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Form 10-Q for VERIDIAN CORPORATION filed on August 13, 2002
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 001-31342
VERIDIAN CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 54-1387657
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(State or other jurisdiction of (I.R.S. Employer incorporation
or organization) Identification No.)
1200 South Hayes Street, Suite 1200, Arlington, Virginia 22202
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(Address of principal executive office)
(Zip Code)
(703) 575-3100
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, and former
fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ ] No [X] As of the close of business
on August 12, 2002, there were 32,977,313 outstanding shares of the registrant's
common stock, par value $0.0001 per share.
CONTENTS
Part I. Financial Information Page
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of
Operations for the Three and Six Months
ended June 30, 2002 and 2001 1
Condensed Consolidated Balance Sheets
as of June 20, 2002 and December 31, 2001 2
Condensed Consolidated Statement of
Changes in Stockholders' Equity (Deficit)
for the Six Months ended June 30, 2002 3
Condensed Consolidated Statements of
Cash Flows for the Six Months ended
June 30, 2002 and 2001 4
Notes to Unaudited Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 26
Part II. Other Information Required in Report
Item 2. Changes in Securities and Use of Proceeds 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
ITEM 1 - UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
VERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $192,606 $173,479 $369,208 $336,202
Costs and expenses:
Direct costs 128,993 113,624 244,427 218,626
Indirect costs, selling, general and administrative expenses 46,993 45,694 93,470 90,007
Depreciation expense 2,575 2,758 5,154 5,576
Amortization expense - 2,994 - 5,988
Acquisition, integration and related expenses - 119 - 318
-------- -------- -------- --------
Total costs and expenses 178,561 165,189 343,051 320,515
-------- -------- -------- --------
Income from operations 14,045 8,290 26,157 15,687
Other (income) expense:
Interest income (179) (259) (399) (460)
Interest expense 5,390 7,236 11,540 14,455
Other expense, net - 95 - 95
-------- -------- -------- --------
Other expense, net 5,211 7,072 11,141 14,090
-------- -------- -------- --------
Income from continuing operations before income taxes
and extraordinary items 8,834 1,218 15,016 1,597
Income tax expense 3,573 1,850 6,185 3,332
-------- -------- -------- --------
Income (loss) from continuing operations before extraordinary items 5,261 (632) 8,831 (1,735)
Loss from discontinued operations, net of income tax - 3,216 - 6,315
Loss on disposal of discontinued operations, net of income tax - - 1,103 -
-------- -------- -------- --------
Income (loss) before extraordinary items 5,261 (3,848) 7,728 (8,050)
Extraordinary items - loss on early extinguishment of debt, net of
income tax benefit 10,938 - 10,938 -
-------- -------- -------- --------
Net loss (5,677) (3,848) (3,210) (8,050)
Recapitalization charges, preferred dividends and accretion to
preferred and common stock redemption values 56,487 2,011 58,740 3,949
-------- -------- -------- --------
Net loss attributable to common stockholders $(62,164) $ (5,859) $(61,950) $(11,999)
======== ======== ======== ========
Earnings per common share - Basic and diluted
Income (loss) from continuing operations $ (3.90) $ (0.35) $ (4.78) $ (0.75)
Loss from discontinued operations - (0.43) (0.10) (0.84)
Extraordinary loss on early extinguishment of debt (0.83) - (1.05) -
-------- -------- -------- --------
$ (4.73) $ (0.78) $ (5.93) $ (1.59)
======== ======== ======== ========
See accompanying notes to unaudited condensed consolidated financial statements.
1
VERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31,
2002 2001
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 32,243 $ 2,105
Receivables, net of allowance of 1,926 and 2,250 in 2002 and 2001, respectively 198,420 202,163
Inventories, net 2,345 2,511
Income taxes receivable 7,603 630
Deferred income taxes 5,750 5,750
Other current assets 8,183 4,918
--------- --------
Total current assets 254,544 218,077
--------- --------
Property, plant and equipment:
Land 222 222
Buildings and improvements 13,939 13,334
Machinery, furniture and equipment 31,803 29,415
Computer equipment and software 35,194 33,279
Construction in progress 4,498 3,868
--------- --------
85,656 80,118
Less accumulated depreciation and amortization 36,856 31,695
--------- --------
Net property, plant and equipment 48,800 48,423
--------- --------
Goodwill, net of accumulated amortization of 34,155 in 2002 and 2001 207,855 207,855
Deferred financing costs 2,522 2,474
Deferred income taxes 7,696 7,696
Other assets 796 850
--------- --------
Total assets $ 522,213 $485,375
========= ========
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current installments of long-term debt $ 1,500 $ 1,100
Accounts payable 21,091 25,463
Accrued employee compensation costs 58,039 58,112
Other accrued expenses 12,862 9,904
Provision for loss on disposal - 5,587
--------- --------
Total current liabilities 93,492 100,166
Long-term debt, less current installments 128,500 244,646
Post retirement medical and insurance benefits 6,377 6,438
Other long-term liabilities 1,125 1,085
--------- --------
Total liabilities 229,494 352,335
--------- --------
Senior redeemable exchangeable preferred stock, Series A; 300,000
shares authorized in 2001, respectively; none authorized, issued and outstanding
in 2002; 53,886 shares issued and outstanding in 2001 - 46,816
Redeemable convertible Class A common stock, $0.0001 par value; 7,318,325
shares authorized; none issued and outstanding in 2002; 7,318,325 shares issued
and outstanding in 2001 - 108,183
Stockholders' equity (deficit):
Class B common stock, $0.0001 par value; 24,497,500 shares authorized; 7,471,033
shares issued and outstanding in 2001 - 1
Common stock, $0.0001 par value; 130,000,000 shares authorized; 32,975,117 shares
issued and outstanding in 2002 4 -
Additional paid-in capital 413,880 37,784
Notes receivable (11,146) (11,675)
Accumulated deficit (110,019) (48,069)
--------- --------
Total stockholders' equity (deficit) 292,719 (21,959)
--------- --------
Total liabilities, redeemable stock and stockholders' equity (deficit) $ 522,213 $485,375
========= ========
See accompanying notes to unaudited condensed consolidated financial statements.
2
VERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------- PAID-IN NOTES EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL RECEIVABLE (DEFICIT) EQUITY
---------- ------ ---------- ---------- --------- -------------
Balances at December 31, 2001 7,471,033 $1 $ 37,784 $(11,675) $(48,069) $(21,959)
Exercise of stock options and stock issuance,
and income tax benefit thereof 46,207 - 572 - - 572
Issuance of stock warrants - - 4,127 - (1,989) 2,138
Sale of common stock 15,525,000 2 228,499 - (1,600) 226,901
Conversion of Class A common stock to common stock 9,990,889 1 143,778 - (35,306) 108,473
Repurchases of common stock (58,012) - (880) 880 - -
Interest on notes receiveable - - - (351) - (351)
Preferred stock dividends and liquidation premium - - - - (10,276) (10,276)
Accretion to preferred stock redemption value - - - - (9,279) (9,279)
Accretion to Class A common stock redemption value - - - - (290) (290)
Net loss - - - - (3,210) (3,210)
---------- -- -------- -------- --------- --------
Balances at June 30, 2002 32,975,117 $4 $413,880 $(11,146) $(110,019) $292,719
========== == ======== ======== ========= ========
See accompanying notes to unaudited condensed consolidated financial statements.
3
VERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
---------------------------
2002 2001
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,210) $ (8,050)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 5,154 11,564
Extraordinary loss, pretax 18,494 -
Noncash interest expense 860 929
Noncash interest income on stock purchase notes (351) (371)
Loss from discontinued operations - 6,315
Loss on disposal of discontinued operations 1,103 -
Loss on disposal of property, plant and equipment 72 44
Changes in assets and liabilities, net of effects of business acquisitions:
Receivables 3,743 (16,658)
Inventories 166 94
Income taxes receivable (5,804) (196)
Other assets (3,211) (826)
Accounts payable (4,372) 6,875
Income taxes payable - (746)
Accrued employee comp costs (73) (4,379)
Other accrued expenses 2,958 3,734
Post-retirement benefits (61) (56)
Other long-term liabilities 40 (16)
--------- ---------
Net cash provided by (used in) operating activities 15,508 (1,743)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (5,601) (8,971)
Proceeds from sale of assets - 19
Proceeds from sale of discontinued operations 500 -
Cash used by discontinued operations (7,926) (5,051)
Acquisition of businesses - (1,500)
--------- ---------
Net cash used in investing activities (13,027) (15,503)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings, net of transaction costs 262,239 132,000
Proceeds from initial public offering, net of transaction costs 226,901 -
Proceeds from exercise of stock options 134 14
Proceeds from interest on notes receivable - 12
Principal payments of long-term debt (294,546) (117,050)
Retirement of subordinated notes, including prepayment penalty (100,700) -
Redemption of preferred stock, including liquidation premium and dividends (66,371) -
Repurchases of common stock - (2)
--------- ---------
Net cash provided by financing activities 27,657 14,974
--------- ---------
Net increase (decrease) in cash and equivalents 30,138 (2,272)
Cash and cash equivalents at beginning of period 2,105 2,324
--------- ---------
Cash and cash equivalents at end of period $ 32,243 $ 52
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 10,933 $ 13,586
Cash paid during the period for income taxes 4,386 1,970
See accompanying notes to unaudited condensed consolidated financial statements.
4
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial statements
of Veridian Corporation (the Company) have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) for quarterly
reports on Form 10-Q and do not include all of the information and note
disclosures required by accounting principles generally accepted in the United
States. These interim financial statements should be read in conjunction with
our consolidated financial statements and notes thereto as of December 31, 2001
and 2000, and for each of the years in the three-year period ended December 31,
2001, as included in the Company's Prospectus dated June 5, 2002 filed with the
SEC pursuant to rule 424(b) under the Securities Act of 1933. The accompanying
condensed consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and reflect
all adjustments, consisting of normal, recurring adjustments, which are, in the
opinion of management, necessary to present fairly the Company's financial
position as of June 30, 2002 and 2001, and the results of its operations, cash
flows and changes in stockholders' equity (deficit) for the six months ended
June 30, 2002 and 2001. The results of operations for the six months ended June
30, 2002 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2002.
NOTE 2 RECAPITALIZATION
(a) Initial Public Offering
On June 10, 2002, the Company closed on the initial public offering of
15,525,000 shares of common stock, including the sale of 2,025,000 shares
to cover over-allotments granted to underwriters, at $16 per share,
generating net cash proceeds of $226,901. The majority of the proceeds were
used to retire long-term debt and preferred stock. $100,700 was used to
retire the Company's 14.50 percent senior subordinated notes (subordinated
notes) due July 31, 2008, including a 6 percent early extinguishment
penalty of $5,700 of the face amount of the subordinated notes, and $66,371
was used to redeem all of its senior redeemable exchangeable preferred
stock, Series A (Series A preferred stock), including a 12 percent early
redemption penalty of $6,969 and accrued dividends of $1,328. The proceeds
were also used to fund the repayment of $28,436 of outstanding principal
due under revolving loans of the Company's existing credit facility (the
2000 facility) that were not funded by proceeds of the refinancing (note
2(b)). The remaining proceeds of $31,394 are available to fund working
capital requirements and business acquisitions.
(b) Refinancing
Concurrent with the closing of the initial public offering, the Company
replaced the 2000 credit facility with a new facility (the 2002 facility)
provided by a syndicate of financial institutions. The Company received
proceeds of $130,000, net of transaction costs of $2,561, to repay $108,075
and $19,364 of principal due under term and revolving loans, respectively,
that were outstanding under the 2000 credit facility. An additional $28,436
of revolving loan principal outstanding under the 2000 facility was repaid
with proceeds from the initial public offering.
5
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(c) Conversion of Class A Common Stock
In connection with the initial public offering, all of the Company's
outstanding Class A common stock, was converted into common stock in
accordance with the Class A common stock purchase agreement dated
September 7, 1999 (the Class A agreement). Under the terms of the Class A
agreement, based on the common stock offering price of $16 per share, the
Class A common stock was converted at the maximum permissible rate of
1.365188 share of common stock for each share of Class A common stock. In
total, 7,318,325 shares of shares Class A common stocks were converted
into 9,990,889 shares of common stock. Upon the conversion, the Company
recognized the transfer of $35,306 of value from the common stockholders
to the Class A common stockholders. This amount is reflected as a
beneficial conversion to the Class A common stockholders in deriving the
net loss attributable to common stockholders in the accompanying statement
of operations for the three and six months ended June 30, 2002.
(d) Stock Split and Changes in Authorized Shares
In contemplation of the initial public offering, on May 16, 2002, the
Company affected a 1.33-for-1 stock split of the Company's Class A and
Class B common stock. Also on May 16, 2002, the Company effected a
conversion of Class B common stock to common stock, on a share-for-share
basis, increased the number of authorized shares of common stock to
130,000,000, adjusted the number of authorized preferred shares to
20,000,000, and increased the number of shares of common stock reserved
for issuance under the 2000 Stock Incentive Plan from 4,123,000 to
4,788,000 shares.
All share, per share, and conversion amounts relating to the Class A and
Class B common stock, stock options, and stock purchase warrants included
in the accompanying condensed consolidated financial statements have been
retroactively adjusted to reflect the stock split.
(e) Stock Purchase Warrants
In connection with the conversion of the Class A common stock, the Company
issued 124,328 and 133,628 warrants to purchase common stock to the former
holders of the Series A preferred stock and subordinated notes,
respectively. The warrants were issued in accordance with anti-dilutive
clauses contained in the purchase agreements covering the original sale of
the Series A preferred stock and subordinated notes. Each warrant issued
entitles its holder to purchase one share of common stock at $0.000075 per
share. Warrants issued to both the former Series A preferred stockholders
and subordinated noteholders are effective through September 7, 2010. In
addition, the warrants and the underlying common stock are subject to
certain transfer restrictions.
The Company valued the warrants under the fair value method as required
under SFAS No. 123. The Black-Scholes method was used with the following
assumptions: a risk free interest rate of 4.85 percent, expected common
stock market price volatility of 50 percent, and a term of 8.25 years. The
value of the warrants issued to the Series A preferred stockholders totaled
$1,989, and is deducted from the net loss for the three and six months
ended June 30, 2002 in deriving the net loss attributable to common
stockholders. The value of the warrants issued
6
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
to the former subordinated noteholders totaled $2,138. This amount, net of
an income tax benefit of $859, is included as a component of the
extraordinary loss from early extinguishments of long-term debt in the
accompanying consolidated statements of operations
NOTE 3 NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
During the three and six months ended June 30, 2002, there were several
non-recurring transactions related to the recapitalization of the Company that,
in addition to preferred stock dividends and accretion of the carrying values of
preferred and Class A common stock to their respective liquidation values, are
recognized as deductions to derive net loss attributable to common stockholders.
The transactions and the respective amounts, including the preferred dividends
and accretion, together with the effects on income from continuing operations
before extraordinary loss, are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------ -----------------------
2002 2001 2002 2001
-------- ------ ------- ------
Income (loss) from continuing operations
before extraordinary loss $ 5,261 (632) 8,831 (1,735)
Adjustments for net income (loss)
attributable to common stockholders:
Preferred stock dividends 1,484 1,606 3,307 3,145
Premium due upon early redemption of preferred stock 6,969 - 6,969 -
Accretion to redemption values of preferred and Class A
common stock 9,139 405 9,569 804
Beneficial conversion of Class A common stock 35,306 - 35,306 -
Issuance of anti-dilutive warrants to preferred
stockholders 1,989 - 1,989 -
Liquidity event fee paid to Class A common stockholders 1,600 - 1,600 -
-------- ------ ------- ------
Total adjustments to income (loss) from continuing
operations before extraordinary loss 56,487 2,011 58,740 3,949
-------- ------ ------- ------
Loss from continuing operations before extraordinary loss
attributable to common stockholders $(51,226) (2,643) (49,909) (5,684)
======== ====== ======= ======
NOTE 4 EARNINGS PER SHARE
Basic earnings (loss) per share (EPS) is computed by dividing net income
available, or loss attributable, to common stockholders by the weighted average
number of outstanding shares of common stock. Diluted earnings (loss) per share
for the three and six months ended June 30,
7
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
2002 and 2001 does not include the weighted average effect of potentially
dilutive securities since the effect would be anti-dilutive, and as such is
computed in the same manner as the basic earnings (loss) share. The weighted
average number of shares outstanding used to compute basic EPS, and diluted EPS
had the effect of potentially dilutive securities not been anti-dilutive, are
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Weighted average shares outstanding:
Basic 13,134,533 7,524,786 10,443,919 7,528,043
Potentially dilutive securities:
Class A common stock 7,770,691 9,990,889 8,880,790 9,990,889
Stock options and warrants 2,407,612 2,421,626 2,438,776 2,429,132
---------- ---------- ---------- ----------
Diluted 23,312,836 19,937,301 21,763,485 19,948,064
========== ========== ========== ==========
NOTE 5 LONG-TERM DEBT
(a) Senior Credit Facilities
Effective June 5, 2002, concurrent with the initial public offering, the
Company replaced its 2000 facility with the 2002 facility (note 2(b)),
under which it may borrow up to $200,000. The 2002 facility consists of a
$130,000 term loan facility and a $70,000 revolving credit facility, and
also provides for aggregate stand-by letters of credit of $20,000, which
reduce the funds available under the revolving credit facility when issued.
The revolving and term credit facilities expire June 30, 2007 and 2008,
respectively.
At June 30, 2002, the Company had $130,000 outstanding under a single LIBOR
loan under the term facility. The Company also had approximately $1,587 of
outstanding stand-by letters of credit at June 30, 2002, and $68,473 of
borrowing capacity under the revolving facility. As of the date of the
filing of this Form 10-Q, the Company has not borrowed directly against
the revolving credit facility. Amounts outstanding under the term loan
facility are due as follows:
Year ending December 31:
2002 $ 650
2003 1,300
2004 1,300
2005 1,300
2006 1,300
Thereafter 124,150
--------
$130,000
========
8
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Borrowings under the 2002 facility bear interest at rates based on LIBOR or
the prime rate, as elected by the Company. The effective LIBOR and prime
based rates include margins of 2.25 to 3.25 percent and 1.00 to 2.00
percent, respectively. Interest is due and payable either quarterly or at
various monthly intervals based on the underlying type of loan. To date,
the Company has elected to apply LIBOR to outstanding borrowings. At June
30, 2002, the effective interest rate for the outstanding term loan was
5.09 percent.
The 2002 facility contains covenants that stipulate minimum amounts of
earnings before interest, taxes, depreciation and amortization (EBITDA),
fixed charge coverage and asset coverage ratios, as well as maximum total
leverage ratio and capital expenditures. The facility also contains
negative covenants that impose limitations upon certain investments;
creation of liens; mergers and liquidation; sales of assets; payments of
cash dividends and distributions; exchanges and issuances of capital
stock; transactions with affiliates; certain accounting changes and
organizational document amendments; amendments to, and payments and
prepayments of, subordinated debt; restrictive agreements; alterations to
the nature of our business; impairment of security interests; and the
assumption of additional indebtedness. Substantially all Company assets
serve as collateral under the 2002 facility. At June 30, 2002, the Company
was in compliance with the financial covenants of the 2002 facility.
The Company capitalized $2,561 of debt issuance costs associated with the
2002 facility, consisting primarily of legal fees and underwriting fees
paid to the administrative agent for the account of the lenders. These
costs are being amortized on a straight-line basis over the five-year term
of the revolving credit facility. The unamortized balance of $2,522 at June
30, 2002 is included as deferred financing costs in the accompanying
consolidated balance sheet as of that date.
In connection with the refinancing of the 2000 facility, the Company
incurred a charge of $2,771 for the write-off of unamortized deferred
financing cost associated with the 2000 facility. This amount, net
of an income tax benefit of $1,113, is reflected as a component of the
extraordinary loss on the early extinguishment of debt in the accompanying
statements of operations for the three and six months ended June 30, 2002.
(b) Subordinated Notes
The subordinated notes bore interest at 14.5 percent, payable quarterly.
In connection with the early retirement of the subordinated notes, the
Company incurred a prepayment fee equal to 6 percent of the face amount of
the notes, or $5,700. The Company also wrote off $7,885 of unamortized
discount associated with the subordinated notes. These two amounts, net of
an aggregate income tax benefit of $5,564, are included as a component of
the extraordinary loss from debt extinguishment reflected in the
accompanying consolidated statements of operations for the six months
ended June 30, 2002.
(c) Interest Rate Swap
At June 30, 2002, the Company was party to a single interest rate swap
agreement with a notional amount of $20,000, and an expiration date of
February 2003. The swap agreement
9
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
does not qualify as an effective hedge under SFAS No. 133, and accordingly
changes in the fair value of the swap are included as a component of
interest expense.
During the three and six months ended June 30, 2002, the fair value of the
swap increased $38 and $251, respectively. During the comparative periods
of 2001, the swap decreased in value by $40 and $399. At June 30, 2002, the
fair value of the swap was $(556). This amount is included within other
accrued expenses in the accompanying consolidated balance sheets.
(d) Extraordinary Loss
Effective with the refinancing of the 2000 facility and the retirement of
the subordinated notes, the Company recognized an extraordinary loss from
the extinguishments of debt totaling $10,938. The components of the
extraordinary loss are as follows:
Loss associated with 2000 facility - write-off
of unamortized deferred financing costs $ 2,771
Loss associated with subordinated notes:
Write-off of unamortized discount 7,885
Prepayment penalty 5,700
Issuance of anti-dilutive warrants 2,138
-------
18,494
Less income tax benefit 7,556
-------
Extraordinary loss from debt extinguishments $10,938
=======
NOTE 6 SALE OF DISCONTINUED OPERATIONS
Effective June 18, 2002, the Company completed a sale of substantially all of
the net assets and operations of its wholly-owned subsidiary, Veritect, Inc.
(Veritect) to RedSiren Technologies, Inc. for $500 in cash. The Company had
previously recognized a loss for the discontinuance of Veritect's operations, as
well as a provision for the estimated losses of Veritect from January 1, 2002 to
the estimated sale date, upon its commitment to dispose of Veritect's operations
in December 2001. The loss from discontinued operations together with the actual
loss incurred upon the sale did not differ materially from the provisions
previously recognized.
NOTE 7 NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and No. 142, "Goodwill and Other Intangible Assets",
(the Statements)
10
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and indefinite-lived intangible assets are no longer amortized
but are subject to annual impairment tests in accordance with the Statements.
Other intangible assets continue to be amortized over their useful lives.
On January 1, 2002, the Company began to apply the new rules on accounting for
goodwill and other intangible assets and ceased the amortization of goodwill.
The following information reconciles reported net loss attributable to common
stockholders, and loss per share, to adjusted net loss attributable to common
stockholders and loss per share, excluding the goodwill amortization previously
recognized.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------------------ ----------------------------
2002 2001 2002 2001
----------- --------- ---------- ---------
Net income (loss) attributable to common stockholders:
Income (loss) from continuing operations before
extraordinary loss $ (51,226) (2,643) (49,909) (5,684)
Add back goodwill amortization - 2,994 - 5,988
----------- --------- ---------- ---------
Adjusted income (loss) from continuing operations
before extraordinary loss $ (51,226) 351 (49,909) 304
=========== ========= ========== =========
Adjusted net income (loss) $ (62,164) (2,865) (61,950) (6,011)
=========== ========= ========== =========
Basic and diluted earnings (loss) per share
Income (loss) from continuing operations before
extraordinary loss $ (3.90) (0.35) (4.78) (0.75)
Add back goodwill amortization - 0.40 - 0.80
----------- --------- ---------- ---------
Adjusted income (loss) from continuing
operations before extraordinary loss $ (3.90) 0.05 (4.78) 0.05
=========== ========= ========== =========
Adjusted net income (loss) $ (4.73) (0.38) (5.93) (0.80)
=========== ========= ========== =========
Weighted average common shares outstanding 13,134,533 7,524,786 10,443,919 7,528,043
=========== ========= ========== =========
The Company has completed the first of the required impairment tests of goodwill
during the second quarter of 2002, and has determined that an adjustment to the
carrying value of its goodwill is not required.
Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144).
SFAS No. 144 provides a single accounting model for long-lived assets to be
disposed of, and replaces SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of. The adoption of SFAS
No. 144 did not have an impact on the Company's financial statements.
In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations (SFAS No. 143). SFAS No. 143 requires that the fair value of a
liability for an asset retirement obligation be recognized in the period in
which it is incurred, if a
11
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
reasonable estimate of fair value can be made. The associated asset retirement
cost would be capitalized as part of the carrying amount of the long-lived
asset. SFAS No. 143 will be effective for fiscal years beginning after June 15,
2002. The Company has not determined the effect that this statement will have on
its consolidated financial position or results of operations.
In November 2001, the Emerging Issues Task Force, or EITF, issued Topic No.
D-103, Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred. EITF Topic No. D-103 requires that companies
report reimbursements received for out-of-pocket expenses incurred as revenue,
rather than as a reduction of expenses. The provisions of EITF Topic No. D-103
are effective for financial statements issued for fiscal years beginning after
December 15, 2001. As the Company has historically accounted for reimbursements
of out-of-pocket expenses in the manner described above, the provisions of EITF
Topic No. D-103 has not materially impacted its consolidated financial position
or results of operations.
In April 2002, the FASB issued SFAS No. 145, Recission of FASB Statements 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145
eliminates the requirement to report material gains or losses from debt
extinguishments as an extraordinary item, net of any applicable income tax
effect, in an entity's statement of operations. SFAS 145 instead requires that
a gain or loss recognized from a debt extinguishment be classified as an
extraordinary item only when the extinguishment meets the criteria of both
"unusual in nature" and "infrequent in occurrence" as prescribed under
Accounting Principles Bulletin 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. The
provisions of SFAS 145 are effective for fiscal years beginning after December
15, 2002. The Company has recognized extraordinary losses from debt
extinguishments in recent periods, and is evaluating the impact of SFAS 145
upon its financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 requires that liabilities
associated with the exit or disposal activity be recognized only when the
liability is incurred. SFAS 146 supersedes 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), which required that exit or disposal activity related
liabilities be recognized when an entity commits itself to such a plan. SFAS
146 is effective for exit and disposal activities that are initiated after
December 31, 2002. Absent plans to exit or dispose of any of its business
operations as of June 30, 2002, the Company does not expect SFAS 146 to have a
material impact upon its financial statements.
NOTE 8 INVENTORIES
Inventories at June 30, 2002 consist of the following:
12
VERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Raw materials $ 904
Work in process 505
Finished goods 550
Supplies and spare parts 706
------
2,665
Less - reserve for excess and obsolete
inventory 320
------
Total inventory $2,345
======
NOTE 9 RELATED PARTY TRANSACTION
In connection with the initial public offering, the Company paid a $1,600 fee to
Monitor Clipper Partners, an affiliate of the Monitor Clipper Equity Partners,
L.P. This fee was due upon a liquidity event as defined in the Class A purchase
agreement.
NOTE 10 SUBSEQUENT EVENT
On August 12, 2002, the Company signed a definitive agreement to acquire all of
the common stock and related assets of SIGNAL Corporation for $227,000,
including the assumption of certain debts of SIGNAL. The Company plans to
finance the acquisition from available cash, an expansion of its 2002 facility
from $200,000 to $340,000 and a $25,000 bridge loan from the sellers. The
acquisition is subject to various closing conditions and approvals, including
approval under the Hart-Scott-Rodino Act. The Company expects the acquisition
to be consummated in late September 2002. If the transaction is not consummated
due to a failure to obtain adequate financing, the Company will become liable
for a termination fee of $4,400.
The estimated excess of the purchase consideration over the net tangible assets
of SIGNAL Corporation is $200,000, and will be evaluated in accordance with the
provisions of SFAS No. 141. Under the terms of the purchase agreement, this
excess consideration will be deductible for income tax reporting purposes on a
straight-line basis over a 15 year period.
SIGNAL Corporation provides a wide-array of information technology, multi-media
and engineering and consulting support services primarily to the United States
Department of Defense and various federal civilian agencies. Signal Corporation
also provides various information technology services to various state and local
governments, commercial companies, and other governmental contractors. The
acquisition is consistent with the Company's growth strategy to expand its
presence in the federal-civil and homeland security marketplaces.
13
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read together with the unaudited condensed consolidated financial
statements and the notes to those statements included elsewhere in this
quarterly report. This discussion should also be read in conjunction with our
consolidated financial statements and notes thereto as of December 31, 2001 and
2000, and for each of the years in the three-year period ended December 31,
2001, as included in the Company's prospectus dated June 5, 2002 and filed with
the SEC pursuant to Rule 424(b) under the Securities Act of 1933.
FORWARD LOOKING STATEMENTS
Certain statements in this quarterly report on Form 10-Q contain or are based
on "forward-looking" information (that the company believes to be within the
definition in the Private Securities Litigation Reform Act of 1995) and involve
risks and uncertainties. Words such as "may", "will", "intends", "should",
"expects", "plans", "projects", "anticipates", "believes", "estimates",
"predicts", "potential", "continue", or "opportunity" or the negative of these
terms or words of similar import are intended to identify forward-looking
statements. Such forward-looking statements include, but are not limited to,
the expectation that the SIGNAL transaction will close in September, the
opportunity for substantial future tax benefits resulting from the SIGNAL
transaction, our ability to successfully integrate the operations of SIGNAL,
expectations regarding the sufficiency of our capital resources, expectations
regarding the impact of new accounting pronouncements, and estimates regarding
the weighted average diluted shares outstanding in the third quarter 2002.
These forward-looking statements are subject to known and unknown risks and
uncertainties which could cause actual results to differ materially from those
anticipated, including, without limitation: adverse changes in U.S. government
spending priorities; failure to retain existing U.S. government contracts or
win new contracts; risks of contract performance; adverse results of U.S.
government audits of our U.S. government contracts; risks associated with
complex U.S. government procurement laws and regulations; and other economic,
political and technological risks and uncertainties. These and other risk
factors are more fully discussed contained in the Company's Registration
Statement on Form S-1, as amended (File Number 333-83792), and from time to
time, in Veridian's other filings with the Securities and Exchange Commission.
The forward-looking statements included in this quarterly report are only made
as of the date of this quarterly report and we undertake no obligation to
publicly update any of the forward-looking statements made herein, whether as a
result of new information, subsequent events or circumstances, changes in
expectations or otherwise.
OVERVIEW
We are a leading provider of information-based systems, integrated solutions and
services to the U.S. government. We derived approximately 95% of our revenues
during the first six months of 2002 from contracts with U.S. government
agencies. The two largest customer groups are the Department of Defense (45%)
and U.S. government intelligence agencies (44%). We also provide services to
U.S. government civilian agencies, state and local governments and commercial
customers.
CRITICAL ACCOUNTING POLICIES
Revenue and Related Cost Recognition
We recognize revenues under our federal government contracts when a contract has
been executed, the contract price is fixed and determinable, delivery of the
services or products has occurred and collectibility of the contract price is
considered probable. Our contracts with
14
agencies of the federal government are subject to periodic funding by the
respective contracting agency. Funding for a contract may be provided in full at
inception of the contract or ratably throughout the term of the contract as the
services are provided. In evaluating the probability of funding for purposes of
assessing collectibility of the contract price, we consider our previous
experiences with the customer, communications with the customer regarding
funding status, and our knowledge of available funding for the contract or
program. If funding is not assessed as probable, revenue recognition is deferred
until realization is probable. The results of our assessment of the probability
of funding may be different if other assumptions are used.
We recognize revenue under our federal government contracts based on allowable
contract costs, as mandated by the federal government's cost accounting
standards. The costs we incur under federal government contracts are subject to
regulation and audit by certain agencies of the federal government. We provide
an allowance for estimated contract disallowances based on the amount of
probable cost disallowances. Such amounts have not historically been
significant. We may be exposed to variations in profitability, including
potential losses, if we encounter variances from estimated fees earned under
award fee contracts and estimated costs under fixed price contracts.
Our revenues consist primarily of payments for the work of our employees, and to
a lesser extent, the pass-through of costs for materials and subcontract efforts
under contracts with our customers. We enter into three types of U.S. government
contracts: cost-plus, time-and-materials (including fixed-price level-of-effort
contracts where we are paid fixed hourly rates to deliver certain labor hours)
and fixed-price. Under cost-plus contracts, we are reimbursed for all of our
allowable costs of performing the work plus a fee. On time-and-materials
contracts, we are paid for labor at pre-negotiated hourly billing rates and
reimbursed the actual cost of certain other expenses. We assume financial risk
on time-and-materials contracts because we assume the risk of performing those
contracts at negotiated hourly rates. Under fixed-price contracts, we perform
specific tasks for a fixed price. Compared to cost-plus contracts, fixed-price
contracts generally offer higher margin opportunities since we receive the
benefit of cost savings, but involve greater financial risk because we bear the
impact of cost overruns.
We recognize revenues on cost-plus contracts based on reimbursable costs
incurred plus estimated fees earned on these contracts. Fees include an estimate
of incentive and award fees earned, even though they may be determined and
awarded at a later date. When we are able to make a reasonably dependable
estimate of the amount of the award fee we will ultimately receive, we include
such estimate in our revenue recognized under the percentage-of-completion
method. In making this assessment, we consider such factors as our award fee
history for similar work and for this particular customer, industry trends,
interim performance reviews with the customer and all other available
information. We perform this review on a contract by contract basis at the end
of each reporting period. Adjustments to the expected award fee rate are
recorded in the period in which we change our estimate. Such adjustments have
historically been insignificant. Our estimates of award fees earned at each
reporting period may be different if other assumptions are used.
Revenues on time-and-materials contracts are based on fixed billable rates for
hours delivered plus reimbursable costs. Revenues on fixed-price contracts are
recognized using the percentage-of-completion method based on the ratio of costs
incurred to estimated total costs upon completion. Revenues under some of our
long-term fixed-price contracts that require product deliveries are recognized
on a percentage-of-completion basis using the units of delivery as the
measurement basis for effort accomplished. Anticipated losses on contracts are
charged to earnings as soon as these losses are known. Revenues recognized under
fixed-price contracts in
15
each reporting period may be different, if different assumptions are used
regarding estimated total costs upon completion of the contracts. Changes in
estimated profits on contracts are recorded during the period in which the
change in estimate occurs.
Our direct costs include the cost of direct labor for the performance of
contract services, the fringe benefits associated with that direct labor and
other direct costs related to contract performance, including the cost of
materials and equipment, travel and subcontract costs. Some of these other
direct costs are an integral part of our contract services on which we may be
able to earn a fee. Other components of direct costs may be reimbursed by our
customers with only a minor handling charge added. The amount of these other
direct costs can vary substantially from period to period and may reduce overall
operating margins when they are not fee-bearing.
Indirect costs and selling, general and administrative expenses are the other
costs (except depreciation) of delivering our contract services. Significant
elements include labor for management and administrative activities, fringe
benefits on indirect labor, facility costs and incentive compensation. They
also include business development, marketing, selling, bid and proposal and
independent research and development costs. Most of these costs are allowable
costs under the cost accounting rules for contracting with the U.S. government.
As such, they may be directly reimbursed to us in cost-plus contracts or they
may be included in cost estimates used for bidding time-and-materials and
fixed-price contracts.
Indirect costs, as a percentage of revenues, may be influenced by a number of
factors including: the level of other direct costs, our ability to manage
personnel levels to meet constantly shifting contract demands and shifts in the
mix of labor required for our contracts. For example, an increase in labor
services that are performed at our customers' facilities may increase the
relative proportion of direct costs because we do not have to incur indirect
costs related to the facilities used by those employees.
The majority of our revenues are earned under contracts with various departments
and agencies, or prime contractors, of the U.S. government. Certain revenues and
payments we receive are based on provisional billings and payments that are
subject to adjustment under audit. U.S. government agencies and departments have
the right to challenge our cost estimates and allocation methodologies with
respect to government contracts. Also, contracts with such agencies are also
subject to audit and possible adjustment to give effect to unallowable costs
under cost-type contracts or to other regulatory requirements affecting both
cost-type and fixed-price contracts.
RECAPITALIZATION
During the second quarter of 2002, we completed several transactions that
collectively represent a major recapitalization of our balance sheet. The most
significant of these transactions was the initial public offering of 15.525
million shares of common stock at $16 per share. The majority of the net
proceeds from the offering of $226.9 million were used to retire long-term debt
and preferred stock. Concurrent with the initial public offering, we refinanced
our existing credit facility (the 2000 facility) with a $200 million facility
consisting of a $130 million term facility and a $70 million revolving
facility. We also converted redeemable Class A common stock with a carrying
value of $108.2 million to common stock.
The effect of the recapitalization transactions was a net decrease in long-term
debt of $113.0 million, a decrease in redeemable preferred stock of $50.6
million, a decrease in redeemable
16
Class A common stock of $108.5 million, and an increase in stockholders' equity
of $315.5 million. In addition, after retiring the preferred stock and
long-term debt and paying transaction expenses, we retained $31.4 million of
offering proceeds that are available to fund working capital requirements and
future business acquisitions.
The individual transactions comprising the recapitalization are more fully
described in note 2 to the unaudited condensed consolidated financial statements
as included in this quarterly report.
ACQUISITION OF SIGNAL CORPORATION
On August 12, 2002, we signed a definitive agreement to acquire all of the
common stock and related assets of SIGNAL Corporation for $227.0 million,
including the assumption of certain debt of SIGNAL. We plan to finance the
acquisition from available cash and an expansion of our 2002 facility from
$200.0 million to $340.0 million, and a $25.0 million bridge loan from the
sellers. The acquisition is subject to various closing conditions and
approvals, including approval under the Hart-Scott-Rodino Act. We expect the
acquisition to be finalized in late September 2002. If the transaction is not
consummated due to a failure to obtain financing, we will become liable for a
termination fee of $4.4 million.
The estimated excess of the purchase consideration over the net tangible assets
of SIGNAL Corporation is $200.0 million, and will be evaluated in accordance
with the provisions of SFAS No. 141. The purchase agreement has been structured
in a manner that will allow us to realize tax benefits from the deductibility
of the excess consideration. Under the terms of the agreement, the excess
consideration will be deductible for income tax reporting purposes on a
straight-line basis over a 15-year period.
SIGNAL Corporation is a privately held company providing a wide-array of
information technology, multi-media and engineering and consulting support
services primarily to the United States' Department of Defense and various
federal civilian agencies. SIGNAL Corporation also provides various information
technology services to various state and local governments, commercial
companies, and other governmental contractors. SIGNAL reported revenues of
$251.4 million for calendar 2001, and has more than 1,600 employees. The
acquisition is consistent with our growth strategy to expand our presence in the
federal-civil and homeland security marketplaces.
RESULTS OF OPERATIONS
The following table sets forth our unaudited results of operations based on the
amounts and percentage relationship of the items listed to contract revenues
during the periods presented:
17
THREE MONTHS ENDED JUNE 30
------------------------------------------------------------
2002 2001
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
Revenues $192,606 100.0% $173,479 100.0%
Costs and expenses:
Direct costs 128,993 67.0% 113,624 65.5%
Indirect costs, selling, general
and administrative expenses 46,993 24.4% 45,694 26.3%
Depreciation expense 2,575 1.3% 2,758 1.6%
Amortization expense - - 2,994 1.7%
Acquisition, integration and
related expenses - - 119 0.1%
-------- ----- -------- -----
Total costs and expenses 178,561 92.7% 165,189 95.2%
-------- ----- -------- -----
Income from operations $ 14,045 7.3% $ 8,290 4.8%
======== ===== ======== =====
SIX MONTHS ENDED JUNE 30
------------------------------------------------------------
2002 2001
------------------------ ------------------------
(DOLLARS IN THOUSANDS)
Revenues $369,208 100.0% $336,202 100.0%
Costs and expenses:
Direct costs 244,427 66.2% 218,626 65.0%
Indirect costs, selling, general
and administrative expenses 93,471 25.3% 90,007 26.8%
Depreciation expense 5,153 1.4% 5,576 1.6%
Amortization expense - - 5,988 1.8%
Acquisition, integration and
related expenses - - 318 0.1%
-------- ----- -------- -----
Total costs and expenses 343,051 92.9% 320,515 95.3%
-------- ----- -------- -----
Income from operations $ 26,157 7.1% $ 15,687 4.7%
======== ===== ======== =====
SECOND QUARTER OF 2002 COMPARED TO SECOND QUARTER OF 2001
Revenues. Revenues of $192.6 million in the second quarter of 2002 were up
11.0% from 2001 second quarter revenues of $173.5 million. The revenue increase
was over a broad range of service offerings and contracts. The growth is a
continuation of the strength in the defense and intelligence business that
we have experienced since the second quarter of 2001. The announced growth in
the defense budgets following the terrorist attacks on September 11, 2001 has
affected a number of our programs, but there does not appear to have been a
significant effect on our overall revenues. Increased activity in certain areas
has been offset by delays in programs and procurement decisions in other areas
as our customers reassess priorities.
Costs and Expenses. Direct contract costs in the second quarter of 2002
increased to 67.0% of revenues. This compares to 65.5% for the second quarter of
2001. The percentage increase results from an increased proportion of
subcontract and other direct contract costs, two
18
components of direct contract costs that tend to have more variability than
direct labor costs. Direct labor increased by 11% from the first quarter of
2001, consistent with the increase in revenue and similar to the trend over the
last several quarters.
Indirect expenses declined to 24.4% of revenues in the second quarter compared
to 26.3% for the second quarter of 2001. The decline is primarily the result of
reductions in indirect labor costs derived from efforts to improve labor
productivity that were implemented in the second half of 2001. The improvement
in labor productivity achieved in late 2001 has carried over into 2002. The
lower percentage is also caused by the increase in the percentage of revenues
related to other direct contract costs, since those revenues do not require
significant incremental indirect costs.
Depreciation expense decreased to $2.6 million in the second quarter of 2002
from $2.8 million in the second quarter of 2001. This lower expense results
from a decrease in capital expenditures. Amortization of goodwill for the
second quarter of 2002 was zero as a result of the January 1, 2002 adoption of
SFAS No. 142, Goodwill and Other Intangible Assets. We have completed its
assessment of the carrying value of goodwill ($207.9 million at January 1,
2002) and determined that an impairment charge is not required. Amortization
expense during the second quarter of 2001 was $3.0 million, or 1.7% of revenues
for the same period.
Income from Operations. Operating profits rose to $14.0 million for the second
quarter of 2002, or 7.3% of revenues. This compares to $11.4 million, or 6.6%
of revenues, for the same period in 2001, after adjusting for the goodwill
amortization and acquisition and integration related charges. The margin
improvement of 0.7% is largely attributed to the 11% increase in revenues and
improved labor productivity achieved in the second quarter of 2002 versus the
same period in 2001. The improved labor productivity together with decreases in
other direct costs have lead to increased profitability on our
time-and-materials and fixed-priced contracts, which represent approximately
47% of our revenue base.
Income (Loss) from Continuing Operations. The income from continuing operations
increased to $5.3 million for the three months ended June 30, 2002, versus a
loss from continuing operations of $0.6 million for the second quarter of 2001.
The increase can be largely attributed to the absence of goodwill amortization
in 2002 versus 2001, as well as the increase in operating income resulting from
growth in revenues and operating margins described above. Lower interest
expense has also contributed to the increase in income from continuing
operations. Interest expense in the second quarter of 2002 decreased to $5.2
million from $7.0 million in the second quarter of 2001 primarily as a result
of reduced interest rates applied to outstanding borrowings under our senior
credit facility, which are based on LIBOR, and the reduced level of borrowing
after the initial public offering.
FIRST HALF OF 2002 COMPARED TO FIRST HALF OF 2001
Revenues. Revenues of $369.2 million in the first six months of 2002 were up
9.8% from revenues of $336.2 million in the first six months of 2001. The
revenue increase was over a broad range of service offerings and contracts. The
growth is a continuation of the strength in the defense and intelligence
business that we have experienced since the second quarter of 2001. The
announced growth in the defense budgets following the terrorist attacks on
September 11, 2001 has affected a number of our programs, but there does not
appear to have been a significant effect on our overall revenues. Increased
activity in certain areas has been offset by delays in programs and procurement
decisions in other areas as our customers reassess priorities.
19
Costs and expenses. Costs of operations in the first six months of 2002 have
increased by $22.6 million to $343.1 million to keep pace with the increased
activity across all business areas and service offerings. Direct contract costs
grew to 66.2% of revenues in the first six months of 2002, compared to 65.0% of
revenues in the first half of 2001. The percentage increase is the result of an
increased proportion of subcontract and other direct costs relative to
revenues. Direct labor increased by 11.0% in the first half of 2002 consistent
with overall trends over the last several quarters. Subcontract and other
direct costs increased at a rate of 13.0% during the first half of 2002 to a
total of $83.1 million.
Indirect expenses declined to 25.3% of revenues for the first six months of 2002
compared to 26.8% of revenues for the comparable period in 2001. The decline is
primarily the result of efforts to improve labor productivity that were
implemented during the second half of 2001, and the resulting reductions in
indirect labor costs that have continued into the first half of 2002. This lower
percentage is also caused by the increase in the percentage of revenues related
to other direct contract costs, since those revenues do not require significant
incremental indirect costs.
Depreciation expense in the first half of 2002 declined to $5.2 million compared
to $5.6 million in the first half of 2001. The decrease is the result of lower
year-to-date capital expenditures in 2002 versus 2001. There was no amortization
of goodwill in the first six months of 2002 due to the implementation of SFAS
No. 142 effective January 1, 2002, compared to $6.0 million of goodwill
amortization during the first six months of 2001.
Income from Operations. Operating income rose to $26.2 million for the first
half of 2002, or 7.1% of revenues, compared to $22.0 million after adjusting
for goodwill amortization and acquisition and integration related charges, or
6.5% of revenues, during the same period of 2001. Aside from the discontinuance
of goodwill amortization, the significant drivers behind the increase in
operating profit were the 9.8% increase in revenues and the higher profit
margins. The improvement in margins has been achieved primarily from the
additional profit on our time-and-materials and fixed-price contracts related
to the reduction in indirect labor costs discussed above.
Income (loss) from continuing operations. Income from continuing operations was
$8.8 million in the first half of 2002, as compared to a loss of $1.7 million in
the first half of 2001. The improvement was due to the increase of $10.5 million
of income from operations, and a $2.9 million reduction of interest expense from
$14.0 million in the first half of 2001 to $11.1 million in the first half of
2002. The reduction in interest expense results from sharp reductions in the
LIBOR rates over the past year, and the reduced level of borrowings after the
initial public offering.
INCOME TAXES
The effective income tax rate on income from continuing operations was 41.2% in
the first half of 2002, compared to the estimated rate of 42.3% for the first
quarter of 2002. This rate is higher than the United States federal statutory
rate of 35.0% due to state and local income taxes. The reduction in the
effective rate in the second quarter resulted from reduced state tax expense in
certain states. The effective income tax rate during the second quarter of 2001
was 151.9%, which results primarily from the non-deductibility of goodwill
amortization. The effective income tax rate, absent the goodwill amortization,
was 43.9% during the second quarter of 2001.
20
DISCONTINUED OPERATIONS
Effective June 18, 2002, we completed a sale of substantially all of the net
assets and operations of our wholly owned subsidiary, Veritect, Inc. (Veritect)
to RedSiren Technologies, Inc. for $0.5 million in cash. We had previously
recognized a loss for the discontinuance of Veritect's operations, as well as a
provision for the estimated losses of Veritect from January 1, 2002 to the
estimated sale date, based upon our commitment to dispose of Veritect's
operations in December 2001. The loss from discontinued operations together with
the actual loss incurred upon the sale did not differ materially from the
provisions previously recognized.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
In connection with the early retirement of our subordinated notes, we incurred
and paid a $5.7 million prepayment penalty and wrote off $7.9 million of
unamortized discount on the subordinated notes. We also wrote off $2.8 million
of deferred financing costs associated with the 2000 facility, and issued stock
purchase warrants valued at $2.1 million to the subordinated noteholders as a
result of the conversion of the Class A Common Stock. Collectively these
amounts, net of an income tax benefit of $7.6 million, have been recognized as
an extraordinary loss on debt extinguishment in the quarter ended June 30,
2002.
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
During the three and six months ended June 2002 and 2001, adjustments to derive
net loss attributable to common stockholders totaled $56.5 million and $2.0
million, respectively. A detailed schedule listing these transactions and the
respective amounts, together with their effects on income from continuing
operations before extraordinary loss, is included in note 3 to the unaudited
condensed consolidated financial statements. Descriptions of the individual
transactions are included in note 2.
EARNINGS PER SHARE
Basic and diluted earnings (loss) per share (EPS) are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ---------------------
2002 2001 2002 2001
------ ----- ----- -----
Basic loss per share:
Income (loss) from continuing operations $(3.90) (0.35) (4.78) (0.75)
Loss from discontinued operations - (0.43) (0.10) (0.84)
Extraordinary loss from debt extinguishment (0.83) - (1.05) -
------ ----- ----- -----
$(4.73) (0.78) (5.93) (1.59)
====== ===== ===== =====
Diluted loss per share:
Income (loss) from continuing operations $(3.90) (0.35) (4.78) (0.75)
Loss from discontinued operations - (0.43) (0.10) (0.84)
Extraordinary loss from debt extinguishment (0.83) - (1.05) -
------ ----- ----- -----
$(4.73) (0.78) (5.93) (1.59)
====== ===== ===== =====
21
Basic earnings (loss) per share (EPS) is computed by dividing net income
available, or loss attributable, to common stockholders by the weighted average
number of outstanding shares of common stock. Diluted EPS for the three and six
month periods ended June 30, 2002 and 2001 is computed in the same manner as the
basic EPS since adjustments related to the effects of the stock options, stock
warrants and conversion of Class A common stock would have been anti-dilutive.
The weighted average number of shares used in the calculation of both basic and
diluted EPS from continuing operations, and the weighted average number of
potentially dilutive securities not used in the computation of diluted EPS due
to their anti-dilutive effect on the net loss per share amounts, for the three
and six months ended June 30, 2002 and 2001, are as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------------- -----------------------------
2002 2001 2002 2001
---------- ---------- ---------- ----------
Weighted average number of shares -
basic and diluted loss per share
computations 13,134,533 7,524,786 10,443,919 7,528,043
Potentially dilutive securities not used
in computations due to antidilutive
effect 10,178,303 12,412,515 11,319,566 12,420,021
---------- ---------- ---------- ----------
Total weighted average number of
shares to be used in dilutive
computations 23,312,836 19,937,301 21,763,485 19,948,064
========== ========== ========== ==========
Based on the number of shares outstanding at June 30, 2002, we estimate that
there will be approximately 35.4 million weighted average diluted shares
outstanding in the third quarter of 2002.
As the recapitalization charges are non-recurring, the reported losses per share
are not considered a good basis to use for developing future expectations for
earnings per share. To assist the reader in understanding EPS without the
non-recurring charges, the company has prepared a pro forma computation of EPS
for income from continuing operations before extraordinary loss from debt
extinguishments as follows, using second quarter income from continuing
operations as the starting point:
22
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
Income from continuing operations before $ 14,045
extraordinary loss on debt extinguishment
Less pro forma interest expense based on debt
levels after the initial public offering (1,617)
-----------
Pro forma earnings before income taxes 12,428
Pro forma income tax expense 5,120
-----------
Pro forma net income $ 7,308
===========
Pro forma diluted earnings per share $ 0.21
===========
Pro forma weighted average number of diluted shares 35,400,000
===========
LIQUIDITY AND CAPITAL RESOURCES
On June 10, 2002, we consummated our initial public offering of 15,525,000
shares of common stock, including an over-allotment of 2,025,000 shares
granted to the underwriters, at the price of $16 per share. We realized net
proceeds of $226.9 million after deducting underwriters fees and other
transactional costs. Most of the proceeds were used to retire long-term debt and
preferred stock as indicated below:
(DOLLARS IN THOUSANDS)
Early retirement of subordinated notes, including
prepayment penalty of $5,700 $100,700
Redemption of preferred stock, including liquidation
preference of $6,969 and accrued dividends 66,371
Net reduction in loans under credit agreement 28,436
Cash available for working capital requirements and
business acquisitions 31,394
--------
$226,901
========
Concurrent with the initial public offering we also entered into a new $200
million senior credit facility (the 2002 facility) which permits term loans of
up to $130 million and revolving credit loans totaling $70 million. Upon the
closing of the 2002 facility, we borrowed the full amount of the term loan of
$130 million, but we have not drawn on the revolving credit portion of the 2002
facility.
The term loans under the new credit facility are due in six years. The revolving
credit commitment expires in five years. Interest on the term loans are at a
floating rate based on LIBOR. The initial loan is at an interest rate of 5.1%.
Based on current borrowing levels, the interest rate will convert to a level of
2.75 percent above the applicable LIBOR rate during the third quarter of this
year. The 2002 facility contains customary financial covenants related to
maintaining minimum EBITDA, fixed charge ratio and asset coverage ratio and
maximum total debt ratio and capital expenditures. The 2002 facility permits
acquisitions having an
23
aggregate cash consideration of up to $25 million and aggregate total
consideration of up to $50 million. Required principal payments on the term loan
are as follows:
(DOLLARS IN THOUSANDS)
Year ending December 31:
2002 $ 650
2003 1,300
2004 1,300
2005 1,300
2006 1,300
Thereafter 124,150
--------
$130,000
========
Cash flow from operations increased to $15.5 million in the first half of 2002
compared to cash used in operations in the first half of 2001 of $1.7 million.
The change in operating cash flow was primarily as a result of the changes in
accounts receivables in the respective periods. In the first half of 2001
accounts receivable increased as a result of growing revenues, but also due to
an increase in days sales outstanding (DSO) from 90 days at the end of 2000 to
92 days at June 30, 2001. The increase in DSO was the result of inefficiencies
in billing and collection activities associated with the implementation of new
accounting systems in early 2001. These inefficiencies encountered during the
system implementations became more pronounced during the remainder of 2001. By
December 31, 2001, the DSO had increased to 101 days. The last of the heritage
company accounting systems were converted to the new system in the second
quarter of 2002. As the Company has completed the conversions and provided
additional system training to its personnel, billing and collection
efficiencies have improved. By June 30, 2002, the DSO had dropped to 94 days,
which was the basis for the $3.7 million reduction in accounts receivable in
the first half of 2002, while revenues were increasing. We believe that we will
achieve further improvements in our management of accounts receivable. We have
set a goal of bringing our DSO to below 90 days by the end of 2002, with
further improvements in 2003 as we gain more experience with the new system,
people and processes.
Changes in accounts payable have also had significant effects on operating cash
flow in the periods presented. In the first half of 2001, an increase of $6.9
million in accounts payable added significantly to operating cash flow. The
increase was partially related to the accounting system conversion discussed
earlier. The conversion activities had the effect of delaying some payments to
suppliers. As system conversions have been completed, we have improved our
timely payment to suppliers, which is reflected in the reduction of $4.4
million in accounts payable during the first half of 2002.
In the first half of 2002, we made estimated income tax payments against our
income from continuing operations. During the second half of this year, we will
apply the tax losses generated from the early extinguishments of debt described
earlier, as well as losses incurred in connection with the discontinuance of
the Veritect business, against projected taxable income from operations. The
estimated income tax payments made during the first six months of 2002 that are
expected to be recovered by reducing estimated tax payments in the second half
of the year have been reflected as income taxes receivable at June 30, 2002.
In the first half of 2002, capital expenditures totaled $5.6 million, slightly
above depreciation expense for the period of $5.2 million. These expenditures
were incurred across all our operations
24
and were made to support business growth and for routine equipment
replacements. Capital expenditures in the first half of 2001 were at a higher
level of $9.0 million as incremental funds were required to support a facility
consolidation in early 2001, and to fund the acquisition and implementation of
new accounting systems and software. At June 30, 2002, we had no material
commitments for capital expenditures.
In the first half of 2002, we used $7.4 million in the discontinued operations
of our Veritect subsidiary. Most of this amount had been accrued as a provision
for loss on disposal at December 31, 2001. The sale of the subsidiary in June
2002 ends our support of this commercial venture (See Discontinued Operations).
With the completion of the capital restructuring associated with the initial
public offering, we have substantially reduced our interest costs, and through
the sale of Veritect have ended the cash requirements of supporting that
operation. With these actions complete, we believe that our operating cash flow
and funds available under our revolving credit facility are sufficient to meet
our operating cash needs and our debt service requirements. Assuming the
acquisition of SIGNAL is completed, we believe that our cash flows, together
with those of SIGNAL, and cash available under an expanded 2002 facility of $340
million, will be sufficient to meet the operating cash requirements of the
larger entity and the debt service requirements under the expanded facility. To
the extent that the financial requirements of other business acquisition
opportunities exceed the proposed limits under the expanded 2002 facility, we
will need to arrange additional debt or equity financing.
IMPACT OF INFLATION
The nature of our contracts with the U.S. government sharply reduces exposure to
the potential negative financial effects of inflation. We are able to directly
recover increased costs for those costs charged directly to, or allocated to,
our cost-plus contracts, which account for approximately 53% of our business. On
our other contracts, we propose fixed prices or labor rates that reflect our
expectations of future cost increases.
NEW ACCOUNTING PRONOUNCEMENTS
In recent years, the Financial Accounting Standards Board and the Emerging
Issues Task Force have issued several pronouncements, many of which have or
will have an effect on our financial reporting. One pronouncement that has had
a significant impact upon our operating results is SFAS No. 142, Goodwill and
Other Intangible Assets, issued by the FASB in June 2001. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and indefinite-lived intangible assets are no longer amortized
but are subject to annual impairment tests in accordance with the Statements.
Other intangible assets continue to be amortized over their useful lives.
On January 1, 2002, we began to apply the new rules on accounting for goodwill
and other intangible assets and ceased the amortization of goodwill. The effect
of adopting SFAS No. 142 was an increase in income from operations of $3.0
million for the three months ended June 30, 2002, and in increase of $6.0
million for the six months ended June 30, 2002. The impact of this
pronouncement on income from continuing operations and net loss attributed to
common stockholders was the same as the impact on operating income as goodwill
amortization is nondeductible for income tax reporting purposes. A schedule
outlining the impact of SFAS No. 142 on our income from operations, net loss
attributable to common stockholders, and basic and diluted earnings (loss) per
share in presented in note 7 to the unaudited condensed consolidated financial
statements contained herein.
25
SFAS No. 142 also requires companies to periodically assess the carrying value
of intangible assets and make adjustments to reflect impairments to carrying
values based on assessments of estimated fair values. We have completed the
first of the required impairment tests of goodwill during the second quarter of
2002, and have determined that no adjustment to the carrying value of our
goodwill is required at this time.
In addition to SFAS No. 142, the other recent pronouncements affecting or that
may affect our financial reporting are as follows:
- Statement of Financial Accounting Standard No. 141, Business
Combinations (SFAS No. 141)
- Statement of Financial Accounting Standard No. 143, Accounting for
Asset Retirement Obligations (SFAS No. 143)
- Statement of Financial Accounting Standard No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144)
- Statement of Financial Accounting Standards No. 145, Recission of FASB
Statements 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections
- Statement of Financial Accounting Standards No. 146, Accounting for
Costs Associated with Exit or Disposal Activities
- Emerging Issues Task Force, or EITF, issued Topic No. D-103, Income
Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred.
Descriptions of these pronouncements and their effective dates are included in
note 7 of the unaudited condensed consolidated financial statements contained
herein.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal exposure to market risk relates to changes in interest rates. At
June 30, 2002, we had outstanding under the 2002 facility a single, $130
million one-month LIBOR-based loan with an effective interest rate of 5.09%.
Each 1% increase in this rate could add $1.3 million to our interest expense.
In 1998, we entered into an interest rate swap agreement for $20 million at a
LIBOR rate of 5.663% to help manage interest costs and the risks associated
with changing interest rates on our debt. We have evaluated the swap agreement
and related cash flows, and conclude that it does not meet the provisions of
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to
account for the swap as an effective hedge. This swap agreement expires in
February 2003, but is cancelable at the option of the issuer. A 1% increase or
decrease in interest rates would result in an increase or decrease of $151,000
and $151,000, respectively, of the fair value of the swap agreement.
26
PART II. OTHER INFORMATION REQUIRED IN REPORT
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) On June 10, 2002, in connection with the consummation
of the initial public offering, all of Veridian's outstanding
Class A common stock was converted into common stock. The Class
A common stock was converted at a rate of 1.365188 shares of
common stock for each share of Class A common stock. The
conversion resulted in the 7,318,325 shares of Class A common
stock being converted into 9,990,889 shares of common stock.
This transaction was undertaken in reliance upon the exemptions
from the registration requirements of the Securities Act of
1933, as amended, afforded by Section 3(a)(9) promulgated
thereunder, as a transaction where a security was exchanged
with the issuer and no commission or other remuneration was
paid or given directly or indirectly therefor. Veridian
believes that exemptions other than the foregoing exemption
may exist for these transactions.
On April 24, 2002, a former employee purchased 25,811
shares of our common stock through the exercise of an
outstanding stock option for an aggregate sales price of $582.
On May 31, 2002, a departing employee purchased 266 shares of
our common stock through the exercise of an outstanding stock
option for an aggregate sales price of $3,870. On June 4, 2002,
a current employee purchased 2,660 shares of our common stock
through the exercise of an outstanding stock option for an
aggregate sales price of $10,360. On June 14, 2002, a current
employee purchased 728 shares of our common stock through the
exercise of an outstanding stock option for an aggregate sales
price of $4,398. On June 20, 2002, a current employee purchased
1,456 shares of our common stock through the exercise of an
outstanding stock option for an aggregate sales price of $9,099.
On June 24, 2002, a departing employee purchased 14,558 shares
of our common stock through the exercise of an outstanding stock
option for an aggregate sales price of $100,276. These
transactions were undertaken in reliance upon the exemptions
from the registration requirements of the Securities Act of
1933, as amended, afforded by Rule 701 promulgated thereunder,
pursuant to certain compensatory benefit plans and contracts as
a transaction involving the offer and sale of securities
relating to compensation. Veridian believes that exemptions
other than the foregoing exemption may exist for these
transactions.
(d) In connection with the initial public offering,
Veridian issued and sold 15,525,000 shares, including
2,025,000 shares to cover over-allotments granted to the
underwriters, at $16 per share, generating aggregate
offering proceeds of $248.4 million. The shares were
issued pursuant to a Registration Statement on Form S-1
(File No. 333-83792) which was declared effective, as
amended, on June 4, 2002 and a Registration Statement on
Form S-1 (File No. 333-89808) which was declared
effective on June 5, 2002. These Registration Statements
registered 15,525,000 shares of common stock at an
aggregate offering price of $262.8 million. The offering
of the common stock commenced on June 5, 2002, and all
of the shares were sold on the same date. The
underwriters were led by Credit Suisse First Boston
Corporation, First Union Securities, Inc., CIBC World
Markets Corp. and SG Cowen Securities Corporation. The
net cash proceeds to Veridian from the sale of these
shares was $226.9 million, after deducting underwriting
discounts and commissions of $17.4 million, offering
costs and expenses of $2.5 million and a $1.6 million
fee due upon the conversion of the redeemable
convertible Class A common stock.
Veridian has used the net proceeds from the initial public
offering to: (i) retire $100.7 million of Veridian's 14.50%
senior subordinated notes due July 31, 2008, including a 6%
early extinguishment penalty of $5.7 million; (ii) redeem
$66.4 million of Veridian's senior redeemable exchangeable
preferred stock, Series A, including a 12% early redemption
penalty of $6.9 million and accrued dividends of $1.3 million;
and (iii) fund the repayment of $28.4 million of outstanding
principal due under revolving loans of Veridian's existing
credit facility that were not funded by the refinancing. An
affiliate of First Union Securities, Inc., one of Veridian's
underwriters in the initial public offering, received payments
of $41.4 million in connection with the retirement of the senior
subordinated notes and the redemption of the preferred stock.
The remainder of the net proceeds to Veridian from the initial
public offering, approximately $31.4 million, is available to
fund working capital requirements and business acquisitions.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 3, 2002, the Company held its Annual
Shareholders Meeting.
(b) Mr. Russell Fradin was elected as a Class II director
and Ms. Lynn Amato Madonna was re-elected as a Class II director.
Messrs. James Kozlowski and David Langstaff will continue to
serve as Class I directors. Messrs. Joseph Allen, Joel Birnbaum,
Charles Simons and Ms. Sally Ride will continue to serve as
Class III directors. Mr. Michael Bell will continue to serve as
a Class A director.
(c) The matters voted upon at the meeting included: (i)
the election of two persons as Class II directors; (ii) the
approval of the conversion of one share of Class B common stock
into 1.33 shares of common stock and a similar split of one share
of Class A common stock into 1.33 shares of Class A common stock;
(iii) the approval of an amendment to the Amended and Restated
Certificate of Incorporation of the Company effecting a
recapitalization of the Company; (iv) the approval of the Second
Amended and Restated Certificate of Incorporation of the Company
to be effective upon the consummation of the initial public
offering; (v) the adoption of the Amended and Restated Bylaws of
the Company to be effective upon the consummation of the initial
public offering; (vi) the approval of an amendment to the
Company's 2000 Stock Incentive Plan increasing the number of
shares authorized to be issued pursuant to the plan; and (vii)
the approval of the appointment of KPMG LLP as independent
public accountants to audit the Company's financial statements
for fiscal year 2002.
For all of the matters stated above other than election of
directors, 10,435,950 voted for the matters and 680,796 votes
were withheld. Ms. Lynn Amato Madonna was re-elected with
10,435,950 votes for and 680,796 votes withheld. Mr. Russell
Fradin was elected with 10,435,950 votes for and 680,796 votes
withheld.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
99.1 Certification of David H. Langstaff pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Certification of James P. Allen pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
B. REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the
quarter ended June 30, 2002.
27
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.
VERIDIAN CORPORATION
Date: August 13, 2002 /s/ David H. Langstaff
-------------------------- ----------------------------------
David H. Langstaff - President and Chief
Executive Officer
Date: August 13, 2002 /s/ James P. Allen
--------------------------- ---------------------------------
James P. Allen - Senior Vice President and
Chief Financial Officer