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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 2003
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _________
Commission File No. 000-49604
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MANTECH INTERNATIONAL
CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 22-1852179
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12015 Lee Jackson Highway, Fairfax, VA 22033
(Address of principal executive offices)
(703) 218-6000
(Registrant's telephone number, including area code)
-------------------
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 |_| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of August 4, 2003: ManTech International Corporation
Class A Common Stock, $0.01 par value, 16,365,320 shares; ManTech International
Corporation Class B Common Stock, $0.01 par value, 15,631,004 shares.
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MANTECH INTERNATIONAL CORPORATION
INDEX
PART I--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements and Notes
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II--OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I
FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
MANTECH INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, December 31,
2003 2002
----------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 20,413 $ 81,096
Cash in escrow 1,485 --
Receivables--net 151,740 133,122
Prepaid expenses and other 10,992 8,955
Assets held for sale 819 6,738
--------- ---------
Total current assets 185,449 229,911
Property and equipment--net 11,258 9,131
Goodwill 146,233 94,003
Other intangibles 17,942 10,231
Investments 10,306 7,631
Employee supplemental savings plan assets 8,461 8,068
Other assets 5,906 5,413
--------- ---------
TOTAL ASSETS $ 385,555 $ 364,388
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt $ 76 $ 1,000
Accounts payable and accrued expenses 36,082 32,905
Accrued salaries and related expenses 24,822 23,619
Deferred income taxes 10,146 11,888
Billings in excess of revenue earned 5,138 2,700
Liabilities held for sale 643 5,099
--------- ---------
Total current liabilities 76,907 77,211
Debt--net of current portion 25,223 25,000
Accrued retirement 9,958 9,555
Other long-term liabilities 5,444 1,838
Deferred income taxes 5,390 4,744
Minority interest 45 42
--------- ---------
TOTAL LIABILITIES 122,967 118,390
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, Class A 164 163
Common stock, Class B 156 156
Additional paid-in capital 207,956 206,861
Retained earnings 56,682 40,843
Accumulated other comprehensive loss (1,827) (2,025)
Unearned ESOP shares (543) --
Deferred compensation 640 640
Shares held in grantor trust (640) (640)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 262,588 245,998
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 385,555 $ 364,388
--------- ---------
See notes to condensed consolidated financial statements.
MANTECH INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Per Share Amounts)
Three months ended June 30, Six months ended June 30,
--------------------------- -------------------------
2003 2002 2003 2002
---------- ---------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES $ 177,076 $ 119,168 $ 325,199 $ 227,302
COST OF SERVICES 44,350 97,280 264,132 185,890
---------- ---------- ---------- ---------
GROSS PROFIT 32,726 21,888 61,067 41,412
---------- ---------- ---------- ---------
COSTS AND EXPENSES:
General and administrative 16,195 12,057 30,934 23,490
Depreciation and amortization 1,242 516 2,177 1,004
---------- ---------- ---------- ---------
Total costs and expenses 17,437 12,573 33,111 24,494
---------- ---------- ---------- ---------
INCOME FROM OPERATIONS 15,289 9,315 27,956 16,918
Interest expense (income) 687 (14) 1,021 203
Other (income) expense (352) (225) 270 (522)
---------- ---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST 14,954 9,554 26,665 17,237
Provision for income taxes (6,075) (3,896) (10,823) (7,004)
Minority interest (2) (1) (3) (3)
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 8,877 5,657 15,839 10,230
Loss on disposal of discontinued operations--net -- (795) -- (795)
---------- ---------- ---------- ----------
NET INCOME $ 8,877 $ 4,862 $ 15,839 $ 9,435
---------- ---------- ---------- ----------
BASIC EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.28 $ 0.21 $ 0.50 $ 0.42
Loss from discontinued operations -- (0.03) -- (0.03)
---------- ---------- --------- ----------
$ 0.28 $ 0.18 $ 0.50 $ 0.39
---------- ---------- ---------- ----------
Weighted average common shares outstanding 31,941,783 26,373,719 31,928,870 24,553,641
---------- ---------- ---------- ----------
DILUTED EARNINGS (LOSS) PER SHARE:
Income from continuing operations $ 0.28 $ 0.21 $ 0.50 $ 0.41
Loss from discontinued operations -- (0.03) -- (0.03)
---------- ----------- ---------- ----------
$ 0.28 $ 0.18 $ 0.50 $ 0.38
---------- ---------- ---------- ----------
Weighted average common shares outstanding 31,994,687 26,697,911 31,964,829 24,838,112
---------- ---------- ---------- ----------
See notes to condensed consolidated financial statements.
MANTECH INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
Three months ended Six months ended
June 30, June 30,
----------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
(unaudited) (unaudited) (unaudited) (unaudited)
Net income $ 8,877 $ 4,862 $ 15,839 $ 9,435
Other comprehensive income (loss):
Cash flow hedge 27 (380) 113 (151)
Translation adjustments 120 (30) 85 (215)
------- ------- -------- -------
Other comprehensive income (loss) 147 (410) 198 (366)
------- ------- -------- -------
Comprehensive income $ 9,024 $ 4,452 $ 16,037 $ 9,069
------- ------- -------- -------
See notes to condensed consolidated financial statements.
MANTECH INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Six months ended June 30,
--------------------------
2003 2002
----------- -----------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,839 $ 9,435
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Equity in losses (earnings) of affiliates 781 (483)
Loss from discontinued operations -- 795
Deferred income taxes (1,928) (2,995)
Minority interest in income of consolidated subsidiaries 3 3
Loss on disposals of property and equipment 11 8
Depreciation and amortization 3,107 1,749
Change in assets and liabilities--net of effects from acquired and discontinued businesses:
Increase in receivables (5,752) (11,786)
(Increase) decrease in prepaid expenses and other (1,643) 2,374
Decrease in accounts payable and accrued expenses (708) (2,439)
(Decrease) increase in accrued salaries and related expenses (3,159) 467
Increase in billings in excess of revenue earned 1,988 306
Increase (decrease) in other long-term liabilities 86 (51)
Increase in accrued retirement 403 540
-------- --------
Net cash provided by (used in) operating activities of continuing operations 9,028 (2,077)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and equipment 1 2
Investment in Integrated Data Systems Corporation, net of cash acquired of $2,820 (63,139) --
Investment in MSM Security Services, Inc., net of cash acquired of $20 (5,093) --
Investment in property and equipment (1,884) (1,510)
Investment in capitalized software products (1,015) (322)
Investment in CTX Corporation (37) --
Investment in Aegis Research Corporation (10) --
Dividends from MASI U.K. -- 286
Proceeds from notes receivable -- 250
Dividends from GSE Preferred Stock -- 75
-------- --------
Net cash used in investing activities of continuing operations (71,177) (1,219)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of not-to-compete financings (1,000) --
Proceeds from exercise of stock options 160 268
Proceeds from common stock issuance--net of offering expenses -- 110,157
Net decrease in borrowings under lines of credit -- (32,300)
Repayment of subordinated debt -- (8,000)
Repayment of term loan -- (5,908)
-------- --------
Net cash (used in) provided by financing activities of continuing operations (840) 64,217
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (11) (135)
-------- --------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 2,317 (2,772)
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (60,683) 58,014
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 81,096 26,902
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,413 $ 84,916
-------- --------
See notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2003 and 2002 (unaudited)
1. Description of the Business
ManTech International Corporation delivers a broad array of information
technology and technical services solutions to U.S. federal government
customers, focusing primarily on critical national defense programs for the
intelligence community and Department of Defense. The Company designs, develops,
procures, implements, operates, tests and maintains mission-critical, enterprise
information technology and communication systems and infrastructures for the
Company's federal government customers in the United States and 34 countries
worldwide.
2. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of
ManTech International Corporation have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in the annual financial statements, prepared
in accordance with accounting principles generally accepted in the United States
of America, have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made are
adequate to insure that the information is not misleading.
Stock-Based Compensation--As permitted under Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company
accounts for stock-based compensation plans using the intrinsic value method
under the recognition and measurement principles of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations. No stock-based employee compensation cost is reflected in
net income, as all options granted under the Company's stock-based compensation
plans had an exercise price equal to the market value of the underlying common
stock on the date of grant. In accordance with the provisions of SFAS 148,
Accounting for Stock-Based Compensation--Transition and Disclosure, the
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation (in thousands, except per share data).
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2003 2002 2003 2002
------- ------- -------- -------
Net income, as reported $ 8,877 $ 4,862 $ 15,839 $ 9,435
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards--net of related
tax effects (545) (24) (735) (1,949)
------- ------- -------- -------
Pro forma net income $ 8,332 $ 4,838 $ 15,104 $ 7,486
------- ------- -------- -------
Earnings per share:
Basic - as reported $ 0.28 $ 0.18 $ 0.50 $ 0.39
Basic - pro forma 0.26 0.18 0.47 0.30
Diluted - as reported 0.28 0.18 0.50 0.38
Diluted - pro forma 0.26 0.18 0.47 0.30
The Company typically issues 10-year options that vest annually over a
three-year period from the date of grant. For disclosure purposes, the fair
value of each option is estimated on the date of grant using the Black-Scholes
(Minimum Value) option-pricing model. The following weighted-average assumptions
were used for option grants during the periods ended June 30, 2003 and 2002:
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------------
2003 2002 2003 2002
------- ------- --------- ---------
Dividend yield 0.0% 0.0% 0.0% 0.0%
Volatility 33.4% 25.8% 33.4-33.6% 22.7-25.8%
Risk-free interest rate 1.77% 3.77% 1.77-2.07% 3.75-3.77%
Expected life of options
(in years) 3.0 3.0 3.0 3.0
New Accounting Pronouncements--In April 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13 and Technical Corrections. Among other
things, SFAS 145 rescinds both SFAS 4, Reporting Gains and Losses from
Extinguishment of Debt, and the amendment to SFAS 4, SFAS 64, Extinguishments of
Debt Made to Satisfy Sinking Fund Requirements. Through this rescission, SFAS
145 eliminates the requirement that gains and losses from the extinguishment of
debt be aggregated and, if material, classified as an extraordinary item, net of
the related income tax effect. Generally, SFAS 145 is effective for transactions
occurring after May 15, 2002. The adoption of SFAS 145 did not have a material
impact on the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS 146 nullifies Emerging Issues Task Force Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). This statement requires that costs related to an exit or
disposal activity be recognized when the liability is incurred instead of when
an entity commits to an exit plan. The provisions of SFAS 146 are effective for
financial transactions initiated after December 31, 2002. The adoption of SFAS
146 did not have a material impact on the Company's financial position or
results of operations.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107
and rescission of FASB Interpretation No. 34. FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. FIN 45 also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of the obligation undertaken. The initial
recognition and measurement provisions of FIN 45 are effective for guarantees
issued or modified after December 31, 2002. The adoption of the initial
recognition and measurement provisions of FIN 45 did not have a material effect
on the Company's financial statements. See additional discussion of the
Company's obligations under guarantees in Note 9.
In November 2002, the FASB issued Emerging Issues Task Force (EITF) No. 00-21,
Accounting for Revenue Arrangements with Multiple Deliverables. EITF 00-21
addresses when and how an arrangement involving multiple deliverables should be
divided into separate units of accounting, as well as how the arrangement
consideration should be measured and allocated to the separate units of
accounting in the arrangement. The provisions of EITF 00-21 will be effective
for the Company's third quarter of 2003. The Company does not expect the
adoption of EITF 00-21 to have a material impact on the Company's financial
position or results of operations.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based
Compensation--Transition and Disclosure, an amendment of SFAS 123. SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require
more prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. This statement is effective for fiscal
years ending after December 15, 2002. The adoption of SFAS 148 did not have a
material impact on the Company's financial position or results of operations.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51, which addresses
consolidation by business enterprises of "variable interest entities" (VIEs).
FIN 46 expands upon and strengthens existing accounting guidance that addresses
when a company should include the assets, liabilities and activities of another
entity in its financial statements. Under previous guidance, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. FIN 46 requires a variable
interest entity to be consolidated by a company if that company is the "primary
beneficiary" of that entity. The primary beneficiary is subject to a majority of
the risk of loss from the VIE's activities, or is entitled to receive a majority
of the VIE's residual returns, or both. The consolidation requirements of FIN 46
apply immediately to VIEs created after January 31, 2003 and apply to previously
established entities in the first interim period beginning after June 15, 2003.
Certain of the disclosure requirements apply to all financial statements issued
after January 31, 2003, regardless of when the VIE was established. The adoption
of FIN 46 did not have a material impact on the Company's financial position or
results of operations.
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities, which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS 149 is generally effective
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 is not
expected to have a material impact on the Company's financial position or
results of operations.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity, which
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
150 requires that certain financial instruments, which under previous guidance
were accounted for as equity, must now be accounted for as liabilities. The
financial instruments affected include mandatorily redeemable stock, certain
financial instruments that require or may require the issuer to buy back some of
its shares in exchange for cash or other assets and certain obligations that can
be settled with shares of stock. SFAS 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS 150 did not have a material impact on the Company's financial
position or results of operations.
3. Earnings Per Share
Basic earnings per share has been computed by dividing net income by the
weighted average number of common shares outstanding during each period. Shares
issued during the period, including shares issued pursuant to the Company's
initial and follow-on public offerings, and shares acquired during the period,
if any, are weighted for the portion of the period that they were outstanding.
Diluted earnings per share have been computed in a manner consistent with that
of basic earnings per share while giving effect to all potentially dilutive
common shares that were outstanding during each period. All share data for all
periods has been updated to reflect the 16.3062-for-one stock split effected in
January 2002. The weighted average number of common shares outstanding is
computed as follows:
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Basic weighted
average common
shares outstanding 31,941,783 26,373,719 31,928,870 24,553,641
Effect of potential
exercise of stock
options 52,904 324,192 35,959 284,471
---------- ---------- ---------- ----------
Diluted weighted
average common
shares outstanding 31,994,687 26,697,911 31,964,829 24,838,112
---------- ---------- ---------- ----------
4. Goodwill and Other Intangibles
Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, SFAS 142 required the Company to perform a
transitional goodwill impairment test within six months of the date of
adoption. In accordance with SFAS 142, in the second quarter of 2002, the
Company completed the transitional goodwill impairment test and determined that
a $57,000 goodwill impairment charge was required. During the second quarter of
2003, the Company assessed goodwill for impairment. This assessment did not
result in an impairment of goodwill. The Company will continue to perform the
annual goodwill impairment review during the second quarter of each fiscal year,
unless facts and circumstances warrant a review before that time, as required by
SFAS 142.
The components of goodwill and other intangibles are as follows (in thousands):
June 30, December 31,
2003 2002
--------- -----------
Goodwill $ 156,340 $ 104,109
Other intangibles 25,873 18,978
--------- ---------
182,213 123,087
Less: Accumulated amortization (18,038) (18,853)
--------- ---------
$ 164,175 $ 104,234
--------- ---------
As of June 30, 2003, other intangibles consists of the following (in thousands):
June 30, 2003
-----------------------------------
Gross Net
Carrying Accumulated Carrying
Amount Amortization Amount
-------- ------------ --------
Amortized intangible assets:
Contract rights $ 17,919 $ 4,184 $ 13,735
Capitalized software 7,954 3,747 4,207
-------- ------- --------
$ 25,873 $ 7,931 $ 17,942
-------- ------- --------
Aggregate amortization expense for the six months ended June 30, 2003 was $1,406,000.
Estimated amortization expense (in thousands):
For the six months ending December 31, 2003 $ 1,691
For the year ending:
December 31, 2004 3,643
December 31, 2005 3,542
December 31, 2006 2,782
December 31, 2007 1,782
December 31, 2008 1,438
5. Business Segment and Geographic Area Information
The Company operates as one segment, delivering a broad array of information
technology and technical services solutions under contracts with the U.S.
Government, state and local governments, and commercial customers. The Company's
federal government customers typically exercise independent contracting
authority, and even offices or divisions within an agency or department may
directly, or through a prime contractor, use the Company's services as a
separate customer so long as that customer has independent decision-making and
contracting authority within its organization. No single customer accounted for
10% or more of the Company's accounts receivable or revenues as of or for the
periods ended June 30, 2003 and 2002. In addition, there were no sales to any
customers within a single country except for the United States where the sales
accounted for 10% or more of total revenue. The Company treats sales to U.S.
Government customers as sales within the United States regardless of where the
services are performed. Substantially all assets of continuing operations were
held in the United States for the periods ended June 30, 2003 and 2002. Revenues
by geographic customer and the related percentages of total revenues for the
periods ended June 30, 2003 and 2002, were as follows (in thousands):
Three months ended Six months ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------
United States $ 174,949 $ 118,828 $ 321,995 $ 225,692
International 2,127 340 3,204 1,610
--------- --------- --------- ---------
$ 177,076 $ 119,168 $ 325,199 $ 227,302
--------- --------- --------- ---------
United States 98.8% 99.7% 99.0% 99.3%
International 1.2 0.3 1.0 0.7
--------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- ---------
6. Revenues and Receivables
The Company delivers a broad array of information technology and technical
services solutions under contracts with the U.S. Government, state and local
governments, and commercial customers. Revenues from the U.S. Government under
prime contracts and subcontracts, as compared to total contract revenues, were
approximately 96.7% and 96.4% for the periods ended June 30, 2003 and 2002
respectively. The components of contract receivables are as follows (in
thousands):
June 30, December 31,
2003 2002
------- -----------
Billed receivables $ 107,542 $ 101,013
Unbilled receivables:
Amounts currently billable 33,025 19,780
Revenues recorded in excess
of estimated contract value
or funding 4,975 2,619
Retainage 2,811 3,573
Indirect costs incurred in
excess of provisional billing
rates 5,959 8,045
Allowance for doubtful accounts (2,572) (1,908)
--------- ---------
$ 151,740 $ 133,122
--------- ---------
7. Stockholders' Equity
Reincorporation, Recapitalization and Stock Split--The Company is incorporated
in Delaware and is the successor by merger to ManTech International Corporation,
a New Jersey corporation. As a result of the merger, in January 2002 the Company
reincorporated from New Jersey to Delaware and recapitalized its common stock.
On the effective date of the merger, each outstanding share of the New Jersey
corporation's common stock was exchanged for one share of the Company's Class A
common stock or for one share of the Company's Class B common stock. Immediately
after the merger, the Company effected a 16.3062-for-one stock split of the
Company's Class A common stock and Class B common stock. The holders of each
share of the Company's Class A common stock are entitled to one vote per share,
and the holders of each share of the Company's Class B common stock are entitled
to ten votes per share. In connection with the reincorporation and
recapitalization, all of the Company's outstanding treasury stock was retired.
Initial Public Offering--The Company closed its initial public offering on
February 12, 2002. Net proceeds to the Company were approximately $110.2
million, after deducting the estimated expenses related to the offering and the
portion of the underwriting discount payable by the Company. Proceeds from the
offering were used to repay subordinated debt of $8.0 million, the balance of
the term loan of $5.9 million, $17.7 million of the revolving credit facility,
plus accrued interest, and $69.1 million was used to fund the Company's
acquisition of Aegis Research Corporation on August 5, 2002. The balance of the
net proceeds of the offering, in conjunction with additional borrowings under
the Company's revolver, were used to fund the Company's $35.3 million
acquisition of CTX Corporation on December 11, 2002.
Follow-on Public Offering--The Company closed a follow-on public offering on
December 20, 2002. Net proceeds to the Company were approximately $90.9 million,
after deducting the estimated expenses related to the offering and the portion
of the underwriting discount payable by the Company. Proceeds from the offering
were used to repay indebtedness incurred in connection with the acquisition of
CTX Corporation. The balance of the net proceeds of the offering, in conjunction
with cash on hand, were used in 2003 to fund the Company's acquisition of
Integrated Data Systems Corporation on February 28, 2003 and MSM Security
Services, Inc. on March 1, 2003 for $62.2 million and $5.0 million,
respectively.
8. Acquisitions
Integrated Data Systems Corporation--On February 28, 2003, the Company acquired
all of the outstanding common shares of Integrated Data Systems Corporation
(IDS). The results of operations for IDS have been included in the Company's
consolidated financial statements since that date. Founded in 1990, IDS delivers
technology solutions and products in four core areas: software development,
systems engineering/networking, information assurance, and government
acquisition/procurement support software. IDS has developed secure, advanced
messaging and collaboration applications and solutions in support of a wide
variety of national security networks and systems. IDS is also one of
Microsoft's leading certified partners supporting U.S. Government classified
intelligence community programs. Most of the IDS employees hold Top Secret
security clearances with additional special accesses to compartmented programs.
The cash purchase price was approximately $62.2 million, net of cash on hand,
excluding $0.9 million of acquisition related costs, and is subject to an
earnout provision. The following table summarizes the estimated fair values of
the assets acquired and liabilities assumed at the date of acquisition (in
thousands):
February 28,
2003
------------
Current assets $ 14,497
Property and equipment--net 1,364
Goodwill 50,127
Intangible asset 7,500
Other assets 84
Other current liabilities (7,472)
Deferred rent (141)
--------
$ 65,959
--------
The $7.5 million acquired intangible asset was assigned to contract rights and
is being amortized on a straight-line basis over a period of eight years. The
preliminary purchase price allocation may change during the year of acquisition
as additional information concerning net asset valuation is obtained.
The following represents the unaudited pro forma results of operations as though
the acquisition of IDS had been completed as of January 1, 2002 (in thousands,
except per share amounts):
Pro Forma Six Pro Forma Six
Months Ended Months Ended
June 30, 2003 June 30, 2002
------------- -------------
Revenues $ 335,522 $ 243,118
Income from operations 28,959 18,410
Net income 16,267 9,961
Diluted earnings per share 0.51 0.40
MSM Security Services, Inc.--On March 5, 2003, the Company acquired all of the
outstanding common shares of MSM Security Services, Inc. (MSM), a Maryland-based
provider of Personnel Security Investigation (PSI) services to the U.S.
Government. Pursuant to the acquisition agreement, the Company was entitled to
include the results of operations for MSM in its consolidated financial
statements effective March 1, 2003. MSM specializes in PSI services for the U.S.
Government, having completed over 250,000 background investigations since its
founding in 1978. Most MSM employees hold U.S. Government security clearances.
MSM also developed and maintains a nationwide network of approximately 1,800
experienced contract investigators that support the company's mission. MSM has
active investigation contracts to support the United States Customs Service,
Defense Security Service (DSS), the intelligence community, and other federal
government agencies.
The cash purchase price was approximately $5.0 million, of which $2.3 million in
cash was paid to MSM shareholders and $2.7 million in cash was used to repay
existing MSM debt. The cash purchase price excludes $0.1 million of acquisition
related costs, and is subject to certain post-closing adjustments and an earnout
provision.
9. Financial Guarantees
Letters of Credit--In support of the Company's affiliate, GSE Systems, Inc.
(GSE), effective June 20, 2003, the Company's lenders issued two letters of
credit to Fianzas Guardiana Inbursa, S.A. (FGI) on behalf of GSE. As discussed
in Note 12 to the Company's consolidated financial statements, included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002 filed
with the SEC on March 31, 2003, the Company holds common and preferred stock in
GSE and accounts for this investment using the equity method.
The first letter of credit is in support of an advance payment bond of
approximately $2.1 million issued by FGI to a customer of GSE's power business
and has a term of 30 months. The second letter of credit is in support of a
performance bond of approximately $1.3 million issued by FGI to the same
customer and has a term of 42 months. Both letters of credit can be drawn upon
by FGI in the event that the performance bonds are drawn on by the customer,
which would only occur in the event of a contractual default by GSE. In the
event that the letters of credit are drawn upon, the Company and GSE have signed
a collateral agreement whereby GSE has agreed to indemnify the Company from any
and all costs, damages, claims, actions, demands, losses and expenses (including
the value of the Letters of Credit drawn upon, reasonable attorneys' fees,
collection fees or enforcement fees). In exchange for issuing the letters of
credit, the Company received 100,000 warrants to purchase GSE's common stock
at the market price of GSE's common stock as of the close of business on July 8,
2003, and will receive a 7% annual fee, payable on a quarterly basis, calculated
on the total amount of the then-existing value of the letters of credit.
In accordance with FIN 45, the Company has established a $3.4 million long-term
liability for these guarantees and has increased the carrying value of its
investment in GSE by an equivalent amount.
Indemnification Agreements--As permitted under Delaware law, the Company has
agreements whereby it indemnifies its current and former officers and directors
for certain events or occurrences while the officer or director is, or was
serving, at the Company's request in such capacity. The term of the
indemnification period is for the officer's or director's lifetime. The maximum
potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited; however, the Company has director
and officer insurance coverage that limits the exposure and enables the Company
to recover a portion of any future amounts paid. The Company believes that the
estimated fair value of these indemnification agreements in excess of applicable
insurance coverage is minimal.
10. Discontinued Operations
On September 26, 2001, the Company executed a formal plan to exit certain
commercial and foreign lines of business that no longer contribute to the core
competencies. The businesses include the Australia-based software solutions
consulting business, the United Kingdom-based bank remittance processing
business, the China-based consulting business, the U.S.-based environmental
consulting and remediation business and the U.S.-based application-hosting
business. Although some of these ventures showed promise and growth, these
businesses were oriented towards commercial customers and did not contribute to
the core competencies on which the Company is currently focused. The Company had
concluded the disposal of all of these businesses as of December 31, 2002,
except the Company's Australia-based software solutions business. As of December
31, 2002, the Company had reached a definitive agreement regarding the sale of
this business, and the transaction closed in February 2003. An accrual of $2.6
million for losses incurred in connection with the disposal of the
Australia-based software solutions business was recorded in the fourth quarter
of 2002.
Based on the projected future costs of disposal, an estimate has been provided
for the likely net gains and losses to income expected from these businesses
through the estimated dates of disposal. As a result, in accordance with APB
Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, results of operations have been classified as
discontinued and prior periods have been restated. The Company has segregated
the net assets and liabilities held for sale, recorded all current and expected
future losses and deferred all gains expected to be realized upon disposal of
the respective entities. The amounts the Company will ultimately realize could
differ in the near term from the amounts estimated in arriving at the loss on
disposal of the discontinued operations.
* * * * * *
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read together with the condensed consolidated financial
statements and the notes to those statements. This discussion addresses only the
Company's continuing operations. For more information on the Company's
discontinued operations, please see note 10 to the Company's condensed
consolidated financial statements.
Overview
The Company delivers a broad array of information technology and technical
services solutions to U.S. federal government customers, focusing primarily on
critical national defense programs for the intelligence community and Department
of Defense. The Company designs, develops, procures, implements, operates, tests
and maintains mission-critical, enterprise information technology and
communication systems and intelligence processing infrastructures for the
Company's federal government customers. The Company also provides such solutions
to federal government civilian agencies, as well as to state and local
governments and commercial customers. Many of the Company's approximately 5,000
employees have military or intelligence experience and high level security
clearances that allows the Company to work with its customers in highly
classified environments and at front-line deployments in the United States and
34 countries globally.
The Company's revenues consist primarily of payments for the work of the
Company's employees and, to a lesser extent, the pass-through of costs for
material and subcontract efforts under contracts with the Company's customers.
The Company enters into three types of federal government contracts: cost-plus,
time-and-materials and fixed-price. Under cost-plus contracts, the Company is
reimbursed for allowable costs and paid a fee, which may be fixed or
performance-based. Under time-and-materials contracts, the Company is reimbursed
for labor at negotiated hourly billing rates and for certain expenses. The
Company assumes financial risk on time-and-material contracts because the
Company assumes the risk of performing those contracts at negotiated hourly
rates. Under fixed-price contracts, the Company performs specific tasks for a
fixed price. Compared to cost-plus contracts, fixed-price contracts generally
offer higher margin opportunities, but involve greater financial risk because
the Company bears the impact of cost overruns and receives the benefit of cost
savings. For the six months ended June 30, 2003, the Company derived
approximately 36.2%, 46.3% and 17.5% of its revenues from cost-plus,
time-and-materials and fixed-price contracts, respectively.
The Company recognizes revenues under cost-plus contracts as its costs are
incurred and the Company includes an estimate of applicable fees earned. The
Company recognizes revenues under time-and-materials contracts by multiplying
the number of direct labor-hours expended in the performance of the contract by
the contract billing rates and adding other billable direct costs. For contracts
that include performance-based incentives, the Company recognizes the incentives
when they have been earned and the Company can reasonably demonstrate
satisfaction of the performance goal or when the incentive has been awarded. The
Company recognizes revenues under fixed-price contracts using the percentage of
completion method, which involves a periodic assessment of costs incurred to
date in relation to the estimated total costs at completion, or upon the
delivery of specific products or services. The Company records the cumulative
effects of any revisions to the Company's estimated total costs and revenues in
the period in which the facts requiring revisions become known. If the Company
anticipates a loss on a contract, the Company provides for the full amount of
the anticipated loss at the time of that determination.
The Company's most significant expense is the Company's cost of services, which
consists primarily of direct labor costs for program personnel and direct
expenses incurred to complete contracts, including cost of materials and
subcontract efforts. The Company's ability to accurately predict personnel
requirements, salaries and other costs, as well as to manage personnel levels
and successfully redeploy personnel, can have a significant impact on the
Company's cost of services. General and administrative expenses consist
primarily of costs associated with the Company's management, finance and
administrative groups; personnel training; sales and marketing expenses, which
include bid and proposal efforts; and certain occupancy, travel and other
corporate costs.
The following table sets forth, for each period indicated, the percentage of the
Company's revenues derived from each of the Company's major types of customers.
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
2003 2002 2003 2002
----- ----- ----- -----
Intelligence / Department of Defense 88.7% 86.4% 88.3% 86.1%
Federal Civilian Agencies 8.7 9.8 8.9 10.3
Commercial / State / Local 2.6 3.8 2.8 3.6
----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Backlog and GSA Schedule Contract Value
At June 30, 2003, the Company's backlog was $1.5 billion, of which $342.2
million was funded backlog. At June 30, 2002, the Company's backlog was $1.1
billion, of which $202.1 million was funded backlog. In addition, the Company
estimates its GSA schedule contract value at June 30, 2003 was $1.1 billion. At
June 30, 2002, the Company estimated its GSA schedule contract value was $939.2
million. Backlog, funded backlog and GSA schedule contract value represent
estimates that the Company calculates on the bases described below.
The Company defines backlog as its estimate of the remaining future revenues
from existing signed contracts, assuming the exercise of all options relating to
such contracts and including executed task orders issued under GSA schedule
contracts. This includes an estimate of revenues for solutions that the Company
believes it will be asked to provide in the future under the terms of executed
multiple-award contracts in which the Company is not the sole provider, meaning
that the customer could turn to companies other than ManTech to fulfill the
contract. It also includes an estimate of revenues from indefinite delivery,
indefinite quantity contracts, which specify a maximum, but only a token
minimum, amount of goods or services that may be provided under the contract.
Backlog does not include the value for contracts where the Company has been
given permission by the customer to begin or continue working, but where a
formal contract or contract extension has not yet been signed.
The Company defines funded backlog to be the portion of backlog for which
funding currently is appropriated and allocated to the contract by the
purchasing agency or otherwise authorized for payment by the customer upon
completion of a specified portion of work. The Company's funded backlog does not
include the full value of its contracts, because Congress often appropriates
funds for a particular program or contract on a yearly or quarterly basis, even
though the contract may call for performance that is expected to take a number
of years.
At June 30, 2003, the Company's backlog included $457.2 million of revenues for
solutions pursuant to task orders that have been executed under GSA schedule
contracts, of which $170.8 million were included in funded backlog. The amount
of the Company's revenues generated under GSA schedule contracts has increased
in recent years. Specifically, for the six months ended June 30, 2003 and 2002,
funded awards under GSA schedule contracts were $174.2 million and $132.3
million, respectively. The Company believes that potential GSA schedule contract
revenues are not fully reflected in traditional backlog calculations because, as
described below, while GSA schedule contracts provide the Company's customers
with the flexibility to obtain the Company's solutions through a streamlined
procurement process, they do not provide for fixed, minimum or maximum purchase
commitments. Therefore, the Company has developed a method of calculating GSA
schedule contract value that it uses to evaluate estimates for the amount of
revenues that it may receive under its GSA schedule contracts. For these
purposes, the Company determines GSA schedule contract value by multiplying the
average monthly amount of funded work that it has been awarded under each of its
GSA schedule contracts over the past twelve months, by the number of months
remaining in the term of those contracts, including under existing options,
except that the Company does not take into account remaining contract terms of
more than 72 months.
GSA schedule contracts are competitively awarded government-wide acquisition
contracts negotiated and awarded by the General Services Administration and
effectively act as fixed-price or time-and-materials contracts which government
agencies may, but are not required to, use to purchase professional services and
information technology products at predetermined ceiling prices, terms and
conditions. Many of the Company's customers are authorized to use GSA schedule
contracts through blanket purchase agreements, which operate similarly to GSA
schedule contracts by permitting one or more federal agencies to purchase
professional services or products from technology service providers at
predetermined prices, terms and conditions. GSA schedule contracts are master
agreements that do not, by themselves, authorize the delivery of services or
products. Therefore, even though the Company has been awarded a GSA schedule
contract or blanket purchase agreement, it often must actively solicit
post-award sales, and it remains difficult for it to estimate the amount of
work, if any, it will obtain under the contract. GSA schedule contracts benefit
the Company's federal government customers in a number of ways. First, they
provide customers a streamlined means to competitively obtain professional
services and technology products, allowing for a more efficient and timely
procurement process. Second, because the Company must actively promote its
services and technology to obtain work under these types of agreements, the
customer benefits from continued competition. Third, as with fixed-price or
time-and-materials contracts, GSA schedule contracts shift the risks of cost
overruns to the technology service provider and promote effective contract
management and cost-efficiencies by allowing the technology service provider to
receive the benefit of cost savings that it generates. Although the Company must
compete for or solicit individual task orders under GSA schedule contracts, it
has found that GSA schedule contracts benefit companies such as ManTech that can
respond quickly to emerging customer requirements and can manage contract
performance efficiently. Finally, as with traditional fixed-price contracts, GSA
schedule contracts involve greater financial risk, but the Company believes they
offer opportunities for higher profitability because the Company bears the
impact of cost overruns and receives the benefit of cost savings.
Changes in the amount of the Company's backlog, funded backlog and GSA schedule
contract value result from potential future revenues from the execution of new
contracts or the extension of existing contracts, reductions from contracts that
end or are not renewed, reductions from the early termination of contracts, and
adjustments to estimates of previously included contracts. Changes in the amount
of the Company's funded backlog and GSA schedule contract value also are
affected by the funding cycles of the government. These estimates of future
revenues are necessarily inexact and the receipt and timing of any of these
revenues is subject to various contingencies, many of which are beyond the
Company's control. The actual accrual of revenues on programs included in
backlog, funded backlog and GSA schedule contract value may never occur or may
change because a program schedule could change or the program could be canceled,
a contract could be modified or canceled, an option that the Company has assumed
would be exercised is not exercised or initial estimates regarding the level of
solutions that the Company may provide could prove to be wrong. For the same
reason, the Company believes that period-to-period comparisons of backlog,
funded backlog and GSA schedule contract value are not necessarily indicative of
future revenues that it may receive.
Three Months Ended June 30, 2003 Compared to the Three Months Ended June 30, 2002
Revenues. Revenues increased 48.6% to $177.1 million for the three months ended
June 30, 2003, compared to $119.2 million for the same period in 2002. This
increase is primarily attributable to the inclusion of a full quarter of
revenues from the Aegis Research Corporation (Aegis), CTX Corporation (CTX),
Integrated Data Systems Corporation (IDS) and MSM Security Services, Inc. (MSM)
acquisitions. The Aegis and CTX businesses were acquired in August and December
2002, respectively, while IDS and MSM were acquired in February and March 2003,
respectively. In addition to the revenues generated from the acquisitions,
additional work under contracts that were in existence during the prior year and
several new contract awards contributed to the increase. The Company derived
approximately 39.0% of its revenues for the three months ended June 30, 2003
from work under GSA schedule contracts, compared with approximately 39.6% for
the same period in 2002. Subcontracts accounted for 9.9% of the Company's
revenue for the three months ended June 30, 2003, compared with 8.3% for the
same period in 2002.
Cost of services. Cost of services increased 48.4% to $144.4 million for the
three months ended June 30, 2003, compared to $97.3 million for the second
quarter of 2002. As a percentage of revenues, cost of services decreased from
81.6% to 81.5%. Direct labor costs increased by 41.5% due to an increase in
personnel, primarily related to the approximately 1,000 personnel added in
connection with the Company's four recent acquisitions. For the three months
ended June 30, 2003, other direct costs increased by 54.3% over second quarter
2002, from $38.5 million to $59.4 million. As a percentage of revenues, other
direct costs increased from 32.3% for the three months ended June 30, 2002 to
33.5% for the same period in 2003 due to higher pass-through sales during the
period. For the three months ended June 30, 2003, overhead personnel and
facilities costs increased 0.8%, as a percentage of revenues, as compared to the
same period in 2002.
Gross profit. Gross profit increased 49.5% to $32.7 million for the three months
ended June 30, 2003, compared to $21.9 million for the same period in 2002.
Gross profit margin increased to 18.5% for the three months ended June 30, 2003,
compared to 18.4% for the same period in 2002. Although the gross profit margin
in the second quarter of 2003 was consistent with the same quarter of the prior
year, it was down approximately 0.6% from the first quarter of 2003 as a result
of an increase in the percentage of pass-through sales in the second quarter,
which typically carry lower margins than the Company's service offerings.
General and administrative. General and administrative expenses increased 34.3%
to $16.2 million for the three months ended June 30, 2003, compared to $12.1
million for the same period in 2002. The increased expenses reflect additional
management personnel and infrastructure related to the Company's acquisitions
that are necessary to support the growth of the business. As a percentage of
revenues, general and administrative expenses decreased to 9.1% for the three
months ended June 30, 2003 from 10.1% for the same period in 2002 as a result of
operating efficiencies.
Depreciation and amortization. Depreciation and amortization expense has
increased 140.8% to $1.2 million for the three months ended June 30, 2003
compared to $0.5 million for the same period in 2002. The increase resulted from
an additional $0.5 million of amortization of intangible assets established in
connection with the Company's four recent acquisitions, as well as $0.2 million
of additional depreciation expense.
Income from operations. Income from operations increased 64.1% to $15.3 million
for the three months ended June 30, 2003, compared with $9.3 million for the
same period in 2002. The increase was primarily a result of the increase in
revenues relative to the cost of services and administrative costs discussed
above.
Income from continuing operations. Income from continuing operations increased
56.9% to $8.9 million for the three months ended June 30, 2003, compared to $5.7
million for the same period in 2002. The increase resulted from $6.0 million of
additional operating income, offset by increased income tax and interest
expenses of $2.2 million and $0.7 million, respectively. The effective tax rate
for the three months ended June 30, 2003 was 40.6%, as compared to 40.8% for the
same period in 2002.
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002
Revenues. Revenues increased 43.1% to $325.2 million for the six months ended
June 30, 2003, compared to $227.3 million for the same period in 2002. This
increase is attributable to several factors, including (1) a full six months of
revenues from the Aegis and CTX businesses that were acquired in August and
December 2002, respectively, (2) four months of revenues from the Company's IDS
and MSM acquisitions, (3) additional work under contracts that were in existence
during the prior year, and (4) the U.S. Army Communications-Electronics Command
(CECOM) contract which did not start until the second quarter of 2002. The
Company derived approximately 37.8% of its revenues for the six months ended
June 30, 2003 from work under GSA schedule contracts, compared with
approximately 39.8% for the same period in 2002. Subcontracts accounted for
10.3% of the Company's revenue for the six months ended June 30, 2003, compared
with 8.5% for the same period in 2002.
Cost of services. Cost of services increased 42.1% to $264.1 million for the six
months ended June 30, 2003, compared to $185.9 million for the same period in
2002. As a percentage of revenues, cost of services decreased from 81.8% to
81.2%. Direct labor costs increased by 40.1% due to an increase in personnel,
primarily related to the approximately 1,000 personnel added in connection with
the Company's four recent acquisitions. For the six months ended June 30, 2003,
other direct costs increased by 41.6% over the first six months of 2002, from
$72.5 million to $102.7 million. As a percentage of revenues, other direct costs
decreased from 31.9% for the six months ended June 30, 2002 to 31.6% for the
same period in 2003 due to lower pass-through sales during the period. For the
six months ended June 30, 2003, overhead personnel and facilities costs
increased 0.7%, as a percentage of revenue, as compared to the same period in
2002.
Gross profit. Gross profit increased 47.5% to $61.1 million for the six months
ended June 30, 2003, compared to $41.4 million for the same period in 2002.
Gross profit margin increased to 18.8% for the six months ended March 31, 2003,
compared to 18.2% for the same period in 2002. The increase in the gross profit
margin was primarily the result of an increase in revenues generated under time
& materials and fixed price contracts, in conjunction with a decrease in the
percentage of pass-through sales, which are typically not as profitable as the
Company's normal service offerings. Time & materials and fixed price contracts
comprised 63.8% of revenues for the six months ended June 30, 2003, compared
with 62.2% for the same period in 2002.
General and administrative. General and administrative expenses increased 31.7%
to $30.9 million for the six months ended June 30, 2003, compared to $23.5
million for the same period in 2002. The increased expenses reflect additional
management personnel and infrastructure related to the Company's acquisitions
that support the growth of the business. As a percentage of revenues, general
and administrative expenses decreased to 9.5% for the six months ended June 30,
2003 from 10.3% for the same period in 2002 as a result of operating
efficiencies.
Depreciation and amortization. Depreciation and amortization expense has
increased 116.7% to $2.2 million for the six months ended June 30, 2003 compared
to $1.0 million for the same period in 2002. The increase resulted from an
additional $0.8 million of amortization of intangible assets established in
connection with the Company's four recent acquisitions, as well as $0.4 million
of additional depreciation expense.
Income from operations. Income from operations increased 65.2% to $28.0 million
for the six months ended June 30, 2003, compared with $16.9 million for the same
period in 2002. The increase was primarily a result of the increase in revenues
relative to the cost of services and administrative costs discussed above.
Income from continuing operations. Income from continuing operations increased
54.8% to $15.8 million for the six months ended June 30, 2003, compared to $10.2
million for the same period in 2002. The increase resulted from $11.0 million of
additional operating income, offset by increases in income tax expense of $3.8
million, interest expense of $0.8 million and other expense of $0.8 million.
While the Company's effective tax rate for the six months ended June 30, 2003
and 2002 remained constant at 40.6%, interest expense was lower in the first six
months of 2002 as the Company had excess cash on hand from its initial public
offering, which was used later in 2002 to fund two of the Company's
acquisitions. The increase in other expense in 2003 was primarily the result of
a fourth quarter 2002 net loss incurred by a Company affiliate accounted for
under the equity method of accounting.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash provided by operations and the
Company's revolving credit facility. The Company funds its operations primarily
through cash provided by operating activities. In 2002, net proceeds of $201.1
million from the Company's initial and follow-on public offerings also provided
a source of liquidity. Cash provided by operating activities of continuing
operations was $9.0 million for the six months ended June 30, 2003, an increase
of $11.1 million from the same period in the prior year. The primary reasons for
this increase were increases in income from continuing operations, accounts
payable and accrued expenses, billings in excess of revenue earned, depreciation
and amortization, and equity in earnings of affiliates, in conjunction with a
smaller increase in receivables. These items were offset by an increase in
prepaid expenses and a decrease in accrued salaries. Cash paid for income taxes
for the six months ended June 30, 2003 and 2002 includes $2.7 million for each
period associated with the Company's conversion to an accrual-basis taxpayer.
Cash provided by operating activities of continuing operations for the six
months ended June 30, 2003 was $9.0 million, as compared to cash used in
operating activities of $2.1 million for the six months ended June 30, 2002. In
the six months ended June 30, 2003, cash provided by operating activities was
primarily the result of income from continuing operations of $15.8 million,
depreciation and amortization of $3.1 million, and an increase in billings in
excess of $2.0 million, offset by an increase in contract receivables and
prepaid expenses of $7.4 million, and a decrease in accrued salaries and
deferred income taxes of $5.1 million. In the six months ended June 30, 2002,
cash used in operating activities was the result of an increase in contract
receivables of $11.8 million and decreases in deferred income taxes and accounts
payable of $5.4 million, offset by income from continuing operations of $9.4
million, depreciation and amortization of $1.7 million, and a decrease in
prepaid expenses of $2.4 million.
Cash used in investing activities of continuing operations was $71.2 million for
the six months ended June 30, 2003, compared to $1.2 million for the same period
in the prior year. Investing activities in the first six months of 2003 included
the acquisitions of IDS and MSM for $63.1 million and $5.1 million,
respectively, purchases of property and equipment of $1.9 million, and
investments in intellectual property of $1.0 million. The primary component of
investing activities in the first six months of 2002 was purchases of property
and equipment of $1.5 million. Investing activities have primarily consisted of
investments in intellectual property, acquisitions of businesses, investments
and loans to affiliates and purchases of property and equipment.
Cash used in financing activities of continuing operations was $0.8 million for
the six months ended June 30, 2003, compared to cash provided by financing
activities of $64.2 million for the six months ended June 30, 2002. The net cash
used in the first half of 2003 was related to the Company's payment of the final
installment of not-to-compete financings, offset by proceeds received from
employees upon the exercise of stock options. The net cash provided by financing
activities during the first half of 2002 was primarily the result of the net
proceeds of the Company's initial public offering of $110.2 million, less
amounts used to repay debt.
On February 28, 2003, the Company acquired all of the outstanding shares of IDS
for a cash purchase price of $62.2 million, net of cash on hand, excluding $0.9
million of acquisition-related costs. The transaction is also subject to an
earnout provision. The acquisition has been accounted for using the purchase
method of accounting. The purchase price has been allocated to the assets
acquired and the liabilities assumed based upon their estimated fair market
values. The balance of the purchase price was recorded as goodwill. The
acquisition of IDS also provides a cash tax savings to the Company due to the
deductibility of goodwill and related intangibles of approximately $22.5 million
over 15 years. The goodwill is deductible because the shareholders of IDS made a
section 338(h)(10) election under the federal Tax Code. The acquisition was
funded using proceeds from the Company's follow-on public offering.
On March 5, 2003, the Company acquired all of the outstanding shares of MSM for
a cash purchase price of approximately $5.0 million, of which $2.3 million in
cash was paid to MSM shareholders and $2.7 million in cash was used to repay
existing MSM debt. The purchase price excludes $0.1 million of
acquisition-related costs and is subject to certain post-closing adjustments and
an earnout provision. The acquisition has been accounted for using the purchase
method of accounting. The purchase price has been allocated to the assets
acquired and the liabilities assumed based upon their estimated fair market
values. The balance of the purchase price was recorded as goodwill. The
acquisition was funded using proceeds from the Company's follow-on public
offering.
On December 17, 2001, the Company executed a new Business Loan and Security
Agreement with Citizens Bank of Pennsylvania, PNC Bank N.A., Branch Banking and
Trust Company of Virginia, and Chevy Chase Bank, F.S.B. to refinance and replace
a prior loan agreement. The agreement provides for a $65.0 million revolving
credit facility and a $6.4 million term loan. Under the term-loan portion of the
agreement, the principal balance was payable in consecutive quarterly
installments of $0.5 million on the last business day of each quarter commencing
with the last business day of December 2001. The maturity date of the agreement
is December 31, 2004. Under the agreement, the Company is required to maintain
specified financial covenants relating to fixed charge coverage, interest
coverage, debt coverage, and to maintain a certain level of consolidated net
worth. The agreement also places limitations on additional borrowings, mergers,
and related party transactions, issuances of capital stock and payment of
dividends, and limitations with respect to capital expenditures. Borrowings
under the agreement are collateralized by the Company's eligible contract
receivables, inventory, all of the Company's stock in certain of the Company's
subsidiaries and certain property and equipment, and bear interest at the London
Interbank Offered Rate (LIBOR), or the lender's prime rate, plus market-rate
spreads that are determined based on a company leverage ratio calculation. The
LIBOR spreads may range from 1.00% to 1.75% and the prime rate spreads may range
from 0.00% to 0.50%. To manage the Company's exposure to the fluctuations in
these variable interest rates, an interest swap was executed in December 2001.
The swap agreement has a notional principal amount of $25.0 million and
currently has a fixed LIBOR rate of 6.83%. The term loan balance and accrued
interest and all but $25.0 million of the revolving credit facility were repaid
during the first quarter of 2002. At June 30, 2003, the Company had $25.0
million in borrowings outstanding under the revolving credit facility under the
agreement.
In January 1998, the Company executed a seven-year Subordinated Credit Agreement
with First Source Financial LLP for $8.0 million to finance the redemption of
the Company's preferred stock. The principal balance was payable in eight
consecutive quarterly installments of $0.9 million on the first business day of
each quarter commencing with the first business day of January 2003. A ninth and
final payment was due on the last day of December 2004. The balance and accrued
interest of this credit facility was repaid during the first quarter of 2002.
The Company believes the capital resources available to it under the Company's
credit agreements and cash from the Company's operations are adequate to fund
the Company's ongoing operations and to support the internal growth the Company
expects to achieve for at least the next 12 months. The Company anticipates
financing growth from acquisitions, as well as the Company's longer-term
internal growth, through one or a combination of the following: cash from
operations; additional borrowing; issuance of equity; use of the existing
revolving facility; or a refinancing of the Company's credit facilities.
Critical Accounting Estimates and Policies
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. Application of
these policies is particularly important to the portrayal of the Company's
financial condition and results of operations. The discussion and analysis of
the Company's financial condition and results of operations are based on the
Company's consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires
management to make estimates and judgments that affect the reported amount of
assets, liabilities, revenues and expenses. Actual results may differ from these
estimates under different assumptions or conditions.
Revenue Recognition and Cost Estimation
The Company recognizes revenue when persuasive evidence of an arrangement
exists, services have been rendered, the contract price is fixed or
determinable, and collectibility is reasonably assured. The Company has a
standard internal process that it uses to determine whether all required
criteria for revenue recognition have been met. This standard internal process
includes a monthly review of contract revenues and expenses by several levels of
management. This review covers, among other matters, progress against schedule,
project staffing and levels of effort, risks and issues, subcontract management,
incurred and estimated costs, and disposition of prior action items. This
monthly internal review is designed to determine whether the overall progress on
a contract is consistent with the effort expended and revenue recognized to
date.
The Company's revenues consist primarily of payments for the work of the
Company's employees, and to a lesser extent, the pass through of costs for
materials and subcontract efforts under contracts with the Company's customers.
Cost of services consists primarily of compensation expenses for program
personnel, the fringe benefits associated with this compensation, and other
direct expenses incurred to complete programs, including cost of materials and
subcontract efforts.
The majority of the Company's revenues are derived from cost-plus-fixed-fee,
cost-plus-award-fee, firm-fixed-price, or time-and-materials contracts. Absent
evidence to the contrary, the Company recognizes revenue as follows. Under
cost-plus-fixed or award-fee contracts, revenues are recognized as costs are
incurred and include an estimate of applicable fees earned. Under
firm-fixed-price contracts, revenues are estimated on the percentage of
completion method, on the basis of costs incurred in relation to estimated total
costs, or upon delivery of specific products or services, as appropriate. For
time-and-material contracts, revenues are computed by multiplying the number of
direct labor-hours expended in the performance of the contract by the contract
billing rates and adding other billable direct costs. Performance incentives are
incorporated in certain contracts, which provide increased and decreased
revenues based on actual performance compared to established targets. Incentives
based upon cost performance are recorded when earned and other incentives and
awards are recorded when the amounts are earned and can be reasonably
determined, or are awarded. In certain circumstances, revenues are recognized
when contract amendments have not been finalized. Prior to agreeing to commence
work directed by the customer and before receipt of the written modification or
amendment to the existing contract, the Company requires the completion of an
internal memo that assesses the probability of the modification being executed
in a timely fashion and the Company's ability to subsequently collect payment
from the customer.
Contract revenue recognition inherently involves estimation. Examples of
estimates include the contemplated level of effort to accomplish the tasks under
contract, the cost of the effort, and an ongoing assessment of the Company's
progress toward completing the contract. From time to time, as part of the
Company's standard management processes, facts develop that require the Company
to revise its estimated total costs or revenues. In most cases, these revisions
relate to changes in the contractual scope of the Company's work. To the extent
that a revised estimate affects contract profit or revenue previously
recognized, the Company records the cumulative effect of the revision in the
period in which the facts requiring the revision become known. Anticipated
losses are recognized in the accounting period in which they are first
determined.
Goodwill
Goodwill represents the excess of cost over the fair value of net tangible and
identifiable intangible assets of acquired companies. Effective January 1, 2002,
the Company adopted SFAS No. 142, and no longer amortizes goodwill, but rather
goodwill is to be reviewed at least annually for impairment. The Company has
elected to perform this review annually on June 30 of each calendar year. For
acquisitions completed prior to the adoption of SFAS No. 141 and SFAS No. 142 on
January 1, 2002, goodwill was amortized on a straight-line basis over periods
ranging from two to twenty years.
Discontinued Operations
In September 2001, the Company executed a formal plan to exit certain commercial
and foreign lines of business that no longer contribute to the Company's core
competencies. Based on independent valuations, market comparable information and
interest expressed in these businesses, an estimate has been provided for the
likely net gains and losses to income expected from these businesses through the
estimated dates of disposal. As a result, in accordance with APB Opinion No. 30,
Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions, results of operations have been classified as
discontinued and prior periods have been restated. The Company has segregated
the net assets and liabilities held for sale, recorded all current and expected
future losses and deferred all gains expected to be realized upon disposal of
the respective entities. The amounts the Company will ultimately realize could
differ in the near term from the amounts estimated in arriving at the loss on
disposal of the discontinued operations.
The Company's significant accounting policies, including the critical policies
listed above, are described in the notes to the consolidated financial
statements for the year ended December 31, 2002 included in the Company's Annual
Report on Form 10-K filed with the SEC on March 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk relates to changes in interest rates for
borrowings under the Company's senior term loan and the Company's revolving
credit facility. These borrowings bear interest at variable rates. During the
first quarter of 2002, the Company repaid all but $25.0 million in borrowings
outstanding under the Company's revolving credit facility. A hypothetical 10%
increase in interest rates would have increased the Company's interest expense
for the six months ended June 30, 2003 by less than $0.1 million.
In December 2001, the Company entered into an interest swap agreement in order
to reduce the Company's exposure associated with the market volatility of fixed
London Interbank Offered Rate (LIBOR) interest rates. This agreement has a
notional principal amount of $25.0 million and, as of June 30, 2003, had a rate
of 6.83%. This agreement is a hedge against revolving debt of $25.0 million,
which bears interest at monthly floating LIBOR plus 1.00%. At stated monthly
intervals the difference between the interest on the floating LIBOR-based debt
and the interest calculated in the swap agreement are settled in cash. The value
of the swap at June 30, 2003 was a negative $3.2 million.
The Company does not use derivative financial instruments for speculative or
trading purposes. The Company invests its excess cash in short-term, investment
grade, interest-bearing securities.
The Company's investments of its excess cash are made in accordance with an
investment policy approved by the Board of Directors. Under this policy, no
investment securities can have maturities exceeding one year and the average
maturity of the portfolio cannot exceed 90 days.
ITEM 4. CONTROLS AND PROCEDURES
"Disclosure controls and procedures" are the controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports filed or submitted by it under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized
and reported within the time periods specified in the Securities and Exchange
Commission's rules and forms. These controls and procedures are designed to
ensure that information required to be disclosed by an issuer in its Exchange
Act reports is accumulated and communicated to the issuer's management,
including its principal executive and financial officers, as appropriate, to
allow timely decisions regarding required disclosure.
As of the date of this report, under the supervision and with the participation
of the Company's Chief Executive Officer and Chief Financial Officer, the
Company carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to the
Exchange Act Rule 13a-14. Based upon the evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its consolidated subsidiaries) required to be
included in the Company's periodic SEC filings.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 1, 2001, CHBP, Ltd., a customer of ManTech Environmental Corporation,
the Company's former environmental consulting and remediation business, filed
suit in the 333rd District Court of Harris County Texas against a number of
parties alleging initially a total of $2.0 million in damages from soil and
groundwater contamination caused by the defendants while occupying a commercial
business center owned by CHBP, Ltd. As set forth in the most recent pleadings in
this case, the total damages alleged have now been increased to $10.0 million.
On November 15, 2001, some of the defendants in this suit filed a third-party
complaint against ManTech Environmental Corporation, alleging that services
provided by the Company's subsidiary to CHBP, Ltd. caused or contributed to the
alleged contamination of the property. On April 30, 2002, CHBP, Ltd. amended
their suit to assert a direct claim against ManTech Environmental Corporation.
The Company has denied the allegations. A trial date is set for January 19,
2004. The Company believes that it has other defenses and professional liability
insurance coverage, and does not believe this litigation will have a material
adverse effect on its business, prospects, financial condition or operating
results. The Company decided to discontinue the operation of the commercial
business performed by ManTech Environmental Corporation. For more information,
please see "Item 3--Legal Proceedings"; "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations: Discontinued
Operations" and note 15 to the Company's consolidated financial statements, each
as included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 filed with the SEC on March 31, 2003.
Like most large government defense contractors, the Company's contract costs are
audited and reviewed on a continual basis by an in-house staff of auditors from
the Defense Contract Auditing Agency. In addition to these routine audits, the
Company is subject from time to time to audits and investigations by other
agencies of the federal government. These audits and investigations are
conducted to determine if the Company's performance and administration of its
government contracts are compliant with contractual requirements and applicable
federal statutes and regulations. An audit or investigation may result in a
finding that the Company's performance and administration is compliant or,
alternatively, may result in the government initiating proceedings against the
Company or its employees, including administrative proceedings seeking repayment
of monies, suspension and/or debarment from doing business with the federal
government or a particular agency, or civil or criminal proceedings seeking
penalties and/or fines. Audits and investigations conducted by the federal
government frequently span several years. Set forth below is a description of
certain government audits and investigations to which the Company is subject, in
addition to routine audits of the Company's contract costs.
On August 17, 2001, the Company was served with a grand jury subpoena issued by
the United States District Court for the Eastern District of Virginia. The U.S.
Attorney's Office for the Eastern District of Virginia has advised the Company
that the investigation relates to whether the Company improperly charged a
portion of its corporate merger and acquisition-related expenses and certain
expenses of its Australian-based software consulting subsidiary (which is one of
the Company's businesses included in discontinued operations) in a manner that
would have resulted in those expenses being reimbursed by the U.S. government.
As anticipated, the Company received a second grand jury subpoena seeking
documents relating to this investigation on August 2, 2002. Based on the facts
known to the Company as of the date of this quarterly report, the Company does
not expect the consequences of this investigation to have a material adverse
effect on its business, prospects, financial condition or operating results.
However, this investigation is still ongoing and it is not possible to tell how
it may develop in the future. The Company is fully cooperating with the federal
government's investigation of this matter.
On October 9, 2002, the Company received a document subpoena issued by the
Department of Defense Office of Inspector General. The subpoena seeks the
production of certain documents concerning a Department of Defense contract
pursuant to which one of the Company's subsidiaries, ManTech Solutions &
Technologies Corporation ("MSTC"), performed personnel security clearance
background checks for the Defense Security Service. Although the Company did not
handle classified information under this contract, the terms of the contract
required MSTC to utilize personnel with appropriate security clearances. The
Company believes that the investigation relates, in part, to whether it
improperly charged certain costs under the contract, as well as to the propriety
of the security clearances and credentials of certain subcontractors and
employees who provided services under the contract. After receiving this
subpoena, the Company's outside counsel and the Company's chief compliance
officer began an investigation of MSTC regarding certain matters relevant to the
subpoena. In the course of the Company's internal investigation, which remains
in process, the Company discovered that up to five weekly time sheets of one
person who performed services under the contract and who did not possess the
proper security clearance had been manually changed after receipt of the
subpoena and before they were produced to the Department of Defense Office of
Inspector General to indicate that such person did not directly charge time to
the contract. None of the changed information was entered into the Company's
official accounting records, and, therefore, the information in the Company's
accounting system was not compromised. The Company promptly informed the
government of this development, and it terminated certain employees of MSTC
following its discovery relating to the changed time sheets. The Company notes
that this development may result in proceedings against certain current and/or
former employees of MSTC and possibly MSTC itself. Based on the facts known to
the Company, the Company does not expect the consequences of the government's
investigation to have a material adverse effect on its business, prospects,
financial condition or operating results. For additional information regarding
the penalties to which the Company could be subject in the event the
government's investigation results in a determination that the Company or its
employees or agents acted improperly, see "Item 1--Business: Risks Related to
the Company's Business," the sections entitled "the Company's employees or
subcontractors may engage in misconduct or other improper activities" and "the
Company must comply with complex procurement laws and regulations" and "the
Company's contracts are subject to audits and cost adjustments by the federal
government" included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002 filed with the SEC on March 31, 2003.
The Company was subject to an investigation by the Inspector General of the EPA
originating from a subpoena received in March of 2000 regarding the number of
hours the Company charged in the performance of a contract with the EPA. The
investigation was closed during the second quarter of 2003 without any adverse
action against the Company.
In addition to the foregoing, the Company is subject to certain other legal
proceedings, investigations, claims and disputes that arise in the ordinary
course of its business. Although the Company cannot predict the outcomes of
these other legal proceedings, investigations, claims and disputes, based on the
information now available to it, the Company does not believe that the ultimate
resolution of these matters, either individually or in the aggregate, will have
a material adverse effect on its business, prospects, financial condition or
operating results. For more information, please see "Item 3--Legal Proceedings"
as included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2002 filed with the SEC on March 31, 2003.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company completed its initial public offering of Class A Common Stock in
February 2002, pursuant to Form S-1 (File Nos. 333-73946 and 333-82310) under
the Securities Act of 1933. Under these registration statements, the Company
registered a total of 7,200,000 shares of its Class A common stock, of which
6,866,667 shares were sold by the Company, and 333,333 shares were sold by the
selling stockholder, George J. Pedersen, who is the Company's Chairman of the
Board of Directors, Chief Executive Officer and President, and a 10% or greater
stockholder. All such shares were sold at $16.00 per share on February 7, 2002.
The managing underwriters for the offering were Jefferies & Company, Inc., Legg
Mason Wood Walker, Incorporated and BB&T Capital Markets. Pursuant to the terms
of the underwriting agreement described in the registration statements, the
underwriters were entitled to elect, not later than March 9, 2002, to sell up to
1,080,000 additional shares of the Company's Class A common stock, of which
696,487 shares were to be sold by the Company, and 383,513 shares were to be
sold by the selling stockholder if the underwriters elected to sell all the
additional shares. On February 12, 2002, the underwriters elected to sell an
additional 1,080,000 shares, resulting in an aggregate offering price of
$132,480,000, of which $121,010,464 pertained to shares sold by the Company and
the remaining $11,469,536 pertained to shares sold by the selling stockholder.
The total underwriting discount was approximately $9.3 million, of which the
company paid $8.5 million, and the Company incurred other expenses (including
filing, legal and accounting fees) of approximately $2.3 million, none of which
were paid to the Company's directors or officers or their affiliates or to
persons owning 10% or more of any class of the Company's common stock or that of
the Company's affiliates.
In December 2002, the Company completed a follow-on public offering of its Class
A Common Stock pursuant to Form S-1 (File No. 333-101226). Under this
registration statement, the Company registered a total of 6,150,000 shares of
its Class A common stock, of which 4,500,000 shares were sold by the Company,
and 1,650,000 shares were sold by selling stockholders. The selling stockholders
were two individuals, George J. Pedersen who is the Company's Chairman of the
Board of Directors, Chief Executive Officer and President, and a 10% or greater
stockholder, and John A. Moore, Jr. who is an Executive Vice President of the
Company. All such shares were sold at $18.00 per share on December 17, 2002. The
managing underwriters for the offering were Jefferies/Quarterdeck, LLC, Legg
Mason Wood Walker, Incorporated, U.S. Bancorp Piper Jaffray, Adams, Harkness &
Hill, Inc., and BB&T Capital Markets. Pursuant to the terms of the underwriting
agreement described in the registration statements, the underwriters were
entitled to elect, not later than January 16, 2003, to sell up to 922,500
additional shares of the Company's Class A common stock, of which 876,500 shares
were to be sold by the Company, and 46,000 shares were to be sold by one of the
selling stockholders, Mr. Moore, if the underwriters elected to sell all the
additional shares. On December 30, 2002, the underwriters elected to sell an
additional 922,500 shares, resulting in an aggregate offering price of
$127,305,000, of which $96,777,000 pertained to shares sold by the Company and
the remaining $30,528,000 pertained to shares sold by Messrs. Pedersen and
Moore. The total underwriting discount was approximately $6.3 million, of which
the company paid $4.8 million, and the Company incurred other expenses
(including filing, legal and accounting fees) of approximately $1.0 million,
none of which were paid to the Company's directors or officers or their
affiliates or to persons owning 10% or more of any class of the Company's common
stock or that of the Company's affiliates.
The Company's net proceeds from the initial and follow-on public offerings were
approximately $110.2 million and $90.9 million, respectively. Proceeds from the
offerings were used to repay the principal and accrued interest outstanding
under the Company's term loan and under its subordinated debt, to pay off all
but $25.0 million of principal owing under the Company's revolving credit
facility, to purchase Aegis Research Corporation on August 5, 2002 for $69.4
million, to purchase CTX Corporation on December 11, 2002 for $35.8 million, to
purchase Integrated Data Systems Corporation on February 28, 2003 for $63.1
million, and to purchase MSM Security Services, Inc. on March 1, 2003 for $5.1
million. The principal and accrued interest under the Company's term loan was
$6.0 million, principal and accrued interest under the Company's subordinated
debt was $8.1 million, and the principal repayment under the Company's revolving
credit facility was $17.7 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote at the Company's Annual Meeting
of Stockholders held on June 25, 2003:
PROPOSAL VOTES FOR VOTES AGAINST ABSTAINED
- --------------------------------- ----------- ------------- ---------
Election of Directors:
Barry G. Campbell 170,580,806 825,330
Walter R. Fatzinger, Jr. 170,524,003 882,133
Michael D. Golden 168,365,813 3,040,323
Stephen D. Harlan 171,288,890 117,246
Richard J. Kerr 171,347,890 58,246
George J. Pedersen 167,131,897 4,274,239
Stephen W. Porter 168,399,471 3,006,665
Raymond A. Ranelli 171,187,733 218,403
Election of Deloitte & Touche LLP
as independent auditors 171,329,750 73,037 3,349
ITEM 5. OTHER INFORMATION
Forward-Looking Statements
This quarterly report contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as "may," "will," "expect," "intend," "anticipate,"
"believe," "estimate," "continue" and other similar words. You should read
statements that contain these words carefully because they discuss the Company's
future expectations, make projections of the Company's future results of
operations or financial condition or state other "forward-looking" information.
Examples of such forward-looking statements include the Company's expected
future earnings as suggested by the backlog and GSA schedule contract value
estimates. The Company believes that it is important to communicate its
future expectations to its investors. However, there may be events in the
future that the Company is not able to accurately predict or control. The
factors that could cause actual results to differ materially from those
anticipated include, but are not limited to the following: failure of
government customers to exercise options under contracts; funding decisions on
U.S. Government projects; government contract procurement (such as bid protest)
and termination risks; competitive factors such as pricing pressures and/or
competition to hire and retain employees; the ability of the Company to
identify, execute or effectively integrate future acquisitions; the ability of
the Company to successfully raise additional capital; changes to the tax laws
relating to the treatment and deductibility of goodwill or any change in the
Company's effective tax rate; additional costs related to compliance with the
Sarbanes-Oxley Act of 2002, any revised NASDAQ listing standards, SEC rule
changes or other corporate governance issues; material changes in laws or
regulations applicable to the Company's filings with the SEC. The Company's
statements in this report are made as of August 4, 2003, and 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K:
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------
10.1 First Amendment To Retention Agreement effective as of January
1, 2002, between John A. Moore, Jr. and ManTech International
Corporation dated June 24, 2003
10.2 Employment Agreement effective as of June 25, 2003, between
Ronald R. Spoehel and ManTech International Corporation dated
June 25, 2003
31.1 Certification Pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002--Chief Executive Officer
31.2 Certification Pursuant to Rule 13a-14 or 15d-14 of the
Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002--Chief Financial Officer
32.1 Certification Pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code--Chief Executive Officer
32.2 Certification Pursuant to section 1350 of Chapter 63 of Title
18 of the United States Code--Chief Financial Officer
(b) Reports on Form 8-K
FILING DATE DESCRIPTION
- -------------- ---------------------------------------------------------------
April 30, 2003 Press release discussing first quarter 2003 financial
results and revised earnings guidance.
May 13, 2003 Additional information concerning the acquisition of
Integrated Data Systems Corporation by ManTech International
Corporation.
June 26, 2003 Press release announcing the appointment of Ronald R. Spoehel
as Executive Vice President and Chief Financial Officer and
the resignation of John A. Moore, Jr. as Chief Financial
Officer.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MANTECH INTERNATIONAL CORPORATION
By:
/s/ GEORGE J. PEDERSEN
---------------------------------
Name: George J. Pedersen
Title: Chairman of the Board of Directors,
Chief Executive Officer and President
Date: August 4, 2003
By:
/s/ RONALD R. SPOEHEL
---------------------------------
Name: Ronald R. Spoehel
Title: Executive Vice President
and Chief Financial Officer
Date: August 4, 2003
Exhibit 10.1
FIRST AMENDMENT TO RETENTION AGREEMENT
THIS FIRST AMENDMENT TO RETENTION AGREEMENT (this "Amendment") is made
as of this June 24, 2003 (the "Amendment Date"), by and between ManTech
International Corporation, a Delaware corporation ("ManTech"), and John A.
Moore, Jr. (the "Executive").
WITNESSETH
WHEREAS, ManTech and Executive are parties to that certain Retention
Agreement, dated as of January 1, 2002, which governs the terms and conditions
of Executive's employment with ManTech (the "Original Agreement" and as amended
by this Amendment, the "Agreement"); and
WHEREAS, ManTech and Executive desire to amend certain terms and
conditions of the Original Agreement as provided in this Amendment;
NOW, THEREFORE, in consideration of the mutual promises herein
contained and other good and valuable consideration, the receipt and sufficiency
of which are acknowledged, ManTech and Executive agree as follows:
1. Employment Duties. Section 1 of the Original Agreement shall be amended as
follows:
a. Notwithstanding anything in the Original Agreement to the contrary,
from and after the Amendment Date and through and until the end of the
Employment Period, the Executive hereby agrees to serve as Executive Vice
President of ManTech and to perform the following duties:
i. advising, managing and supporting the management of ManTech's
investment in GSE Systems, Inc. and any dispositions
pertaining to GSE Systems, Inc., when and to the extent
required by ManTech's Chief Executive Officer. Executive will
also resign from the Board of Directors of GSE upon
termination of employment by ManTech;
ii. advising and assisting ManTech with respect to the resolution
of certain pending governmental issues which are more fully
described in a private communication between Executive and
ManTech's Chief Executive Officer;
iii. providing such advice to ManTech on merger and acquisition
opportunities as may be requested from time to time by
ManTech's Chief Executive Officer;
iv. providing such advice in preparing and submitting ManTech's
formal financial submission each year to DCAA and other
governmental agencies as may be requested from time to time by
ManTech's Chief Executive Officer; and
v. performing such other assignments as may be mutually agreed
upon by Executive and Chairman of Board of ManTech. Agreement
shall not be unreasonably refused but failure to reach an
agreement shall in no way impair any other provision of the
Original Agreement or this Amendment thereto.
Executive shall, effective as of the election of his successor, no longer serve
as Chief Financial Officer or Treasurer of ManTech or in any other position with
ManTech or any of its subsidiaries, except for his position as Executive Vice
President of ManTech. Executive shall resign as a member of the board of
directors of ManTech and the board of directors of subsidiaries of ManTech on
which the Executive may serve.
b. Notwithstanding anything in the Original Agreement to the contrary,
from and after the Amendment Date and through and until the end of the
Employment Period, (i) Executive shall not be required to make any specific
commitment of time to his employment as an Executive Vice President of ManTech
but instead shall devote such time and effort as may be reasonably necessary to
fulfill his duties hereunder, provided, however, that Executive shall be paid
his contractual salary of $17,980.80 bi-weekly, and all employee benefits for
which Executive is now receiving, for each week from the date of this First
Amendment until the Scheduled Termination Date, without reduction. Executive
will be paid this sum regardless of any contrary provision of ManTech's
policies; and (ii) Executive may engage in other business activities or pursuits
whatsoever (including without limitation, serving as a member of the board of
directors of any other company); provided, however, that such activities do not
materially interfere with the performance of his responsibilities and
obligations under the Agreement and provided, further, that such activities do
not violate Section 6 of the Original Agreement (as amended herein). With
respect to any of Executive's employment opportunities that might implicate this
provision, Executive shall describe such opportunities to ManTech for its
approval. Approval or denial shall be given by ManTech within ten (10) calendar
days. Failure to provide approval or denial within the ten-day period shall be
considered approval.
2. Compensation. Section 2 of the Original Agreement is amended as follows:
a. From and after the Amendment Date and through and until the end of
the Employment Period, Attachment A to the Original Agreement is amended and
restated as set forth on Attachment A to this Amendment. Nothing therein alters
Executive's cash compensation as set forth in Section 2 (a) of the Original
Agreement, which compensation shall remain in place without reduction.
b. Notwithstanding anything in the Original Agreement to the contrary,
from and after the Amendment Date, Executive shall not be granted nor entitled
to receive (i) any cash or non-cash bonus awarded pursuant to a bonus plan or
otherwise or (ii) any additional grants of ManTech stock options, stock
appreciation rights, phantom stock or other similar rights (collectively, "Stock
Options"), except as provided herein. Such Stock Options as have heretofore been
granted to Executive shall be retained by Executive subject to, and shall
continue to vest pursuant to, the terms and conditions of the documents,
instruments, plans and agreements governing such Stock Options, provided,
however, that on the Scheduled Termination Date, all of Executive's unvested
Stock Options that have been heretofore been granted shall vest. Further, if
Executive is terminated without `Cause' prior to the Scheduled Termination Date,
all unvested Stock Options that have been heretofore been granted shall
immediately vest.
c. At any time on or before the Scheduled Termination Date, Executive
shall have the right to purchase (or to have a trust or other entity established
for estate planning purposes purchase) any split-dollar life insurance policy on
Executive's life owned by ManTech at a purchase price equal to the dollar amount
at which the policy would be valued for United States gift or estate tax
purposes, whereupon ManTech's obligations, if any, to pay policy premiums or
other costs or expenses associated with maintaining such split dollar life
insurance policies in effect shall cease.
3. Employment Period. Notwithstanding anything in Section 3 of the Original
Agreement to the contrary, the Scheduled Termination Date, as extended pursuant
to the terms of such Section 3, shall expire on December 31, 2004, and shall not
be extended further. Notwithstanding anything in this Section 3 to the contrary,
Executive's employment shall end earlier than the Scheduled Termination Date if
terminated upon death, by ManTech for Cause (as hereinafter defined) or
otherwise by the Executive or ManTech pursuant to notice given as provided in
Section 4 of the Agreement. Notwithstanding anything in this Section 3 to the
contrary, after the Employment Period, ManTech is free to engage Executive to
provide such services as shall be mutually agreed, for such compensation as
shall be mutually agreed.
4. Termination Payments; Definition of "Cause".
a. Section 5(b) of the Original Agreement is amended and restated as
follows:
(b) Notwithstanding Section 5(a) of the Agreement, if the
Executive's employment is terminated by ManTech without Cause,
ManTech also shall pay to the Executive an amount of Base Salary
equal to what otherwise would have been payable for the remainder
of the Employment Period until the Scheduled Termination Date (the
"Severance Payment"). Such Severance Payment shall be made in a lump
sum as soon as practicable following such termination using the
Base Salary rate in effect immediately prior to such termination. The
period used to calculate the amount of Base Salary payable pursuant
to the preceding sentence shall be known as the "Severance Period"
(e.g., the period commencing on the day after the effective
termination date and expiring on December 31, 2004).
b. Section 5(d) of the Original Agreement is amended and restated as
follows:
(d) For purposes of this Agreement, "Cause" for a termination of
Executive's employment shall exist if the Executive is convicted of
fraud or a felony (other than an offense related to the operation of
an automobile that results only in a fine, license suspension, or
other non-custodial penalty) or other serious crime involving moral
turpitude.
c. In the event the Executive's employment with ManTech is terminated
without Cause prior to the Scheduled Termination Date, as a condition precedent
to his receipt of any Severance Payment, Executive shall execute and deliver to
ManTech a release as required pursuant to Section 5(c) of the Original
Agreement.
5. Confidentiality; Non-Competition and Non-Solicitation.
a. Executive hereby reaffirms his obligations to ManTech pursuant to
Section 6 of the Original Agreement as if the terms and conditions of such
Section 6 were restated herein.
b. ManTech shall have the right to issue a press release or other
publicity announcement concerning the change in Executive's role within ManTech
as reflected in the Amendment, and ManTech shall provide Executive twenty-four
(24) hours to review and approve such press release.
6. Non-Disparagement. The Executive shall not disparage ManTech, any of
its subsidiaries, any of their stockholders or affiliates, or any of their
respective officers, directors, employees or agents. ManTech shall not disparage
the Executive.
7. No Other Amendments. Except as expressly provided in this Amendment,
the Original Agreement remains unmodified and in full force and effect.
8. Section 8 (b) of the Original Agreement is amended and restated as
follows:
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA, WITHOUT REFERENCE
TO THE PRINCIPLES OF CONFLICTS OF LAW EXCEPT TO THE EXTENT SUCH
PRINCIPLES PERMIT THE APPLICATION OF VIRGINIA LAW OR
JURISDICTION AND VENUE IN COURTS WITHIN VIRGINIA.
NOTWITHSTANDING, ANY AND ALL DISPUTES ARISING HEREUNDER SHALL BE
ADJUDICATED BY BINDING ARBITRATION BY JAMS UNDER THE THEN-
APPLICABLE JAMS PROCEDURES. SUCH ARBITRATION SHALL BE CONVENED
IN THE GREATER WASHINGTON, D.C. AREA.
9. Definitions. Capitalized terms that are not otherwise defined in this
Amendment shall have the meanings provided them in the Original Agreement.
10. Miscellaneous. This Amendment shall inure to the benefit and be
binding upon ManTech and the Executive. Any reference to the "Agreement" in the
Original Agreement or any other document, agreement or instrument executed and
delivered in connection with the Agreement shall mean and be construed as a
reference to the Original Agreement as modified by this Amendment. The Agreement
shall not be amended, rescinded or otherwise modified except in a writing signed
by Executive and ManTech. This Amendment may be executed and delivered in
multiple counterparts or by facsimile or other electronic transmission, and each
such counterparts shall be deemed an original, but all of which together shall
constitute one and the same instrument.
[Signatures Commence on Following Page]
IN WITNESS WHEREOF, Executive and ManTech have executed this
Agreement as of the date first written above.
Executive:
/s/ John A. Moore, Jr.
-----------------------------------
John A. Moore, Jr.
MANTECH INTERNATIONAL CORPORATION
By: /s/ George J. Pedersen
---------------------------
George J. Pedersen
Chairman, Chief Executive Officer
and President
Attachment A
Non-Cash Compensation
o First class business travel when traveling on ManTech business;
o Business travel insurance;
o The lease of an executive type of vehicle for business and personal use;
o Reimbursement of certain cell phone and home telephone/fax services;
o Matching contributions to ManTech's 401(k);
o Payments for term life insurance;
o Payments of premiums under one or more split-dollar life insurance policies
to the extent payment of such premiums complies with all provisions of
applicable law and subject to Section 2(c) of this Amendment; and
o A minimum of $25,000.00 per year contribution to Executive's supplemental
executive retirement plan.
Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), made as of this
twenty-fifth day of June, 2003 (the "Effective Date"), by and between ManTech
International Corporation ("ManTech") and Ronald R. Spoehel, a resident of West
Friendship, Maryland ("Executive").
R E C I T A L S:
---------------
A. ManTech desires to employ Executive as ManTech's Executive Vice
President and Chief Financial Officer on the terms and conditions set forth in
this Agreement; and
B. Executive is willing to accept employment with ManTech and serve as
ManTech's Executive Vice President and Chief Financial Officer on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual promises
contained in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, IT IS AGREED as follows:
SECTION I
EMPLOYMENT
1.1 Employment. ManTech hereby agrees to employ Executive and Executive
hereby accepts employment with ManTech on the terms and subject to the
conditions set forth in this Agreement.
1.2 Term. The term of Executive's employment hereunder shall continue
for an initial term of two (2) years beginning on the Effective Date (the
"Initial Term"), subject to renewal following the expiration of the Initial Term
upon mutual agreement of ManTech and Executive. No later than six (6) months
prior to the end of the Initial Term, ManTech and Executive will negotiate in
good faith for a renewal of the term of the contract. Following the Initial
Term, absent any renewal term agreed to by ManTech and Executive, Executive's
employment with ManTech shall be at-will.
The Initial Term and any renewal term, until terminated pursuant to
this Agreement, shall constitute the "Term of Employment."
1.3 Duties.
(a) Executive shall serve as Executive Vice President and
Chief Financial Officer of ManTech. As Executive Vice President and Chief
Financial Officer of ManTech, Executive shall report to the Chairman of the
Board, CEO and President of ManTech (the "Chairman"). With respect to such
office, Executive shall be responsible for (i) guiding the financial operations
of ManTech and its subsidiaries to ensure compliance with applicable law and
generally acceptable accounting principles, (ii) reporting to and interfacing
with the investment banking and Wall Street firms that own, market or otherwise
deal with ManTech's stock, (iii) being knowledgeable relative to the
organization, structure, financial performance and other dealings of ManTech,
its subsidiaries, affiliates and joint ventures and such other entities in which
ManTech has a financial interest; and (iv) such other duties and
responsibilities appropriate to such office and such other management duties
consistent with such office as may reasonably be assigned from time to time by
the Chairman or such other person as the Chairman may delegate. Executive shall
hold such further positions with ManTech and with any of its subsidiaries or
affiliates as ManTech shall reasonably specify from time to time. Executive
shall perform such duties and responsibilities conscientiously, in good faith
and to the best of his ability, giving to ManTech the full benefit of his
knowledge, expertise, skill and judgment.
(b) Executive shall not, during the Term of Employment,
without the prior written consent of the Chairman, render services of a
business, professional or commercial nature, whether or not for compensation, to
any other person or entity other than ManTech, nor engage or participate in any
trade or business activities other than in connection with the performance of
his duties hereunder. The foregoing shall not, however, preclude Executive (i)
from engaging in appropriate civic, charitable, industry or religious activities
or (ii) from devoting a reasonable amount of time to private investments and
other business activities arising from such investments (other than any business
that is a competitor of ManTech), so long as the foregoing activities and
services do not conflict with Executive's responsibilities to ManTech or the
terms of this Agreement. All material outside non-personal activities of
Executive will be subject to prior written approval from the Chairman.
Executive's services under this Agreement shall be performed at the Fairfax,
Virginia offices of ManTech, with the exception that the parties expect that
Executive may be required to travel to such other locations as the business of
ManTech may reasonably require.
(c) Executive shall be employed on a full-time basis and
devote his entire working time, attention, energy, and skills to performance of
the services, duties and responsibilities connected to such employment while so
employed.
1.4. Compensation.
(a) Salary. As compensation for Executive's services
hereunder, ManTech shall pay to Executive during the Term of Employment a salary
at the annual rate of Three Hundred Fifty Thousand Dollars ($350,000), payable
in accordance with the regular payroll practices of ManTech as in effect from
time to time and subject to applicable tax and other withholdings (the "Base
Salary"). Executive shall receive an annual salary review on or about April 1 of
each calendar year in accordance with ManTech's practices and procedures for
review and adjustment of corporate salaries.
(b) Bonus and Options. In addition to the Base Salary, and
subject to the terms and conditions set forth herein, during the Term of
Employment, (i) Executive shall be eligible to receive an annual cash bonus
awarded and paid in accordance with ManTech's bonus plan, practices and
procedures in place for senior executives of ManTech (the "Cash Bonus"); (ii)
Executive shall be entitled to participate in such bonus and other incentive
award programs as determined by the Compensation Committee of ManTech's Board of
Directors in its sole discretion; and (iii) Executive shall be awarded (A) on
the date of Executive's employment with ManTech, options to purchase 50,000
shares of ManTech stock at the then current market value of the stock subject to
the vesting requirements and other terms and conditions of ManTech's existing
long-term incentive plan or other stock option plan under which such options are
granted and (B) additional options to purchase 50,000 shares of ManTech stock at
the then current market value of the stock subject to the vesting requirements
and other terms and conditions of ManTech's then current long-term incentive
plan or other stock option plan under which such options are granted. These
additional options shall be part of the 2003 ManTech stock option grant program
currently being reviewed by, and subject to the approval of, the Compensation
Committee of the Board of Directors of ManTech. Performance criteria for the
Cash Bonus shall be formulated as reasonably agreed by ManTech and Executive,
and approved by the Compensation Committee of the Board of Directors of ManTech
within thirty (30) days of the Effective Date.
(c) Reimbursement for Reasonable Business Expenses. ManTech
shall reimburse Executive for reasonable expenses incurred by him in connection
with the performance of his duties pursuant to this Agreement including, but not
limited to, entertainment expenses, travel expenses, expenses in connection with
professional conventions or similar professional functions, and other reasonable
business expenses in accordance with ManTech policies and practices concerning
reimbursement of such reasonable expenses. Travel by air may be by first class,
if available. In addition, ManTech shall reimburse Executive for reasonable dues
paid and reasonable expenses incurred by him in connection with his membership
in professional and business organizations related to the business of ManTech or
any of its subsidiaries or affiliates, and his attendance at any meetings
thereof.
(d) Fringe Benefits. ManTech shall provide Executive with four
weeks annual vacation, in accordance with ManTech's practices and procedures for
employees at the level of Vice President and above, and shall also provide
Executive with group health, dental and vision insurance, retirement and other
benefits which are comparable to those provided from time to time by ManTech to
its employees having a status similar to that of Executive, to the extent
permitted under applicable law and the policies of ManTech as in effect from
time to time. In addition, ManTech shall use commercially reasonable efforts to
include Executive as a covered insured under any liability or similar insurance
policies provided to ManTech employees having a status similar to that of
Executive.
(e) Relocation Expenses and Living Expenses. Executive has
agreed to relocate himself and his family to Virginia as a condition of his
employment with ManTech. Accordingly, ManTech shall pay the reasonable costs and
expenses associated with moving Executive and Executive's family to Virginia (to
consist of moving expenses, real estate fees, closing fees and, if agreed upon
by ManTech prior to the closing, financing costs). ManTech shall reimburse
Executive on a grossed up basis for any income tax payable as a result of this
Section 1.4(e).
SECTION II
TERMINATION OF EMPLOYMENT
2.1 Termination for Cause. ManTech may terminate Executive's employment
for Cause (as hereinafter defined) at any time during the Term of Employment
upon written notice.
Upon termination of Executive's employment for Cause, ManTech shall (i)
pay to Executive all salary earned but unpaid as of the date of termination,
less all deductions or offsets for amounts owed to them (including without
limitation any unearned salary advances or outstanding loans); (ii) shall make
(or cause to be made) all distributions to Executive payable in accordance with
the terms of any employee benefit plan of ManTech in which Executive is a
participant as of the date of termination; and (iii) provide all other benefits
described in Sections 1.4(c), (d) and (e) hereof for all periods prior to the
date of termination. Upon termination of Executive's employment for Cause,
Executive shall not be entitled to, and ManTech shall not pay, any bonus
described in Section 1.4(b) above.
As used in this Agreement, "Cause" means (i) gross negligence or
willful misconduct by Executive in the performance of his duties hereunder; (ii)
dishonesty, fraud, embezzlement or misappropriation by Executive relating to
ManTech or any of its subsidiaries or affiliates or any of their respective
funds, properties or assets; (iii) continuing refusal by Executive (other than
due to death or Disability), after written notice and five days to cure (or such
shorter period of cure as the Chairman or the Board of Directors of ManTech
reasonably determines is necessary to avoid an adverse effect on the business of
ManTech), to perform his duties hereunder or to follow any lawful directive of
the Chairman or the Board of Directors of ManTech which is not inconsistent with
the terms of this Agreement; (iv) any material breach by Executive of this
Agreement or any other agreement with ManTech or its subsidiaries or affiliates
(other than due to death or Disability) which is not cured after written notice
to Executive and five days to cure (or such other longer cure period contained
in such agreement); (v) the conviction of Executive of any felony or entering a
plea of nolo contendere in response to an indictment for a felony or conviction
of any crime involving moral turpitude; (vi) inability to obtain any security
clearance required for the performance of Executive's duties pursuant to Section
1.3(a) hereof; provided, however, that such inability is due in no part to any
action or inaction of ManTech; or (vii) acting in any manner or making any false
statements which the Chairman or the Board of Directors of ManTech reasonably
determines to have a material adverse effect on the reputation, operations,
prospects or business relations of ManTech or any of its subsidiaries or
affiliates. "Cause" shall not include any action by Executive if such action was
in the performance of his duties hereunder and undertaken with a reasonable
belief that such action was both lawful and in the best interests of ManTech or
any of its subsidiaries or affiliates.
2.2 Termination upon Death or Disability. Executive's employment shall
automatically terminate upon his death, and each of ManTech and Executive may
terminate Executive's employment during the Term of Employment upon the
Disability of Executive.
Upon termination of Executive's employment because of his death or
Disability, ManTech shall (i) pay to Executive or to his estate, as applicable,
all salary earned but unpaid as of the date of termination, plus a prorated
portion of any bonuses for the calendar or fiscal year, as applicable, of such
termination as provided in Section 1.4(b) hereof, less all deductions or offsets
for amounts owed to ManTech (including without limitation any unearned salary
advances or outstanding loans); (ii) make (or cause to be made) all
distributions to Executive payable in accordance with the terms of any employee
benefit plan of ManTech in which Executive is a participant as of the date of
termination and (iii) provide all other benefits described in Sections 1.4(c),
(d) and (e) hereof for all periods prior to the date of termination.
As used herein, "Disability" means any physical or mental illness,
disability or incapacity which prevents Executive from performing all or
substantially all of his duties hereunder for a period of not less than one
hundred twenty consecutive days or for an aggregate of one hundred eighty days
during any period of twelve consecutive months.
2.3 Termination by ManTech for Convenience or By Executive for Good
Reason. If (i) ManTech terminates Executive's employment during the Term of
Employment other than (x) for Cause or (y) because of Executive's death or
Disability or (ii) Executive resigns his employment for Good Reason (as
hereinafter defined), ManTech shall continue the payment of Executive's salary
described in and pursuant to the terms of Sections 1.4(a) and 1.4(b) hereof
through and until the longer of the expiration of the Term of Employment or two
(2) years from the date of termination. In addition, for the same period during
which Executive is entitled to receive salary continuation payments pursuant to
the provisions of the immediately preceding sentence, ManTech shall (i) make (or
cause to be made) all distributions to Executive payable in accordance with the
terms of any employee benefit plan of ManTech in which Executive is a
participant as of the date of termination; and (ii) provide all other benefits
described in Sections 1.4(c), (d) and (e) hereof for all periods prior to the
date of termination. As used herein, "Good Reason" means (i) forced relocation
of the Executive by ManTech to a location that is outside a 50-mile radius of
Fairfax County, Virginia; (ii) a reduction in Executive's base salary as defined
in Section 1.4 hereof and benefits in accordance with the terms of this
Agreement, except for any reduction which is part of a general reduction or
other concessionary arrangement affecting all employees or affecting all senior
executive officers; (iii) a material diminution in Executive's duties,
authority, or title; or (iv) any material breach of this Agreement by ManTech
not cured within thirty (30) days of receipt of written notice thereof from
Executive. Executive shall provide ManTech with not less than sixty (60) days
written notice of any termination by Executive for Good Reason, which notice
shall specify the date of such termination.
2.4 Voluntary Termination. Executive shall be entitled to terminate his
employment at any time during the Term of Employment ("Voluntary Termination"),
upon not less than ninety (90) days written notice specifying the date of
termination. In the event of such Voluntary Termination, ManTech shall (i) pay
Executive all salary earned but unpaid as of the date of termination, less all
deductions or offsets for amounts owed to them (including without limitation any
unearned salary advances or outstanding loans), (ii) make (or cause to be made)
all distributions to Executive payable in accordance with the terms of any
employee benefit plan of ManTech in which Executive is a participant as of the
date of termination; and (iii) provide all other benefits described in Sections
1.4(c), (d) and (e) hereof for all periods prior to the date of termination. In
the event of such Voluntary Termination, Executive shall not be entitled to, and
ManTech shall not pay, any bonus described in Section 1.4(b) above.
2.5 Upon Termination. Upon termination of his employment with ManTech,
Executive shall immediately return to ManTech all memoranda, records, notes,
reports, customer lists, pricing information, data, technical information and
other documents or recorded information of any kind and in any form of media
relating to ManTech or its subsidiaries or affiliates, and any copies thereof,
and any other property of ManTech or its subsidiaries or affiliates of any kind
that may be in Executive's possession or under his control.
SECTION III
CONFIDENTIAL INFORMATION AND NON-COMPETITION
3.1 Nondisclosure of Confidential Information. Executive agrees to
treat as confidential and retain in the strictest confidence and shall not
voluntarily use, divulge, disclose or make accessible to any other firm,
partnership, corporation or any other person or entity outside ManTech any
Confidential Information (as hereinafter defined) except in connection with his
good faith efforts on behalf of ManTech or any of its subsidiaries or
affiliates. As used herein, "Confidential Information" shall mean any
information of a confidential nature relating in any way to ManTech or any of
its subsidiaries or affiliates or their respective businesses, including,
without limitation, information concerning ManTech's financial data, strategic
business plans, product development (or other proprietary product data),
customer lists, pricing information, data, technical information, proposals,
support data, supplier lists, employee lists, marketing plans, software,
processes, inventions and devices. Notwithstanding the foregoing, information
shall not be deemed "Confidential Information" if Executive can demonstrate that
such information (i) is now or hereafter became available to the public other
than as a result of disclosure by Executive (other than disclosure by Executive
necessary to comply with SEC or other reporting requirements); (ii) became
available to Executive on a non-confidential basis from a source other than
ManTech or any of its subsidiaries or affiliates which source was not under an
obligation to ManTech or any of its subsidiaries or affiliates (whether
contractual, legal or fiduciary) to keep such information confidential; (iii)
is, in the opinion of counsel for Executive, required to be disclosed for
Executive not to be in violation of any applicable law or regulation; or (iv) is
required to be disclosed pursuant to an order of, or is necessary to be
disclosed in connection with any litigation or other proceeding in which
testimony is compelled before, any court or like entity or governmental
authority; provided that in any such case, Executive shall provide ManTech with
prompt notice of such request, order or intended disclosure, including copies of
any preliminary or final subpoenas, orders, filings and the like requesting or
containing such Confidential Information, cooperate reasonably with ManTech in
resisting or limiting, as appropriate, the disclosure of such Confidential
Information via a protective order or other appropriate legal action, and shall
not make disclosure pursuant thereto until ManTech has had a reasonable
opportunity to resist such disclosure, unless he is ordered otherwise.
3.2 Non-Competition. (a) Executive acknowledges that, as a result of
his positions with ManTech, he will have access to information with respect to
the development, implementation and management of ManTech's business strategies
and plans, including those which involve ManTech's finances, products, services,
marketing, operations, industrial and investor relations and acquisitions.
Accordingly, during the period of his employment hereunder and for any period
thereafter during which Executive is receiving salary continuation payments
under Section II hereof, Executive agrees that he shall not, directly or
indirectly, in any capacity, carry on, be engaged in, assist, consult for or
have any financial or other interest in any business which is in competition
with the business of ManTech (provided that a financial interest of not more
than two percent (2%) in any company which is publicly traded and whose shares
are listed on a national stock exchange or are quoted on NASDAQ shall be
permitted). In addition, Executive shall not, on his own behalf or on behalf of
any firm, partnership, corporation or any other person or entity, directly or
indirectly, during the twelve month period following his termination of
employment hereunder, for any reason whatsoever, solicit or offer employment to
any person who has been employed by ManTech or any of its subsidiaries or
affiliates at any time during the twelve months immediately preceding such
solicitation, or solicit, offer or induce any person, entity or governmental
authority that was under contract with ManTech or any of its subsidiaries or
affiliates while Executive was employed by ManTech, or with whom ManTech or any
of its subsidiaries or affiliates was having discussions while Executive was
employed by ManTech, to discontinue its relationship with ManTech or its
subsidiary or affiliate, as applicable. For purposes of this Section 3.2, a
business shall be deemed to be in competition with the business of ManTech or
any of its subsidiaries or affiliates if it is principally involved or if it has
proposed to become principally involved in the purchase, sale or other dealing
in any property or product or the rendering of any service purchased, sold,
dealt in or rendered, by ManTech or any of its subsidiaries or affiliates as a
material part, or expected material part, of the business of ManTech or such
subsidiary or affiliate, as applicable.
(b) Executive and ManTech agree that this covenant not to compete and
the covenant not to solicit are reasonable covenants under the circumstances,
Executive has been adequately compensated for such covenants, and further agree
that if in the opinion of any court of competent jurisdiction such restraint is
not reasonable in any respect, such court shall have the right, power and
authority to excise or modify such provision or provisions of this covenant as
to the court shall appear not reasonable and to enforce the remainder of the
covenant as so amended.
3.3 Intellectual Property/New Developments. Executive agrees that any
product, "know-how," idea, formula, operational method, method of manufacture,
invention, development, discovery, original works of authorship, improvements,
designs, processes, computer programs, databases, trade secrets and related
proprietary and Confidential information or other knowledge or technical
improvements (collectively, "Special Information"), whether patentable or not,
in which he participates, or made or conceived by Executive, during his Term of
Employment, whether made within or without the course of Executive's employment
with ManTech, which relates in any way to the business of ManTech or any of its
subsidiaries or affiliates and/or results directly or indirectly from
Executive's employment with ManTech shall be treated as owned by and for the
benefit of, ManTech, and as the property of ManTech, and Executive shall, and
hereby does, assign all of his rights to such Special Information to ManTech
without further compensation. Executive acknowledges that all original works of
authorship that are made by Executive (solely or jointly with others) within the
scope of Executive's employment hereunder and that are protected by copyright,
are "works made for hire," as that term is defined in the United States
Copyright Act (17 U.S.C. ss. 101). Executive hereby waives all moral rights
relating to all work developed or produced by him within the scope of
Executive's employment hereunder, including without limitation any and all
rights of identification of authorship and any and all rights of approval,
restriction or limitation on use or subsequent modifications. Further, in such
regard, Executive shall communicate and promptly disclose to the Chairman all
such Special Information to the extent such information is known at such time by
Executive and will assist ManTech in every proper way, at ManTech's expense, to
obtain a patent or patents thereon in the United States and any other
jurisdiction that ManTech deems appropriate, and Executive agrees to execute all
instruments and to take all steps reasonably necessary to make the benefits of
such Special Information available to ManTech as its exclusive property.
3.4 Specific Enforcement. Executive agrees that any breach of the
covenants contained in this Section III would irreparably injure ManTech.
Accordingly, Executive agrees that ManTech may, in addition to pursuing any
other remedies each may have under this Agreement or otherwise in law or in
equity, obtain an injunction against Executive from any court having
jurisdiction over the matter restraining any further violation of this Agreement
by Executive.
SECTION IV
MISCELLANEOUS
4.1 Parties Benefited; Assignment. This Agreement shall become
effective as of the Effective Date and, from and after that time, shall extend
to and be binding upon, and inure to the benefit of, Executive, his heirs and
his personal representative or representatives, and ManTech and its successors
and assigns (including any assignee of substantially all the assets of ManTech).
Neither this Agreement nor any rights or obligations hereunder may be assigned
by Executive.
4.2 Notices. All notices given or served hereunder shall be in writing
and sent by (a) certified or registered mail, return receipt requested, (b)
personal delivery, with receipt, (c) Federal Express, Express Mail or other
reputable overnight courier service, with receipt, or (d) transmitted by
telecopier (with postage prepaid mail confirmation) to the parties as follows:
If to Executive:
Ronald R. Spoehel
(REDACTED)
If to ManTech:
ManTech International Corporation
12015 Lee Jackson Highway
Fairfax, Virginia 22033-3300
Attn: George J. Pedersen
Fax No.: 703-218-6301
with a copy to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 2004
Attention: Stephen W. Porter, Esq.
Fax No.: 202-942-5999
Any such notice shall be deemed to have been received on delivery, in the case
of (b) above; on the second business day following mailing, in the case of (a)
above; and on the first business day following mailing or transmission in the
case of (c) or (d) above. Any party may change the address or telecopier number
by giving notice to other party hereto.
4.3 Severability. Each section and subsection of this Agreement
constitutes a separate and distinct provision hereof. It is the intent of the
parties hereto that the provisions of this Agreement be enforced to the fullest
extent permissible under the laws and public policies applicable in each
jurisdiction in which enforcement is sought. Accordingly, if any provision of
this Agreement shall be adjudicated to be invalid, ineffective or unenforceable,
the remaining provisions shall not be affected thereby.
4.4 Amendment. This Agreement contains the full and complete agreement
of the parties relating to the employment of Executive hereunder and supersedes
all prior agreements, arrangements or understandings, whether written or oral,
relating thereto. No amendment, supplement, modification, waiver or termination
of this Agreement shall be binding unless executed in writing by the parties. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof, nor shall such waiver
constitute a continuing waiver.
4.5 Disputes; Jurisdiction and Venue. Any dispute or question arising
either out of or relating to this Agreement shall be settled in accordance with
the laws of the Commonwealth of Virginia, and each of the parties hereto hereby
irrevocably submit to the jurisdiction of any federal or state court sitting in
the Commonwealth of Virginia in any action or proceeding arising out of or
relating to this Agreement, and each hereby irrevocably (i) agrees that all
claims in respect of such action or proceeding may be heard and determined in
any such court and (ii) waives any objection to the venue of any such court that
each may have.
4.6 Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
4.7 Third Parties. Nothing expressed or implied in this Agreement is
intended, or shall be construed, to confer upon or give any person or entity
other than ManTech and Executive any rights or remedies under, or by reason of,
this Agreement.
4.8 Affiliate. As used herein, the term "affiliate" shall mean any
corporation, partnership or other business entity controlling, controlled by or
under common control with ManTech.
4.9 Applicable Law. This Agreement shall be construed and applied in
accordance with the law of the Commonwealth of Virginia, without giving effect
to the conflict of laws rules thereof.
4.10 Captions and Headings. The captions and headings of the several
Articles and Sections herein are inserted for convenience of reference only and
are not intended to be part of or to affect the meaning of interpretation of
this Agreement.
4.11 Construction. Executive acknowledges and agrees that he had an
opportunity to participate in the negotiation of the terms and conditions of
this Agreement and to have this Agreement reviewed by counsel. Accordingly, any
rule of construction that this Agreement be more strictly construed against the
party drafting it shall not apply.
[remainder of page intentionally left blank]
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed as of the day, month, and year first above written.
MANTECH INTERNATIONAL CORPORATION
By: /s/ George J. Pedersen
--------------------------------------------
George J. Pedersen
Chairman of the Board, CEO and President
/s/ Ronald R. Spoehel
--------------------------------------------
RONALD R. SPOEHEL
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, George J. Pedersen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ManTech International
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures; and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting; and
Date: August 4, 2003
By: /s/ GEORGE J. PEDERSEN
------------------------------
Name: George J. Pedersen
Title: Chairman of the Board of Directors,
Chief Executive Officer and President
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULE 13A-14 OR 15D-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Ronald R. Spoehel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of ManTech International
Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant
as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting; and
Date: August 4, 2003
By: /s/ RONALD R. SPOEHEL
------------------------------
Name: Ronald R. Spoehel
Title: Executive Vice President
and Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the ManTech International Corporation (the "Company")
Quarterly Report on Form 10-Q for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
George J. Pedersen, Chief Executive Officer of the Company, certify pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
This certificate is being made for the exclusive purpose of compliance by the
Chief Executive Officer of the Company with the requirements of Section 906 of
the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by
any person or for any reason other than as specifically required by law.
Date: August 4, 2003
By: /s/ GEORGE J. PEDERSEN
-----------------------------------
Name: George J. Pedersen
Title: Chairman of the Board of Directors,
Chief Executive Officer and President
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the ManTech International Corporation (the "Company")
Quarterly Report on Form 10-Q for the period ending June 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Ronald R. Spoehel, Chief Financial Officer of the Company, certify pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, to the best of my knowledge, that:
(1) The Report fully complies with the requirements of Section 13 (a) or 15(d)
of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
This certificate is being made for the exclusive purpose of compliance by the
Chief Financial Officer of the Company with the requirements of Section 906 of
the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by
any person or for any reason other than as specifically required by law.
Date: August 4, 2003
By: /s/ RONALD R. SPOEHEL
------------------------------
Name: Ronald R. Spoehel
Title: Executive Vice President
and Chief Financial Officer