UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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 29, 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 0-21682
SPARTA, Inc.
| Delaware | 63-0775889 | |
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| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 25531 Commercentre Drive, Suite 120, Lake Forest, CA | 92630-8873 | |
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| (Address of principal executive offices) | (Zip Code) | |
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
As of June 29, 2003, the registrant had 5,018,813 shares of common stock, $.01 par value per share, issued and outstanding.
SPARTA, Inc.
QUARTERLY REPORT FOR THE PERIOD ENDED JUNE 29, 2003
INDEX
| PART I FINANCIAL INFORMATION | 2 | |||
Item 1 Financial Statements |
2 | |||
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations |
9 | |||
Item 3 Quantitative and Qualitative Disclosures About Market Risk |
15 | |||
Item 4 Controls and Procedures |
15 | |||
| PART II OTHER INFORMATION | 15 | |||
Item 1 Legal Proceedings |
15 | |||
Item 2 Changes in Securities and Use of Proceeds |
15 | |||
Item 3 Defaults Upon Senior Securities |
16 | |||
Item 4 Submission of Matters to a Vote of Security Holders |
16 | |||
Item 5 Other Information |
16 | |||
Item 6 Exhibits and Reports on Form 8-K |
16 | |||
Signature |
17 | |||
Certifications |
- 1 -
PART I
Item 1 Financial Statements
- 2 -
SPARTA, Inc.
CONSOLIDATED BALANCE SHEET
(Unaudited)
| June 30, | December 31, | |||||||||
| 2003 | 2002 | |||||||||
ASSETS |
||||||||||
Current Assets |
||||||||||
Cash and cash equivalents |
$ | 20,924,000 | $ | 17,780,000 | ||||||
Receivables, net |
35,490,000 | 31,883,000 | ||||||||
Prepaid expenses |
915,000 | 614,000 | ||||||||
Total current assets |
57,329,000 | 50,277,000 | ||||||||
Equipment and improvements, net |
6,868,000 | 7,054,000 | ||||||||
Other assets |
1,927,000 | 2,033,000 | ||||||||
Total Assets |
$ | 66,124,000 | $ | 59,364,000 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||||
Current Liabilities |
||||||||||
Accrued compensation |
$ | 12,429,000 | $ | 12,805,000 | ||||||
Accounts payable and other accrued expenses |
8,788,000 | 7,757,000 | ||||||||
Current portion of subordinated notes payable |
2,453,000 | 2,258,000 | ||||||||
Income taxes payable |
1,511,000 | 1,454,000 | ||||||||
Deferred income taxes |
1,327,000 | 1,327,000 | ||||||||
Total current liabilities |
26,508,000 | 25,601,000 | ||||||||
Subordinated notes payable |
6,898,000 | 8,095,000 | ||||||||
Deferred income taxes |
666,000 | 666,000 | ||||||||
Stockholders’ equity |
||||||||||
Common stock, $.01 par value, 25,000,000 shares
authorized; 6,191,885 and 5,719,162 shares issued;
5,018,813 and 4,795,213 shares outstanding |
62,000 | 57,000 | ||||||||
Additional paid-in capital |
43,032,000 | 35,559,000 | ||||||||
Retained earnings |
12,575,000 | 7,534,000 | ||||||||
Treasury stock, at cost |
(23,617,000 | ) | (18,148,000 | ) | ||||||
Total stockholders’ equity |
32,052,000 | 25,002,000 | ||||||||
Total Liabilities and Stockholders’ Equity |
$ | 66,124,000 | $ | 59,364,000 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
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SPARTA, Inc.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
| Three Months ended June 30, | Six Months ended June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Sales |
$ | 50,971,000 | $ | 40,746,000 | $ | 98,119,000 | $ | 76,674,000 | |||||||||
Costs and expenses: |
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Labor costs and related benefits |
25,426,000 | 21,945,000 | 49,838,000 | 42,537,000 | |||||||||||||
Subcontractor & other costs |
16,896,000 | 10,894,000 | 31,468,000 | 19,215,000 | |||||||||||||
Facility costs |
2,589,000 | 2,457,000 | 5,063,000 | 5,026,000 | |||||||||||||
Travel and other |
1,747,000 | 1,510,000 | 3,247,000 | 2,567,000 | |||||||||||||
Total costs and expenses |
46,658,000 | 36,806,000 | 89,616,000 | 69,345,000 | |||||||||||||
Income from Operations |
4,313,000 | 3,940,000 | 8,503,000 | 7,329,000 | |||||||||||||
Interest expense (income), net |
(18,000 | ) | (15,000 | ) | (16,000 | ) | (39,000 | ) | |||||||||
Income before provision for
taxes on income |
4,331,000 | 3,955,000 | 8,519,000 | 7,368,000 | |||||||||||||
Provision for taxes on income |
1,803,000 | 1,582,000 | 3,478,000 | 2,947,000 | |||||||||||||
Net income |
$ | 2,528,000 | $ | 2,373,000 | $ | 5,041,000 | $ | 4,421,000 | |||||||||
Basic earnings per share |
$ | 0.51 | $ | 0.45 | $ | 1.02 | $ | 0.83 | |||||||||
Diluted earnings per share |
$ | 0.47 | $ | 0.41 | $ | 0.94 | $ | 0.76 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements
- 4 -
SPARTA, Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
| Six Months ended June 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 5,041,000 | $ | 4,421,000 | ||||||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
918,000 | 1,080,000 | ||||||||||
Loss on sale of equipment |
— | 88,000 | ||||||||||
Stock-based compensation |
3,283,000 | 2,918,000 | ||||||||||
Tax benefit relating to stock plan |
971,000 | 1,006,000 | ||||||||||
Changes in assets and liabilities: |
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Receivables, net |
(3,607,000 | ) | (1,499,000 | ) | ||||||||
Prepaid expenses |
(301,000 | ) | (432,000 | ) | ||||||||
Other assets |
233,000 | (70,000 | ) | |||||||||
Accrued compensation |
(376,000 | ) | (718,000 | ) | ||||||||
Accounts payable and other accrued expenses |
1,031,000 | 423,000 | ||||||||||
Income taxes payable |
57,000 | 273,000 | ||||||||||
Net cash provided by (used for) operating activities |
7,250,000 | 7,490,000 | ||||||||||
Cash flows from investing activities: |
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Purchases of equipment and improvements |
(719,000 | ) | (526,000 | ) | ||||||||
Acquisition, net of cash acquired |
(140,000 | ) | — | |||||||||
Proceeds from sale of short-term investments |
— | 5,727,000 | ||||||||||
Net cash provided by (used for) investing activities |
(859,000 | ) | 5,201,000 | |||||||||
Cash flows from financing activities: |
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Proceeds from issuance of stock |
3,224,000 | 2,279,000 | ||||||||||
Redemption of preferred stock |
— | (1,906,000 | ) | |||||||||
Cash purchases of treasury stock |
(5,286,000 | ) | (7,608,000 | ) | ||||||||
Principal payments on subordinated notes payable |
(1,185,000 | ) | (971,000 | ) | ||||||||
Net cash provided by (used for) financing activities |
(3,247,000 | ) | (8,206,000 | ) | ||||||||
Net increase in cash |
3,144,000 | 4,485,000 | ||||||||||
Cash and cash equivalents at beginning of period |
17,780,000 | 10,303,000 | ||||||||||
Cash and cash equivalents at end of period |
$ | 20,924,000 | $ | 14,788,000 | ||||||||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest |
$ | 91,000 | $ | 117,000 | ||||||||
Income taxes |
$ | 2,501,000 | $ | 1,703,000 | ||||||||
Non-cash investing and financing activities: |
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Issuance of subordinated notes payable in connection
with purchases of treasury stock |
$ | 183,000 | $ | 3,450,000 | ||||||||
The accompanying notes are an integral part of these consolidated financial statements
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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 29, 2002, its second quarter ended June 29, 2003, and its corresponding second quarter last year ended on June 30, 2002. To aid the reader of the financial statements, the year-end has been presented as December 31, 2002 and the three-month period ends have been presented as June 30, 2003 and June 30, 2002.
In the opinion of management, the unaudited financial information for the three-month periods ended June 30, 2003 and June 30, 2002 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 Earnings Per Share
| Three months ended June 30, | Six months ended June, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Basic EPS |
|||||||||||||||||
Net income |
$ | 2,528,000 | $ | 2,373,000 | $ | 5,041,000 | $ | 4,421,000 | |||||||||
Accretion adjustment |
(165,000 | ) | (347,000 | ) | |||||||||||||
| $ | 2,528,000 | $ | 2,208,000 | $ | 5,041,000 | $ | 4,074,000 | ||||||||||
Weighted average
shares outstanding |
4,946,425 | 4,879,544 | 4,960,306 | 4,909,702 | |||||||||||||
Per share amounts |
$ | 0.51 | $ | 0.45 | $ | 1.02 | $ | 0.83 | |||||||||
Dilutied EPS |
|||||||||||||||||
Net income |
$ | 2,528,000 | $ | 2,373,000 | $ | 5,041,000 | $ | 4,421,000 | |||||||||
Accretion adjustment |
— | (165,000 | ) | — | (347,000 | ) | |||||||||||
| $ | 2,528,000 | $ | 2,208,000 | $ | 5,041,000 | $ | 4,074,000 | ||||||||||
Weighted average
shares outstanding |
4,946,425 | 4,879,544 | 4,960,306 | 4,909,702 | |||||||||||||
Stock options |
382,351 | 405,682 | 347,749 | 369,603 | |||||||||||||
Restricted stock |
73,887 | 90,327 | 73,887 | 90,327 | |||||||||||||
| 5,402,663 | 5,375,553 | 5,381,942 | 5,369,632 | ||||||||||||||
Per share amounts |
$ | 0.47 | $ | 0.41 | $ | 0.94 | $ | 0.76 | |||||||||
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Note D – Accounting for Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance with the intrinsic value method described in Accounting Principles Board Opinion No. 25 (“APB 25”) and related interpretations. Had compensation expense for these plans been determined in accordance with the fair value method described in Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), the Company’s net income and net income per share would have been reduced to the pro forma amounts in the following table.
| Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Net income |
|||||||||||||||||
As reported |
$ | 2,528,000 | $ | 2,373,000 | $ | 5,041,000 | $ | 4,421,000 | |||||||||
Add after-tax stock-based
compensation expense
included in determining
net income |
480,000 | 259,000 | 664,000 | 335,000 | |||||||||||||
Deduct after-tax stock-based
compensation expense as
if the fair value method had
been used |
(780,000 | ) | (472,000 | ) | (1,258,000 | ) | (757,000 | ) | |||||||||
Pro forma net income |
$ | 2,228,000 | $ | 2,160,000 | $ | 4,447,000 | $ | 3,999,000 | |||||||||
Basic EPS |
|||||||||||||||||
As reported |
$ | 0.51 | $ | 0.45 | $ | 1.02 | $ | 0.83 | |||||||||
Pro forma |
0.45 | 0.41 | 0.90 | 0.81 | |||||||||||||
Diluted EPS |
|||||||||||||||||
As reported |
0.47 | 0.41 | 0.94 | 0.76 | |||||||||||||
Pro forma |
0.41 | 0.37 | 0.83 | 0.74 | |||||||||||||
Note E – Treasury Stock
Treasury stock is shown at cost, and consisted of 1,173,124 shares and 923,949 shares of common stock at June 30, 2003 and December 31, 2002, respectively. Repurchase of outstanding stock by the Company in exercise of its right of repurchase upon termination of employment (as defined) are made at estimated fair value. The stock price is calculated quarterly by the Company using a formula approved by the Board of Directors (which the Company believes estimates fair value), and is evaluated annually by an independent valuation firm.
Note F – New Accounting Standards
The Company adopted the following Statements of Financial Accounting Standards (SFAS) as of January 1, 2002: SFAS 141, which addresses accounting for acquired business using the purchase method of accounting; SFAS 142, which addressees accounting for acquired goodwill and other intangible assets; SFAS 143, which addresses accounting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs; and SFAS 144, which addresses the impairment or disposal of long-lived assets. Adoption of these standards did not have a material effect on the Company’s financial position or results of operations.
During December 2002, the Financial Accounting Standards Board (FASB) issued SFAS 148, which provides alternative transition methods for companies adopting a voluntary change to the fair
- 7 -
value method of accounting for stock-based compensation. SFAS 148 also requires enhanced disclosure regarding the method of accounting and the effect of the method used on reported results of operations. SFAS 148 is effective for fiscal years ending after December 15, 2002 and interim periods beginning after December 15, 2002. The Company adopted the disclosure provisions of SFAS 148 in December 2002, and has elected to continue to account for its stock-based compensation under the intrinsic value method.
In November 2002, the FASB issued FASB Interpretation (FIN) 45, which requires disclosures about obligations under certain guarantees issued by the Company, and which requires recognition of a liability for the fair value of the obligation undertaken in issuing the guarantee. The liability recognition provisions of FIN 45 are applicable to guarantees issued or modified after December 31, 2002, and the disclosure provisions are effective for interim or annual fiscal periods ending after December 15, 2002. Adoption of FIN 45 did not have a material effect on the Company’s financial position or results of operations.
In January 2003, the Company adopted SFAS 146, which addresses accounting for costs associated with exit or disposal activities. In addition, the FASB issued FIN 46, which requires that certain variable interest entities be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have a controlling financial interest or do not have sufficient equity at risk. FIN 46 is effective immediately for all variable interest entities created after January 31, 2003. For all such entities created prior to February 1, 2003, FIN 46 is effective for interim or annual fiscal periods ending after June 15, 2003. Adoption of these statements did not have a material effect on the Company’s financial position or results of operations
In April 2003, the FASB issued SFAS 149, which amends and clarifies accounting guidance on derivative instruments and hedging a