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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

X         Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2003

or

            Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number: 001-31342

 
VERIDIAN CORPORATION
(Exact name of registrant as specified in its charter)
     
Delaware   54-1387657
 
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)
     
1200 South Hayes Street, Suite 1100, Arlington, Virginia   22202
 
(Address of principal executive offices)   (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       o No

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    o Yes     x No

     As of the close of business on May 5, 2003, there were 34,294,970 outstanding shares of the registrant’s common stock, par value $.0001 per share.

 

TABLE OF CONTENTS

         
    PAGE
   
PART I – FINANCIAL INFORMATION
   3 
Item 1. Financial Statements
   3 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
   11 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
   16 
Item 4. Controls and Procedures
   16 
PART II – OTHER INFORMATION
   17 
Item 2. Changes in Securities and Use of Proceeds
   17 
Item 6. Exhibits and Reports on Form 8-K
   17 

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
        March 31
       
        2003   2002
       
 
Revenues
   $ 281,919     $ 176,602  
Costs and expenses:
                
 
Direct costs
     199,727       115,434  
 
Indirect costs, selling, general and administrative expenses
     57,031       46,477  
 
Depreciation expense
     2,920       2,579  
 
Amortization expense
     1,075       —  
 
    
     
 
   
Total costs and expenses
     260,753       164,490  
 
    
     
 
Income from operations
     21,166       12,112  
Other (income) expense:
                
 
Interest income
     (208 )     (220 )
 
Interest expense
     4,303       6,150  
 
Other expense, net
     (15 )     —  
 
    
     
 
   
Other expense, net
     4,080       5,930  
 
    
     
 
Income from continuing operations before income taxes
     17,086       6,182  
Income tax expense
     6,886       2,612  
 
    
     
 
Income from continuing operations
     10,200       3,570  
Loss on disposal of discontinued operations, net of income tax
     —       1,103  
 
    
     
 
   
Net income
     10,200       2,467  
Preferred dividends and accretion to common stock redemption values
     —       2,253  
 
    
     
 
   
Net income attributable to common stockholders
   $ 10,200     $ 214  
 
    
     
 
Earnings (loss) per common share — Basic
               
 
Income from continuing operations
   $ 0.30     $ 0.18  
 
Loss from discontinued operations
     —       (0.15 )
 
    
     
 
 
   $ 0.30     $ 0.03  
 
    
     
 
Earnings (loss) per common share — Diluted
               
 
Income from continuing operations
   $ 0.29     $ 0.07  
 
Loss from discontinued operations
     —       (0.06 )
 
    
     
 
 
   $ 0.29     $ 0.01  
 
    
     
 
Basic Shares
     34,153,099       7,469,940  
 
    
     
 
Diluted Shares
     35,381,077       19,490,343  
 
    
     
 

     See accompanying notes to the unaudited condensed consolidated financial statements.

3

 

VERIDIAN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)

                         
            March 31,   December 31,
            2003   2002
           
 
            (Unaudited)        
     
ASSETS
                
Current assets:
                
 
Cash and cash equivalents
   $ 7,540     $ 11,653  
 
Receivables, net of allowance of $2,684 and $2,058 in 2003 and 2002, respectively
     256,208       237,766  
 
Inventories, net
     2,457       1,843  
 
Income taxes receivable
     —       5,862  
 
Deferred income taxes
     7,950       7,950  
 
Other current assets
     8,305       9,654  
 
 
    
     
 
       
Total current assets
     282,460       274,728  
 
 
    
     
 
Property, plant and equipment:
                
 
Land
     222       222  
 
Buildings and improvements
     15,465       15,254  
 
Machinery, furniture and equipment
     35,089       33,633  
 
Computer equipment and software
     41,704       41,262  
 
Construction in progress
     2,879       2,667  
 
 
    
     
 
 
     95,359       93,038  
 
Less accumulated depreciation and amortization
     45,425       42,681  
 
 
    
     
 
       
Net property, plant and equipment
     49,934       50,357  
 
 
    
     
 
Goodwill
     379,971       379,971  
Other intangible assets, net of accumulated amortization of $2,150 and $1,075 in 2003 and 2002
     37,850       38,925  
Deferred financing costs
     5,688       6,023  
Deferred income taxes
     816       816  
Other assets
     2,748       1,067  
 
 
    
     
 
       
Total assets
   $ 759,467     $ 751,887  
 
 
    
     
 
   
LIABILITIES AND STOCKHOLDERS’ EQUITY
                
Current liabilities:
                
 
Current installments of long-term debt
   $ 11,637     $ 10,473  
 
Accounts payable
     42,365       48,030  
 
Income taxes payable
     6,009       —  
 
Accrued employee compensation costs
     69,247       73,395  
 
Other accrued expenses
     21,450       18,932  
 
 
    
     
 
       
Total current liabilities
     150,708       150,830  
Long-term debt, less current installments
     279,786       282,177  
Post-retirement medical and insurance benefits
     6,009       6,091  
Other long-term liabilities
     2,420       3,172  
 
 
    
     
 
       
Total liabilities
     438,923       442,270  
 
 
    
     
 
Stockholders’ Equity:
                
 
Common stock, $0.0001 par value; 130,000,000 shares authorized; 34,172,091 and 34,092,260 shares issued and outstanding in 2003 and 2002
     4       4  
 
Additional paid-in capital
     415,456       414,570  
 
Notes receivable
     (10,586 )     (10,427 )
 
Accumulated deficit
     (84,330 )     (94,530 )
 
 
    
     
 
       
Total stockholders’ equity
     320,544       309,617  
 
 
    
     
 
       
Total liabilities and stockholders’ equity
   $ 759,467     $ 751,887  
 
 
    
     
 

See accompanying notes to unaudited condensed consolidated financial statements.

4

 

 

VERIDIAN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands, except share data)
(Unaudited)

                                                 
    Common stock   Additional           Retained   Total
   
  paid-in   Notes   earnings   Stockholders'
    Shares   Amount   capital   Receivable   (deficit)   equity
   
 
 
 
 
 
Balances at December 31, 2002
     34,092,260     $ 4     $ 414,570     $ (10,427 )   $ (94,530 )   $ 309,617  
                         
Exercise of stock options and income tax benefit thereon
     79,831       —       866       —       —       866  
Stock option issuance
     —       —       20       —       —       20  
Interest on notes receivable
     —       —       —       (159 )     —       (159 )
Net income
     —       —       —       —       10,200       10,200  
 
    
     
     
     
     
     
 
Balances at March 31, 2003
     34,172,091     $ 4     $ 415,456     $ (10,586 )   $ (84,330 )   $ 320,544  
 
    
     
     
     
     
     
 

     See accompanying notes to unaudited condensed consolidated financial statements.

5

 

VERIDIAN CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
(Unaudited)

                         
            Three Months Ended
            March 31,
           
            2003   2002
           
 
Cash flows from operating activities:
                
 
Net income
   $ 10,200     $ 2,467  
 
Adjustments to reconcile net income to net cash provided by operating activities:
                
   
Depreciation and amortization
     3,995       2,579  
   
Noncash interest expense
     335       492  
   
Noncash stock compensation expense
     20       —  
   
Noncash interest income on stock purchase notes
     (159 )     (177 )
   
Loss on disposal of discontinued operations
     —       1,103  
   
Loss on disposal of property, plant and equipment
     50       75  
   
Changes in assets and liabilities, net of effects of business acquisitions:
                
     
Receivables
     (18,515 )     (354 )
     
Inventories
     (614 )     72  
     
Income taxes receivable
     5,862       630  
     
Other assets
     862       (3,033 )
     
Accounts payable
     (5,665 )     4,973  
     
Income taxes payable
     6,009       1,566  
     
Accrued employee compensation costs
     (4,148 )     834  
     
Other accrued expenses
     1,269       5,045  
     
Post-retirement benefits
     (82 )     (31 )
     
Other long-term liabilities
     (752 )     192  
 
    
     
 
       
Net cash provided by (used in) operating activities
     (1,333 )     16,433  
                         
Cash flows from investing activities:
                
 
Purchases of property, plant and equipment
     (2,552 )     (2,381 )
 
Cash used by discontinued operations
     —       (3,447 )
 
    
     
 
       
Net cash used in investing activities
     (2,552 )     (5,828 )
 
    
     
 
Cash flows from financing activities:
                
 
Proceeds from borrowings
     11,000       62,337  
 
Proceeds from exercise of stock options
     866       5  
 
Proceeds from interest on notes receivable
     133       —  
 
Principal payments of long-term debt
     (12,227 )     (73,011 )
 
    
     
 
       
Net cash used in financing activities
     (228 )     (10,699 )
 
    
     
 
Net decrease in cash and equivalents
     (4,113 )     (64 )
Cash and cash equivalents at beginning of period
     11,653       2,105  
 
    
     
 
Cash and cash equivalents at end of period
   $ 7,540     $ 2,041  
 
    
     
 
Supplemental disclosures of cash flow information:
                
 
Cash paid during the period for interest
   $ 4,224     $ 2,413  
 
Cash paid during the period for income taxes
     214       519  

     See accompanying notes to unaudited condensed consolidated financial statements.

6

 

VERIDIAN CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Dollars in Thousands, except share data)
(Unaudited)

Note 1 Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements of Veridian Corporation (the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States. These interim financial statements should be read in conjunction with our consolidated financial statements and notes thereto as of December 31, 2002 and 2001, and for each of the years in the three-year period ended December 31, 2002, as included in the Company’s annual report on Form 10-K for the year ended December 31, 2002 filed with the SEC pursuant to Section 13 under the Securities Act of 1934. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and reflect all adjustments, consisting of normal, recurring adjustments, which are, in the opinion of management, necessary to present fairly the Company’s financial position as of March 31, 2003, the results of its operations and cash flows for the three months ended March 31, 2003 and 2002, and its changes in stockholders’ equity for the three months ended March 31, 2003. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

Note 2 Stock-Based Compensation

The Company applies the intrinsic value-based method of accounting prescribed by Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations including FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation an interpretation of APB Opinion No. 25”, to account for its fixed plan stock options. Under this method, compensation expense is recorded on the date of grant only if the current market price of the underlying stock on the date of grant exceeds the exercise price. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the Company has elected to continue to apply the intrinsic value-based method of accounting described above and adopted the disclosure requirements of SFAS No. 123.

The Company has also adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure (SFAS No. 148), issued in December 2002. SFAS No. 148 provides alternate methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation, and requires enhanced disclosure about the method used and the effect of the method used on reported results. Under SFAS No. 148, stock-based compensation disclosures must be included with the summary of significant accounting policies, and made both quarterly and annually.

The table below illustrates the effect on the net income attributable to common stockholders if the fair value-based method had been applied to employee stock benefits.

7

 

                     
        Three Months Ended
        March 31,
       
        2003   2002
       
 
Net income attributable to common stockholders:
                
 
As reported
   $ 10,200       214  
 
Add: stock-based employee compensation expense included in reported net income, net of income tax effects
     12       —  
 
Less: total stock-based employee compensation determined under the fair value based method for all awards, net of income tax effects
     (272 )     (239 )
 
    
     
 
 
Pro forma net income (loss)
   $ 9,940       (25 )
 
    
     
 
Net earnings (loss) per share attributable to common stockholders:
                
 
Basic:
                
   
As reported
   $ 0.30       0.03  
 
    
     
 
   
Pro forma
   $ 0.29