Attached files
file | filename |
---|---|
EX-10.1 - EX-10.1 - ATS CORP | v182348_ex10-1.htm |
EX-32.2 - EX-32.2 - ATS CORP | v182348_ex32-2.htm |
EX-32.1 - EX-32.1 - ATS CORP | v182348_ex32-1.htm |
EX-31.2 - EX-31.2 - ATS CORP | v182348_ex31-2.htm |
EX-31.1 - EX-31.1 - ATS CORP | v182348_ex31-1.htm |
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 MARCH 31, 2010 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: 0-51552
ATS
CORPORATION
(Exact
name of registrant as specified in its charter)
Delaware
|
11-3747850
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer Identification No.)
|
7925
Jones Branch Drive
McLean,
Virginia 22102
(Address
of principal executive offices)
(571)
766-2400
(Registrant’s
telephone number, including area code)
——
(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes ¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (check
one):
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
|
Non-accelerated
filer ¨
|
Smaller
reporting company x
|
|
(Do
not check if a smaller reporting company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes
¨
No x
The
number of shares of the issuer’s common stock, $0.0001 par value, outstanding as
of April 27, 2010 was 22,417,602.
ATS
CORPORATION
TABLE
OF CONTENTS
Financial
Statements
|
3
|
||
Consolidated
Balance Sheets as of March 31, 2010 (unaudited) and as of
December 31, 2009 (audited)
|
3
|
||
Consolidated
Statements of Operations (unaudited) for the three-month periods ended
March 31, 2010 and March 31, 2009
|
4
|
||
Consolidated
Statements of Cash Flows (unaudited) for the three-month periods ended
March 31, 2010 and March 31, 2009
|
5
|
||
Notes
to Consolidated Financial Statements
|
6
|
||
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
13
|
||
Quantitative
and Qualitative Disclosures about Market Risk
|
20
|
||
Controls
and Procedures
|
20
|
||
Legal
Proceedings
|
20
|
||
Item
1A.
|
Risk
Factors
|
20
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
20
|
|
Item 3.
|
Defaults
upon Senior Securities
|
21
|
|
Item
4.
|
Reserved
|
21
|
|
Item 5.
|
Other
Information
|
21
|
|
Item 6.
|
Exhibits
|
21
|
|
SIGNATURES
|
22
|
2
ATS
CORPORATION
PART I — FINANCIAL
INFORMATION
ITEM 1. — FINANCIAL STATEMENTS
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(audited)
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$ | 134,913 | $ | 178,225 | ||||
Restricted
cash
|
1,324,648 | 1,324,510 | ||||||
Accounts
receivable, net
|
20,447,469 | 22,497,444 | ||||||
Prepaid
expenses and other current assets
|
448,674 | 625,231 | ||||||
Income
taxes receivable
|
120,739 | 205,339 | ||||||
Other
current assets
|
51,171 | 46,057 | ||||||
Deferred
income taxes, current
|
2,430,547 | 2,361,611 | ||||||
Total
current assets
|
24,958,161 | 27,238,417 | ||||||
Property
and equipment, net
|
2,877,940 | 3,011,621 | ||||||
Goodwill
|
55,370,011 | 55,370,011 | ||||||
Intangible
assets, net
|
5,604,716 | 6,102,798 | ||||||
Other
assets
|
146,567 | 146,567 | ||||||
Deferred
income taxes
|
1,495,795 | 1,400,260 | ||||||
Total
assets
|
$ | 90,453,190 | $ | 93,269,674 | ||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$ | 18,995,387 | $ | 21,191,135 | ||||
Accounts
payable
|
5,102,145 | 4,753,800 | ||||||
Other
accrued expenses and current liabilities
|
4,596,635 | 6,356,896 | ||||||
Accrued
salaries and related taxes
|
3,495,647 | 4,541,509 | ||||||
Accrued
vacation
|
2,499,145 | 2,259,538 | ||||||
Income
taxes payable
|
946,901 | — | ||||||
Deferred
revenue
|
813,456 | 1,392,457 | ||||||
Deferred
rent – current portion
|
320,498 | 320,498 | ||||||
Total
current liabilities
|
36,769,814 | 40,815,833 | ||||||
Deferred rent – net of current
portion
|
2,616,000 | 2,658,055 | ||||||
Other
long-term liabilities
|
5,794 | 5,795 | ||||||
Total
liabilities
|
39,391,608 | 43,479,683 | ||||||
Shareholders’
equity:
|
||||||||
Preferred
stock $.001 par value, 1,000,000 shares authorized, and no shares issued
and outstanding
|
— | — | ||||||
Common
stock $.001 par value, 100,000,000 shares authorized, 31,314,745 and
30,867,304 shares issued, respectively, and 22,416,852 and 22,524,549
shares outstanding, respectively
|
3,162 | 3,124 | ||||||
Additional
paid-in capital
|
131,936,469 | 131,702,488 | ||||||
Treasury
stock, at cost, 8,897,893 and 8,342,755 shares held,
respectively
|
(31,663,758 | ) | (31,209,118 | ) | ||||
Accumulated
deficit
|
(48,956,411 | ) | (50,062,979 | ) | ||||
Accumulated
other comprehensive loss (net of tax benefit of $160,386 and $338,606,
respectively)
|
(257,880 | ) | (643,524 | ) | ||||
Total
shareholders’ equity
|
51,061,582 | 49,789,991 | ||||||
Total
liabilities and shareholders’ equity
|
$ | 90,453,190 | $ | 93,269,674 |
The
accompanying notes are an integral part of these consolidated financial
statements.
3
ATS
CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
Three Months
Ended March 31,
|
||||||||
2010
(unaudited)
|
2009
(unaudited)
|
|||||||
Revenue
|
$ | 30,511,983 | $ | 27,156,514 | ||||
Operating
costs and expenses
|
||||||||
Direct
costs
|
21,415,612 | 18,195,737 | ||||||
Selling,
general and administrative expenses
|
6,403,221 | 6,492,515 | ||||||
Depreciation
and amortization
|
640,837 | 784,127 | ||||||
Total
operating costs and expenses
|
28,459,670 | 25,472,379 | ||||||
Operating
income
|
2,052,313 | 1,684,135 | ||||||
Other
(expense) income
|
||||||||
Interest,
net
|
(821,155 | ) | (774,080 | ) | ||||
Other
income
|
500,000 | — | ||||||
Income
before income taxes
|
1,731,158 | 910,055 | ||||||
Income
tax expense
|
624,590 | 484,466 | ||||||
Net
income
|
$ | 1,106,568 | $ | 425,589 | ||||
Weighted
average number of shares outstanding
|
||||||||
—basic
|
22,536,486 | 22,542,200 | ||||||
—diluted
|
22,742,880 | 22,542,200 | ||||||
Net
income per share
|
||||||||
—basic
|
$ | 0.05 | $ | 0.02 | ||||
—diluted
|
$ | 0.05 | $ | 0.02 |
The
accompanying notes are an integral part of these consolidated financial
statements.
4
ATS
CORPORATION
Three Months Ended
March 31,
|
||||||||
2010
(unaudited)
|
2009
(unaudited)
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 1,106,568 | $ | 425,589 | ||||
Adjustments
to reconcile net income to net cash from operating
activities:
|
||||||||
Depreciation
and amortization
|
640,837 | 781,688 | ||||||
Non-cash
other income from claim settlement
|
(495,000 | ) | — | |||||
Non-cash
interest expense SWAP agreement
|
328,766 | |||||||
Stock-based
compensation
|
162,492 | 105,219 | ||||||
Deferred
income taxes
|
(405,254 | ) | 274,106 | |||||
Deferred
rent
|
(42,055 | ) | (45,334 | ) | ||||
Gain
on disposal of equipment
|
(5,000 | ) | — | |||||
Provision
for bad debt
|
495,422 | 123,871 | ||||||
Changes
in assets and liabilities, net of adjustments related to other
comprehensive loss:
|
||||||||
Accounts
receivable
|
1,554,554 | 5,641,195 | ||||||
Prepaid
expenses and other current assets
|
176,557 | (94,646 | ) | |||||
Restricted
cash
|
(138 | ) | (3,831 | ) | ||||
Other
assets
|
(5,114 | ) | 48,340 | |||||
Accounts
payable
|
365,864 | 66,803 | ||||||
Other
accrued expenses and accrued liabilities
|
(1,462,500 | ) | (2,086,536 | ) | ||||
Accrued
salaries and related taxes
|
(1,045,862 | ) | (89,936 | ) | ||||
Accrued
vacation
|
239,608 | 231,248 | ||||||
Accrued
interest
|
(17,520 | ) | 13,616 | |||||
Income
taxes payable and receivable
|
1,031,400 | (749,051 | ) | |||||
Other
current liabilities
|
(579,001 | ) | 573,737 | |||||
Net
cash provided by operating activities
|
2,044,624 | 5,216,078 | ||||||
Cash
flows from investing activities
|
||||||||
Purchase
of property and equipment
|
(9,074 | ) | (80,400 | ) | ||||
Proceeds
from disposals of equipment
|
5,000 | — | ||||||
Net
cash used in investing activities
|
(4,074 | ) | (80,400 | ) | ||||
Cash
flows from financing activities
|
||||||||
Borrowings
on line of credit
|
18,916,849 | 14,027,500 | ||||||
Payments
on line of credit
|
(19,539,208 | ) | (18,877,448 | ) | ||||
Payments
on notes payable
|
(1,078,390 | ) | (645,813 | ) | ||||
Payments
on capital leases
|
— | (20,992 | ) | |||||
Proceeds
from stock issued pursuant to Employee Stock Purchase Plan
|
71,527 | 59,966 | ||||||
Payments
to repurchase treasury stock
|
(454,640 | ) | — | |||||
Net
cash used in financing activities
|
(2,083,862 | ) | (5,456,787 | ) | ||||
Net
decrease in cash
|
(43,312 | ) | (321,109 | ) | ||||
Cash,
beginning of period
|
178,225 | 364,822 | ||||||
Cash,
end of period
|
$ | 134,913 | $ | 43,713 | ||||
Supplemental
disclosures:
|
||||||||
Cash
paid or received during the period for:
|
||||||||
Income
taxes paid
|
$ | — | $ | 962,600 | ||||
Income
tax refunds
|
1,128 | 3,189 | ||||||
Interest
paid
|
518,127 | 823,657 | ||||||
Interest
received
|
8,080 | 7,980 | ||||||
Non-cash
investing and financing activities and adjustment to other comprehensive
loss:
|
||||||||
Unrealized
other comprehensive income (loss) on interest rate swap, net of
tax
|
(183,302 | ) | (71,578 | ) |
The
accompanying notes are an integral part of these consolidated financial
statements.
5
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ¾
BASIS OF
PRESENTATION
Principles of Consolidation –
The consolidated financial statements include the accounts of ATS Corporation
(“ATSC”) and its subsidiary Advanced Technology Systems, Inc. (“ATSI”)
(collectively, the “Company”). All material intercompany accounts, transactions,
and profits are eliminated in consolidation.
The
accompanying consolidated financial statements of the Company have been prepared
by management in accordance with the instructions to Form 10-Q of the
Securities and Exchange Commission (“SEC”). These statements include all
adjustments considered necessary by management to present a fair statement of
the consolidated balance sheets, results of operations, and cash flows. Certain
information and note disclosures normally included in the annual financial
statements have been condensed or omitted pursuant to those instructions,
although the Company believes that the disclosures made are adequate to make the
information presented not misleading. Therefore, these financial statements
should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, contained in the Company’s 2009 Annual
Report on Form 10-K. The results reported in these financial statements
should not be regarded as necessarily indicative of results that may be expected
for the entire year.
Accounting Estimates – The
Company’s financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America (“US GAAP”). The
preparation of the financial statements requires management to make estimates
and judgments that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements, as well as
the reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best available
information and actual results could differ materially from those
estimates.
Financial Statements
Reclassifications – Certain amounts on the prior period financial
statements and related notes have been reclassified to conform to the current
presentation.
NOTE 2 ¾
RECENT ACCOUNTING
PRONOUNCEMENTS
Adoption
of New Accounting Standards
ASU
2009-13 & ASU 2009-14: In September, 2009, the FASB issued Accounting
Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, and
ASU 2009-14, Certain Revenue Arrangements That Include Software Elements – a
consensus of the FASB Emerging Issues Task Force, to amend the existing revenue
recognition guidance. ASU 2009-13 amends ASC 605, Revenue Recognition, 25,
“Multiple-Element Arrangements” (formerly EITF Issue 00-21, “Revenue
Arrangements with Multiple Deliverables”), as follows: modifies criteria used to
separate elements in a multiple-element arrangement, introduces the concept of
“best estimate of selling price” for determining the selling price of a
deliverable, establishes a hierarchy of evidence for determining the selling
price of a deliverable, requires use of the relative selling price method and
prohibits use of the residual method to allocate arrangement consideration among
units of accounting, and expands the disclosure requirements for all
multiple-element arrangements within the scope of ASC 605-25.
ASU
2009-14 amends the scope of ASC 985, Software, 605, “Revenue Recognition”
(formerly AICPA Statement of Position 97-2, Software Revenue Recognition), to
exclude certain tangible products and related deliverables that contain embedded
software from the scope of this guidance. Instead, the excluded products and
related deliverables must be evaluated for separation, measurement, and
allocation under the guidance of ASC 605-25, as amended by ASU 2009-13. The
amended guidance is effective prospectively for revenue arrangements entered
into or materially modified in fiscal years beginning on or after June 15, 2010.
Early adoption is permitted. An entity may elect retrospective application to
all revenue arrangements for all periods presented using the guidance in ASC
250, Accounting Changes and Error Corrections. Entities must adopt the
amendments resulting from both of these ASUs in the same period using the same
transition method, where applicable. Management is reviewing ASU 2009-13 and ASU
2009-14 for applicability to the Company’s revenue recognition policies. The Company will adopt this standard for our fiscal
year beginning January 1, 2011.
Standards
Issued But Not Yet Effective
Other new
pronouncements issued but not yet effective until after March 31, 2010 are not
expected to have a significant effect on the Company’s consolidated financial
position or results of operations.
6
NOTE 3 ¾
RESTRICTED
CASH
The
Company is required to maintain $1.2 million on deposit with a financial
institution to support a bonding requirement for one of the ATSI state
contracts. This amount, and accumulated interest of $124,648 and $124,510 earned
thereon as of March 31, 2010 and December 31, 2009, respectively, is reflected
in restricted cash in the accompanying consolidated balance sheets. We expect
the performance under this contract to be completed in 2010, whereby the bond
will be released and the deposit refunded.
NOTE 4 ¾
FAIR VALUE OF FINANCIAL
INSTRUMENTS
In order
to manage interest rate fluctuation exposure on bank debt, the Company entered
into an interest rate swap agreement with Bank of America, NA (“Bank of
America”) on November 9, 2007 providing the Company an ability to eliminate
the variability of interest expense based on $35 million of floating rate debt.
The purpose of the derivative instrument is to hedge cash flows and not for
trading purposes. The Company records cash payments and receipts related to its
interest rate swap as adjustments to interest expense and as a component of
operating cash flow.
NOTE 5 ¾
STOCK PLANS AND STOCK-BASED
COMPENSATION
Under the
fair value recognition provisions of ASC 718, Stock Compensation (formerly SFAS
No. 123(R), Share Based
Payment (“FAS 123(R)”)), the Company recognizes stock-based compensation
based upon the fair value of the stock-based awards taking into account the
effects of the employees’ expected exercise and post-vesting employment
termination behavior. The components of the stock-based compensation expense
recognized during the three-month periods ended March 31, 2010 and 2009 are as
follows:
Compensation Related to
Options and Restricted Stock
|
Three Months
Ended
March 31, 2010
|
Three Months
Ended
March 31, 2009
|
||||||
Non-qualified stock option expense
|
$ | 46,000 | $ | 37,000 | ||||
Restricted
stock
|
130,000 | 74,000 | ||||||
Forfeitures
in excess of estimate
|
(14,000 | ) | (6,000 | ) | ||||
Total
stock-based compensation expense
|
$ | 162,000 | $ | 105,000 |
Stock
Options – The Company estimates the fair value of options as of the date
of grant using the Black-Scholes option pricing model. A total of 15,000 options
were granted during the three-month period ended March 31, 2010. A total of
110,000 options were granted during the three-month period ended March 31,
2009. The fair value of options granted during the three-month period
ended March 31, 2010 has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions:
Three Months
Ended
March 31, 2010
|
Three Months
Ended
March 31, 2009
|
|||||||
Expected
dividend yield
|
— | % | — | % | ||||
Expected
volatility
|
80.4 | % | 55.3 | % | ||||
Risk
free interest rate
|
2.5 | % | 2.9 | % | ||||
Expected
life of options
|
6.3
years
|
6.3
years
|
||||||
Forfeiture
rate
|
4.25 | % | 4.25 | % |
7
NOTE 5 ¾
STOCK PLANS AND STOCK-BASED
COMPENSATION (continued)
The fair
value of options granted during the three months ended March 31, 2010 was $1.75
per share. As of March 31, 2010, there was $425,371 of unrecognized compensation
expense related to unvested options. This cost is expected to be recognized over
a weighted-average period of 2.6 years. The table below provides stock option
information for the three months ended March 31, 2010:
Number of
Shares
|
Weighted
Average
Exercise
Price Per
Share
|
Weighted-
Average
Remaining
Contractual
Life in Years
|
Aggregate
Intrinsic
Value of
In-the-
Money
Options
|
|||||||||||||
|
||||||||||||||||
Options
outstanding at January
1, 2010
|
638,000 | $ | 2.40 | 9.45 | $ | 310,655 | (1) | |||||||||
Options
granted
|
15,000 | 2.45 | 9.76 | 9,150 | (2) | |||||||||||
Options
expired
|
— | — | — | — | ||||||||||||
Options
forfeited
|
(30,000 | ) | 2.75 | 8.07 | 18,525 | (2) | ||||||||||
Options
exercised
|
(750 | ) | 2.15 | 8.17 | 683 | (2) | ||||||||||
Options
outstanding at March
31, 2010
|
622,250 | $ | 2.40 | 8.38 | $ | 582,103 | (2) | |||||||||
Options
exercisable at March
31, 2010
|
161,375 | $ | 3.38 | 7.64 | $ | 65,391 | (2) |
(1)
Intrinsic value represents the excess of the closing stock price on the last
trading day of the preceding period, which was $2.43 as of December 31, 2009,
over the exercise price, multiplied by the number of options.
(2)
Intrinsic value represents the excess of the closing stock price on the last
trading day of the period, which was $3.06 as of March 31, 2010, over the
exercise price, multiplied by the number of options.
Options Outstanding
|
Options Exercisable
|
||||||||||||||
Weighted-
|
|||||||||||||||
average
|
Weighted-
|
Weighted-
|
|||||||||||||
Remaining
|
average
|
average
|
|||||||||||||
Exercise
|
Number
|
Life in
|
Exercise
|
Number
|
Exercise
|
||||||||||
Prices
|
Outstanding
|
Years
|
Price
|
Exercisable
|
Price
|
||||||||||
$ |
1.40
|
80,000
|
8.76
|
$
|
1.40
|
20,000
|
$
|
1.40
|
|||||||
1.50
|
192,000
|
9.09
|
1.50
|
—
|
—
|
||||||||||
2.15
|
140,750
|
8.17
|
$
|
2.15
|
35,375
|
2.15
|
|||||||||
2.23
|
5,000
|
9.47
|
2.23
|
—
|
—
|
||||||||||
2.45
|
15,000
|
9.76
|
2.45
|
—
|
—
|
||||||||||
2.50
|
15,000
|
9.71
|
2.50
|
—
|
—
|
||||||||||
3.40
|
50,000
|
7.72
|
3.40
|
25,000
|
3.40
|
||||||||||
3.50
|
30,000
|
7.61
|
3.50
|
15,000
|
3.50
|
||||||||||
3.67
|
15,000
|
7.50
|
3.67
|
7,500
|
3.67
|
||||||||||
3.75
|
4,500
|
7.30
|
3.75
|
2,250
|
3.75
|
||||||||||
4.32
|
15,000
|
6.92
|
4.32
|
11,250
|
4.32
|
||||||||||
4.88
|
60,000
|
6.91
|
4.88
|
45,000
|
4.88
|
||||||||||
622,250
|
8.38
|
$
|
2.40
|
161,375
|
$
|
4.14
|
8
NOTE 5 ¾
STOCK PLANS AND STOCK-BASED
COMPENSATION (continued)
Restricted
Shares – Pursuant to the 2006 Omnibus Incentive Compensation Plan, during
the three-month period ended March 31, 2010, the Company granted 100,000
restricted shares valued at $245,000. Such shares vest ratably over a five-year
period. The table below provides additional restricted share information for the
three months ended March 31, 2010:
Three months
Ended March 31, 2010
|
||||||||
Number of
Shares
|
Weighted
Average Grant
Date Fair
Value
|
|||||||
Unvested
at January 1, 2010
|
462,986 | $ | 2.42 | |||||
Granted
|
100,000 | 2.45 | ||||||
Vested
|
(45,150 | ) | 2.06 | |||||
Forfeited
|
— | — | ||||||
Unvested
at March 31, 2010
|
517,836 | $ | 2.46 |
NOTE 6 ¾
EMPLOYEE STOCK PURCHASE
PLAN
The
Company adopted the 2007 Employee Stock Purchase Plan (the “Plan”) in July 2007.
The Plan was subsequently approved by the shareholders in May 2008. The Plan
provides employees and management with an opportunity to acquire or increase
ownership interest in the Company through the purchase of shares of the
Company’s common stock at periodic intervals, namely four month offering periods
during which payroll deductions are made and shares are subsequently purchased
at a discount. The Company initially reserved an aggregate of 150,000 shares of
common stock exclusively for issuance under the Plan. Additionally, the Company
may automatically increase the shares registered under this Plan on an annual
basis pursuant to the Plan’s “evergreen” provision. This provision allows the
Company to annually increase its registered Plan shares by the lesser of the
following: (i) 100,000 shares, (ii) 1% of the Company’s outstanding shares on
January 1 of such year, or (iii) a lesser amount as determined by the Board.
Accordingly, the Board increased the number of shares authorized under the Plan
by 100,000 for fiscal years 2009 and 2010.
The Plan
is a qualified plan under Section 423 of the Internal Revenue Code and, for
financial reporting purposes is considered non-compensatory under ASC 718, Stock
Compensation (formerly SFAS No. 123R, Share Based Payment).
Accordingly, there is no stock-based compensation expense associated with shares
acquired under the Plan for the three-month period ended March 31, 2010. As of
March 31, 2010, participants have purchased 283,872 shares since the inception
of the Plan at a weighted average price per share of $1.80. During the three
months ended March 31, 2010, 33,899 shares were purchased at a price per share
of $2.11.
NOTE 7 ¾
EARNINGS (LOSS) PER
SHARE
Basic and
diluted earnings per share information is presented in accordance with ASC 260,
Earnings Per Share (formerly SFAS No. 128, Earnings Per Share). Basic
earnings per share is calculated by dividing the net income/(loss) attributable
to common stockholders by the weighted-average common shares outstanding during
the period. Diluted earnings per share is calculated by dividing net income
attributable to common stockholders by the weighted average common shares
outstanding which includes common stock equivalents. The Company’s common stock
equivalents include stock options, restricted stock, and warrants. The weighted
average shares outstanding excludes unvested restricted shares. Weighted average
shares outstanding for the three months ended March 31, 2010 excludes stock
options to purchase approximately 431,109 shares because such common stock
equivalents have an exercise price in excess of the average market price of the
Company’s common stock during the period, or would be anti-dilutive. Weighted
average shares outstanding for the three months ended March 31, 2009 excludes
warrants and stock options to purchase approximately 4,006,524 shares because
such common stock equivalents have an exercise price in excess of the average
market price of the Company’s common stock during the period, or would be
anti-dilutive. The warrants expired in October 2009.
9
NOTE 8 ¾
SEGMENT
ACCOUNTING
The
Company reviewed its services by unit to determine if any unit of the business
is subject to risks and returns that are different than those of other units in
the Company. The Company has determined that it has one line of business,
providing primarily IT services to government and commercial companies. As such,
the Company has only one reportable segment.
Goodwill
represents the excess of costs over fair value of net assets of businesses
acquired. Other purchased intangible assets include the fair value of items such
as customer contracts, backlog and customer relationships. ASC Topic 350,
Intangibles, Goodwill and Other (ASC 350) (formerly Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS
142”)), establishes financial accounting and reporting for acquired goodwill and
other intangible assets. Goodwill and intangible assets acquired in a purchase
business combination and determined to have an indefinite useful life are not
amortized, but rather tested for impairment on an annual basis or at an interim
date in the event of a triggering event. Purchased intangible assets with a
definite useful life are amortized on a straight-line basis over their estimated
useful lives.
The
Company performs an annual impairment test for goodwill. For purposes of this
testing, management concluded that there is only one reporting unit. The
Company’s testing approach utilizes a discounted cash flow analysis and market
based approaches to determine the fair value of the reporting unit for
comparison to the corresponding carrying value. If the carrying value exceeds
the estimated fair value of the business, an impairment would be required to be
reported.
The
Company evaluates goodwill for impairment annually in the third fiscal quarter
or more frequently depending on specific events or when evidence of potential
impairment exists. The annual impairment test is based on several
factors requiring judgment. Principally, a significant decrease in expected cash
flows or changes in general market conditions may indicate potential impairment
of recorded goodwill. Management has concluded that there were no triggering
events that would indicate an impairment during the quarter ended March 31,
2010. The Company will continue to monitor the recoverability of the carrying
value of its goodwill and other long-lived assets.
NOTE 10 ¾
LEGAL
PROCEEDINGS
From time
to time, we are involved in various legal matters and proceedings concerning
matters arising in the ordinary course of business. Other than possibly the
matters discussed below, we currently believe that any ultimate liability
arising out of these matters and proceedings will not have a material adverse
effect on our financial position, results of operations or cash
flows.
We were a
defendant in Maximus, Inc. vs. Advanced Technology Systems, Inc., previously
pending in the Connecticut Superior Court, Complex Litigation Docket. The
lawsuit regarded breach of contract and other claims related to a subcontract
between Maximus and ATSI associated with a prime contract between Maximus and
the State of Connecticut. Based on the complaint filed in the suit, Maximus
sought damages in excess of $3.5 million. The case was filed in August
2007.
In
January of 2009, the case was consolidated for discovery purposes with an action
brought by the State of Connecticut against Maximus relating to the prime
contract. On February 23, 2010, the State of Connecticut advised
Maximus that it was accepting Maximus' settlement offer.
On April
6, 2010, a settlement agreement was signed between Maximus and the Company. In
accordance with the terms of the settlement, ATSC paid Maximus $1.5 million in
return for a full release from Maximus. The Company recorded this liability as
an accrued expense on December 31, 2009.
Further,
based on the claims asserted in the lawsuit, we have made an indemnification
demand against the former principal owners of ATSI under the stock purchase
agreement governing the transaction in which the Company (then Federal Services
Acquisition Corporation) acquired ATSI.
Following
the indemnification demand, the former principal owners of ATSI brought an
arbitration against us with the American Arbitration Association claiming that
the former owners do not owe us any indemnification obligations for the Maximus
lawsuit or the Maximus subcontract. At our request, the arbitration was stayed
pending the outcome of the Maximus lawsuit described above. The Company notified the American Arbitration
Association of the settlement with Maximus and has requested that the stay be
lifted so as to pursue our indemnification claim against the former principal
owners of ATSI. The Company will seek a recovery of the cost of the settlement
and related expenses.
10
NOTE 11 ¾
DEBT
Debt
consisted of the following:
|
March 31, 2010
|
December 31, 2009
|
||||||
Bank
Financing
|
$
|
18,065,876
|
$
|
18,688,235
|
||||
Notes
payable
|
929,511
|
2,502,900
|
||||||
Total
debt
|
$
|
18,995,387
|
$
|
21,191,135
|
||||
Less
current portion
|
(18,995,387
|
)
|
(21,191,135
|
)
|
||||
Debt,
net of current portion
|
$
|
—
|
$
|
—
|
The $1.6
million change in the Notes Payable balance reflects $1.1 million in scheduled
cash payments as well as a non-cash $0.5 million reduction resulting from the
January 15, 2010 settlement of the claim with the former Number Six Software
owners.
Bank
Financing
ATSC has
a credit facility with Bank of America (“the Credit Agreement”) which provides
for borrowing up to $50 million (the “Facility”).
The
Facility is a three-year, secured facility that permits continuously renewable
borrowings of up to $50.0 million, with an expiration date of June 4, 2010. The
Company pays a fee in the amount of 0.20% to 0.375% on the unused portion of the
Facility, based on its consolidated leverage ratio, as defined. Any
outstanding balances under the Facility are due in full June 4, 2010. Borrowings
under the Facility bear interest at rates based on 30 day LIBOR plus applicable
margins based on the leverage ratio as determined quarterly. As of March 31,
2010, the effective interest rate, excluding the effect of amortization of debt
financing costs, for the outstanding borrowings under the Facility was
2.49%.
The
Company has agreed to terms for an amendment to the existing credit facility
with Bank of America that will increase the Facility from $50 million to $55
million and extend the Facility for an additional three years from the effective
date of the amendment. Borrowings will bear interest at rates based on 30-day
LIBOR plus applicable margins based on the leverage ratio as determined
quarterly. The most pertinent changes to the existing Facility are
discussed below.
The
amended Facility will adjust the applicable margins charged on the outstanding
borrowings from a range of 2.0% to 3.5% to a range of 2.0% to 3.0% based on the
leverage ratio. The fee for the unused portion of the Facility will range from
.20% to .35% based on the leverage ratio compared to the existing Facility’s
unused fee of .20% to .375%. The covenants for the minimum fixed charge coverage
ratio will be adjusted slightly from 1.3:1 to 1.5:1 while the other financial
covenants will remain the same. The Facility will provide a basket for stock
repurchase not to exceed $3 million annually. Total consideration for
acquisitions in any twelve month period greater than $20 million will require
lender approval. There will be no upfront fee for the amendment.
The
Company expects the amended Facility to be in executed in early May
2010.
Once the
amendment is finalized, the Company will file the amendment as a material
contract with the SEC consistent with its prior Facility documentation, and this
description will be qualified in its entirety by reference to such final
amendment.
As
discussed in Note 4, the Company entered into a forward interest rate swap
agreement in November 2007 under which it exchanged floating-rate interest
payments for fixed-rate interest payments. The agreement covers debt totaling
$35.0 million and provides for swap payments through December 1, 2010 with such
swaps being settled on a monthly basis. The fixed interest rate provided by the
agreement is 4.47%. The Company accounts for the interest rate swap agreement as
a cash flow hedge with the change in the fair value of the effective portion of
the swap being recorded in other comprehensive income (loss) and any
ineffectiveness is recorded to earnings. It continues to be probable that the
Company will be exposed to LIBOR interest rate risk associated with future LIBOR
based or fixed rate debt which has embedded LIBOR based risk and the Company
maintains its hedge with a counterparty that has the financial strength to honor
the hedge obligation, Bank of America.
As of
March 31, 2010, the Facility’s outstanding debt balance was $18.0 million. The
Company expects the outstanding debt balance to decrease to $13.2 million by
December 31, 2010. At March 31, 2010, the Company was in compliance
with its covenant agreements.
11
NOTE 12 ¾
EMPLOYMENT
AGREEMENTS
On March
1, 2010, Mr. Sidney E. Fuchs, Chief Operating Officer, entered into a
three-year employment agreement (the “Agreement”) with the Company effective
April 5, 2010. The terms of the Agreement provide for (i) a base salary of
$375,000, (ii) an annual performance bonus of up to 75% of base salary at target
performance, (iii) a $50,000 signing bonus with $25,000 paid on April 5, 2010
and $25,000 paid six months from the start date, (iv) a grant of 60,000 shares
of restricted stock on April 5, 2010 with 10,000 shares vesting on April 5,
2011, 15,000 shares vesting on April 5, 2012, and 35,000 shares vesting on April
5, 2013, (v) a 40,000 stock option grant with an exercise price at the Company
closing stock price on April 5, 2010, vesting over four years, with 5,000
options vesting each on the first and second anniversary, 10,000 options vesting
on the third anniversary and 20,000 vesting on the fourth anniversary, and (vi)
health, life and disability insurance consistent with that of other Company
executives. The Agreement also provides for severance throughout the
Agreement’s term. During the first six months of employment, either
Mr. Fuchs or the Company may terminate the Agreement for any reason and in such
case Mr. Fuchs would be paid six months of his base
salary. Thereafter, the Agreement provides for a severance for
termination “without cause’ or for “good reason” and the severance payment would
be based on eighteen months of his base salary. In the event of a
“change in control” and Mr. Fuch’s employment is terminated “without cause” or
for “good reason”, the Agreement provides for a severance payment based on 18
months of base salary.
A copy of
the employment agreement between Mr. Fuchs and the Company is filed as Exhibit
10.1 hereto.
12
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING
STATEMENTS
Some of
the statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
such forward-looking statements. In some cases, you can identify these
statements by forward-looking words such as “anticipate,” “believe,” “could,”
“estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will,”
and “would” or similar words. You should read statements that contain these
words carefully because they discuss our future expectations, contain
projections of our future results of operations or of our financial position, or
state other forward-looking information. The factors described in our filings
with the SEC, as well as any cautionary language in this Quarterly Report on
Form 10-Q, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements, including but not limited to:
|
·
|
risks related to the government
contracting industry, including possible changes in government spending
priorities, especially during periods when the government faces
significant budget
challenges;
|
|
·
|
risks related to our business,
including our dependence on contracts with U.S. Federal Government
agencies and departments, continued good relations, and being successful
in competitive bidding, with those
customers;
|
|
·
|
uncertainties as to whether
revenues corresponding to our contract backlog will actually be
received;
|
|
·
|
risks related to the
implementation of our strategic plan, including the ability to identify,
finance and complete acquisitions and the integration and performance of
acquired businesses; and
|
|
·
|
other risks and uncertainties
disclosed in our filings with the
SEC.
|
The terms
“we” and “our” as used throughout this Quarterly Report on Form 10-Q refer
to ATS Corporation and Advanced Technology Systems, Inc., the wholly-owned
subsidiary of ATSC, unless otherwise indicated.
Overview
ATSI
provides software and systems development, systems integration, information
technology infrastructure and outsourcing, information sharing, and consulting
services primarily to U.S. government agencies. As part of its complete systems
life-cycle approach, ATSI offers its clients an integrated full-service
information technology infrastructure outsourcing solution that allows an agency
to focus on its core mission while reducing costs and maintaining system
uptime.
Our
diverse customer base consists primarily of U.S. government agencies. For the
quarter ended March 31, 2010, we generated approximately 49% of our revenue from
federal civilian agencies, 30% from defense and homeland security agencies, and
21% from commercial customers, including government-sponsored enterprises. Our
largest clients in the quarter ended March 31, 2010 were the U.S. Department of
Housing and Urban Development (“HUD”), Fannie Mae, the Pension Benefit
Guarantee Corporation, and the Undersecretary of Defense, representing
approximately 22%, 11%, 10% and 7%, respectively, of total
revenue.
13
We derive
substantially all of our revenue from providing professional and technical
services. We generate this revenue from contracts with various payment
arrangements, including time and materials contracts and fixed-price contracts.
We recognize revenue on time and materials contracts based on actual hours
delivered at the contracted billable hourly rate plus the cost of materials
incurred. We recognize revenue on fixed-price contracts using the
percentage-of-completion method based on costs we incurred in relation to total
estimated cost. However, if the contract is primarily for services being
provided over a specified period of time, for example, maintenance service
arrangements, we recognize revenue on a straight-line basis over the term of the
contract. The following table summarizes our historical contract mix, measured
as a percentage of total revenue, for the periods indicated:
|
Three Months
Ended
March 31, 2010
|
Three Months
Ended
March 31, 2009
|
||||||
Time-and-materials
|
67 | % | 69 | % | ||||
Fixed-price
|
33 | % | 31 | % | ||||
Totals
|
100 | % | 100 | % |
The
Company recognizes revenue when persuasive evidence of an arrangement exists,
services have been rendered or goods delivered, the contract price is fixed or
determinable, and collectability is reasonably assured. The Company’s revenue
historically is derived from primarily three different types of contractual
arrangements: time-and-materials contracts, fixed-price contracts and, to a
lesser extent, cost-plus-fee contracts. Revenue on time-and-material contracts
is recognized based on the actual hours performed at the contracted billable
rates for services provided, plus materials’ cost for products delivered to the
customer, and costs incurred on behalf of the customer. Revenue on fixed-price
contracts is recognized ratably over the period of performance or on
percentage-of-completion depending on the nature of services to be provided
under the contract. Revenue on cost-plus-fee contracts is recognized to the
extent of costs incurred, plus an estimate of the applicable fees earned. Fixed
fees under cost-plus-fee contracts are recorded as earned in proportion to the
allowable costs incurred in performance of the contract. For cost-plus-fee
contracts that include performance based fee incentives, the Company recognizes
the relevant portion of the expected fee to be awarded by the customer at the
time such fee can be reasonably estimated, based on factors such as the
Company’s prior award experience and communications with the customer regarding
performance. We did not have any cost-plus-fee contracts in 2009, but we may for
2010.
The
Company’s fixed price contracts are either maintenance and support services
based or require some level of customization. Revenue is recognized ratably over
the contract period for maintenance and support contracts. In accordance with
ASC 985-605-25, “Revenue Recognition - Software” (ASC 985-605-25)(formerly
American Institute of Certified Public Accountants Statement of Position 97-2,
Software Revenue
Recognition), for contracts that involve software design, customization,
or integration, management applies contract accounting pursuant to the
provisions of ASC 985-605-35, “Revenue Recognition – Construction and
Production-type Contracts” (ASC 985-605-35) (formerly SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts). Revenue for
such arrangements is recognized on the percentage-of-completion method using
costs incurred in relation to total estimated project costs.
The fees
under certain government contracts may be increased or decreased in accordance
with cost or performance incentive provisions that measure actual performance
against targets or other criteria. Such incentive fee awards or penalties are
included in revenue at the time the amounts can be reasonably determined.
Provisions for anticipated contract losses are recognized at the time they
become known.
For the
three months ended March 31, 2010, we derived approximately 83% of our revenue
from contracts for which we were the prime contractor and 17% of our revenue as
subcontractors to other prime contractors.
Our most
significant expense is direct cost, which consists primarily of project
personnel salaries and benefits, and direct expenses incurred to complete
projects. The number of consulting personnel assigned to a project will vary
according to the size, complexity, duration, and demands of the project. As of
March 31, 2010, we had 506 personnel who worked on our contracts.
General
and administrative expenses consist primarily of costs associated with our
executive management, finance and administrative groups, human resources, sales
and marketing personnel, and costs associated with marketing and bidding on
future projects, unassigned consulting personnel, personnel training, occupancy
costs, depreciation and amortization, travel and all other corporate
costs.
14
Intangible
Assets Including Goodwill
Goodwill
represents the excess of costs over fair value of net assets of businesses
acquired. Other purchased intangible assets include the fair value of items such
as customer contracts, backlog and customer relationships. ASC Topic 350,
Intangibles, Goodwill and Other (ASC 350) (formerly Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets (“SFAS
142”)), establishes financial accounting and reporting for acquired goodwill and
other intangible assets. Goodwill and intangible assets acquired in a purchase
business combination and determined to have an indefinite useful life are not
amortized, but rather tested for impairment on an annual basis or at an interim
date in the event of a triggering event. Purchased intangible assets with a
definite useful life are amortized on a straight-line basis over their estimated
useful lives.
The
Company performs an annual impairment test for goodwill. For purposes of this
testing, management concluded that there is only one reporting unit. The
Company’s testing approach utilizes a discounted cash flow analysis and market
based approaches to determine the fair value of the reporting unit for
comparison to the corresponding carrying value. If the carrying value exceeds
the estimated fair value of the business, an impairment would be required to be
reported.
The
Company evaluates goodwill for impairment annually in the third fiscal quarter
or more frequently depending on specific events or when evidence of potential
impairment exists. The annual impairment test is based on several
factors requiring judgment. Principally, a significant decrease in expected cash
flows or changes in general market conditions may indicate potential impairment
of recorded goodwill. . We also evaluate these assets for impairment when events
occur that suggest a possible impairment. Such events could include, but are not
limited to, the loss of a significant client or contract, decreases in federal
government appropriations or funding for specific programs or contracts, or
other similar events. Management has concluded that there were no triggering
events that would indicate an impairment during the quarter ended March 31,
2010. The Company will continue to monitor the recoverability of the carrying
value of its goodwill and other long-lived assets.
We define
backlog as the future revenue we expect to receive from our existing contracts
and other engagements. We generally include in backlog the estimated revenue
represented by contract options that have been priced, though not exercised. We
do not include any estimate of revenue relating to potential future delivery
orders that may be awarded under our General Services Administration Multiple
Award Schedule contracts, other Indefinite Delivery/Indefinite Quantity (“IDIQ”)
contracts, or other contract vehicles that are also held by a large number of
firms, an order under which potential further delivery orders or task orders may
be issued by any of a large number of different agencies and are likely to be
subject to a competitive bidding process.
The
following table summarizes our contract backlog at March 31, 2010 and December
31, 2009, respectively (in thousands):
March 31, 2010
|
December 31, 2009
|
|||||||
Backlog:
|
||||||||
Funded
|
$ | 59,700 | $ | 61,000 | ||||
Unfunded
|
141,500 | 105,800 | ||||||
Total
backlog
|
$ | 201,200 | $ | 166,800 |
Our
backlog includes orders under contracts that in some cases extend for several
years, with the latest expiring in 2017. The two most significant awards during
the three-month period ended March 31, 2010 were successful re-competitions with
a Department of Defense Agency of $27.5 million and the Nuclear Regulatory
Commission (“NRC”) of $21.4 million.
We cannot
guarantee that we will recognize any revenue from our backlog. The federal
government has the prerogative to cancel any contract or delivery order at any
time. Most of our contracts and delivery orders have cancellation terms that
would permit us to recover all or a portion of our incurred costs and potential
fees in such cases. Backlog varies considerably from time to time as current
contracts or delivery orders are executed and new contracts or delivery orders
under existing contacts are won. Our estimate of the portion of the backlog as
of March 31, 2010 from which we expect to recognize revenue during fiscal year
2010 is likely to change because the receipt and timing of any revenue is
subject to various contingencies, many of which are beyond our
control.
15
Non-GAAP
Financial Measures – EBITDA
In
evaluating our operating performance, management uses certain non-GAAP financial
measures to supplement the consolidated financial statements prepared under
generally accepted accounting principles in the United States (“U.S. GAAP”).
More specifically, we use the following non-U.S. GAAP financial measure:
Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”).
EBITDA is a non-U.S. GAAP measure defined as U.S. GAAP net income plus interest
expense, income taxes, depreciation and amortization, and impairment
charges. We have provided EBITDA because we believe it is comparable
to similar measures of financial performance in comparable companies and may be
of assistance to investors in evaluating companies on a consistent basis, as
well as enhancing an understanding of our operating results. EBITDA
is not a recognized term under U.S. GAAP and does not purport to be an
alternative to net income as a measure of operating performance or the cash
flows from operating activities as a measure of liquidity.
March 31, 2010
|
March 31, 2009
|
|||||||
Net
income (loss)
|
$ | 1,106,568 | $ | 425,589 | ||||
Adjustments:
|
||||||||
Depreciation
|
142,756 | 233,824 | ||||||
Amortization
of intangibles
|
498,081 | 550,303 | ||||||
Interest,
net
|
821,155 | 774,080 | ||||||
Taxes
|
624,590 | 484,466 | ||||||
EBITDA
|
$ | 3,193,150 | $ | 2,468,262 |
During the quarter ended March 31,
2010, we recorded other income of approximately $0.5 million associated with the
seller notes adjustment under ASC 805 Business Combinations (Formerly SFAS No.
141(R), Business
Combinations). Adjusting EBITDA for this one time benefit would result in
an adjusted EBITDA of $2,698,150.
Recent
Events
None.
16
Results
of Operations (unaudited)
Results
of operations for the three-month period ended March 31, 2010 compared with the
three-month period ended March 31, 2009 are presented below.
The
following table sets forth certain financial data as dollars and as a percentage
of revenue.
For the Three
|
For the Three
|
|||||||||||||||
Months Ended
|
Months Ended
|
|||||||||||||||
March 31,
|
March 31,
|
|||||||||||||||
2010
|
%
|
2009
|
%
|
|||||||||||||
Revenue
|
$ | 30,511,983 | $ | 27,156,514 | ||||||||||||
Operating
costs and expenses
|
||||||||||||||||
Direct
costs
|
21,415,612 | 70.2 | % | 18,195,737 | 67.0 | % | ||||||||||
Selling,
general and administrative expenses
|
6,403,221 | 21.0 | % | 6,492,515 | 23.9 | % | ||||||||||
Depreciation
and amortization
|
640,837 | 2.1 | % | 784,127 | 2.9 | % | ||||||||||
Total
operating costs and expenses
|
28,459,670 | 93.3 | % | 25,472,379 | 93.8 | % | ||||||||||
Operating
income
|
2,052,313 | 6.7 | % | 1,684,135 | 6.2 | % | ||||||||||
Other
(expense) income
|
||||||||||||||||
Interest
(expense) income, net
|
(821,155 | ) | (2.7 | )% | (774,080 | ) | (2.9 | )% | ||||||||
Other
income
|
500,000 | 1.6 | % | — | 0.0 | % | ||||||||||
Income
before income taxes
|
1,731,158 | 5.7 | % | 910,055 | 3.4 | % | ||||||||||
Income
tax expense
|
624,590 | 2.0 | % | 484,466 | 1.8 | % | ||||||||||
Net
Income
|
$ | 1,106,568 | 3.6 | % | $ | 425,589 | 1.6 | % | ||||||||
Weighted
average number of shares outstanding
|
||||||||||||||||
—basic
|
22,536,486 | 22,542,200 | ||||||||||||||
—diluted
|
22,742,880 | 22,542,200 | ||||||||||||||
Net
income (loss) per share
|
||||||||||||||||
—basic
|
$ | 0.05 | $ | 0.02 | ||||||||||||
—diluted
|
$ | 0.05 | $ | 0.02 |
Comparison
of the three months ended March 31, 2010 to the three months ended March 31,
2009.
Revenue –
Revenue increased by $3.4 million, or 12.4%, to $30.5 million for the three
months ended March 31, 2010. Revenue from commercial contracts increased by $2.1
million to $6.5 million, or 47.7%. This increase was primarily due to increased
tasking at Fannie Mae of $1.5 million, a 75.0% increase to $3.5 million for the
quarter ended March 31, 2010 compared to $2.0 million for the same quarter in
2009. In addition, product sales of IBM software through the
preferred partner program increased by $0.3 million to $0.4 million in the
quarter ended March 31, 2010 compared to $0.1 million for the same quarter in
2009. Revenue from civilian and defense customers increased by $1.3 million to
$24.0 million, or 5.3%. The most significant increase was with our HUD contracts
where revenues increased an aggregate of $1.4 million over the same quarter in
2009.
17
Direct costs
– Direct costs were 70.2% and 67.0% of revenue for the three-month
periods ended March 31, 2010 and 2009 respectively, an increase of 3.2%. Direct
costs are comprised of direct labor, fringe on this labor, subcontract labor
costs and material and other direct costs (“ODCs”). Material and ODCs are
incurred in response to specific client tasks and may vary from period to
period. The single largest component of direct costs, direct labor, was $10.6
million and $9.3 million for the three-month periods ended March 31, 2010 and
2009, respectively. Direct labor efforts with our Fannie Mae tasks
account for 77% of this increase as direct labor increased $1.0 million to $2.6
million.
Gross
margins were 29.8% and 33.0% for the three months ended March 31, 2010 and 2009,
respectively. This decrease was a result of increased subcontract
costs related to Fannie Mae, as well as additional direct labor resources
assigned to certain fixed price contracts as these efforts near
completion.
Selling, general
and administrative (“SG&A”) expenses – The components of SG&A are
marketing, bid and proposal costs, indirect labor and the associated fringe
benefits, facilities costs and other discretionary expenses. SG&A
expenses decreased $0.1 million to $6.4 million for the quarter ended March 31,
2010 compared to $6.5 million for the quarter ended March 31,
2009. The improvement in the SG&A expense is attributable to a
significant reduction in legal fees in the quarter of $0.5 million, lower
accounting and consultant fees of $0.1 million, and continued reductions in
facilities costs of $0.1 million, partially offset by higher bad debt expense of
$0.4 million.
Depreciation and
amortization – Depreciation and amortization expense decreased $0.1
million to $0.7 million from $0.8 primarily due to a reduction of amortization
as acquired intangible assets reach the end of their amortization
periods.
Interest, net
– The net interest expense was $0.8 million for the three-month periods
ended March 31, 2010 and March 31, 2009. Although we recorded significant
decreases to our long-term debt balance made possible by our positive operating
cash flows, we recorded a $0.3 million non-cash ineffectiveness interest expense
entry based on operating cash flow projections since no
extraordinary events causing increased leverage are anticipated in the
foreseeable future. Without the ineffectiveness charges, interest expense
would have been approximately $0.5 million, compared to $0.8 million for the
three-month period ended March 31, 2009. This $0.3 million decrease
was attributable to the improvement in the Company’s leverage ratio resulting in
tier 1 pricing of 2.23% during the quarter ended March 31, 2010 compared to
pricing of 4.0% during the quarter ended March 31, 2009 and also decreases in
the balance of the acquisition notes.
Other income
– Other income was $0.5 million for the three-month period ended March
31, 2010, due to the resolution of an acquisition related indemnification
claim.
Income
taxes – The
Company reported an income tax expense of $0.6 million and $0.5 million for the
three-month periods ended March 31, 2010 and 2009, respectively. The effective
tax rates were 36.1% and 39.5% for the three-month periods ended March 31, 2010
and 2009, respectively. The effective rates for the three-month periods ended
March 31, 2010 and March 31, 2009 were affected by variances in book-tax
differences.
Financial
Condition, Liquidity and Capital Resources
Financial Condition. Total
assets decreased to $90.5 million as of March 31, 2010 from $93.3 million as of
December 31, 2009. This decrease was primarily driven by a $2.0 million
decrease in our accounts receivable related to increased collection
efforts.
Our total
liabilities decreased $4.2 million to $39.4 million as of March 31, 2010 from
$43.5 million as of December 31, 2009. Significant changes within total
liabilities included a decrease to long-term debt of $2.2 million to $19.0
million from $21.2 million due to favorable cash collections, a decrease of $1.8
million in accrued expenses to $4.6 million at March 31, 2010 compared to $6.4
million at December 31, 2009 primarily due to the payment of $1.5 million into a
settlement escrow related to the Maximus litigation (see legal note), and a $0.6
million decrease in deferred revenue to $0.8 million, offset by an increase in
income taxes payable of $0.9 million.
18
Liquidity and Capital
Resources. Our primary liquidity needs are to finance the
costs of operations, acquire capital assets and to make selective strategic
acquisitions. We expect to meet our short-term requirements through funds
generated from operations and from our $50 million line of credit facility,
which we anticipate will be increased to $55 million in the near
future. The current facility expires on June 4,
2010. The Company has agreed to terms for an amendment to the
existing facility with Bank of America that will increase the facility’s limit
from $50 million to $55 million and extend the facility for an additional three
years from the effective date of the amendment, which the Company expects to be
in early May 2010. See Note 11 for a summary of the anticipated
renewal terms. As of March 31, 2010, we had an outstanding balance of $18.1
million on our credit facility. As noted above, there has been a significant
decrease in this debt due to positive cash flow from operations. The balance is
expected to continue to decrease for the remainder of 2010. The credit facility,
and the anticipated renewed credit facility, is considered adequate to meet our
operations liquidity and capital requirements.
Net cash
generated by operating activities was $2.0 million for the three months ended
March 31, 2010, compared to $5.2 million for the same period in 2009. Cash
generated by operating activities was primarily driven by ongoing operations,
specifically collecting receivables, which were utilized to pay down the balance
on our line of credit facility as discussed above, offset by the payment of the
lawsuit settlement of $1.5 million. Depreciation and amortization were also
lower due to the effect of assets reaching the end of their depreciable and
amortizable lives.
Net cash
used in investing activities was $4.1 thousand for the three months ended March
31, 2010, compared to $0.1 million used in the same period in 2009, primarily as
a result of reduced capital expenditures.
Net cash
used in financing activities was $2.1 million for the three months ended March
31, 2010, compared to cash used in financing activities of $5.5 million in the
same period in 2009. The cash was primarily used to pay down the credit facility
and the notes payable from acquisitions in 2007.
We expect
to retain future earnings, if any, for use in the operation and expansion of our
business and do not anticipate paying any cash dividends in the foreseeable
future.
ATSC has
a credit facility which is a three-year, secured facility that permits
continuously renewable borrowings of up to $50.0 million, with an expiration
date of June 4, 2010 (the “Agreement”). The interest rate is based on LIBOR
plus the applicable rate ranging from 200 to 350 basis points depending on the
Company’s consolidated leverage ratio. The Company pays a fee in the amount of
.20% to .375% on the unused portion of the facility, based on its consolidated
leverage ratio, as defined in the Agreement. Any outstanding balances under the
facility are due on the expiration date. The Agreement places certain
restrictions on the Company’s ability to make acquisitions. It also requires the
Company to reduce the principal amount on its loan outstanding by between 50% to
100% of the net cash proceeds from the sale or issuance of equity interests.
At March 31, 2010, the Company is in compliance with its covenant
agreements. The Company has agreed to terms for an amendment to the existing
facility with Bank of America that will increase the facility’s limit from $50
million to $55 million and extend the Facility for an additional three years
from the effective date of the amendment, which the Company expects to be in
early May 2010. See Note 11 for a summary of the anticipated renewal
terms.
Off-Balance
Sheet Arrangements
For the
three months ended March 31, 2010, we did not have any off-balance sheet
arrangements.
Contractual
Obligations
The
following table summarizes our contractual obligations as of March 31, 2010 that
require us to make future cash payments.
Less than
One Year
|
One to Three
Years
|
Three to Five
Years
|
More than
Five Years
|
Total
|
||||||||||||||||
(in thousands)
|
||||||||||||||||||||
Long-Term
Debt Obligations
|
$ | 18,995 | $ | — | $ | — | $ | — | $ | 18,995 | ||||||||||
Operating
Leases
|
2,001 | 3,482 | 3,645 | 6,148 | 15,276 | |||||||||||||||
Total
|
$ | 20,996 | $ | 3,482 | $ | 3,645 | $ | 6,148 | $ | 34,271 |
19
Standards
Issued But Not Yet Effective
Other new
pronouncements issued but not yet effective until after March 31, 2010 are not
expected to have a significant effect on the Company’s consolidated financial
position or results of operations.
We are
exposed to certain financial market risks, the most predominant being
fluctuations in interest rates for a portion of our borrowings under our credit
facility. As of March 31, 2010, we had an outstanding balance of $18.1 million
under our variable interest rate line of credit. In November 2007, we
hedged the interest rate risk on such debt by executing an interest rate swap as
discussed in Note 4 of the Interim Financial Statements.
As of
March 31, 2010, under the supervision and with the participation of our
management, including our Chief Executive Officer and our Chief Financial
Officer, we have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities
Exchange Act of 1934, as amended (Exchange Act). Based on this evaluation, our
Chief Executive Officer and our Chief Financial Officer have concluded that our
disclosure controls and procedures as defined by Rule 13a-15(e) of the Exchange
Act were effective as of March 31, 2010. However, in evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.
Disclosure
controls and procedures are designed with the objective of ensuring that
information required to be disclosed in our reports filed or submitted under the
Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms. Disclosure controls and procedures are also designed with
the objective of ensuring that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure.
Changes
in Internal Control Over Financial Reporting
During
the three months ended March 31, 2010, there were no changes in our internal
control over financial reporting that materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
See Part
I, Item 1A, “Risk Factors,” of the Company’s 2009 Form 10-K for a detailed
discussion of the risk factors affecting the Company.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On
February 17, 2009, the Company announced a repurchase program pursuant to which
the Company is authorized to purchase up to the lesser of (i) $3.0 million of
common stock or (ii) 2.0 million shares of common stock, in the open market from
time to time over a twelve-month period, subject to certain
limitations. ATSC repurchased approximately 152,000 shares of common
stock for approximately $455,000 during the three months ended March 31, 2010 as
part of the repurchase program. The Company currently has approximately 22.4
million shares outstanding.
Recent
Sales of Unregistered Securities
None.
20
Not
applicable.
Exhibit
Number
|
Description
|
|
10.1
|
Employment
Agreement Between the Company and Sidney E. Fuchs, Dated March 1,
2010
|
|
31.1
|
Certification
of Principal Executive Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as amended
|
|
31.2
|
Certification
of Principal Financial Officer pursuant to
Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as amended
|
|
32.1
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
32.2
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of
2002
|
21
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.
ATS
Corporation
|
||
By:
|
/s/ Edward H. Bersoff
|
|
Chairman
of the Board and
|
||
Chief
Executive Officer
|
||
By:
|
/s/ Pamela A. Little
|
|
Chief
Financial Officer
|
||
Date:
April 28, 2010
|
22