DigitalNet Reports 2003 Third Quarter Results.Business Editors/High-Tech Writers HERNDON Herndon, town (1990 pop. 16,139), Fairfax co., N Va., inc. 1874, rechartered 1938. A suburb of Washington, D.C., Herndon has a mix of light and high-tech industries. , Va.--(BUSINESS WIRE)--Oct. 30, 2003 DigitalNet Holdings, Inc. (Nasdaq:DNET DNET Distributed.net DNET Dish Network DNET Dysembryoplastic Neuroepithelial Tumor DNET Dysembryoplastic Neuroectodermal Tumor DNET Distributed Network DNET Digital Network ), a leading provider of managed network services, information security solutions, and application development and integration services and solutions to U.S. defense, intelligence and civilian CIVILIAN. A doctor, professor, or student of the civil law. federal government agencies, today announced its operating results for the three months and nine months ended September September: see month. 30, 2003. In addition, the Company provided initial guidance for the fourth quarter 2003, full year 2003, and full year 2004. Reported Results -- Revenues for the third quarter 2003 were $86.1 million. -- Revenues for the nine months ended September 30, 2003 were $246.4 million. -- EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) A metric used to show a company's profitability, but not its cash flow. EBITDA became popular in the 1980s to show the potential profitability of leveraged buyouts, but has become (2) for the third quarter 2003 was $11.3 million. -- EBITDA(2) for the nine months ended September 30, 2003 was $31.4 million. -- Net loss for the third quarter was ($0.6) million. -- Net income for the nine months ended September 30, 2003 was $0.8 million. -- Basic and diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. loss per share for the third quarter 2003 was ($0.38). -- Basic and diluted loss per share for the nine months ended September 30, 2003 was ($0.63) ------- -- Revenues, as adjusted(1) for the third quarter 2003 were $74.6 million, an increase of 19.3% over our predecessor's 2002 third quarter revenues, as adjusted(1) of $62.6 million. -- Revenues, as adjusted(1) for the nine months ended September 30, 2003 were $213.0 million, an increase of 12.8% over our predecessor's 2002 nine month revenues, as adjusted(1) of $188.9 million. -- EBITDA, as adjusted(3) for the third quarter 2003 was $11.5 million, or 15.5% of revenues, as adjusted(1), an increase of 34.7% over our predecessor's 2002 third quarter EBITDA, as adjusted(3) of $8.6 million, or 13.7% of revenues, as adjusted(1). -- EBITDA, as adjusted(3) for the nine months ended September 30, 2003 was $32.1 million, or 15.1% of revenues, as adjusted(1), an increase of 19.9% over our predecessor's 2002 nine month EBITDA, as adjusted(3) of $26.8 million, or 14.2% of revenues, as adjusted(1). -- Net income, as adjusted(4) for the third quarter 2003 was $4.6 million, an increase of 3.6% over our predecessor's 2002 third quarter net income, as adjusted(4) of $4.4 million. -- Net income, as adjusted(4) for the nine months ended September 30, 2003 was $13.3 million, an decrease of 6.1% over our predecessor's 2002 nine month net income, as adjusted(4) of $14.1. -- Diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of , as adjusted(5)(6) for the third quarter 2003 was $0.28. -- Diluted earnings per share, as adjusted(5)(6)for the nine months ended September 30, 2003 was $0.81. A reconciliation of revenues, EBITDA, net income and EPS (Encapsulated PostScript) A PostScript file format used to transfer a graphic image between applications and platforms. EPS files contain PostScript code as well as an optional preview image in TIFF, WMF, PICT or EPSI, the latter being an ASCII-only format. on a U.S. GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). basis and on an as adjusted basis are provided in the footnotes to the financial tables at the end of this release. Commenting on the Company's overall results, Ken Bajaj The word Bajaj can mean several things Names
v. so·lid·i·fied, so·lid·i·fy·ing, so·lid·i·fies v.tr. 1. To make solid, compact, or hard. 2. To make strong or united. v.intr. DigitalNet's position as a leading provider of mission-critical, managed network services and information security solutions to U.S. federal government agencies." Completion of IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. was a Big Milestone “Milemarker” redirects here. For the American indie rock band, see Milemarker (band). A milestone or kilometre sign is one of a series of numbered markers placed along a road at regular intervals, typically at the side of the road or in a median. On October October: see month. 10, 2003, DigitalNet began trading on the Nasdaq National Market under the ticker symbol Ticker Symbol An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors DNET after pricing its initial public offering (IPO) at $17.00 per share, above the initial filing range of $14.00 - $16.00 per share, including the full exercise of the underwriters' overallotment option overallotment option See greenshoe. on October 16, 2003. The Company raised approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $97.8 million in proceeds before underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. discounts and expenses. Proceeds from the offering are being used to repay a portion of the 9% senior notes due 2010 and redeem redeem v. to buy back, as when an owner who had mortgaged his/her real property pays off the debt. The term also refers to paying the amount due and all charges after a foreclosure (due to failure to make payments when due) has begun. the Class B Preferred Stock Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. held by GetronicsWang Co., LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control . The remaining proceeds of approximately $16.0 million went to the Company. "The IPO represents a landmark A structure that has significant historical, architectural, or cultural meaning and that has been given legal protection from alteration and destruction. Although landmark preservation laws vary by city and state, they have the same basic purpose: to keep landmarks as close day in DigitalNet's history and provides our Company with additional capital to fund growth and attract top industry and government talent," stated Ken Bajaj, DigitalNet's Chairman and CEO. Business Wins and Other Highlights The Company won a number of strategic contracts during the third quarter, including the Department of Justice's Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Office Network contract (JCON JCON Justice Consolidated Office Network JCON Java Console ), the Federal Bureau of Investigation's (FBI) Information Technology Specialist Support (ITS) effort contract, and the Department of Homeland Security Noun 1. Department of Homeland Security - the federal department that administers all matters relating to homeland security Homeland Security executive department - a federal department in the executive branch of the government of the United States (DHS DHS Department of Homeland Security (USA) DHS Department of Human Services DHS Department of Health Services DHS Demographic and Health Surveys DHS Dirhams (Morocco national currency) ), Bureau of Immigration immigration, entrance of a person (an alien) into a new country for the purpose of establishing permanent residence. Motives for immigration, like those for migration generally, are often economic, although religious or political factors may be very important. and Customs Enforcement (ICE), Biometrics The biological identification of a person. Examples are face, iris and retinal patterns, hand geometry and voice. Increasingly built into laptop computers, fingerprint readers have become popular as a secure method for identification. Support Center contract (BSC (Binary Synchronous Communications) See bisync. ). -- The U.S. Department of Justice (DOJ (Department Of Justice) The legal arm of the U.S. government that represents the public interest of the United States. It is headed by the Attorney General. ), Justice Management Division (JMD JMD In currencies, this is the abbreviation for the Jamaican Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. ) awarded DigitalNet one of three Blanket blanket, sheet, usually of heavy woolen, or partly woolen, cloth, for use as a shawl, bed covering, or horse covering. The blanketmaking of primitive people is one of the finest remaining examples of early domestic artwork. Purchase Agreements (BPA BPA British Paediatric Association. ) to support its Justice Consolidated Office Network (JCON) program, which have a potential annual value of up to $100 million per government fiscal year. A Justice Department re-competition is anticipated within the next 5 to 10 years. This award builds on DigitalNet's successful past five years of work with the DOJ, which includes JCON projects for the Executive Office of the United States Attorneys (EOUSA EOUSA Executive Office United States Attorney ), United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. Marshals Service (USMS USMS United States Masters Swimming USMS United States Marshals Service USMS US Merchant Systems USMS United States Maritime Service USMS Universal Short Message Service USMS Unstable Slope Management System USMS Umrao Singh Memorial School ), and Antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. Division, among others. -- The Federal Bureau of Investigation Federal Bureau of Investigation (FBI), division of the U.S. Dept. of Justice charged with investigating all violations of federal laws except those assigned to some other federal agency. (FBI), issued DigitalNet its Information Technology Specialist Support (ITS) effort. Issued under the GSA (1) (Global mobile Suppliers Association, Sawbridgeworth, U.K., www.gsacom.com) A membership organization of suppliers of GSM products and services. Its goal is to promote GSM as the worldwide mobile communications standard. See GSM Association and GSM. Schedule, GS-35F-0045K, the delivery order has a potential value of up to $22 million over three years, if all options under the delivery order are exercised. As the prime contractor contractor n. 1) a person or entity that enters into a contract. 2) commonly, a person or entity that agrees to construct a building or to provide or install specialized portions of the construction. , DigitalNet will provide mission critical day-to-day day-to-day adj. 1. Occurring on a routine or daily basis: the day-to-day movements of the stock market. 2. , on-site on-site adj. Done or located at the site, as of a particular activity: on-site monitoring of a production run; an on-site film shoot. ITS support to 44 FBI locations nationwide. -- The Department of Homeland Security (DHS), Bureau of Immigration and Customs Enforcement (ICE) awarded DigitalNet its Biometrics Support Center (BSC) prime contract. Under the terms of the contract, DigitalNet will support the five primary functions of the BSC. The BSC provides immediate response required by field agents in conducting comparisons of suspect and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. subject fingerprints Impressions or reproductions of the distinctive pattern of lines and grooves on the skin of human fingertips. Fingerprints are reproduced by pressing a person's fingertips into ink and then onto a piece of paper. . This award builds on DigitalNet's current support of ICE's Western Identification Network/Automated Fingerprint fingerprint, an impression of the underside of the end of a finger or thumb, used for identification because the arrangement of ridges in any fingerprint is thought to be unique and permanent with each person (no two persons having the same prints have ever been Identification System (WIN/AFIS) Center in San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. , CA. ICE is one of three components of the Border and Transportation Security Directorate under the DHS. The Company also announced the appointment of former Office of Management and Budget The Office of Management and Budget (OMB), formerly the Bureau of the Budget, is an agency of the federal government that evaluates, formulates, and coordinates management procedures and program objectives within and among departments and agencies of the Executive Branch. (OMB OMB abbr. Office of Management and Budget Noun 1. OMB - the executive agency that advises the President on the federal budget Office of Management and Budget ) Chief Technology Officer Norman Norman, city (1990 pop. 80,071), seat of Cleveland co., central Okla.; inc. 1891. It is the center of a livestock region. Oil wells, food processing, and printing and publishing contribute to the economy, and there is diverse manufacturing (machinery, communication E. Lorentz as senior vice president responsible for the growth and operations of business with the DHS and other federal government departments. Lorentz brings over 30 years of experience within the private industry and government, and while at the OMB, Lorentz spearheaded The White House's mission to overhaul the federal government's information technology infrastructure and processes. In driving this initiative, he directed the development of the Federal Enterprise Architecture The Federal Enterprise Architecture (FEA) is an initiative of the US Office of Management and Budget that aims to comply with the Clinger-Cohen Act and provide a common methodology for information technology (IT) acquisition in the United States federal government. , the first ever business process depiction for the federal government. DigitalNet also released the latest version of its XTS XTS Executable Test Suite XTS Extended Team Support XTS Transmit Test System XTS Excellent True Sound solution suite - XTS-400 -- which enables organizations to securely share data at different classification levels depending on a user's clearance CLEARANCE, com. law. The name of a certificate given by the collector of a port, in which is stated the master or commander (naming him) of a ship or vessel named and described, bound for a port, named, and having on board goods described, has entered and cleared his ship or vessel authorizations all from one computer. The XTS' secure platform is interoperable The ability for one system to communicate or work with another. See interoperability. across multi-jurisdictional domains and allows collaboration Working together on a project. See collaborative software. among different networks while providing high-level assurance to control information exchange in both wired and wireless environments. The XTS solution suite, already proven and widely utilized in over 600 installations in the U.S. Department of Defense and intelligence communities, is ideally suited for enabling high assurance control of information exchange among homeland security Noun 1. Homeland Security - the federal department that administers all matters relating to homeland security Department of Homeland Security executive department - a federal department in the executive branch of the government of the United States , law enforcement, first responders first responder First response personnel Emergency medicine A person employed in the public sector–EMT, fire fighter, police, volunteer EMS–whose duties include provision of immediate medical care in the event of an emergency; FRs have basic emergency , coalition partners and the diplomatic community. The XTS has been evaluated by the National Security Agency (NSA NSA abbr. National Security Agency Noun 1. NSA - the United States cryptologic organization that coordinates and directs highly specialized activities to protect United States information systems and to produce foreign ) and received a B3 rating (EAL EAL English as an Additional Language EAL Evaluation Assurance Level EAL Eastern Airlines EAL Emergency Action Level EAL Environmental Analysis Laboratory EAL Evidence Analysis Library (American Dietetic Association) 5+ equivalent) in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with NSA's Trusted Computer System Evaluation Criteria Trusted Computer System Evaluation Criteria (TCSEC) is a United States Government Department of Defense (DoD) standard that sets basic requirements for assessing the effectiveness of computer security controls built into a computer system. (TCSEC See NCSC. ), which is the highest rating within the TCSEC category and second highest federal security level. Company Outlook The Company has provided below, its initial guidance for the fourth quarter 2003, full year 2003 and full year 2004. The Company's guidance excludes results from any potential acquisitions. The company will update its full year guidance upon the successful completion of any acquisition. The table below summarizes the guidance ranges for the fourth quarter 2003, full year 2003, and full year 2004, all of which include the impact of the underwriter's over-allotment exercise of 750,000 shares on October 16, 2003.
(Dollars in millions, except per share data)
Q4 2003 FY2003 FY2004
Revenues $86 - $87 $334 - $336 $319 - $322
Revenues, as adjusted $75 - $76 $288 - $289 $319 - $322
Net income (loss) ($12.5) - ($12.6) ($11.7) - ($11.8) $13.8 - $14.1
Net income, as
adjusted $4.2 - $4.3 $17.5 - $17.6 $19.0 - $19.4
Diluted earnings
(loss) per share ($0.86) - ($0.87) ($1.50) - ($1.51) $0.83 - $0.85
Diluted earnings per
share, as adjusted $0.25 - $0.26 $1.06 - $1.07 $1.14 - $1.16
Due to the forward looking nature of the projections of revenue, net income and diluted earnings on an as adjusted basis, information to reconcile such non-GAAP financial measures to the GAAP measures is not available without unreasonable effort. Management does not believe such information is material. Conference Call Information The Company has scheduled a conference call for 10 AM E.T. Thursday Thursday: see week. , October 30th, during which management will be making a brief presentation focusing on third quarter results, operating trends and its expectations. A question-and-answer session will follow to allow further discussion of the results and the company's future expectations. Interested parties may listen to the conference call by dialing (800) 309-8566 (U.S./Canada) and (706) 634-1996 (International) and referencing the DigitalNet conference call. The call will be webcast simultaneously si·mul·ta·ne·ous adj. 1. Happening, existing, or done at the same time. See Synonyms at contemporary. 2. Mathematics through a link on the DigitalNet website (www.digitalnet.com). A replay of the conference call will be available approximately two hours after the conclusion of the conference call through November November: see month. 13, 2003 by dialing (800) 642-1687 (U.S./Canada) and (706) 645-9291 (International) and entering the conference ID 3554089. About DigitalNet DigitalNet builds, integrates and manages enterprise network computing Storing and/or running applications in servers in a network. See cloud computing and network computer. solutions that provide government organizations with sustainable strategic business advantages. With more than 30 years of experience, the company provides Managed Network Services, Information Security Solutions and Application Development Services and Solutions for the U.S. Department of Defense, U.S. Government civilian agencies and the intelligence community. We are focused on adding value to our clients by increasing network reliability, reducing overall network costs, and rapidly migrating mission critical network computing environments to new technologies. www.digitalnet.com. The statements contained in this release which are not historical facts are forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. , within the meaning of The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These forward-looking statements are based on current expectations, forecasts and assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in, or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by, the forward-looking statements. The Company has attempted, whenever possible, to identify these forward-looking statements using words such as "may," "will," "should," "projects," "estimates," "expects," "plans," "intends," "anticipates," "believes," and variations of these words and similar expressions. Similarly, statements herein that describe the Company's business strategy, prospects, opportunities, outlook, objectives, plans, intentions or goals are also forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: funding decisions of U.S. Government projects; government contract procurement The fancy word for "purchasing." The procurement department within an organization manages all the major purchases. , option exercise and termination The point where a line, channel or circuit ends. See SCSI termination and hybrid. risks; competitive factors such as pricing pressures and/or competition to hire and retain qualified employees; the Company's ability to identify, execute To run a program, which causes the computer to carry out its instructions. See executable code, instruction and EXE file. execute - execution or effectively integrate future acquisitions; the Company's ability to successfully raise additional capital; changes to the tax laws relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc the treatment and deductibility of goodwill or any change in tax rates; additional costs related to compliance with the Sarbanes-Oxley Act See SOX. of 2002, any revised NASDAQ listing standards, SEC rule changes or other corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. issues; material changes in laws or regulations applicable to the Company's business and other risk factors described in the Company's final IPO prospectus A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. filed with the SEC on October 10, 2003 and available directly from the Commission at www.sec.gov See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. . In addition, the statements in this press release are made as of October 30, 2003. We expect that subsequent events or developments will cause our views to change. The Company undertakes no obligation to update any of the forward-looking statements made herein, whether as a result of new information, future events, changes in expectations or otherwise. These forward-looking statements should not be relied upon as representing our views as of any date subsequent to October 30, 2003.
DigitalNet Holdings, Inc.
Consolidated Statements of Operations (Unaudited)
(Dollars in Thousands)
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
2002 2003 2002 2003
--------------------- ---------------------
DigitalNet DigitalNet
Predecessor Holdings Predecessor Holdings
Revenues $91,941 $86,082 $274,560 $246,394
Costs of revenues 71,799 68,214 214,685 195,034
--------------------- ---------------------
Gross profit 20,142 17,868 59,875 51,360
--------------------- ---------------------
Operating expenses:
Selling, general, and
administrative 8,338 8,493 25,377 25,864
Amortization of
intangibles - 2,649 - 7,947
--------------------- ---------------------
Total operating expenses 8,338 11,142 25,377 33,811
--------------------- ---------------------
Income from operations 11,804 6,726 34,498 17,549
Other income and (expense):
Interest income 522 25 1,678 105
Interest expense - (7,626) - (15,767)
Other expense (24) (7) (16) (40)
--------------------- ---------------------
Total other income
(expense), net 498 (7,608) 1,662 (15,702)
--------------------- ---------------------
Income (loss) before
provision for income taxes 12,302 (882) 36,160 1,847
(Provision) benefit for
taxes (4,641) 244 (13,643) (1,030)
--------------------- ---------------------
Net loss $7,661 $(638) $22,517 $817
===================== =====================
Dividends on preferred
stock (1,487) (4,348)
---------- ----------
Net loss attributable to
common stockholders $(2,125) $(3,531)
========== ==========
Net loss per common share:
Basic and diluted net loss
attributable to common
stockholders per share $(0.38) $(0.63)
========== ==========
Basic and diluted weighted
average common shares
outstanding 5,661,372 5,582,116
========== ==========
DigitalNet Holdings, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
December 31, September 30,
2002 2003
------------- -------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $3,894 $16,928
Accounts receivable, net 64,023 53,354
Inventory, net 7,803 12,439
Prepaid expenses and other current assets 3,589 5,501
------------- -------------
Total current assets 79,309 88,222
------------- -------------
Other assets 5,939 6,099
Property and equipment, net 13,222 12,252
Intangible assets, net 188,311 179,023
------------- -------------
Total assets $286,781 $285,596
============= =============
Liabilities, redeemable convertible
securities, and stockholders' equity
Current liabilities:
Accounts payable $4,859 $9,444
Accrued expenses 49,941 38,096
Deferred revenues 3,441 8,125
Current portion of long-term debt 48,549 -
------------- -------------
Total current liabilities 106,790 55,665
------------- -------------
Long-term debt 78,453 125,000
Other liabilities 5,051 6,758
Class A redeemable convertible preferred
stock 61,739 64,552
Class B redeemable convertible preferred
stock 33,698 35,233
Stockholders' (deficit) equity 1,050 (1,612)
------------- -------------
Total liabilities, redeemable convertible
securities, and stockholders' equity $286,781 $285,596
============= =============
DigitalNet Holdings, Inc.
Consolidated Statements of Cash Flows (unaudited)
(Dollars in Thousands)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2003 2002 2003
---------------------- ----------------------
Predecessor DigitalNet Predecessor DigitalNet
Holdings Holdings
Cash flows from
operating activities:
Net income (loss) $7,661 $(638) $22,517 $817
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation 2,060 1,975 6,045 5,939
Loss of sale of
equipment 31 4 25 45
Amortization of
intangible assets - 2,649 - 7,947
Amortization of deferred
financing fees - 4,171 - 6,192
Amortization of deferred
compensation - 205 - 690
Amortization of discount
on debt - 538 - 898
Deferred income taxes (131) (244) (131) 1,030
Current tax provision
payable to parent 4,641 - 13,643 -
Intercompany interest
income (505) - (1,496) -
Changes in assets and
liabilities:
Accounts receivable (9,604) 6,164 (11,205) 11,351
Inventory 1,214 1,407 (1,281) (4,636)
Prepaid expenses and
other assets (438) (247) (372) (3,307)
Accounts payable and
accrued expenses (2,214) 7,692 (5,486) 2,789
Deferred revenues (157) (2,200) (5) 5,709
Other liabilities - 96 - 422
---------------------- ----------------------
Net cash provided by
operating activities 2,558 21,572 22,254 35,886
Cash flows from
investing activities:
Purchases of property
and equipment (6,431) (1,470) (12,089) (5,024)
Proceeds from sale of
equipment 159 - 167 10
Net cash collected on
behalf of and (paid) or
due to Getronics Parent - (2,819) - 1,981
Purchase of DigitalNet
Government Solutions,
LLC - (719) - (11,778)
---------------------- ----------------------
Net cash used in
investing activities (6,272) (5,008) (11,922) (14,811)
Cash flows from
financing activities:
Proceeds from issuance
of 9% senior notes due
2010 - 125,000 - 125,000
Debt issuance costs - (5,320) - (5,320)
Repayments under
revolving credit
facility - - - (3,900)
Payments on term loan
facility - (78,750) - (80,000)
Payments on subordinated
bridge facility - (44,000) - (44,000)
Payments on management
notes receivable - 60 - 179
Advances from (to)
parent, net 2,871 - (16,367) -
---------------------- ----------------------
Net cash provided by
(used in) financing
activities 2,871 (3,010) (16,367) (8,041)
Net increase (decrease)
in cash (843) 13,554 (6,035) 13,034
Cash and cash
equivalents, beginning
of period 843 3,374 6,035 3,894
---------------------- ----------------------
Cash and cash
equivalents, end of
period $- $16,928 $- $16,928
====================== ======================
(1) Revenues, as adjusted, represent revenues, as reported, less
revenues derived from our INS/FOS contract and our NASA CSOC
contract. Because our performance under the INS/FOS contract ended
November 30, 2002 and our performance under the NASA CSOC contract
will end on December 31, 2003, management believes that revenues,
as adjusted, presents investors with a meaningful depiction of our
ongoing business. A reconciliation of revenues, as reported, to
revenues, as adjusted, is as follows (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2003 2002 2003
---------------------- ----------------------
Predecessor DigitalNet Predecessor DigitalNet
Holdings Holdings
Revenues, as reported $91,941 $86,082 $274,560 $246,394
Less:
INS/FOS contract 17,476 - 49,080 -
NASA CSOC contract 11,892 11,444 36,607 33,357
---------------------- ----------------------
Revenues, as adjusted $62,573 $74,638 $188,873 $213,037
---------------------- ----------------------
(2) EBITDA is defined as net income (loss) plus interest, income
taxes, depreciation and amortization. Our method of computation
may or may not be comparable to other similarly titled measures
used by other companies. EBITDA is presented because we believe
EBITDA is a meaningful indicator that can be used by investors to
analyze and compare our operating performance to the operating
performance of other companies. However, EBITDA should not be
construed as an alternative to net income (loss) as determined in
accordance with accounting principles generally accepted in the
United States as an indicator of operating performance or as an
alternative to cash flows as a measure of liquidity. A
reconciliation of net income (loss) to EBITDA is as follows
(dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2003 2002 2003
---------------------- ----------------------
Predecessor DigitalNet Predecessor DigitalNet
Holdings Holdings
Net income (loss), as
reported $7,661 $(638) $22,517 $817
Plus:
Interest, net (522) 7,601 (1,678) 15,662
Income taxes 4,641 (244) 13,643 1,030
Depreciation 2,060 1,975 6,045 5,939
Amortization - 2,649 - 7,947
---------------------- ----------------------
EBITDA $13,840 $11,343 $40,527 $31,395
---------------------- ----------------------
(3) EBITDA, as adjusted, represents EBITDA as set forth above, less
gross profit associated with our INS/FOS contract and our NASA
CSOC contract, plus stock-based compensation. Our method of
computation may or may not be comparable to other similarly titled
measures used by other companies. EBITDA, as adjusted, should not
be construed as either an alternative to net income, as determined
in accordance with accounting principles generally accepted in the
United States as an indicator of operating performance or as an
alternative to cash flows as a measure of liquidity. Gross profit
associated with our INS/FOS contract and our NASA CSOC contract
represents the amount by which revenues associated with these
contracts exceeds the costs of revenues associated with these
contracts. Because our performance under the INS/FOS contract
ended November 30, 2002 and our performance under the NASA CSOC
contract will end on December 31, 2003, management believes that
EBITDA, as adjusted, presents investors with a meaningful
depiction of our ongoing business. We have also excluded
stock-based compensation from EBITDA, as adjusted, because our
predecessor did not incur similar expenses due to the nature of
its ownership and management believes that such presentation
provides greater comparability for our results of operations to
the prior periods presented for our predecessor. A reconciliation
of EBITDA to EBITDA, as adjusted, is as follows (dollars in
thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2003 2002 2003
---------------------- ----------------------
Predecessor DigitalNet Predecessor DigitalNet
Holdings Holdings
EBITDA $13,840 $11,343 $40,527 $31,395
Less:
INS/FOS contract gross
margin (5,267) - (13,763) -
NASA CSOC contract gross
margin - - - -
Plus:
Stock-based compensation - 205 - 690
---------------------- ----------------------
EBITDA, as adjusted $8,573 $11,548 $26,764 $32,085
---------------------- ----------------------
(4) Net income, as adjusted, represents net income (loss), as set
forth above, less gross profit, associated with our INS/FOS
contract and our NASA CSOC contract, plus stock-based
compensation, amortization of intangibles, and interest related to
debt retired or to be retired with the proceeds of the IPO or the
sale of 9% senior notes due 2010 completed in July 2003. Our
method of computation may or may not be comparable to other
similarly titled measures used by other companies. Net income, as
adjusted, should not be construed as an alternative to net income,
as determined in accordance with accounting principles generally
accepted in the United States. Gross profit, associated with our
INS/FOS contract and our NASA CSOC contract represents the amount
by which revenues associated with these contracts exceeds the
costs of revenues associated with these contracts. Because our
performance under the INS/FOS contract ended November 30, 2002 and
our performance under the NASA CSOC contract will end on December
31, 2003, management believes that net income, as adjusted,
presents investors with a meaningful depiction of our ongoing
business. We have also excluded stock-based compensation and
amortization of intangibles from net income, as adjusted, because
our predecessor did not incur similar expenses and management
believes that such presentation provides greater comparability for
our results of operations to the prior periods presented by our
predecessor. We have also excluded interest expense, including the
write-off of deferred financing costs and debt discounts, related
to debt retired or to be retired with the proceeds of the IPO or
the sale of 9% senior notes due 2010 because such elimination
reflects the effect of the Company's current capital structure
after consummation of the 2003 refinancing transactions. A
reconciliation of net income to net income, as adjusted, is as
follows (dollars in thousands):
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2002 2003 2002 2003
---------------------- ----------------------
Predecessor DigitalNet Predecessor DigitalNet
Holdings Holdings
Net income (loss), as
reported $7,661 $(638) $22,517 $817
Less:
INS/FOS contract gross
margin (5,267) - (13,763) -
NASA CSOC Contract gross
margin - - - -
Plus:
Stock-based compensation - 205 - 690
Amortization - 2,649 - 7,947
Interest on retired debt - 5,581 - 11,261
Net income tax effect at
an assumed rate of 39% 2,054 (3,191) 5,368 (7,452)
---------------------- ----------------------
Net income, as adjusted $4,448 $4,606 $14,122 $13,263
---------------------- ----------------------
(5) The diluted weighted average common shares outstanding, as
adjusted, reflects the following: a) shares of common stock issued
in connection with the IPO, as if the offering was consummated on
January 1, 2003, b) shares of common stock issued in connection
with the conversion of the Class A Preferred Stock, including
accrued dividends, upon the consummation of the IPO, as if the
shares were issued on January 1, 2003, c) shares of carried stock,
reserved stock, and restricted stock that vested upon the IPO with
assumed vesting on January 1, 2003, d) the treasury stock effect
of warrants to purchase 94,868 shares of common stock, and e) the
treasury stock effect of 199,025 options to purchase common stock
that were granted on August 29, 2003. We have presented diluted
weighted average common shares outstanding, as adjusted, to show
the effect on earnings per share of the Company's current capital
structure after consummation of the refinancing transactions
related to the IPO and the sale of 9% senior notes due 2010. A
reconciliation of the historical basic and diluted weighted
average common shares outstanding to the diluted weighted average
common shares outstanding, as adjusted, for the three and nine
months ended September 30, 2003 is as follows:
Three months ended Nine months ended
September 30, 2003 September 30, 2003
------------------- ------------------
Historical basic and diluted
weighted average common shares
outstanding 5,661,372 5,582,116
Common stock issued in IPO 5,750,000 5,750,000
Conversion of the Class A
Preferred Stock at IPO 3,807,132 3,807,132
Common stock vested upon IPO 1,071,654 1,150,910
Treasury stock effect of
warrants 94,801 94,793
Treasury stock effect of
options 2,264 766
------------------- ------------------
Diluted weighted average common
shares outstanding, as
adjusted 16,387,223 16,385,717
------------------- ------------------
(6) The diluted earnings per share, as adjusted, is computed by
dividing net income, as adjusted, by the diluted weighted average
common shares outstanding, as adjusted, during the period. The
following details the computation of the diluted earnings per
share, as adjusted, (dollars in thousands, except per share data):
Three months ended Nine months ended
September 30, 2003 September 30, 2003
------------------- ------------------
Net income,as adjusted $4,606 $13,263
=================== ==================
Diluted weighted average common
shares outstanding, as
adjusted 16,387,223 16,385,717
=================== ==================
Diluted earnings per share, as
adjusted $0.28 $0.81
=================== ==================
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