98-4 and SOP No. 98-9). Except as noted below, software license fees are
recognized as revenue upon the customer's execution of a noncancelable license
agreement and the Company's delivery of the software, provided that the fee is
fixed and determinable, collectibility is probable, and no customization of the
software is required. If customization of the software is required, revenues are
recognized on the percentage-of-completion basis over the software
implementation term (generally six to twelve months).
Revenues are recognized from per member, per month (PMPM) software license
arrangements monthly over the term of the arrangement. Revenues from software
maintenance contracts are recognized ratably over the maintenance period based
upon their vendor specific objective evidence of fair value. Revenues from
consulting and training services are recognized on a time-and-materials basis as
services are performed. Amounts received in advance of the delivery of software
or the performance of services are classified as unearned revenue on the
consolidated balance sheets.
6
3. Earnings Per Share
Basic earnings per share has been calculated as net earnings divided by
basic weighted-average common shares outstanding. Diluted earnings per share has
been computed as net earnings divided by weighted-average common shares
outstanding, and, when dilutive, potential common shares from options to
purchase common stock using the treasury stock method. The dilutive effect of
shares issuable upon exercise of stock options totaling 214,000 and 369,000 were
included in the calculation of diluted earnings per share for the three and six
months ended June 30, 2002, respectively. The dilutive effect of shares issuable
upon exercise of stock options has been excluded from the diluted earnings per
share calculation for the three and six months ended June 30, 2001, as inclusion
of such shares would be anti-dilutive.
4. Segment Information
The Company operates two business segments: Managed IT Solutions and
Healthcare IT Solutions.
The Managed IT Solutions segment provides application management,
enterprise systems management and desktop management services encompassing
network and systems design, software solutions, integration, and management of
large-scale data-center environments, which includes on-site and remote network
systems management. In addition, we offer information technology personnel that
are utilized to augment short or indefinite term engagement requirements.
The Healthcare IT Solutions segment provides proprietary software products
and business solutions for healthcare organizations. The segment provides full
service solutions via its proprietary MC400 software on a one-time license or
PMPM basis and via its EZ-CAP software, which we believe is the industry
standard for at-risk healthcare organizations. Our integrated services include
customer service, installation, training and ongoing support.
The Company evaluates the performance of each segment based on segment
revenues and gross profit. Segment gross profit includes only direct costs.
Corporate selling, general and administrative expenses, net interest expense,
and other income and expenses are not allocated to segments.
Summary information by segment is as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
----------------------------------------------------
2002 2001 2002 2001
----------------------------------------------------
MANAGED IT SOLUTIONS
Revenues $ 36,269 $ 36,398 $ 70,424 $ 72,828
Gross profit 7,913 1,065 14,065 6,671
HEALTHCARE IT SOLUTIONS
Revenues 6,714 3,982 12,876 7,067
Gross profit 950 1,490 2,328 2,398
TOTALS
Revenues 42,983 40,380 83,300 79,895
Gross profit 8,863 2,555 16,393 9,069
Selling, general and administrative expenses 6,774 8,383 13,665 14,496
Severance and other termination costs 1,339 -- 1,339 --
----------------------------------------------------
Total consolidated income (loss) from operations 750 (5,828) 1,389 (5,427)
Interest and other (expense) income, net (103) 140 (184) 341
----------------------------------------------------
Total consolidated income (loss) before income taxes $ 647 $ (5,688) $ 1,205 $ (5,086)
====================================================
7
5. Intangible Assets
The Company's intangible assets consisted of the following as of (in
thousands):
June 30, December 31,
2002 2001
-------------------------------
Goodwill $ 8,588 $ 8,588
Software 1,800 1,800
Customer list 2,100 2,100
Less accumulated amortization (526) (220)
-------------------------------
Identifiable intangibles, net 3,374 3,680
-------------------------------
Intangible assets, net $ 11,962 $ 12,268
===============================
Software and customer list is amortized on a straight-line basis over
their estimated useful lives of 5 and 7 years, respectively. The software and
customer list amortization is recognized in our Healthcare IT Solutions segment.
Amortization expense for the software and customer list was $167,000 and
$306,000 for the three and six months ended June 30, 2002. Aggregate
amortization expense related to the software and customer list is expected to be
$660,000 per year through 2005, $540,000 in 2006, and $300,000 in 2007.
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other
Intangible Assets", which we adopted effective January 1, 2002. In accordance
with SFAS 142, the Company discontinued amortization of goodwill on January 1,
2002. The Company tests goodwill for impairment using the two-step process
prescribed in SFAS 142. The first step is a screen for potential impairment,
while the second step measures the amount of the impairment, if any. The Company
performed the required impairment tests as of January 1, 2002 and determined
that no impairment existed as of that date.
The following table adjusts reported net income and earnings per share for
the three and six months ended June 30, 2001 to exclude goodwill amortization
(in thousands, except per share amounts):
Three months ended Six months ended
June 30, 2001 June 30, 2001
------------------------------------
Reported net loss $ (3,271) $ (2,924)
Add: goodwill amortization, net of tax effect 121 252
-------------------------------
Adjusted net loss $ (3,150) $ (2,672)
===============================
Reported basic and diluted earnings per share $ (0.18) $ (0.16)
===============================
Add: goodwill amortization, net of tax effect $ 0.01 $ 0.01
===============================
Adjusted earnings per share, basic and diluted $ (0.17) $ (0.15)
===============================
8
6. Evaluation of Long-Lived Assets
In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("FASB 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. FASB 144 supersedes both FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" and the accounting and reporting provisions
of APB Opinion No. 30, "Reporting the Results of Operation - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," for the disposal of a Segment
of a Business (as previously defined in that opinion). FASB 144 also amends ARB
No. 51, "Consolidated Financial Statements" to eliminate the exception to
consolidation for a subsidiary for which control is likely temporary. The
Company adopted FASB 144 effective January 1, 2002. The adoption of FASB 144 had
no impact on the Company's financial position or results of operations.
7. Contingencies
The Company from time to time is involved in various litigation arising in
the normal course of business. In management's opinion, the Company's ultimate
liability or loss, if any, resulting from such litigation will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
8. Severance and Other Termination Costs
Gregory A. Pratt
On April 19, 2002, Charles A. Leader succeeded Gregory A. Pratt as
President and Chief Executive Officer. Mr. Pratt was named Vice Chairman of the
Board of Directors of the Company. In his new role, Mr. Pratt will assume the
responsibilities for merger and acquisition activity and corporate development.
Effective April 19, 2002, the Company and Mr. Pratt entered into a
Transition Agreement and General and Special Release (the Transition Agreement),
which finalized the terms of his resignation and severance in accordance with
his employment agreement. As part of the Transition Agreement, Mr. Pratt will
continue to receive certain payments through July 2003 in accordance with his
employment agreement. Severance for Mr. Pratt in the amount of $614,000 is
included in Severance and Other Termination Costs for the quarter ended June 30,
2002, of which $478,000 is included in accrued compensation and benefits on the
balance sheet as of June 30, 2002.
In accordance with the Transition Agreement, (i) all unexercised options
granted to Mr. Pratt other than the 750,000 stock options to buy the Company's
common stock, par value $.01 (the common stock) granted to Mr. Pratt in 2001,
were forfeited and (ii) the term of the 750,000 stock options to buy the
Company's common stock granted to Mr. Pratt in 2001 was extended through January
1, 2008. As a result, the intrinsic value of the stock options was re-measured
on April 19, 2002, resulting in expense of approximately $277,000, which is
included in Severance and Other Termination Costs for the quarter ended June 30,
2002. In addition, the Transition Agreement provides that upon exercise of the
2001 grant and disposition of such shares, the proceeds must be used to repay
any remaining obligations under Mr. Pratt's term note to the Company.
On July 14, 1999, Mr. Pratt acquired 750,000 shares of the Company's
common stock at $3.91 per share, in exchange for a $2.9 million full recourse
term note, bearing interest of 5.82% due July 14, 2004 (the term note). The
shares were pledged as collateral for the term note, which Mr. Pratt personally
guaranteed under the pledge agreement (the pledge agreement). During 2001, the
term note and pledge agreement were amended to, among other things, (i) extend
the maturity date to July 14, 2008 and (ii) provide for the substitution of
collateral, whereby the 750,000 shares of the Company's common stock were
released to Mr. Pratt in exchange for the pledge of 750,000 common units of
Terrapin Partners Holding Company LLC (the LLC). In connection with the
Transition Agreement, the term note was amended to, among other things, provide
the Company with an option to declare all amounts outstanding under the term
note due and payable within 10 business days of any date on which the fair
market value of the Company's common stock equals or exceeds $3.91 per share.
Additionally, the Transition Agreement provided that the Company and the LLC
would take all necessary and desirable actions to nominate, recommend and with
respect to the LLC, vote for, Mr. Pratt to be a member of the Board of Directors
of the Company.
9
Other
During June 2002, a combined 19 positions were eliminated in our Managed IT
Solutions segment and corporate headquarters. All 19 employees were given notice
of termination prior to June 30, 2002. As a result, Severance and Other
Termination Costs of approximately $448,000 was recognized for the quarter ended
June 30, 2002, of which $344,000 is included in accrued compensation and
benefits on the balance sheet as of June 30, 2002.
9. Prepaid Software Licenses
Write-Down of Prepaid Software Licenses
In connection with a Value Added Industry Remarketer agreement with Siebel
Systems, Inc. ("Siebel"), on August 31, 1999, the Company purchased software
licenses in the amount of $5.1 million for resale to third parties. The software
licenses were purchased with cash of $2.8 million, a future payment of $1.1
million and 228,800 shares of the Company's common stock.
During 2001, the Company wrote-off the value of its entire investment in
Siebel software licenses and filed suit against Siebel alleging breach of the
implied duty of good faith and lack of fair dealing under these agreements.
Release of Prepaid Software Licenses Obligations
On June 28, 2002, the Company and Siebel entered into a Settlement
Agreement and Mutual Release in Full (the Release), effective June 30, 2002. In
accordance with the Release, the parties provided each other with mutual
releases and both parties acknowledge that the Siebel agreements are terminated,
and that each party is released from any further performance, other than the
Company was granted an 18 months license to continue to use those Siebel
products currently installed on the Company's system. As such, 228,800 shares of
the Company's common stock provided as consideration under the Siebel agreements
were retired by the Company at the fair market value of the common stock on the
effective date of the Release, resulting in a gain of $456,000, which is
included in (Gain) Loss on Prepaid Software Licenses for the quarter ended June
30, 2002. In addition, the Company recognized a gain of approximately $1.1
million related to the reversal of liabilities for commitments to purchase
software licenses under the Siebel agreements, net of legal and other costs to
execute the Release of approximately $0.2 million, which is included in (Gain)
Loss on Prepaid Software Licenses for the quarter ended June 30, 2002.
10. Recent Accounting Pronouncements
In April 2002, the FASB issued Statement of Financial Standards No. 145
("SFAS 145"), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." Among other things, SFAS 145
rescinds both SFAS 4 "Reporting Gains and Losses from Extinguishment of Debt,"
and the amendment to SFAS 4, SFAS 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." Through this rescission, SFAS 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. Generally, SFAS 145 is effective for transactions occurring after
May 15, 2002. The Company does not believe SFAS 145 will have a material impact
on our future earnings or financial position.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" which is effective January 1, 2003. SFAS 146
nullifies Emerging Issues Tasks Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This statement requires
that an exit or disposal activity related cost be recognized when the liability
is incurred instead of when an entity commits to an exit plan. The Company is
currently assessing, but has not yet determined, the impact of SFAS 146 on its
financial position and results of operations.
11. Other
In connection with the periodic repurchase and retirement of our common
stock, and the resulting reduction in common stock outstanding, as of April 17,
2002 Terrapin Partners Holding Company, LLC, our largest shareholder,
beneficially owned approximately 50.1% of our outstanding voting securities
(common stock).
10
Item 2.
OAO TECHNOLOGY SOLUTIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the Condensed
Consolidated Financial Statements and Notes thereto found in this Form 10-Q.
Historical results and percentage relationships among any amounts in these
Financial Statements are not necessarily indicative of trends in operating
results for any future period.
The statements that are not historical facts contained in this Form 10-Q,
including this Management's Discussion and Analysis of Financial Condition and
Results of Operations and Notes to Consolidated Financial Statements, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are based on currently available
operating, financial and competitive information, and are subject to various
risks and uncertainties. Future events and the Company's actual results may
differ materially from the results reflected in these forward-looking
statements. Factors that might cause such a difference include, but are not
limited to: dependence on key strategic and end-user customers, the ability to
establish new strategic customer relationships, risks associated with
fixed-price contracts, future financial results, the ability to sustain and
manage growth, lower than expected revenue growth and pricing pressure from
strategic and non-strategic customers, success in achieving marketing and sales
goals and other business development initiatives, difficulties of investments in
infrastructure, uncertainties relating to the difficulties of transacting on the
Internet, potential changes in the prevailing technology away from outsourcing
IT applications, the failure of the Company to make necessary enhancements or
developments to its existing software products, possible deferral of revenue,
profit and cash flow from any increase in per-member per-month and/or
percentage-of-completion basis software sales in relation to total software
sales, inability to successfully install healthcare software sold on a timely
basis, competition in the industry, general economic conditions and level of
information technology service spending, the possibility that strategic or
end-user customers could invoke early termination clauses contained in the
Company's long-term contracts, dependence on key personnel, the ability to
attract, hire and retain personnel who possess the technical skills and
experience necessary to meet the service requirements of its clients, the
ability to successfully integrate recent acquisitions, the potential liability
with respect to actions taken by its employees, ability to control and reduce
costs of the business, risks associated with international sales including
exposure to fluctuations between the U.S. dollar and other foreign currencies,
and other risks described herein and in the Company's other Securities and
Exchange Commission filings.
Overview
We are a global provider of information technology services that address
the enterprise-wide challenges of Fortune 1000 companies, mid-market
organizations, health benefit organizations, and the public sector. The Company
operates two business segments: Managed IT Solutions and Healthcare IT
Solutions.
Critical Accounting Policies
See Management's Discussion and Analysis of Financial Condition and Results of
Operations on our Form 10-K for the year ended December 31, 2001 for a detailed
discussion of our critical accounting policies.
Managed IT Solutions
(Application Solutions and IT Infrastructure Solutions)
Application Solutions
Our Application Solutions service offerings include Application Support,
Application Management and Application Development/Integration. Application
Solutions provides outsourcing for a complete set of services that include
development/integration, management, and/or support of applications. Application
outsourcing may involve the transfer of people and application software to OAOT
and possibly to a remote application solution center. We offer both customized
and pre-packaged solutions. Application Development/Integration services are
delivered on a consulting and project basis under both time-and-materials and
fixed-price arrangements, while our application management and software
solutions are made available through an application support model or outsourced
from the customer. During 2001 we exited the software license reseller portion
of this practice.
11
IT Infrastructure Solutions
Our IT Infrastructure Solutions service offerings include Network and
Desktop Management Services (NDMS), Data Center Management (DCM) and
Professional Staffing Services. NDMS and DCM provide network and systems design,
integration, and management of large-scale environments linking multiple
technologies, operating systems, protocols and geographic areas. We manage
enterprise systems and provide desktop management services, which include
on-site and remote network systems management. These services are provided,
generally under long-term fixed-price contracts, as either part of an IT
outsourcing team with its strategic customers to a wide range of end users or
directly to Fortune 1000 and middle market customers. Our strategic partners and
customers include IBM and Compaq. In 2000, our data center management contract
with a strategic customer was renewed for ten years. Management believes that
revenues from this contract may increase over the term of the contract; however,
there is no assurance that revenues from this contract will increase or continue
at historic revenue and profitability levels. Professional Staffing Services
offers technology personnel, primarily on a time-and-materials basis, that are
regularly utilized within engagements to meet short or indefinite term
requirements. There are also instances where an engagement has started on a
time-and-materials basis and evolved to a fixed-price basis, as the requirements
became sufficiently defined. The Professional Staffing Services business is
concentrated within one strategic customer; however, we have expanded our
customer base and will continue to focus on expanding our customer base in the
future.
Healthcare IT Solutions
The Healthcare IT Solutions segment provides managed care software
application solutions under software license agreements via its MC400 and EZ-CAP
software solutions, which are sold on a per member, per month (PMPM)
subscription basis or for a one-time perpetual license fee. Our MC400 software
provides a comprehensive solution for healthcare benefit organizations (health
maintenance organizations, indemnity insurance plans, physician hospital
organizations, independent physician organizations and self-insured employer
plans, among others). The MC400 system is web-enabled and provides over thirty
modules that include claims processing, patient care management, eligibility,
enrollment, utilization, internet connectivity, data warehousing, care
management and web portals in one integrated system. We have over fifty MC400
installed sites and offer a viable solution that will meet the federal
requirements of the Health Insurance Portability and Accountability Act (HIPAA).
EZ-CAP is currently installed at approximately 200 clients and provides secure,
web-enabled modules for authorizations, premium billing, capitation payment,
data reconciliation, benefit administration, contract management, and health
plan and member eligibility management. We recently released EZ-CAP 4.0, which
operates on Microsoft SQL Server enterprise technology and permits the use of a
central database to concurrently process information for multiple managed care
companies.
The Company recognizes software revenue under the provisions of
Statement of Position (SOP) No. 97-2, "Software Revenue Recognition" (as amended
by SOP No. 98-4 and SOP No. 98-9). Except as noted below, software license fees
are recognized as revenue upon the customer's execution of a noncancelable
license agreement and the Company's delivery of the software, provided that the
fee is fixed and determinable, collectibility is probable, and no customization
of the software is required. If customization of the software is required,
revenues are recognized on the percentage-of-completion basis over the software
implementation term (generally six to twelve months). Revenues are recognized
from PMPM software license arrangements monthly over the term of the
arrangement. As the healthcare industry and the needs of our customers become
more complex, the number of license sales requiring customization could increase
in the future. In addition, the Company is working to improve and upgrade its
customer contracting and delivery process in order to strengthen controls over
the software implementation schedule. These changes in the business process may
further lead to more license sales being accounted for under the percentage of
completion method.
We plan to continue efforts to market our software solutions on a
PMPM subscription basis. The pay-as-you-go feature of the PMPM model is
attractive to customers concerned with managing cash flow and broadens the
target market for our products. In addition, the PMPM model provides a more
consistent and predictable cash flow and revenue stream and could have a greater
contract value than a perpetual license sale. This effort to market our products
on a PMPM basis could result in the deferral of revenue, profit and cash flow in
our Healthcare IT Solutions segment in the short term.
12
Results of Operations
The following table sets forth, for the periods indicated, selected
statements of operations data as a percentage of revenues:
Three months ended Six months ended
June 30, June 30,
--------------------------------------------------------------------------------------
(in millions) 2002 2001 2002 2001
--------------------------------------------------------------------------------------
Revenues $ 43.0 100.0% $ 40.4 100.0% $ 83.3 100.0% $ 79.9 100.0%
Direct costs 35.5 82.6% 32.7 80.9% 68.3 82.0% 65.7 82.2%
(Gain) loss on prepaid software licenses (1.4) -3.3% 5.1 12.6% (1.4) -1.7% 5.1 6.4%
Selling, general and administrative expenses 6.8 15.8% 8.4 20.8% 13.7 16.4% 14.5 18.1%
Severance and other termination costs 1.3 3.0% -- 0.0% 1.3 1.6% -- 0.0%
--------------------------------------------------------------------------------------
Income (loss) from operations 0.8 1.9% (5.8) -14.4% 1.4 1.7% (5.4) -6.8%
Interest and other income, net (0.1) -0.2% 0.1 0.2% (0.2) -0.2% 0.3 0.4%
--------------------------------------------------------------------------------------
Income (loss) before income taxes 0.7 1.6% (5.7) -14.1% 1.2 1.4% (5.1) -6.4%
Provision (benefit) for income taxes 0.3 0.7% (2.4) -5.9% 0.5 0.6% (2.2) -2.8%
--------------------------------------------------------------------------------------
Net income (loss) $ 0.4 0.9% $ (3.3) -8.2% $ 0.7 0.8% $ (2.9) -3.6%
--------------------------------------------------------------------------------------
Comparison of the three and six month periods ended June 30, 2002 to the three
and six month periods ended June 30, 2001.
Revenues
Revenues increased $2.6 million or 6.4% to $43.0 million for the
three months ended June 30, 2002, compared to $40.4 million for the same period
in 2001. Revenues increased $3.4 million or 4.3% to $83.3 million for the six
months ended June 30, 2002, compared to $79.9 million for the same period in
2001. The increase in revenue for both the three and six month periods was due
to an increase in revenue in the Healthcare IT Solutions segment, partially
offset by a decrease in revenue in the Managed IT Solutions segment.
Revenues from the Healthcare IT Solutions segment increased $2.7
million or 68.6% to $6.7 million for the three months ended June 30, 2002,
compared to $4.0 million for the same period in 2001. Revenues from the
Healthcare IT Solutions segment increased $5.8 million or 82.2% to $12.9 million
for the six months ended June 30, 2002, compared to $7.1 million for the same
period in 2001. This increase in revenue was attributable to an increase in
MC400 license revenue, stemming from both new contracts and from revenue
recognized for implementation services under contracts signed in 2001. In
addition, revenue from EZ-CAP, acquired in the third quarter of 2001,
contributed to the increase.
Revenues from the Managed IT Solutions segment decreased $0.1
million to $36.3 million for the three months ended June 30, 2002, compared to
$36.4 million for the same period in 2001. Revenues from the Managed IT
Solutions segment decreased $2.4 million to $70.4 million for the six months
ended June 30, 2002, compared to $72.9 million for the same period in 2001. This
decrease in revenues was due to lower revenues in the IT Infrastructure
Solutions division partially offset by increases in revenues in the Application
Solutions division.
Revenues from IT Infrastructure Solutions decreased $3.3 million or
12.1% to $23.8 million for the three months ended June 30, 2002, compared to
$27.1 million for the same period in 2001. Revenues from IT Infrastructure
Solutions decreased $8.6 million or 15.8% to $46.1 million for the six months
ended June 30, 2002, compared to $54.7 million for the same period in 2001. This
decline was primarily due to decreases in Network and Desktop Management
services and Professional Staffing Services revenues. The decline in Network and
Desktop Management services revenues was due to in-sourcing of services by one
customer, and lower pricing and service levels under its current contract
requirements. The decrease in Professional Staffing Services revenues was due to
continued softness in staffing requisitions from a strategic customer and by the
decline in IT staff requisitions as a result of the slow down in the technology
market. This softness is expected to continue into future periods. In fact, one
strategic customer has indicated that they don't expect a significant increase
in business until 2004. Additionally, the Managed IT Solutions segment has
experienced and expects to continue to experience pricing and
13
volume pressure from strategic customers due to an excess supply of IT
professionals and soft market conditions, which is expected to be partially
passed through to the Company's suppliers. The Company is attempting to
diversify its customer base in its Managed IT Solutions segment, which is
expected to partially mitigate reliance on strategic customers and diversify
services.
Revenues from our Application Solutions division increased $3.1 million or 33.7%
to $12.5 million for the three months ended June 30, 2002, compared to $9.3
million for the same period in 2001. Revenues from our Application Solutions
division increased $6.2 million or 34.3% to $24.3 million for the six months
ended June 30, 2002, compared to $18.1 million for the same period in 2001. This
increase in revenues was due primarily to increased activity in the Application
Support and Application Management businesses and attributable to a contract
signed in 2001. Due to a lower than expected level of business transition from
the customer of our customer, with whom the Company is a subcontractor, through
mutual agreement with our customer, the statement of work under the contract
signed in 2001 was terminated in July 2002. This termination is expected to
result in a reduction of billable headcount by 15. In the short term this loss
of revenue will be offset by an early termination settlement from the customer
for the statement of work under the service agreement. In the long term we
expect further opportunities to develop from our relationship with this
customer. This division experienced an increase in billable headcount from 370
at June 30, 2001 to 557 at June 30, 2002. New contracts will have to be won for
increases in billable headcount to continue. These increases were partially
offset by decreases in Application Development/Integration revenue as a result
of the absence of activity from certain money-losing businesses we exited in the
last half of 2001.
Direct Costs
Direct costs increased $2.8 million to $35.5 million for the three months
ended June 30, 2002, compared to $32.7 million in the same period in 2001.
Direct costs increased $2.6 million to $68.3 million for the six months ended
June 30, 2002, compared to $65.7 million in the same period in 2001. Direct
costs as a percentage of revenues increased to 83% for the three months ended
June 30, 2002 as compared to 81% for the same period in 2001. Direct costs as a
percentage of revenues were stable at 82% for the six months ended June 30, 2002
and 2001.
For the three and six month periods ended June 30, 2002, improvements in
profitability in the Managed IT Solutions segment were offset by a decline in
profitability in the Healthcare IT Solutions segment.
The Managed IT Solutions segment direct costs decreased $0.5 million to
$29.8 million for the three months ended June 30, 2002, compared to $30.2
million for the same period in 2001. The Managed IT Solutions segment direct
costs decreased $3.3 million to $57.8 million for the six months ended June 30,
2002, compared to $61.1 million for the same period in 2001. The decrease was
due to the elimination of certain unprofitable business operations and a
decrease in direct costs in the IT Infrastructure Solutions division partially
offset by increases in the Application Solutions division. This decrease in
direct costs in IT Infrastructure Solutions reflects the overall decrease in
activity in the division as well as improvements in the management of direct
labor expenses and savings from the reduction of overhead personnel. The
increases in Application Solutions direct costs reflect the overall increase in
business activity in the segment. The Application Solutions division gross
profit increased to $4.6 million for the six months ended June 30, 2002 from
$2.2 million for the same period in 2001. The improvement in profitability was
the result of a more favorable mix in billable to non-billable headcount, and an
overall increase in billable headcount (from 370 in June 2001 to 557 in June
2002) in the Application Support and Application Management practices.
Healthcare IT Solutions' direct costs for the three months ended June 30,
2002 increased $3.3 million to $5.8 million, compared to $2.5 million for the
same period in 2001. Healthcare IT Solutions' direct costs for the six months
ended June 30, 2002 increased $5.9 million to $10.5 million, compared to $4.7
million for the same period in 2001. Healthcare IT Solutions' gross profit
decreased to $1.0 million and $2.3 million from $1.5 million and $2.4 million
for the three and six months ended June 30, 2002, respectively. The increase in
direct costs for the three and six month periods were primarily the result of
the purchase of EZ-CAP in the third quarter of 2001. The decrease in
profitability for the three and six month periods was related to the expansion
of the Healthcare IT Solutions management team and customer support services
personnel to meet service and implementation requirements under new contracts.
14
(Gain) Loss on Prepaid Software Licenses
In connection with a Value Added Industry Remarketer agreement with Siebel
Systems, Inc. ("Siebel"), on August 31, 1999, the Company purchased software
licenses in the amount of $5.1 million for resale to third parties. The software
licenses were purchased with cash of $2.8 million, a future payment of $1.1
million, and 228,800 shares of the Company's common stock. During 2001, the
Company wrote-off the value of its entire investment in Siebel software licenses
and filed suit against Siebel alleging breach of the implied duty of good faith
and lack of fair dealing under these agreements.
On June 28, 2002, the Company and Siebel entered into a Settlement
Agreement and Mutual Release in Full (the Release), effective June 30, 2002. In
accordance with the Release, the parties provided each other with mutual
releases and both parties acknowledge that the Siebel agreements are terminated,
and that each party is released from any further performance other than the
Company was granted an 18 months license to continue to use those Siebel
products currently installed on the Company's system. As such, 228,800 shares of
the Company's common stock provided as consideration under the Siebel agreements
were retired by the Company at the fair market value of the common stock on the
effective date of the Release, resulting in a gain of $456,000 during the
quarter ended June 30, 2002. In addition, the Company recognized a gain of
approximately $1.1 million related to the reversal of liabilities for
commitments to purchase software licenses under the Siebel agreements, net of
legal and other costs to execute the Release of approximately $0.2 million
during the quarter ended June 30, 2002.
Selling, General and Administrative Expenses
For the three months ended June 30, 2002 and 2001, selling, general and
administrative expenses (SGA) were $6.7 million and $8.4 million, or 16% and 21%
of revenues, respectively. For the six months ended June 30, 2002 and 2001, SGA
was $13.7 million and $14.5 million, or 16% and 18% of revenues, respectively.
The decrease in SGA for the three and six month periods ended June 30, 2002 was
primarily the result of certain reserves and write-offs taken in the quarter
ended June 30, 2001, totaling $1.7 million, which did not recur in 2002. For the
three and six months ended June 30, 2002, absent the 2001 charges, SGA increased
as savings from a company-wide effort to reduce costs, including the elimination
of certain non-essential positions and a decrease in bonus expense, were offset
by increases in SGA in the Healthcare IT Solutions segment as a result of an
increase in management and staff to facilitate growth and the EZ-CAP
acquisition.
Severance and Other Termination Costs
Gregory A. Pratt
On April 19, 2002, Charles A. Leader succeeded Gregory A. Pratt as
President and Chief Executive Officer. Mr. Pratt was named Vice Chairman of the
Board of Directors of the Company. In his new role, Mr. Pratt will assume the
responsibilities for merger and acquisition activity and corporate development.
Effective April 19, 2002, the Company and Mr. Pratt entered into a
Transition Agreement and General and Special Release (the Transition Agreement),
which finalized the terms of his resignation and severance in accordance with
his employment agreement. As part of the Transition Agreement, Mr. Pratt will
continue to receive certain payments through July 2003 in accordance with his
employment agreement. Severance for Mr. Pratt in the amount of $614,000 was
recorded in the quarter ended June 30, 2002.
In accordance with the Transition Agreement, (i) all unexercised options
granted to Mr. Pratt other than the 750,000 stock options to buy the Company's
common stock, par value $.01 (the common stock) granted to Mr. Pratt in 2001,
were forfeited and (ii) the term of 750,000 stock options to buy the Company's
common stock granted to Mr. Pratt in 2001 was extended through January 1, 2008.
As a result, the intrinsic value of the 2001 stock options was re-measured on
April 19, 2002, resulting in expense of approximately $277,000.
15
Other
During June 2002, a combined 19 positions were eliminated in our Managed IT
Solutions segment and corporate headquarters. All 19 employees were given notice
of termination prior to June 30, 2002. As a result, Severance and Other
Termination Costs of approximately $448,000 was recognized for the quarter ended
June 30, 2002. During July 2002, James A. Ungerleider was hired as President of
our Managed IT Solutions segment. Mr. Ungerleider will manage all aspects of our
Managed IT Solutions group including both the Application Solution and IT
Infrastructure service offerings, reinforcing our strategy of cross-selling
these services. The Company expects to incur additional Severance and Other
Termination Costs during the third and fourth quarters of 2002 related to this
management change.
Interest and Other Income and Provision for Income Taxes
For the three and six months ended June 30, 2002, net interest and other
income (expense) decreased to $(0.1) million and $(0.2) million, respectively,
from $0.1 million and $0.3 million for the respective periods in 2001. The
decrease was primarily due to lower interest rates on invested cash and an
increase in interest expense related to the term loan used to finance the EZ-CAP
acquisition. The Company's effective tax rate was 42.5% for the provision
(benefit) for income taxes for the three and six months ended June 30, 2002 and
2001.
Liquidity and Capital Resources
Cash and cash equivalents were $10.5 million as of June 30, 2002, versus
$9.1 million as of December 31, 2001. Cash provided by operations was $5.0
million for the six months ended June 30, 2002 compared with cash provided by
operations of $1.9 for the same period in 2001. The increase in cash provided by
operations was primarily due to a decrease in accounts receivable and deferred
income taxes.
Cash provided by investing activities was $0.6 million, which was
primarily a result of our receipt of payment in full of the note receivable from
OAO Corporation, partially offset by cash used to purchase computers and office
equipment.
Financing activities used cash of $4.1 million in the six months ended
June 30, 2002. This use of cash was primarily to fund the repurchase and
retirement of our common stock under our stock repurchase program and payments
on our term loan and capital lease obligations.
The Company has a credit agreement with a bank that provides a $15 million
revolving line of credit ("Revolver") and a $9 million term loan facility. The
Revolver provides for a commitment fee of 0.375% to 0.500% of the unused balance
and interest at the prime rate or, at the Company's option, at LIBOR plus a
risk-adjusted premium. The Revolver matures on September 30, 2003. Draws under
the Revolver in cash or letters of credit are limited to a formula driven
borrowing base determined by the levels of certain receivables, as defined in
the agreement. The agreement's term loan facility was drawn on in full to fund
the EZ-CAP acquisition. There was $7,742,000 outstanding on the term loan at
June 30, 2002, which bears interest at LIBOR plus a risk-adjusted premium,
totaling 3.8% at June 30, 2002. The term loan facility matures on September 30,
2006 and is due in sixty equal monthly principal payments, plus interest. There
were no borrowings outstanding under the Revolver as of June 30, 2002.
We currently anticipate that our existing cash balances, bank credit
facilities, or any cash generated from operations will be sufficient to satisfy
our operating cash needs for the foreseeable future. We have announced an
acquisition program as part of our strategy to accelerate revenues and earnings
growth. We expect to use bank credit to leverage our financial position. In
addition, we may consider seeking additional public or private debt or equity
financing to fund future growth opportunities. No assurance can be given,
however, that such additional debt or equity financing will be available or on
terms and conditions acceptable to us.
16
Recent Accounting Pronouncements
In April 2002, the FASB issued Statement of Financial Standards No. 145
("SFAS 145"), "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." Among other things, SFAS 145
rescinds both SFAS 4 "Reporting Gains and Losses from Extinguishment of Debt,"
and the amendment to SFAS 4, SFAS 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements." Through this rescission, SFAS 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. Generally, SFAS 145 is effective for transactions occurring after
May 15, 2002. The Company does not believe SFAS 145 will have a material impact
on our future earnings or financial position.
In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
with Exit or Disposal Activities" which is effective January 1, 2003. SFAS 146
nullifies Emerging Issues Tasks Force Issue No. 94-3 "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This statement requires
that an exit or disposal activity related cost be recognized when the liability
is incurred instead of when an entity commits to an exit plan. The Company is
currently assessing, but has not yet determined, the impact SFAS 146 will have
on its financial position and results of operations.
Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk is foreign currency exposure and
changing interest rates. We conduct business in foreign countries, primarily
Canada and the United Kingdom. Foreign currency transaction gains and losses
were not material to our results of operations during the three and six months
ended June 30, 2002 or 2001. We believe our foreign currency risk is related
primarily to the difference between amounts the Company receives and disburses
in Canada in U.S. dollars from U.S. dollar denominated contracts. Our foreign
currency risk will increase with the growth of our business. Our interest rate
risk is related to the variable rate on amounts outstanding on our credit
agreement. Amounts outstanding on the term loan bear interest at LIBOR plus a
risk-adjusted premium, totaling 3.8% at June 30, 2002.
On October 31, 2001 the Company, to comply with the terms of its credit
agreement, entered into an interest rate swap agreement effectively converting
the interest rate from variable to fixed on 63.33% of the principal amount
outstanding on the term loan. The swap agreement is for a period of 4 years and
fixes the variable portion of the interest rate on the term loan to 2.67%
through October 2002, 4.09% through October 2003, 5.22% through 2004 and 5.72%
through 2005. As of June 30, 2002, the notional amount of the term loan covered
by the swap agreement was $5,000,000 and the market value of the swap was a
liability of $92,000. The interest rate under this swap agreement, including the
risk-adjusted premium, was 4.67% at June 30, 2002.
Through June 30, 2002, we have not entered into any significant foreign
currency forward exchange contracts or other derivative financial instruments to
hedge the effects of potential adverse fluctuations in foreign currency exchange
rates or interest rates, other than described herein; however, the Company
periodically reviews its exposure to foreign currency and interest rate risk and
may take action to limit its exposure if deemed appropriate.
17
PART II - OTHER INFORMATION
Item 4. Submission of Matters To a Vote of Security Holders
a) The Annual Meeting of Shareholders was held May 17, 2002 at the Willard
Inter-Continental Hotel in Washington, DC.
b) The following individuals were elected as directors at the Annual Meeting:
For Withheld
John F. Lehman 17,087,245 746,438
Cecile D. Barker 17,044,036 789,647
Gregory A. Pratt 17,044,895 788,788
Yvonne Brathwaite Burke 17,070,879 762,804
Frank B. Foster, III 17,080,808 752,875
Richard B. Lieb 17,084,933 748,750
Louis F. Mintz 17,078,813 754,870
c) Deloitte & Touche, LLP, independent accountants, were selected as
independent auditors for the fiscal year ending December 31, 2002 by a
vote of 17,755,279 for, 69,060 against and 9,344 abstentions.
Approved the amended and restated OAO Technology Solutions, Inc. 1996
Equity Compensation Plan by a vote of 8,731,118 for, 1,310,584 against and
24,620 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Designation Description
- ----------- -----------
10.1 Transition Agreement and General and Special Release by and
among OAO Technology Solutions, Inc. and Gregory A. Pratt.*
10.2 Third Amended and Restated Term Note by and among OAO
Technology Solutions, Inc. and Gregory A. Pratt.*
10.3 Settlement Agreement and Mutual Release in Full by and among
OAO Technology Solutions, Inc. and Siebel Systems, Inc.*
10.4 Employment Agreement by and among OAO Technology Solutions,
Inc. and Charles A. Leader.*
10.5 Employment Agreement by and among OAO Technology Solutions,
Inc. and James Ungerleider.*
10.6 Second Amendment to the Credit Agreement dated June 30, 1999 by
and among OAO Technology Solutions, Inc. and its subsidiaries
and Bank of America, N.A. (successor in interest to
NationsBank, N.A.)*
*filed herewith.
(b) Reports on Form 8-K
1) The Company filed a Form 8-K with the Commission on April 26, 2002 to
report that on April 19, 2002 Gregory A. Pratt was named Vice Chairman of
the Board of Directors and that Charles A. Leader succeeded Mr. Pratt as
President and Chief Executive Officer.
2) The Company filed a Form 8-K with the Commission on May 1, 2002 to report
that in connection with the periodic repurchase and retirement of our
common stock, and the resulting reduction in common stock outstanding, as
of April 17, 2002 Terrapin Partners Holding Company, LLC, our largest
shareholder, beneficially owned approximately 50.1% of our outstanding
voting securities (common stock).
18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OAO Technology Solutions, Inc.
(Registrant)
Date: August 14, 2002 By: /s/ Charles A. Leader
---------------------------------------
Charles A. Leader
President and Chief Executive Officer
Date: August 14, 2002 By: /s/ J. Jeffrey Fox
---------------------------------------
J. Jeffrey Fox
Senior Vice President of Finance and
Chief Financial Officer
19