FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
| [X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended September 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 0-21682
SPARTA, Inc.
| Delaware | 63-0775889 | |
|
|
||
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer) |
23041 Avenida de la Carlota, Suite 325, Laguna Hills, CA 92653-1595
(949) 768-8161
Not Applicable
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 or 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 September 30, 2002, the registrant had 5,607,616 shares of common stock, $.01 par value per share, issued and outstanding.
SPARTA, Inc.
QUARTERLY REPORT FOR THE PERIOD ENDED SEPTEMBER 30, 2002
INDEX
| PART I | Financial Information | |
| Item 1 | Quarterly Financial Statements | |
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 3 | Qualitative and Quantitative Disclosures About Market Risk | |
| Item 4 | Controls and Procedures | |
| PART II | Other Information | |
| Item 1 | Legal Proceedings | |
| Item 2 | Changes in Securities | |
| Item 3 | Defaults Upon Senior Securities | |
| Item 4 | Submission of Matters to a Vote of Security Holders | |
| Item 5 | Other Materially Important Events | |
| Item 6 | Exhibits and Reports on Form 8-K | |
| Signature | ||
| Certifications |
-1-
PART I
Item 1. Financial Information
-2-
SPARTA, Inc.
CONSOLIDATED BALANCE SHEET
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | (Audited) | |||||||||
ASSETS |
||||||||||
Current Assets |
||||||||||
Cash and cash equivalents |
$ | 19,002,000 | $ | 10,303,000 | ||||||
Short-term investments |
— | 8,727,000 | ||||||||
Accounts receivable, net |
27,960,000 | 27,150,000 | ||||||||
Prepaid expenses |
536,000 | 395,000 | ||||||||
Total current assets |
47,498,000 | 46,575,000 | ||||||||
Equipment and improvements, net |
7,664,000 | 8,606,000 | ||||||||
Other assets |
1,923,000 | 1,971,000 | ||||||||
Total Assets |
$ | 57,085,000 | $ | 57,152,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current Liabilities |
||||||||||
Accrued compensation |
$ | 11,363,000 | $ | 10,596,000 | ||||||
Accounts payable and other accrued expenses |
6,068,000 | 5,977,000 | ||||||||
Current portion of subordinated notes payable |
2,212,000 | 1,609,000 | ||||||||
Income taxes payable |
1,639,000 | 2,049,000 | ||||||||
Deferred income taxes |
1,013,000 | 1,013,000 | ||||||||
Total current liabilities |
22,295,000 | 21,244,000 | ||||||||
Subordinated notes payable |
8,696,000 | 7,365,000 | ||||||||
Deferred income taxes |
812,000 | 812,000 | ||||||||
Redeemable Preferred Stock |
||||||||||
Preferred stock, $.01 par value; 2,000,000 shares authorized;
63,459 and 223,682 shares issued and outstanding |
1,301,000 | 4,053,000 | ||||||||
Stockholders’ equity |
||||||||||
Common stock, $.01 par value, 25,000,000 shares authorized;
5,607,616 and 5,071,564 shares issued and outstanding |
56,000 | 50,000 | ||||||||
Additional paid-in capital |
33,574,000 | 24,655,000 | ||||||||
Retained earnings (deficit) |
5,147,000 | (1,027,000 | ) | |||||||
Treasury stock |
(14,796,000 | ) | — | |||||||
Total stockholders’ equity |
23,981,000 | 23,678,000 | ||||||||
Total Liabilities and Stockholders’ Equity |
$ | 57,085,000 | $ | 57,152,000 | ||||||
The accompanying notes are an integral part of the financial statements
-3-
SPARTA, Inc.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
| Three Months ended September 30, | Nine Months ended September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Sales |
$ | 42,911,000 | $ | 34,819,000 | $ | 119,585,000 | $ | 100,006,000 | |||||||||
Costs and expenses: |
|||||||||||||||||
Labor costs and related benefits |
22,024,000 | 18,207,000 | 64,561,000 | 53,427,000 | |||||||||||||
Subcontractor & other costs |
13,095,000 | 9,246,000 | 32,310,000 | 25,480,000 | |||||||||||||
Facility costs |
2,518,000 | 2,394,000 | 7,544,000 | 6,779,000 | |||||||||||||
Travel and other |
1,783,000 | 1,200,000 | 4,350,000 | 4,110,000 | |||||||||||||
Interest expense (income), net |
(9,000 | ) | (65,000 | ) | (48,000 | ) | (171,000 | ) | |||||||||
| 39,411,000 | 30,982,000 | 108,717,000 | 89,625,000 | ||||||||||||||
Income before provision for
taxes on income |
3,500,000 | 3,837,000 | 10,868,000 | 10,381,000 | |||||||||||||
Provision for taxes on income |
1,400,000 | 1,534,000 | 4,347,000 | 4,152,000 | |||||||||||||
Net income |
$ | 2,100,000 | $ | 2,303,000 | $ | 6,521,000 | $ | 6,229,000 | |||||||||
Basic earnings per share |
$ | 0.43 | $ | 0.39 | $ | 1.26 | $ | 1.14 | |||||||||
Diluted earnings per share |
$ | 0.39 | $ | 0.36 | $ | 1.15 | $ | 1.04 | |||||||||
The accompanying notes are an integral part of the financial statements
-4-
SPARTA, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Nine Months ended September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 6,521,000 | $ | 6,229,000 | ||||||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
1,597,000 | 1,545,000 | ||||||||||
Loss on sale of equipment |
87,000 | 1,000 | ||||||||||
Stock-based compensation |
3,752,000 | 3,411,000 | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
(810,000 | ) | 6,438,000 | |||||||||
Prepaid expenses |
(141,000 | ) | 170,000 | |||||||||
Other assets |
48,000 | (81,000 | ) | |||||||||
Accrued compensation |
767,000 | (324,000 | ) | |||||||||
Accounts payable and other accrued expenses |
91,000 | (1,133,000 | ) | |||||||||
Income taxes payable |
(410,000 | ) | 136,000 | |||||||||
Tax benefit relating to stock plan |
1,467,000 | 1,221,000 | ||||||||||
Net cash provided by (used for) operating activities |
12,969,000 | 17,613,000 | ||||||||||
Cash flows from investing activities: |
||||||||||||
Capital expenditures |
(743,000 | ) | (1,469,000 | ) | ||||||||
Net proceeds from sale of short-term investments |
8,727,000 | |||||||||||
Net cash provided by (used for) investing activities |
7,984,000 | (1,469,000 | ) | |||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of stock |
3,703,000 | 2,928,000 | ||||||||||
Redemption of preferred stock |
(3,095,000 | ) | (1,414,000 | ) | ||||||||
Cash purchases of treasury stock |
(11,346,000 | ) | (7,801,000 | ) | ||||||||
Principal payments on subordinated notes payable |
(1,516,000 | ) | (1,017,000 | ) | ||||||||
Net cash provided by (used for) financing activities |
(12,254,000 | ) | (7,304,000 | ) | ||||||||
Net increase (decrease) in cash |
8,699,000 | 8,840,000 | ||||||||||
Cash and cash equivalents at beginning of period |
10,303,000 | 7,082,000 | ||||||||||
Cash and cash equivalents at end of period |
$ | 19,002,000 | $ | 15,922,000 | ||||||||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest |
$ | 183,000 | $ | 318,000 | ||||||||
Income taxes |
$ | 3,325,000 | $ | 2,820,000 | ||||||||
Non-cash investing and financing activities: |
||||||||||||
Repurchase of treasury stock in exchange for
subordinated notes payable |
$ | 3,450,000 | $ | 9,295,000 | ||||||||
The accompanying notes are an integral part of the financial statements
-5-
SPARTA, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note A — Basis of Presentation
The accompanying financial information has been prepared in accordance with the instructions to Form 10-Q and therefore does not necessarily include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
The Company’s fiscal year is the 52 or 53 week period ending on the Sunday closest to December 31. The Company’s last fiscal year ended on December 30, 2001, its third quarter ended September 29, 2002, and its corresponding third quarter last year ended on September 30, 2001. To aid the reader of the financial statements, the year-end has been presented as December 31, 2001 and the quarters and nine-month period ends have been presented as September 30, 2002 and September 30, 2001.
In the opinion of management, the unaudited financial information for the nine-month periods ended September 30, 2002 and September 30, 2001 reflects all adjustments (which include only normal, recurring adjustments) necessary for a fair presentation thereof.
Note B — Income Taxes
Income taxes for interim periods are computed using the estimated annual effective rate method.
Note C — Computation of Per Share Earnings
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Basic EPS |
||||||||||||||||||
Net income |
$ | 2,100,000 | $ | 2,303,000 | $ | 6,521,000 | $ | 6,229,000 | ||||||||||
Accretion adjustment |
— | (259,000 | ) | (347,000 | ) | (523,000 | ) | |||||||||||
| $ | 2,100,000 | $ | 2,044,000 | $ | 6,174,000 | $ | 5,706,000 | |||||||||||
Weighted average shares outstanding |
4,831,686 | 5,251,505 | 4,889,930 | 5,024,826 | ||||||||||||||
Per share amounts |
$ | 0.43 | $ | 0.39 | $ | 1.26 | $ | 1.14 | ||||||||||
Dilutive Effect |
||||||||||||||||||
Net income |
$ | 2,100,000 | $ | 2,303,000 | $ | 6,521,000 | $ | 6,229,000 | ||||||||||
Accretion adjustment |
— | (259,000 | ) | (347,000 | ) | (523,000 | ) | |||||||||||
| $ | 2,100,000 | $ | 2,044,000 | $ | 6,174,000 | $ | 5,706,000 | |||||||||||
Weighted average shares outstanding |
4,831,686 | 5,251,505 | 4,889,930 | 5,024,829 | ||||||||||||||
Stock options |
446,295 | 352,032 | 395,415 | 349,473 | ||||||||||||||
Deferred stock |
90,327 | 116,442 | 90,327 | 116,442 | ||||||||||||||
| 5,368,308 | 5,719,979 | 5,375,672 | 5,490,744 | |||||||||||||||
Per share amounts |
$ | 0.39 | $ | 0.36 | $ | 1.15 | $ | 1.04 | ||||||||||
-6-
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following table sets forth, for the periods indicated, selected financial results:
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||
Sales |
$ | 42,911,000 | $ | 34,819,000 | $ | 119,585,000 | $ | 100,006,000 | |||||||||
Sales by business area, as a
percentage of total sales |
|||||||||||||||||
Ballistic Missile Defense (BMD) |
45 | % | 38 | % | 43 | % | 37 | % | |||||||||
Non BMD Dept of Defense (DoD) |
49 | % | 47 | % | 49 | % | 49 | % | |||||||||
Non-DoD |
6 | % | 15 | % | 8 | % | 14 | % | |||||||||
Gross profit (1) |
$ | 3,815,000 | $ | 3,880,000 | $ | 11,292,000 | $ | 10,752,000 | |||||||||
Gross profit as a % of costs |
9.8 | % | 12.5 | % | 10.4 | % | 12.0 | % | |||||||||
Net income |
$ | 2,100,000 | $ | 2,303,000 | $ | 6,521,000 | $ | 6,229,000 | |||||||||
| Balance at | ||||||||||||
| September 30 | December 31, | September 30 | ||||||||||
| 2002 | 2001 | 2001 | ||||||||||