Attached files

file filename
8-K/A - FORM 8-K/A - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c09659e8vkza.htm
EX-99.3 - EXHIBIT 99.3 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c09659exv99w3.htm
EX-23.1 - EXHIBIT 23.1 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c09659exv23w1.htm
EX-99.2 - EXHIBIT 99.2 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c09659exv99w2.htm
Exhibit 99.4
GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Unaudited Pro Forma Condensed Consolidated Financial Statements
(amounts in thousands)
On October 1, 2010, Global Defense Technology & Systems, Inc. (“GTEC” or “the Company”) acquired 100% of the outstanding stock of Zytel Corporation (“Zytel”) for $27,454, which includes a $654 working capital adjustment. The acquisition was funded with cash on-hand and our senior revolving credit facility. Out of the purchase price due at closing, $4,530 was placed into escrow to be used if necessary to satisfy certain indemnification obligations of the selling stockholder. The following unaudited pro forma condensed consolidated balance sheet as of June 30, 2010 and the unaudited pro forma condensed consolidated statements of operations for the six months ended June 30, 2010 and the fiscal year ended December 31, 2009 give effect to the Company’s purchase of Zytel. The acquisition has been accounted for as a business combination under FASB ASC 805 and the initial purchase price was allocated to Zytel’s assets and liabilities based on their fair values at the date of the acquisition, with the excess allocated to goodwill.
The unaudited pro forma condensed consolidated balance sheet presents the financial position of the Company as if the acquisition of Zytel occurred on June 30, 2010. The unaudited pro forma condensed consolidated statement of operations for the six months ended June 30, 2010 and year ended December 31, 2009 has been prepared as if the acquisition occurred on January 1, 2009.
The unaudited pro forma adjustments are based on management’s preliminary estimates of the value of the tangible and intangible assets and liabilities acquired. As a result, the actual adjustments may differ materially from those presented in these unaudited pro forma statements. A change in the unaudited pro forma adjustments of the purchase price for the acquisition would primarily result in a reallocation affecting the value assigned to tangible and intangible assets. The income statement effect of these changes will depend on the nature and amount of the assets or liabilities adjusted.
The unaudited pro forma condensed consolidated financial statements, which have been prepared in accordance with rules prescribed by Article 11 of Regulation S-X, are provided for informational purposes only and are not necessarily indicative of the past or future results of the operations or financial position of the Company.
This information should be read in conjunction with the previously filed Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2010, the previously filed historical financial statements and accompanying notes of the Company contained in its Annual Report on Form 10-K for the fiscal year ended December 31, 2009 and its Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2010 and the historical financial statements and accompanying notes of Zytel included in this report on Form 8-K/A.

 


 

GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET 
JUNE 30, 2010

(amounts in thousands, except share and per share data)
                                         
                                    Pro Forma  
    GTEC     Zytel     Adjustments             Combined  
 
 
Assets
                                       
Current assets
                                       
Cash and cash equivalents
  $ 1,738     $ 2,835     $ (4,573 )     A     $  
Accounts receivable, net
    49,254       2,370                     51,624  
Due from affiliates
    364                           364  
Prepaid expenses and other current assets
    1,240       5                     1,245  
Deferred tax assets
    589       18                     607  
Income taxes receivable
    308                           308  
 
                               
Total current assets
    53,493       5,228       (4,573 )             54,148  
Property and equipment, net
    3,509       17                     3,526  
Intangible assets, net
    19,140             4,550       B       23,690  
Goodwill
    24,373             21,762       C       46,135  
Deferred tax assets
    6,140                           6,140  
Indemnification asset
                1,686       D       1,686  
Other assets
    442                           442  
 
                               
Total assets
  $ 107,097     $ 5,245     $ 23,425             $ 135,767  
 
                               
Liabilities and Stockholder’s Equity
                                       
Current liabilities
                                       
Accounts payable
  $ 10,286     $ 3     $             $ 10,289  
Accrued expenses
    6,966       1,669       418       E       9,053  
Liability for uncertain tax positions
          1,087       599       D       1,686  
Income taxes payable
          611                     611  
Advance payments on contracts
    526                           526  
Bank loans, current
                               
 
                               
Total current liabilities
    17,778       3,370       1,017               22,165  
Deferred rent
    303                           303  
Deferred tax liabilities
                1,820       F       1,820  
Bank loans, net of current
                22,881       G       22,881  
 
                               
Total liabilities
    18,081       3,370       25,718               47,169  
 
                               
Stockholder’s Equity
                                       
Common stock, par value $0.01 per share, 90,000,000 shares authorized and 9,089,666 shares issued and outstanding
    91                           91  
Additional paid-in capital
    88,685                           88,685  
Retained earnings (accumulated deficit)
    240       1,875       (2,293 )     H       (178 )
 
                               
Total stockholder’s equity
    89,016       1,875       (2,293 )             88,598  
 
                               
Total liabilities and stockholder’s equity
  $ 107,097     $ 5,245     $ 23,425             $ 135,767  
 
                               

 

Page 2


 

GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(amounts in thousands)
A     This adjustment reflects the cash paid by the Company representing the purchase price of the acquisition from cash on hand. The total purchase price of $27,454 includes a $26,800 initial purchase price and a $654 working capital adjustment, collectively paid to the Zytel shareholder. This transaction took place October 1, 2010 when the Company’s cash balance was greater than the June 30, 2010 cash balance.
 
B     This adjustment reflects the preliminary identified intangible assets valuation.
                 
            Preliminary Purchase Price  
Acquired Intangible Assets   Estimated Useful Life     Allocation  
Customer relationships
  15 years   $ 4,300  
Contract backlog
  1 year     200  
Trade name
  1 year     50  
 
             
 
          $ 4,550  
  This adjustment reflects the recording of goodwill as a result of the acquisition. The goodwill adjustment is detailed below and is calculated as the excess of purchase price over the estimated fair value of the net assets acquired. Goodwill will not be amortized but will be subject to annual impairment tests.
         
    Amounts  
Purchase price
  $ 27,454  
Less:
       
Net assets acquired
    2,962  
Identified intangible assets (preliminary)
    4,550  
Deferred tax liabilities
    (1,820 )
 
     
Goodwill
  $ 21,762  
  This adjustment relates to a tax indemnification from the seller for IRS related issues for the prior years. The Company is indemnified up to $1,850 and has recorded an asset equal to the uncertain tax position. At October 1, 2010, this balance totaled $1,686 and includes interest and penalties through the date of acquisition. The Company will record interest expense on the uncertain tax positions in Provision for income taxes. An increase in the indemnification asset will be recorded in Other income. The indemnification asset is composed of cash held in escrow.
  This adjustment reflects the transaction costs incurred by GTEC in connection with the acquisition. The adjustment was recorded to Accrued expenses and Retained earnings.
 
  This adjustment reflects the increase in deferred tax liabilities recognized upon consummation of the Zytel acquisition arising from the allocation of the purchase price to identifiable intangible assets using the Company’s estimated effective tax rate of 40%.
 
  This adjustment reflects the loan borrowings in conjunction with the Zytel acquisition.
 
  This adjustment reflects the elimination of Zytel’s retained earnings prior to the acquisition and the recording of transaction costs as mentioned above.

 

Page 3


 

GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2010

(amounts in thousands, except share and per share data)
                                         
                                    Pro Forma  
    GTEC     Zytel     Adjustments             Combined  
Revenue
  $ 95,115     $ 8,780     $             $ 103,895  
 
                                       
Operating costs and expenses
                                       
Cost of revenue
    77,593       5,983                     83,576  
Selling, general and administrative expenses
    10,425       1,369                     11,794  
Amortization of intangible assets
    2,128             143       I       2,271  
 
                               
Total operating costs and expenses
    90,146       7,352       143               97,641  
 
                               
 
                                       
Operating income
    4,969       1,428       (143 )             6,254  
Other income (expense)
                                       
Interest income
    6       2                     8  
Interest expense
    (55 )     (27 )     (316 )     J       (398 )
Other income
                28       K       28  
 
                               
Income before income taxes
    4,920       1,403       (431 )             5,892  
Provision for income taxes
    (1,763 )     (582 )     156       L       (2,189 )
 
                               
Net income
  $ 3,157     $ 821     $ (275 )           $ 3,703  
 
                               
 
                                       
Earnings per share
                                       
Basic
  $ 0.35                             $ 0.41  
Diluted
  $ 0.34                             $ 0.40  
 
 
Weighted average common shares outstanding
                                       
Basic
    9,036,432                               9,036,432  
Diluted
    9,156,163                               9,156,163  

 

Page 4


 

GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(amounts in thousands)
  This adjustment reflects the amortization of identified acquired intangible assets with finite useful lives, based on the preliminary purchase price allocation (see Note B above).
 
  This adjustment reflects the interest expense for the funds borrowed for the acquisition of Zytel. The interest rate of 2.76% is the rate in effect as of the date of the transaction, which is locked for 30 days.
 
  This adjustment reflects an increase in the indemnification asset which is equally offset by the interest expense recorded in Provision for income taxes.
 
  This adjustment reflects the interest expense on the seller’s IRS related tax issue mentioned above and tax benefits from the adjustments mentioned above at the Company’s estimated effective tax rate of 40%.

 

Page 5


 

GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009

(amounts in thousands, except share and per share data)
                                         
                                    Pro Forma  
    GTEC     Zytel     Adjustments             Combined  
Revenue
  $ 212,845     $ 15,236     $             $ 228,081  
 
                                       
Operating costs and expenses
                                       
Cost of revenue
    175,231       10,544                     185,775  
Selling, general and administrative expenses
    24,861       2,361                     27,222  
Amortization of intangible assets
    8,356             536       M       8,892  
 
                               
Total operating costs and expenses
    208,448       12,905       536               221,889  
 
                               
 
                                       
Operating income
    4,397       2,331       (536 )             6,192  
Other income (expense)
                                       
Interest income
    7       3                     10  
Interest expense
    (1,849 )     (143 )     (632 )     N       (2,624 )
Other income
          4       55       O       59  
 
                               
Income before income taxes
    2,555       2,195       (1,113 )             3,647  
Provision for income taxes
    (1,286 )     (894 )     412 )     P       (1,768 )
 
                               
Net income
  $ 1,269     $ 1,301     $ (701 )           $ 1,869  
 
                               
 
                                       
Earnings per share
                                       
Basic
  $ 0.20                             $ 0.29  
Diluted
  $ 0.20                             $ 0.29  
 
 
Weighted average common shares outstanding
                                       
Basic
    6,341,079                               6,341,079  
Diluted
    6,440,301                               6,440,301  

 

Page 6


 

GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements
(amounts in thousands)
  This adjustment reflects the amortization of identified acquired intangible assets with finite useful lives, based on the preliminary purchase price allocation (see Note B above).
 
  This adjustment reflects the interest expense for the funds borrowed for the acquisition of Zytel. The interest rate of 2.76% is the rate in effect as of the date of the transaction, which is locked for 30 days.
 
  This adjustment reflects an increase in the indemnification asset which is equally offset by the interest expense recorded in Provision for income taxes.
 
  This adjustment reflects the interest expense on the seller’s IRS related tax issue mentioned above and tax benefits from the adjustments mentioned above at the Company’s estimated effective tax rate of 40%.

 

Page 7