UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| X | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2002
or
| Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 001-31342
VERIDIAN CORPORATION
| Delaware (State or other jurisdiction of incorporation or organization) |
54-1387657 (I.R.S. Employer Identification No.) |
| 1200 South Hayes Street, Suite 1200, Arlington, Virginia (Address of principal executive offices) |
22202 (Zip Code) |
(703) 575-3100
(Registrant’s telephone number, including area code)
Not Applicable
(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. x Yes oNo
As of the close of business on November 11, 2002, there were 33,000,856 outstanding shares of the registrant’s common stock, par value $.0001 per share.
TABLE OF CONTENTS
| PAGE | ||||
PART I – FINANCIAL INFORMATION |
||||
Item 1. Financial Statements |
3 | |||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
30 | |||
Item 4. Controls and Procedures |
31 | |||
PART II – OTHER INFORMATION |
||||
Item 2. Changes in Securities and Use of Proceeds |
32 | |||
Item 6. Exhibits and Reports on Form 8-K |
32 | |||
2
Part I – Financial Information
Item 1. Financial Statements
VERIDIAN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30 | September 30 | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
Revenues |
$ | 191,795 | $ | 172,419 | $ | 561,003 | $ | 508,621 | ||||||||||
Costs and expenses: |
||||||||||||||||||
Direct costs |
126,647 | 110,031 | 371,074 | 328,657 | ||||||||||||||
Indirect costs, selling, general and administrative expenses |
47,910 | 48,044 | 141,381 | 138,051 | ||||||||||||||
Depreciation expense |
2,871 | 2,549 | 8,024 | 8,125 | ||||||||||||||
Amortization expense |
— | 2,745 | — | 8,733 | ||||||||||||||
Acquisition, integration and related expenses |
— | 1,005 | — | 1,323 | ||||||||||||||
Loss from pension plan settlement |
— | 747 | — | 747 | ||||||||||||||
Total costs and expenses |
177,428 | 165,121 | 520,479 | 485,636 | ||||||||||||||
Income from operations |
14,367 | 7,298 | 40,524 | 22,985 | ||||||||||||||
Other (income) expense: |
||||||||||||||||||
Interest income |
(360 | ) | (198 | ) | (759 | ) | (658 | ) | ||||||||||
Interest expense |
2,343 | 7,212 | 13,883 | 21,667 | ||||||||||||||
Gain from sale of assets |
— | — | — | — | ||||||||||||||
Other expense, net |
— | 30 | — | 125 | ||||||||||||||
Other expense, net |
1,983 | 7,044 | 13,124 | 21,134 | ||||||||||||||
Income from continuing operations before income taxes
and extraordinary items |
12,384 | 254 | 27,400 | 1,851 | ||||||||||||||
Income tax expense |
4,989 | 1,316 | 11,174 | 4,649 | ||||||||||||||
Income (loss) from continuing operations before extraordinary items |
7,395 | (1,062 | ) | 16,226 | (2,798 | ) | ||||||||||||
Loss from discontinued operations, net of income tax |
— | 2,612 | — | 8,927 | ||||||||||||||
Loss on disposal of discontinued operations, net of income tax |
— | — | 1,103 | — | ||||||||||||||
Income (loss) before extraordinary items |
7,395 | (3,674 | ) | 15,123 | (11,725 | ) | ||||||||||||
Extraordinary items — loss on early extinguishment of debt, net of
income tax benefit |
— | — | 10,938 | — | ||||||||||||||
Net income (loss) |
7,395 | (3,674 | ) | 4,185 | (11,725 | ) | ||||||||||||
Recapitalization charges, preferred dividends and accretion
common stock redemption values |
— | 2,090 | 58,740 | 6,039 | ||||||||||||||
Net income (loss) attributable to common stockholders |
$ | 7,395 | $ | (5,764 | ) | $ | (54,555 | ) | $ | (17,764 | ) | |||||||
Earnings (loss) per common share — Basic |
||||||||||||||||||
Income (loss) from continuing operations |
$ | 0.22 | $ | (0.42 | ) | $ | (2.37 | ) | $ | (1.17 | ) | |||||||
Loss from discontinued operations |
— | (0.35 | ) | (0.10 | ) | (1.19 | ) | |||||||||||
Extraordinary loss on early extinguishment of debt |
— | — | (0.61 | ) | — | |||||||||||||
| $ | 0.22 | $ | (0.77 | ) | $ | (3.08 | ) | $ | (2.36 | ) | ||||||||
Earnings
(loss) per common share — Diluted |
||||||||||||||||||
Income (loss) from continuing operations |
$ | 0.21 | $ | (0.42 | ) | $ | (2.37 | ) | $ | (1.17 | ) | |||||||
Loss from discontinued operations |
— | (0.35 | ) | (0.10 | ) | (1.19 | ) | |||||||||||
Extraordinary loss on early extinguishment of debt |
— | — | (0.61 | ) | — | |||||||||||||
| $ | 0.21 | $ | (0.77 | ) | $ | (3.08 | ) | $ | (2.36 | ) | ||||||||
Basic Shares |
32,981,790 | 7,449,335 | 17,956,602 | 7,501,808 | ||||||||||||||
Diluted Shares |
35,363,555 | 19,832,647 | 26,315,575 | 19,909,537 | ||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
3
VERIDIAN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
| (Unaudited) | ||||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 10,412 | $ | 2,105 | ||||||
Receivables, net of allowance of $1,605 and $2,250 in 2002 and 2001, respectively |
225,599 | 202,163 | ||||||||
Inventories, net |
2,169 | 2,511 | ||||||||
Income taxes receivable |
4,666 | 630 | ||||||||
Deferred income taxes |
5,750 | 5,750 | ||||||||
Other current assets |
8,884 | 4,918 | ||||||||
Total current assets |
257,480 | 218,077 | ||||||||
Property, plant and equipment: |
||||||||||
Land |
222 | 222 | ||||||||
Buildings and improvements |
14,481 | 13,334 | ||||||||
Machinery, furniture and equipment |
32,507 | 29,415 | ||||||||
Computer equipment and software |
37,250 | 33,279 | ||||||||
Construction in progress |
5,647 | 3,868 | ||||||||
| 90,107 | 80,118 | |||||||||
Less accumulated depreciation and amortization |
39,624 | 31,695 | ||||||||
Net property, plant and equipment |
50,483 | 48,423 | ||||||||
Goodwill and other intangible assets, net of accumulated amortization of 34,155 in 2002 and 2001 |
418,647 | 207,855 | ||||||||
Deferred financing costs |
6,357 | 2,474 | ||||||||
Deferred income taxes |
7,696 | 7,696 | ||||||||
Other assets |
800 | 850 | ||||||||
Total assets |
$ | 741,463 | $ | 485,375 | ||||||
Liabilities, Redeemable Stock and Stockholders’ Equity (Deficit) |
||||||||||
Current liabilities: |
||||||||||
Current installments of long-term debt |
$ | 9,332 | $ | 1,100 | ||||||
Accounts payable |
37,853 | 25,463 | ||||||||
Accrued employee compensation costs |
70,618 | 58,112 | ||||||||
Other accrued expenses |
19,335 | 9,904 | ||||||||
Provision for loss on disposal of discontinued operation |
— | 5,587 | ||||||||
Total current liabilities |
137,138 | 100,166 | ||||||||
Long-term debt, less current installments |
296,468 | 244,646 | ||||||||
Post-retirement medical and insurance benefits |
6,347 | 6,438 | ||||||||
Other long-term liabilities |
1,215 | 1,085 | ||||||||
Total liabilities |
441,168 | 352,335 | ||||||||
Senior redeemable exchangeable preferred stock, Series A; 20,000 and 300,000
shares authorized in 2002 and 2001, respectively; none issued and outstanding in
2002; 53,886 issued and outstanding in 2001 |
— | 46,816 | ||||||||
Redeemable convertible Class A common stock, $0.0001 par value; 7,318,325
shares authorized; none issued and outstanding in 2002; 7,318,325 shares issued
and outstanding in 2001 |
— | 108,183 | ||||||||
Stockholders’ equity (deficit): |
||||||||||
Class B common stock, $0.0001 par value; 24,497,500 shares authorized; 7,471,033
shares issued and outstanding in 2001 |
— | 1 | ||||||||
Common stock, $0.0001 par value; 130,000,000 shares authorized; 32,991,184 shares
issued and outstanding in 2002 |
4 | — | ||||||||
Additional paid-in capital |
414,222 | 37,784 | ||||||||
Notes receivable |
(11,307 | ) | (11,675 | ) | ||||||
Accumulated deficit |
(102,624 | ) | (48,069 | ) | ||||||
Total stockholders’ equity (deficit) |
300,295 | (21,959 | ) | |||||||
Total liabilities, redeemable stock and stockholders’ equity (deficit) |
$ | 741,463 | $ | 485,375 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
VERIDIAN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity (Deficit)
(Dollars in thousands, except share data)
(Unaudited)
| Total | ||||||||||||||||||||||||
| Common stock | Additional | Retained | stockholders' | |||||||||||||||||||||
| paid-in | Notes | earnings | equity | |||||||||||||||||||||
| Shares | Amount | capital | Receivable | (deficit) | (deficit) | |||||||||||||||||||
Balances at December 31, 2001 |
7,471,033 | $ | 1 | $ | 37,784 | $ | (11,675 | ) | $ | (48,069 | ) | $ | (21,959 | ) | ||||||||||
Exercise of stock options and income tax benefit
thereon, and stock issuance |
62,274 | — | 891 | — | — | 891 | ||||||||||||||||||
Issuance of stock warrants |
— | — | 4,127 | — | (1,989 | ) | 2,138 | |||||||||||||||||
Sale of common stock |
15,525,000 | 2 | 228,517 | — | (1,600 | ) | 226,919 | |||||||||||||||||
Conversion of Class A common stock to common stock |
9,990,889 | 1 | 143,783 | — | (35,306 | ) | 108,478 | |||||||||||||||||
Repurchases of common stock |
(58,012 | ) | — | (880 | ) | 880 | — | — | ||||||||||||||||
Interest on notes receivable, net of cash received |
— | — | — | (512 | ) | — | (512 | ) | ||||||||||||||||
Preferred stock dividends and liquidation premium |
— | — | — | — | (10,276 | ) | (10,276 | ) | ||||||||||||||||
Accretion to preferred stock redemption value |
— | — | — | — | (9,279 | ) | (9,279 | ) | ||||||||||||||||
Accretion to Class A common stock redemption value |
— | — | — | — | (290 | ) | (290 | ) | ||||||||||||||||
Net income |
— | — | — | — | 4,185 | 4,185 | ||||||||||||||||||
Balances at September 30, 2002 |
32,991,184 | $ | 4 | $ | 414,222 | $ | (11,307 | ) | $ | (102,624 | ) | $ | 300,295 | |||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
VERIDIAN CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)
| Nine Months Ended | ||||||||||||
| September 30 | ||||||||||||
| 2002 | 2001 | |||||||||||
Cash flows from operating activities: |
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