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8-K/A - FORM 8-K/A - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c13418e8vkza.htm
EX-99.3 - EXHIBIT 99.3 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c13418exv99w3.htm
EX-99.2 - EXHIBIT 99.2 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c13418exv99w2.htm
EX-99.4 - EXHIBIT 99.4 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c13418exv99w4.htm
EX-23.1 - EXHIBIT 23.1 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c13418exv23w1.htm
EX-23.2 - EXHIBIT 23.2 - GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.c13418exv23w2.htm
Exhibit 99.5
GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Unaudited Pro Forma Condensed Consolidating Financial Statements
(amounts in thousands)
On December 18, 2010, Global Defense Technology & Systems, Inc. (“GTEC” or “the Company”) acquired 100% of the outstanding membership interests in Signature Government Solutions, LLC (“SGS”) for $53,201, which includes a $701 working capital adjustment. The acquisition was funded with GTEC’s senior revolving credit facility. Out of the purchase price due at closing, $5,250 was placed into escrow to be used if necessary to satisfy certain indemnification obligations of the seller.
On October 1, 2010, GTEC acquired 100% of the outstanding stock of Zytel Corporation (“Zytel”) for $27,447, which includes a $647 working capital adjustment. The acquisition was funded with $8,558 of cash on-hand and $18,889 from GTEC’s 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 acquisitions have been accounted for as business combinations under FASB ASC 805, and the purchase prices were allocated to SGS’ and Zytel’s assets and liabilities based on their fair values at the date of each acquisition, with the excess allocated to goodwill.
The unaudited pro forma condensed consolidating balance sheet presents the financial position of the Company as if the acquisitions of SGS and Zytel occurred on September 30, 2010. The unaudited pro forma condensed consolidating statements of operations for the nine months ended September 30, 2010 and year ended December 31, 2009 have been prepared as if the acquisitions occurred on January 1, 2009.
The unaudited pro forma condensed consolidating 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 December 21, 2010, the previously filed historical condensed 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 September 30, 2010 and the historical financial statements and accompanying notes of SGS included in this report on Form 8-K/A.

 

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

(amounts in thousands, except share and per share data)
                                                                 
                            SGS             Zytel             Pro Forma  
    GTEC     SGS     Zytel     Adjustments             Adjustments             Combined  
Assets
                                                               
Current assets
                                                               
Cash and cash equivalents
  $ 8,558     $ 579     $ 1,441     $ (579 )     A     $ (9,999 )     A     $  
Accounts receivable, net
    49,798       6,557       2,675                                   59,030  
Employee notes receivable
          135                                         135  
Due from affiliates
    381       2,677                                         3,058  
Prepaid expenses and other current assets
    1,454       31       23                                   1,508  
Deferred tax assets
    651             3                                   654  
Income taxes receivable
    1,082             156                                   1,238  
 
                                                   
Total current assets
    61,924       9,979       4,298       (579 )             (9,999 )             65,623  
Property and equipment, net
    3,560       88                                         3,648  
Intangible assets, net
    18,418                   9,150       B       4,550       C       32,118  
Goodwill
    24,373                   35,802       D       22,106       E       82,281  
Deferred tax assets
    5,965                                               5,965  
Indemnification asset
                                    1,686       F       1,686  
Other assets
    412       19                                         431  
 
                                                   
Total assets
  $ 114,652     $ 10,086     $ 4,298     $ 44,373             $ 18,343             $ 191,752  
 
                                                   
Liabilities and Stockholders’ Equity
                                                               
Current liabilities
                                                               
Accounts payable
  $ 14,576     $ 98     $     $             $             $ 14,674  
Accrued expenses
    7,964       1,739       1,687       362       G       464       G       12,216  
Liability for uncertain tax positions
                1,100                     586       F       1,686  
Advance payments on contracts
    336                                               336  
 
                                                   
Total current liabilities
    22,876       1,837       2,787       362               1,050               28,912  
Deferred rent
    305                                               305  
Deferred tax liabilities
                                    1,820       H       1,820  
Bank loans, net of current
                      52,622       I       17,448       I       70,070  
 
                                                   
Total liabilities
    23,181       1,837       2,787       52,984               20,318               101,107  
 
                                                   
Stockholders’ 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
    89,127                                               89,127  
Member’s equity
          8,249             (8,249 )     J                      
Retained earnings (accumulated deficit)
    2,253             1,511       (362 )     J       (1,975 )     J       1,427  
 
                                                   
Total stockholders’ equity
    91,471       8,249       1,511       (8,611 )             (1,975 )             90,645  
 
                                                   
Total liabilities and stockholders’ equity
  $ 114,652     $ 10,086     $ 4,298     $ 44,373             $ 18,343             $ 191,752  
 
                                                   

 

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GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidating Financial Statements
(amounts in thousands)
A   This adjustment reflects the assumed cash paid by the Company representing the purchase price of the acquisition from cash on hand. The total Zytel purchase price of $27,447 includes a $26,800 initial purchase price and a $647 working capital adjustment, collectively paid to the Zytel shareholder. The total SGS purchase price of $53,201 includes a $52,500 initial purchase price and a $701 working capital adjustment, collectively paid to the owner of SGS.
 
B   For the SGS acquisition, customer relationships consisted of acquired contracts that have had a history of renewal upon recompete and were valued based upon the estimated future cash flows after the contract’s future recompete date. A fifteen year useful life was estimated based upon an analysis of renewal history for each contract. Contract backlog was valued and a one year useful life was estimated based on signed agreements representing expected future revenue. The fair values were estimated using Level 3 assumptions.
 
    This adjustment reflects the identified intangible assets valuation for SGS as follows:
                 
Acquired Intangible Assets   Estimated Useful Life     Estimated Fair Value  
Customer relationships
  15 years     $ 8,700  
Contract backlog
  1 year       450  
 
             
 
          $ 9,150  
 
             
C   For the Zytel acquisition, customer relationships consisted of acquired contracts that have had a history of renewal upon recompete and were valued based upon the estimated future cash flows after the contract’s future recompete date. A fifteen year useful life was estimated based upon an analysis of renewal history for each contract. Contract backlog was valued and a one year useful life was estimated based on signed agreements representing expected future revenue. A trade name for Zytel was valued based on the equivalent costs associated with developing it or paying royalties for its use and was estimated to have a one year life. The fair values were estimated using Level 3 assumptions.
 
    This adjustment reflects the identified intangible assets valuation for Zytel as follows:
                 
Acquired Intangible Assets   Estimated Useful Life     Estimated Fair Value  
Customer relationships
  15 years     $ 4,300  
Contract backlog
  1 year       200  
Trade name
  1 year       50  
 
             
 
          $ 4,550  
 
             

 

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GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidating Financial Statements
(amounts in thousands)
D   This adjustment reflects the recognition of goodwill as a result of the SGS 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
  $ 53,201  
Less:
       
Net assets acquired
    8,249  
Identified intangible assets
    9,150  
 
     
Goodwill
  $ 35,802  
E   This adjustment reflects the recognition of goodwill as a result of the Zytel 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
  $ 27,447  
Less:
       
Net assets acquired
    2,611  
Identified intangible assets
    4,550  
Deferred tax liabilities
    (1,820 )
 
     
Goodwill
  $ 22,106  
F   This adjustment relates to a tax indemnification from the Zytel 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 September 30, 2010, this balance totaled $1,686 and includes interest and penalties through the date of acquisition. The Company will record interest expense in Other Expense that will be equally offset by an increase in the indemnification asset that will be recorded in Other Income. The indemnification asset is backed by cash held in escrow.
 
G   This adjustment reflects the transaction costs incurred by GTEC in connection with the respective acquisition. The adjustment was recorded to Accrued expenses and Retained earnings.
 
H   This adjustment reflects the increase in deferred tax liabilities recognized upon consummation of the respective acquisition arising from the allocation of the purchase price to identifiable intangible assets.
 
I   This adjustment reflects the assumed loan borrowings in conjunction with the respective acquisition.
 
J   This adjustment reflects the elimination of retained earnings and Member’s equity prior to the respective acquisition and the recognition of transaction costs as mentioned above.

 

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

(amounts in thousands, except share and per share data)
                                                                 
                            SGS             Zytel             Pro Forma  
    GTEC     SGS     Zytel     Adjustments             Adjustments             Combined  
Revenue
  $ 150,494     $ 26,946     $ 13,414     $             $             $ 190,854  
 
                                                               
Operating costs and expenses
                                                               
Cost of revenue
    123,945       18,275       10,183                     (531 )     K       151,872  
Selling, general and administrative expenses
    15,973       5,985       2,348                     (469 )     K       23,837  
Amortization of intangible assets
    2,850                   435       L       215       L       3,500  
 
                                                   
Total operating costs and expenses
    142,768       24,260       12,531       435               (785 )             179,209  
 
                                                   
 
                                                               
Operating income
    7,726       2,686       883       (435 )             785               11,645  
Other income (expense)
                                                               
Interest income
    11                                               11  
Interest expense
    (101 )           (38 )     (1,381 )     M       (458 )     M       (1,978 )
Other income (expense)
          (9 )     11                                   2  
 
                                                   
Income before income taxes
    7,636       2,677       856       (1,816 )             327               9,680  
Provision for income taxes
    (2,466 )           (399 )     (344 )     N       (131 )     N       (3,340 )
 
                                                   
Net income
  $ 5,170     $ 2,677     $ 457     $ (2,161 )           $ 196             $ 6,340  
 
                                                   
 
                                                               
Earnings per share
                                                               
Basic
  $ 0.57                                                     $ 0.70  
Diluted
  $ 0.56                                                     $ 0.69  
 
                                                               
Weighted average common shares outstanding
                                                               
Basic
    9,037,087                                                       9,037,087  
Diluted
    9,157,737                                                       9,157,737  

 

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GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidating Financial Statements
(amounts in thousands)
K   These adjustments relate to transaction bonuses paid by the Zytel seller prior to closing.
 
L   This adjustment reflects the amortization of identified acquired intangible assets with finite useful lives based on the estimated fair value.
 
M   This adjustment reflects the interest expense for the funds borrowed for the acquisition of Zytel and SGS at the effective interest rate at the date of the SGS transaction of 3.5%.
 
N   This adjustment reflects the tax benefits of the adjustments mentioned above and the assumed tax expense on the taxable income generated by SGS at the Company’s statutory tax rate of 40%.

 

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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)
                                                                 
                            SGS             Zytel             Pro Forma  
    GTEC     SGS     Zytel     Adjustments             Adjustments             Combined  
Revenue
  $ 212,845     $ 32,423     $ 15,236     $             $             $ 260,504  
 
                                                               
Operating costs and expenses
                                                               
Cost of revenue
    175,231       21,278       10,544                                   207,053  
Selling, general and administrative expenses
    24,861       7,419       2,361                                   34,641  
Amortization of intangible assets
    8,356                   1,030       O       537       O       9,923  
 
                                                   
Total operating costs and expenses
    208,448       28,697       12,905       1,030               537               251,617  
 
                                                   
 
                                                               
Operating income
    4,397       3,726       2,331       (1,030 )             (537 )             8,887  
Other income (expense)
                                                               
Interest income
    7             3                                   10  
Interest expense
    (1,849 )           (143 )     (1,842 )     P       (611 )     P       (4,444 )
Other income (expense)
          (30 )     4                                   (26 )
 
                                                   
Income before income taxes
    2,555       3,696       2,195       (2,872 )             (1,147 )             4,427  
Provision for income taxes
    (1,286 )           (894 )     (330 )     Q       459       Q       (2,051 )
 
                                                   
Net income
  $ 1,269     $ 3,696     $ 1,301     $ (3,201 )           $ (688 )           $ 2,376  
 
                                                   
 
                                                               
Earnings per share
                                                               
Basic
  $ 0.20                                                     $ 0.37  
Diluted
  $ 0.20                                                     $ 0.37  
 
                                                               
Weighted average common shares outstanding
                                                               
Basic
    6,341,079                                                       6,341,079  
Diluted
    6,440,301                                                       6,440,301  

 

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GLOBAL DEFENSE TECHNOLOGY & SYSTEMS, INC.
Notes to Unaudited Pro Forma Condensed Consolidating Financial Statements
(amounts in thousands)
O   This adjustment reflects the amortization of identified acquired intangible assets with finite useful lives based on the estimated fair value.
 
P   This adjustment reflects the interest expense for the funds borrowed for the acquisition of Zytel and SGS at the interest rate at the date of the SGS transaction of 3.5%.
 
Q   This adjustment reflects the tax benefits of the adjustments mentioned above, and the assumed tax expense on the taxable income generated by SGS at the Company’s statutory tax rate of 40%.

 

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