DigitalNet Reports Fourth Quarter and 2003 Fiscal Year Results.Business Editors 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)--Feb. 11, 2004 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 fiscal year ended December December: see month. 31, 2003 exceeding its previous guidance given in October October: see month. . In addition, the Company provided initial guidance for the first quarter 2004 and raised its previously issued guidance for the full year 2004. Reported Results -- Revenues for the fourth quarter 2003 were $89.9 million. -- Revenues for the fiscal year 2003 were $336.3 million. -- Net loss for the fourth quarter was ($11.6) million. -- Net loss for the fiscal year 2003 was ($10.8) 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 fourth quarter 2003 was $0.5 million. -- EBITDA(2) for the fiscal year 2003 was $31.9 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 fourth quarter 2003 was ($1.01). -- Basic and diluted loss per share for the fiscal year 2003 was ($2.32). ------- -- Revenues, as adjusted(1) for the fourth quarter 2003 were $78.5 million, an increase of 12.9% over our pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma 2002 fourth quarter revenues, as adjusted(1) of $69.5 million. -- Revenues, as adjusted(1) for the fiscal year 2003 were $291.5 million, an increase of 12.8% over our pro forma fiscal year 2002 revenues, as adjusted(1) of $258.4 million. -- EBITDA, as adjusted(3) for the fourth quarter 2003 was $11.4 million, or 14.5% of revenues, as adjusted(1), an increase of 12.8% over our pro forma 2002 fourth quarter EBITDA, as adjusted(3) of $10.1 million, or 14.5% of revenues, as adjusted(1). -- EBITDA, as adjusted(3) for the fiscal year 2003 was $43.5 million, or 14.9% of revenues, as adjusted(1), an increase of 17.4% over our pro forma fiscal year 2002 EBITDA, as adjusted(3) of $37.0 million, or 14.3% of revenues, as adjusted(1). -- Net income, as adjusted(4) for the fourth quarter 2003 was $4.6 million, an increase of 54.5% over our pro forma 2002 fourth quarter net income, as adjusted(4) of $3.0 million. -- Net income, as adjusted(4) for the fiscal year 2003 was $17.9 million, an increase of 84.2% over our pro forma fiscal year 2002 net income, as adjusted(4) of $9.7 million. -- 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 fourth quarter 2003 was $0.28. -- Diluted earnings per share, as adjusted(5)(6)for the fiscal year 2003 was $1.09. A reconciliation of (i) net income to EBITDA, (ii) revenues, 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, and (iii) EBITDA to EBITDA, as adjusted, is provided in the footnotes to the financial tables at the end of this release. 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 in 2004." Chief Financial Officer Jack Pearlstein added, "2003 was a banner Same as banner ad. 1. banner - The title page added to printouts by most print spoolers. Typically includes user or account ID information in very large character-graphics capitals. year for DigitalNet. We were successful in accelerating our organic growth rate, added significant backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. through new business wins and completed our 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. in October." New Business Wins The Company won a number of strategic contracts during the fourth quarter valued at up to $60 million. A description of several key awards follows: -- Metropolitan Washington Washington, town, England Washington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. Airport Authority (MWAA MWAA Metropolitan Washington Airports Authority MWAA Mall Walker's Association of America MWAA Men Working Against Abuse (Seattle, WA) MWAA Mid-West Appraisers Association (Kearney, NE) ) Information Systems Services Contract - 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 a full range of information technology support services support services Psychology Non-health care-related ancillary services–eg, transportation, financial aid, support groups, homemaker services, respite services, and other services including local area networks, communications, networks, applications and help desk support to approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 1,300 user accounts in three major locations: MWAA headquarters in Washington, D.C., Ronald Reagan Washington National Airport, and Washington Dulles Dul·les , Allen Welsh 1893-1969. American public official. Director of the CIA (1953-1961), he resigned after the failed invasion of the Bay of Pigs. Noun 1. International Airport. The contract is valued at up to $25.9 million over five years. -- Army Korea Korea (kôrē`ə, kə–), Korean Hanguk or Choson, region and historic country (85,049 sq mi/220,277 sq km), E Asia. Theater Network Operations and Security Center (TNOSC TNOSC Theater Network Operations and Security Center ) - As the prime contractor, DigitalNet will provide dedicated 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. networking and Information Technology (IT) services consisting of installing, operating, administering TO ADMINISTER, ADMINISTERING. The stat. 9 G. IV. c. 31, S. 11, enacts "that if any person unlawfully and maliciously shall administer, or attempt to administer to any person, or shall cause to be taken by any person any poison or other destructive things," &c. every such offender, &c. and maintaining various network management and security monitoring systems, operating systems Operating systems can be categorized by technology, ownership, licensing, working state, usage, and by many other characteristics. In practice, many of these groupings may overlap. and network applications systems installed in the TNOSC. In addition, DigitalNet will implement an Enterprise Management solution to support over 30,000 clients connecting to the Korea Wide Area Network. The contract is worth up to $9.4 million over three years. -- Eighth U.S. Army Information Assurance Contract (EUSA EUSA Electrical & Utilities Safety Association (Ontario, Canada) EUSA European Union Studies Association EUSA Edinburgh University Students' Association (Scotland) EUSA Eighth United States Army ) - As the prime contractor, DigitalNet will provide Systems Security and Information Assurance systems security engineering in support of the Eighth United States Army The Eighth United States Army—often abbreviated EUSA—(the acronym EUSA was deemed unauthorized by LTG Daniel Zanini in 2002; "Eighth US Army" is the authorized shortened version of the official name although "EUSA" is still widely used even within the command) is (EUSA) Assistant Chief of Staff of Information Management and the 1st Signal Brigade brigade Military unit commanded by a brigadier general or a colonel and composed of two or more subordinate units, such as regiments or battalions. Two or more brigades make up a division. Regional Chief Information Office (RCIO RCIO Regional Chief Information Officer ). DigitalNet will provide the support needed to manage C2 and C4IM C4IM Command, Control, Communications, Computers, and Information Management systems. The contract is worth up to $3.0 million over three years. -- FBI Architectural Engineering Architectural engineering A discipline that deals with the technological aspects of buildings, including the properties and behavior of building materials and components, foundation design, structural analysis and design, environmental system analysis and Unit Network Support and Engineering Services Contract - As the prime contractor, DigitalNet will provide network operations, server and storage area network support, and additional engineering support for network fine tuning Fine Tuning is the name of XM Satellite Radio's eclectic music channel. The program director for Fine Tuning is Ben Smith. The channel is described as "A musical oasis for the sophisticated listener culled from every imaginable genre and country. , enhancement and design to the FBI's Architectural Engineering Unit. The contract is valued at up to $2.2 million over its initial nine month term. The Company's backlog stood at approximately $888 million as of December 31, 2003, an increase of 19.3% from December 31, 2002. This increase is due to the Company's contract wins of approximately $450 million in 2003. Subsequent Events On February February: see month. 5, 2004, the Company announced that it entered into an agreement to acquire User Technology Associates, Inc. ("UTA uta see leishmaniasis. "), an Arlington Arlington, county, United States Arlington, county (1990 pop. 170,936), N Va., across the Potomac River from Washington, D.C. Arlington is a residential and commercial suburb of Washington. , VA based federal information technology services provider, for $50.0 million in cash. UTA provides DigitalNet significant additional presence and further penetration The successful unauthorized breach of a security perimeter. See penetration test. within 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 , the Department of Justice and 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. . Closing of the acquisition is subject to normal and customary closing conditions, the novation The substitution of a new contract for an old one. The new agreement extinguishes the rights and obligations that were in effect under the old agreement. A novation ordinarily arises when a new individual assumes an obligation to pay that was incurred by the original party of UTA's JPL-TSEP contract to an entity recently formed by the selling shareholder and obtaining necessary regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. approvals. The Company expects to complete the acquisition by the end of the first quarter of 2004. The Company issued an 8-K on February 6, 2004 with further detail on the acquisition. NASA NASA: see National Aeronautics and Space Administration. NASA in full National Aeronautics and Space Administration Independent U.S. CSOC CSOC Consolidated Space Operations Contract CSOC Configurable System on Chip (microelectronics) CSOC Consolidated Space Operations Center CSOC County Sheriffs of Colorado CSOC Comparative Sociology Continuation continuation - continuation passing style The Company has agreed to provide labor only on a time-and-materials basis to Lockheed Martin For the former company, see . Lockheed Martin (NYSE: LMT) is a leading multinational aerospace manufacturer and advanced technology company formed in 1995 by the merger of Lockheed Corporation with Martin Marietta. through March 31, 2004 in order to facilitate the transition of the NASA CSOC program to the follow-on fol·low-on adj. Following as a related or consequent aspect or development: "Such contracts involve follow-on sales of maintenance services" Christian Science Monitor. contractor. The Company expects to recognize revenues of approximately $2.5 million during the first quarter of 2004 from this agreement. This subcontract sub·con·tract n. A contract that assigns some of the obligations of a prior contract to another party. intr. & tr.v. sub·con·tract·ed, sub·con·tract·ing, sub·con·tracts agreement with Lockheed Martin will end on March 31, 2004. Consistent with our prior presentation of financial information, the Company plans to exclude the results from this contract from as adjusted financial results. Company Outlook The Company has provided below its initial guidance for the first quarter 2004 and its raised guidance for the full year 2004. The Company's guidance excludes the results from the pending UTA, Inc. acquisition and from any subsequent acquisitions. The Company will update its full year guidance upon the successful completion of the UTA, Inc. acquisition and any subsequent acquisition. The table below summarizes the guidance ranges for the first quarter 2004 and full year 2004.
(Dollars and shares in millions, except per share data)
Previous Current
Q1 2004 FY2004 FY2004
-------------- ---------------- ----------------
Revenues $78.0 - $78.5 $319.0 - $322.0 $322.5 - $327.5
Revenues, as
adjusted $75.5 - $76.0 $319.0 - $322.0 $320.0 - $325.0
Net income $3.1 - $3.3 $13.8 - $14.1 $14.0 - $14.3
Net income, as
adjusted $4.3 - $4.5 $19.0 - $19.4 $19.2 - $19.6
Diluted earnings
(loss) per share $0.19 - $0.20 $0.83 - $0.85 $0.84 - $0.86
Diluted earnings per
share, adjusted $0.26 - $0.27 $1.14 - $1.16 $1.15 - $1.18
Diluted weighted
average shares
outstanding 16.55 - 16.60
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. Wednesday Wednesday: see week. , February 11th, 2004 during which management will be making a brief presentation focusing on fourth quarter and full year 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) 901-5213 (U.S./Canada) and (617) 786-2962 (International) and entering the passcode 67669165. 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 March 3, 2004 by dialing (888) 286-8010 (U.S./Canada) and (617) 801-6888 (International) and entering the passcode 31783018. 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 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. 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, including UTA, Inc.; 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 February 11, 2004. 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 February 11, 2004.
DigitalNet Holdings, Inc.
Consolidated Balance Sheets
(Dollars in Thousands)
December 31, 2002 December 31, 2003
----------------- -----------------
Assets
Current assets:
Cash and cash equivalents $3,894 $23,635
Accounts receivable, net 64,023 66,197
Inventory, net 7,803 7,692
Prepaid expenses and other
current assets 3,589 9,162
----------------- -----------------
Total current assets 79,309 106,686
----------------- -----------------
Other assets 5,939 8,438
Property and equipment, net 13,222 12,008
Intangible assets, net 188,311 173,128
----------------- -----------------
Total assets $286,781 $300,260
================= =================
Liabilities, redeemable
convertible securities, and
stockholders' equity
Current liabilities:
Accounts payable $4,859 $7,621
Accrued expenses 49,941 35,029
Deferred revenues 3,441 5,630
Current portion of long-term
debt 48,549 -
----------------- -----------------
Total current liabilities 106,790 48,280
----------------- -----------------
Long-term debt 78,453 81,250
Other liabilities 5,051 11,277
Class A redeemable convertible
preferred stock 61,739 -
Class B redeemable convertible
preferred stock 33,698 -
Stockholders' equity 1,050 159,453
----------------- -----------------
Total liabilities, redeemable
convertible securities, and
stockholders' equity $286,781 $300,260
================= =================
DigitalNet Holdings, Inc.
Consolidated Statements of Operations
(Dollars in Thousands)
Three months ended December 31,
----------------------------------
2002 2002 2003
----------------------------------
DigitalNet Pro forma DigitalNet
Holdings (i) Holdings
(unaudited)
Revenues $33,903 $93,253 $89,867
Costs of revenues 26,951 74,433 71,752
----------------------------------
Gross profit 6,952 18,820 18,115
----------------------------------
Operating expenses:
Selling, general, and
administrative 4,003 8,937 19,324
Acquisition and related expenses 446 446 -
Amortization of intangibles 800 2,649 2,647
----------------------------------
Total operating expenses 5,249 12,032 21,971
----------------------------------
Income (loss) from operations 1,703 6,789 (3,856)
Other income (expense):
Interest income 16 298 97
Interest expense (1,517) (3,167) (8,526)
Other income (expense) - - 3
----------------------------------
Total other income (expense), net (1,501) (2,869) (8,426)
----------------------------------
Income (loss) before provision for
income taxes 202 3,920 (12,282)
(Provision) benefit for taxes (332) (1,459) 702
----------------------------------
Net income (loss) $(130) $2,461 $(11,580)
==================================
Dividends on preferred stock (11,752) (3,126)
----------- -----------
Net loss attributable to common
stockholders $(11,882) $(14,706)
=========== ===========
Net loss per common share:
Basic and diluted net loss
attributable to common
stockholders per share $(3.18) $(1.01)
=========== ===========
Basic and diluted weighted average
common shares outstanding 3,737,109 14,561,601
=========== ===========
Year ended December 31,
----------------------------------
2002 2002 2003
----------------------------------
DigitalNet Pro forma DigitalNet
Holdings (i) Holdings
(unaudited)
Revenues $33,903 $367,813 $336,261
Costs of revenues 26,951 288,018 266,786
----------------------------------
Gross profit 6,952 79,795 69,475
----------------------------------
Operating expenses:
Selling, general, and
administrative 5,483 35,324 45,188
Acquisition and related expenses 921 921 -
Amortization of intangibles 800 10,511 10,594
----------------------------------
Total operating expenses 7,204 46,756 55,782
----------------------------------
Income (loss) from operations (252) 33,039 13,693
Other income (expense):
Interest income 29 1,989 202
Interest expense (1,517) (15,126) (24,293)
Other income (expense) - (16) (37)
----------------------------------
Total other income (expense), net (1,488) (13,153) (24,128)
----------------------------------
Income (loss) before provision for
income taxes (1,740) 19,886 (10,435)
(Provision) benefit for taxes (332) (7,403) (328)
----------------------------------
Net income (loss) $(2,072) $12,483 $(10,763)
==================================
Dividends on preferred stock (11,752) (7,474)
----------- -----------
Net loss attributable to common
stockholders $(13,824) $(18,237)
=========== ===========
Net loss per common share:
Basic and diluted net loss
attributable to common
stockholders per share $(5.71) $(2.32)
=========== ===========
Basic and diluted weighted average
common shares outstanding 2,421,324 7,845,438
=========== ===========
(i) A reconciliation of the statement of operations on a U.S. GAAP
basis and on a pro forma basis is provided in the footnotes to the
financial tables at the end of this release.
DigitalNet Holdings, Inc.
Consolidated Statements of Cash Flows
(Dollars in Thousands)
Three months ended Year ended
December 31, December 31,
-------------------- -------------------
2002 2003 2002 2003
-------------------- -------------------
Cash flows from operating
activities:
Net income (loss) $(131) $(11,580) $(2,072) $(10,763)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation 850 1,733 856 7,672
Loss on sale of equipment - - - 45
Amortization of intangible
assets 800 2,647 800 10,594
Premium on redemption of 9%
senior notes - 3,938 - 3,938
Amortization of deferred
financing fees 294 1,868 294 8,060
Amortization of discount on
debt 51 - 51 898
Amortization of deferred
compensation 265 10,856 265 11,546
Deferred income taxes 332 (702) 332 328
Changes in assets and
liabilities:
Accounts receivable (1,447) (12,730) (1,447) (1,379)
Inventory (1,022) (163) (1,022) 112
Prepaid expenses and other
assets (709) 4,748 (688) (3,469)
Accounts payable and accrued
expenses (1,012) (1,376) (220) 1,412
Deferred revenues 97 (2,495) 97 3,214
Other liabilities 232 207 232 629
-------------------- -------------------
Net cash (used in) provided
by operating activities (1,400) (3,049) (2,522) 32,837
Cash flows from investing
activities:
Purchases of property and
equipment (207) (2,278) (207) (7,302)
Proceeds from sale of
equipment - 786 - 796
Net cash collected on behalf
of and paid to Getronics
Parent - (1,981) - -
Purchase of DigitalNet
Government Solutions, LLC (178,879) (159) (178,879) (11,937)
-------------------- -------------------
Net cash used in investing
activities (179,086) (3,632) (179,086) (18,443)
Cash flows from financing
activities:
Proceeds from (repayments)
under revolving credit
facility 3,900 - 3,900 (3,900)
Proceeds from (repayments) on
term loan facility 79,429 - 79,429 (80,000)
Proceeds from (repayments) on
subordinated bridge facility 43,622 - 43,622 (44,000)
Proceeds from issuance of 9%
senior notes due 2010 - - - 125,000
Redemption of 9% senior notes - (47,688) - (47,688)
Debt issuance costs (6,236) (928) (6,236) (6,248)
Proceeds from initial public
offering, net of offering
costs - 88,156 - 88,156
Proceeds from issuance of
warrants 379 - 379 -
Proceeds from issuance of
common stock, net of
offering costs 12,922 - 13,488 -
Proceeds from issuance of
preferred stock, net of
offering costs 50,185 - 50,185 -
Purchase of Class B preferred
stock - (27,000) - (27,000)
Payments on management notes
receivable 140 848 272 1,027
-------------------- -------------------
Net cash provided by
financing activities 184,341 13,388 185,039 5,347
Net increase in cash 3,855 6,707 3,431 19,741
Cash and cash equivalents,
beginning of period 39 16,928 463 3,894
-------------------- -------------------
Cash and cash equivalents,
end of period $3,894 $23,635 $3,894 $23,635
==================== ===================
(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 March 31, 2004, 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 Years ended
December 31, December 31,
--------------------- ---------------------
2002 2003 2002 2003
--------------------- ---------------------
Pro forma DigitalNet Pro forma DigitalNet
(i) Holdings (i) Holdings
Revenues, as reported $93,253 $89,867 $367,813 $336,261
Less:
INS/FOS contract 11,067 - 60,147 -
NASA CSOC contract 12,650 11,392 49,257 44,749
--------------------- ---------------------
Revenues, as adjusted $69,536 $78,475 $258,409 $291,512
--------------------- ---------------------
(2) EBITDA is defined as net income (loss), as reported, 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), as reported, to
EBITDA is as follows (dollars in thousands):
Three months ended Years ended
December 31, December 31,
--------------------- ---------------------
2002 2003 2002 2003
--------------------- ---------------------
Pro forma DigitalNet Pro forma DigitalNet
(i) Holdings (i) Holdings
Net income (loss), as
reported $2,461 $(11,580) $12,483 $(10,763)
Plus:
Interest, net 2,869 8,429 13,137 24,091
Income taxes 1,459 (702) 7,403 328
Depreciation 2,569 1,733 8,691 7,672
Amortization 2,649 2,647 10,511 10,594
--------------------- ---------------------
EBITDA $12,006 $527 $52,225 $31,922
--------------------- ---------------------
(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 and acquisition and
related expenses. 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 March 31,
2004, 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 on a pro forma basis
which includes our predecessor. In addition, we have excluded
acquisition and related expenses from EBITDA, as adjusted, because
management believes that such expenses were non-recurring as they
relate to transactions in the period prior to or concurrent with
the commencement of substantive operations upon the acquisition of
our predecessor. A reconciliation of EBITDA to EBITDA, as
adjusted, is as follows (dollars in thousands):
Three months ended Years ended
December 31, December 31,
--------------------- ---------------------
2002 2003 2002 2003
--------------------- ---------------------
Pro forma DigitalNet Pro forma DigitalNet
(i) Holdings (i) Holdings
EBITDA $12,006 $527 $52,225 $31,922
Less:
INS/FOS contract gross
margin (2,630) - (16,393) -
NASA CSOC contract gross
margin - - - -
Plus:
Stock-based compensation 265 10,856 265 11,546
Acquisition and related
expenses 446 - 921 -
--------------------- ---------------------
EBITDA, as adjusted $10,087 $11,383 $37,018 $43,468
--------------------- ---------------------
(4) Net income, as adjusted, represents net income (loss), as
reported, less gross profit, associated with our INS/FOS contract
and our NASA CSOC contract, plus stock-based compensation,
acquisition and related expenses, amortization of intangibles, and
interest related to debt retired with the proceeds of the IPO or
the sale of 9% senior notes. 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 March 31, 2004, 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 on a pro forma basis which includes our
predecessor. In addition, we have excluded acquisition and related
expenses from EBITDA, as adjusted, because management believes
that such expenses were non-recurring as they relate to
transactions in the period prior to or concurrent with the
commencement of substantive operations upon the acquisition of our
predecessor. We have also excluded interest expense, including the
write-off of deferred financing costs and debt discounts, related
to debt retired with the proceeds of the IPO or the sale of 9%
senior notes 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 Years ended
December 31, December 31,
--------------------- ---------------------
2002 2003 2002 2003
--------------------- ---------------------
Pro forma DigitalNet Pro forma DigitalNet
(i) Holdings (i) Holdings
Net income (loss), as
reported $2,461 $(11,580) $12,483 $(10,763)
Less:
INS/FOS contract gross
margin (2,630) - (16,393) -
NASA CSOC Contract gross
margin - - - -
Plus:
Stock-based compensation 265 10,856 265 11,546
Acquisition and related
expenses 446 - 921 -
Amortization 2,649 2,647 10,511 10,594
Interest on retired debt - 6,377 - 17,638
Net income tax effect at
an assumed rate of 39% (182) (3,653) 1,935 (11,105)
--------------------- ---------------------
Net income, as adjusted $3,008 $4,646 $9,722 $17,910
--------------------- ---------------------
(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 311,125 options to purchase common stock
that were granted in 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, is as follows:
Three months
ended Year ended
December December
31, 2003 31, 2003
----------- -----------
Historical basic and diluted
weighted average common shares
outstanding 14,561,601 7,845,438
Common stock issued in
IPO 937,500 4,536,986
Conversion of the Class A
Preferred Stock at IPO 620,728 3,003,984
Common stock vested
upon IPO 170,329 903,750
Treasury stock effect
of warrants 94,819 94,798
Treasury stock effect
of options 78,083 20,251
----------- -----------
Diluted weighted average common
shares outstanding, as adjusted 16,463,060 16,405,207
----------- -----------
(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 Year ended
December December
31, 2003 31, 2003
----------- -----------
Net income, as adjusted $4,646 $17,910
=========== ===========
Diluted weighted average common
shares outstanding, as adjusted 16,463,060 16,405,207
=========== ===========
Diluted earnings per
share, as adjusted $0.28 $1.09
=========== ===========
(i) A reconciliation of the statement of operations on a U.S. GAAP
basis and on a pro forma basis is provided in the footnotes to the
financial tables at the end of this release.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
On November 26, 2002, we acquired all of the membership interests of
DigitalNet Government Solutions, LLC (DGS, formerly Getronics
Government Solutions, L.L.C.). The DGS results of operations have been
included in our consolidated statement of operations for the year
ended December 31, 2002 from the date of acquisition. Our pro forma
results for the year ended December 31, 2002 presented below represent
our pro forma statement of operations giving effect to the acquisition
of our predecessor, Getronics Government Solutions, L.L.C. and the
related financing transactions as if such transactions had occurred on
January 1, 2002. Although this approach is not consistent with
generally accepted accounting principles, we believe it is the most
practical way to compare our 2003 results of operations to 2002.
Unaudited Pro Forma Consolidated Statement of Operations
(Dollars in Thousands)
DigitalNet
Government
Solutions, LLC
historical for
DigitalNet the period
historical from January Pro forma
for the 1, 2002 Acquisition and for the
year ended through related year ended
December November 25, financing December
31, 2002 2002 adjustments 31, 2002
-----------------------------------------------------
Revenues $33,903 $333,910 $- $367,813
Costs of revenues 26,951 262,389 (1,322)(A) 288,018
--------------------------------------- -----------
Gross profit 6,952 71,521 1,322 79,795
--------------------------------------- -----------
Operating
expenses:
Selling,
general, and
administrative 5,483 30,407 (566)(A) 35,324
Acquisition and
related
expenses 921 - - 921
Amortization of
intangibles 800 - 9,711 (B) 10,511
--------------------------------------- -----------
Total operating
expenses 7,204 30,407 9,145 46,756
--------------------------------------- -----------
Income (loss)
from operations (252) 41,114 (7,823) 33,039
Other income and
(expense):
Interest income 29 1,960 - 1,989
Interest
expense (1,517) - (13,609)(C) (15,126)
Other expense - (16) - (16)
--------------------------------------- -----------
Total other
income
(expense), net (1,488) 1,944 (13,609) (13,153)
--------------------------------------- -----------
Income (loss)
before provision
for income taxes (1,740) 43,058 (21,432) 19,886
(Provision)
benefit for
taxes (332) (16,245) 9,174 (D) (7,403)
--------------------------------------- -----------
Net (loss) income $(2,072) $26,813 $(12,258) $12,483
======================================= ===========
DigitalNet
Government
DigitalNet Solutions, LLC
historical historical for
for the the period Pro forma
three from October for three
months 1, 2002 Acquisition and months
ended through related ended
December November 25, financing December
31, 2002 2002 adjustments 31, 2002
-----------------------------------------------------
Revenues $33,903 $59,350 $- $93,253
Costs of revenues 26,951 47,705 (223)(A) 74,433
--------------------------------------- -----------
Gross profit 6,952 11,645 223 18,820
--------------------------------------- -----------
Operating
expenses:
Selling,
general, and
administrative 4,003 5,029 (95)(A) 8,937
Acquisition and
related
expenses 446 - - 446
Amortization of
intangibles 800 - 1,849 (B) 2,649
--------------------------------------- -----------
Total operating
expenses 5,249 5,029 1,754 12,032
--------------------------------------- -----------
Income from
operations 1,703 6,616 (1,531) 6,789
Other income and
(expense):
Interest income 16 282 0 298
Interest
expense (1,517) - (1,650)(C) (3,167)
Other expense - - - -
--------------------------------------- -----------
Total other
income
(expense), net (1,501) 282 (1,650) (2,869)
--------------------------------------- -----------
Income (loss)
before provision
for income taxes 202 6,898 (3,181) 3,920
(Provision)
benefit for
taxes (332) (2,603) 1,476 (D) (1,459)
--------------------------------------- -----------
Net (loss) income $(130) $4,295 $(1,705) $2,461
======================================= ===========
(A) Reflects the elimination of the pension and post-retirement
medical and life insurance expense recognized by DGS in its
historical financial statements. Immediately prior to the
acquisition, DGS transferred all liabilities and assets related to
these plans to its former parent, GetronicsWang Co.,LLC.
(B) Reflects amortization of identifiable intangible assets resulting
from the allocation of the DGS purchase price.
(C) Reflects additional interest expense on the indebtedness incurred
to finance the acquisition of DGS.
(D) Reflects the incremental (provision) benefit for state and federal
income taxes.
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