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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2003 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 001-31235
Integrated Defense Technologies, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 13-4027646
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110 Wynn Drive, Huntsville, Alabama 35805
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(256) 895-2000
------------------------------
(Telephone Number)
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 X NO ___
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). YES ___ NO
X
Common stock, par value $.01 per share: 21,327,931 shares
outstanding as of August 8, 2003
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INTEGRATED DEFENSE TECHNOLOGIES, INC.
FORM 10-Q
June 27, 2003
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
Consolidated Balance Sheets as of June 27, 2003 and
December 31, 2002 (unaudited) 2
Consolidated Statements of Operations for the quarters and
six months ended June 27, 2003 and June 30, 2002 (unaudited) 3
Consolidated Statements of Cash Flows for the six months
ended June 27, 2003 and June 30, 2002 (unaudited) 4
Notes to Condensed Financial Statements 5 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
PART I. FINANCIAL INFORMATION
ITEM 1.
INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
- --------------------------------------------------------------------------------
June 27, December 31,
2003 2002
- --------------------------------------------------------------------------------
(In thousands except share and per share amounts)
ASSETS
Current assets:
Cash $ 13,785 $ 8,969
Restricted cash 448 1,140
Accounts receivable, net 133,687 134,304
Inventories, net 21,996 20,242
Prepaid expenses and other current assets 3,734 3,047
Deferred income taxes 6,544 6,456
- --------------------------------------------------------------------------------
Total current assets 180,194 174,158
Property and equipment, net 62,333 62,002
Goodwill, net 142,124 143,809
Other intangible assets, net (Note 5) 54,764 55,963
Deferred income taxes --- 2,987
Other assets 7,443 8,781
- --------------------------------------------------------------------------------
Total Assets $446,858 $447,700
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit loan $ --- $ 2,500
Current portion of long-term debt 7,302 7,348
Accounts payable 18,120 20,737
Accrued compensation 14,917 13,162
Other accrued expenses 16,145 13,230
Derivative liabilities 425 458
Billings in excess of costs and earnings 9,099 6,055
- --------------------------------------------------------------------------------
Total current liabilities 66,008 63,490
Long-term debt 197,263 208,860
Deferred income taxes 918 ---
Pension and other postemployment benefits 11,635 11,941
- --------------------------------------------------------------------------------
Total liabilities 275,824 284,291
- --------------------------------------------------------------------------------
Commitments and contingencies (Note 12)
- --------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value per share,
20,000,000 shares authorized, none issued
Common stock, $.01 par value per share,
200,000,000 shares authorized, 21,327,931 issued 213 213
Additional paid-in capital 170,955 170,955
Accumulated other comprehensive loss (5,844) (5,965)
Retained earnings (deficit) 5,710 (1,794)
- --------------------------------------------------------------------------------
Total stockholders' equity 171,034 163,409
- --------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $446,858 $447,700
================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 27, June 30, June 27, June 30,
2003 2002 2003 2002
- --------------------------------------------------------------------------------
(In thousands except per share amounts)
Revenue $93,418 $72,099 $174,317 $140,492
Cost of revenue 63,982 50,288 119,092 99,131
- --------------------------------------------------------------------------------
Gross profit 29,436 21,811 55,225 41,361
Sales and marketing expense 4,002 2,841 7,706 6,724
General and administrative expense 8,130 6,411 16,255 11,931
Research and development and bid
and proposal expenses 6,685 4,493 12,254 8,068
Amortization expense 756 201 1,536 418
- --------------------------------------------------------------------------------
Income from operations 9,863 7,865 17,474 14,220
Interest expense (3,001) (1,027) (6,087) (4,858)
Refinancing costs --- --- --- (20,696)
Other income (expense), net 185 231 430 252
- --------------------------------------------------------------------------------
Income (loss) before income taxes 7,047 7,069 11,817 (11,082)
Income tax benefit (expense) (2,572) (2,579) (4,313) 4,500
- --------------------------------------------------------------------------------
Net income (loss) $4,475 $ 4,490 $7,504 $(6,582)
================================================================================
Earnings (loss) per share:
Basic $.21 $.23 $.35 $(.37)
Diluted $.21 $.21 $.35 $(.37)
================================================================================
Weighted-average shares outstanding:
Basic 21,328 19,801 21,328 17,837
Diluted 21,328 21,328 21,328 17,837
================================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
Six Months Ended
June 27, June 30,
2003 2002
- --------------------------------------------------------------------------------
(In thousands)
OPERATING ACTIVITIES:
Net income (loss) $7,504 $( 6,582)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation expense 6,753 5,393
Amortization expense 2,183 509
Refinancing costs --- 20,696
Deferred income taxes 3,805 ( 3,472)
Changes in current assets and liabilities:
Restricted cash 692 394
Accounts receivable, net 618 ( 4,315)
Inventories, net ( 2,090) ( 144)
Other current assets ( 167) ( 1,718)
Accounts payable ( 2,617) 1,665
Billings in excess of costs and earnings 3,044 ( 1,238)
Other current liabilities 4,755 ( 1,489)
- --------------------------------------------------------------------------------
Net cash provided by operating activities 24,480 9,699
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment ( 6,998) ( 3,740)
Capitalization of internally developed software ( 208) ( 493)
Signia purchase price adjustments 1,685 ---
Other --- ( 123)
- --------------------------------------------------------------------------------
Net cash used in investing activities ( 5,521) ( 4,356)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from sale of common stock,
net of issuance costs --- 116,688
Issuance of long-term debt --- 85,000
Repayment of long-term debt (11,643) (169,823)
Payment of refinancing costs --- ( 14,716)
Net repayments under revolving credit loans ( 2,500) ( 8,500)
- --------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities (14,143) 8,649
- --------------------------------------------------------------------------------
Net increase in cash 4,816 13,992
Cash at beginning of period 8,969 3,893
- --------------------------------------------------------------------------------
Cash at end of period $13,785 $ 17,885
================================================================================
Supplemental disclosure of noncash
financing activities:
Unrealized loss on derivative
financial instrument $( 239) $( 1,075)
The accompanying notes are an integral part of these consolidated
financial statements.
INTEGRATED DEFENSE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Integrated Defense Technologies, Inc. and
subsidiaries (the "Company") have been prepared on the same
basis as the Company's annual consolidated financial
statements and should be read in conjunction with its Annual
Report on Form 10-K for the year ended December 31, 2002 filed
with the Securities and Exchange Commission on March 28, 2003.
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements contain all
adjustments (consisting of normal recurring items) necessary
for a fair presentation of results for the interim periods
presented. The consolidated results for interim periods are
not necessarily indicative of the results that may be expected
for the full year. Certain prior period amounts have been
reclassified to provide comparability with the current
presentation.
NOTE 2: REFINANCING
On February 27, 2002, the Company completed an initial public
offering of 8,000,000 shares of common stock at $22 per share.
In the offering, the Company sold 6,000,000 primary shares,
generating net cash proceeds of $116,688,000. The majority of
the proceeds from the offering were used for debt retirement
and refinancing. Concurrent with the closing of the offering,
the Company repaid the outstanding balances on its revolving
credit and term loan agreement and its senior subordinated
notes ($125,836,000 and $51,250,000, respectively) and
replaced the previous revolving credit and term loan facility
with a new facility provided by a syndicate of financial
institutions.
The Company's new six-year revolving credit and term loan
facility, as amended on November 1, 2002 (see Note 3),
provides for a total credit facility of up to $265,000,000,
consisting of a $45,000,000 five-year revolving credit
facility, a $40,000,000 five-year term loan ("Term Loan A")
and a $180,000,000 six-year term loan ("Term Loan B").
Borrowings under the facility are secured by a pledge of
substantially all of the Company's assets and bear interest at
the base rate or LIBOR plus an applicable margin ranging from
1.00% to 4.00% based upon the Company's leverage ratio.
Available borrowings under the revolving credit facility are
based upon a borrowing base, which is calculated based upon
eligible accounts receivable and inventories as defined in the
agreement.
On March 31, 2003, the Company repaid the $2,500,000 amount
outstanding under the revolving credit facility, and on June
27, 2003, it prepaid $10,000,000 of the balance due under the
term loan facility, consisting of $1,656,000 paid on Term Loan
A and $8,344,000 paid on Term Loan B. This prepayment also
served to reduce the Company's remaining scheduled quarterly
payments under the term loan facility by approximately 4.7%.
At June 27, 2003, the Company had outstanding borrowings of
$204,375,000 under the facility, consisting of $33,844,000
under Term Loan A and $170,531,000 under Term Loan B. In
addition, $14,720,000 of the credit line was allocated to
support the Company's letters of credit on that date, leaving
available borrowings under the facility of $30,280,000. The
Company has not utilized the revolving credit facility since
the March 31, 2003 repayment.
On June 30, 2003, the Company made its scheduled payments on
Term Loans A and B of $1,370,000 and $429,000, respectively.
Current interest rates on the remaining outstanding loan
balances are 4.1% and 5.1%, respectively.
At June 27, 2003 and December 31, 2002, the fair values of
the Company's borrowings under its revolving credit and term
loan facility approximated their carrying values based upon
the variable nature of the interest rates. For further
information regarding the Company's revolving credit and
term loan facility, including information regarding
financial covenants and business restrictions associated
with the facility, see "Liquidity and Capital Resources"
contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in this
quarterly report on Form 10-Q.
In connection with the early retirement and refinancing of its
prior credit facility in first quarter 2002, the Company
incurred charges totaling $20,696,000, including prepayment
penalties of $2,565,000, a $4,833,000 write-off of capitalized
debt issuance costs associated with the previous debt, a
$5,727,000 write-off of unamortized discount on its senior
subordinated notes, and a $7,571,000 payment to terminate
interest rate swap agreements associated with the retired
debt. These charges are reflected as "Refinancing costs" in
the Company's consolidated statement of operations for the six
months ended June 30, 2002.
NOTE 3: BUSINESS ACQUISITION
On November 1, 2002, the Company acquired substantially all of
the assets and assumed certain of the liabilities of the BAE
SYSTEMS Advanced Systems Gaithersburg, Maryland operation (now
known as "Signia"). Signia designs and manufactures high
performance radio frequency surveillance equipment used in
communications intelligence and signals intelligence
applications. The Signia operation complements the Company's
Communications & Surveillance Systems segment, particularly
its Zeta division, which was operationally combined with
Signia during the fourth quarter of 2002. In addition to
reducing overhead expenses associated with the Zeta division,
the integration of Signia into the Communications &
Surveillance Systems segment is expected to broaden that
segment's capabilities and technological expertise in
surveillance and intelligence, while adding valuable new
customer relationships.
The aggregate purchase price paid in fourth quarter 2002 was
$149,085,000, including direct acquisition costs, and was
financed primarily through an add-on to the Company's
revolving credit and term loan facility. (See Note 2 for
details of the Company's credit facility.) In March 2003,
the Company received a final closing purchase price adjustment
of $1,899,000 in cash from the seller. In addition, during
the first six months of 2003, the Company incurred additional
expenses related to the acquisition totaling $214,000. These
expenses also resulted in an adjustment to the purchase price
and goodwill associated with the acquisition. (See Note 5
following.) The net cash inflow related to these Signia
purchase price adjustments of $1,685,000 is reflected as
"Signia purchase price adjustments" in the Company's
consolidated statement of cash flows for the six months ended
June 27, 2003.
See Note 4 of Notes to Consolidated Financial Statements
contained in the Company's 2002 Annual Report to Stockholders
for complete details of the Signia acquisition, including the
fair values of the assets acquired and liabilities assumed on
the date of acquisition. For information regarding the
intangible assets acquired, see Note 5 following.
NOTE 4: INVENTORIES
Inventories consist of the following:
------------------------------------------------------------
June 27, December 31,
2003 2002
------------------------------------------------------------
(In thousands)
Stock materials $16,514 $14,983
Work-in-process 11,999 10,525
Finished goods 2,065 3,363
------------------------------------------------------------
30,578 28,871
Less reserve for excess
and obsolescence 8,582 8,629
------------------------------------------------------------
Inventories, net $21,996 $20,242
============================================================
Inventories are stated at the lower of first-in, first-out
("FIFO") cost or market or valued using other costing methods
which approximate the lower of FIFO cost or market. For the
purpose of this valuation, market values are estimated based
upon assumptions about future demand and market conditions.
Work-in-process and finished goods inventories consist
primarily of electronic components for use in fulfilling
current and future contracts.
NOTE 5: GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted the provisions
of Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), under which the Company's
goodwill is no longer amortized and is instead subject to
annual impairment tests using a fair value based approach.
The Company's other recorded intangible assets, substantially
all of which were acquired in the Company's November 1, 2002
acquisition of Signia, are being amortized over their
remaining estimated useful lives.
Goodwill
The Company completed the transitional impairment testing and
reallocation of goodwill to its business units in the second
quarter of 2002. For impairment testing purposes, the Company
determined the value of its individual business units using a
discounted cash flow model, a guideline company model, and a
transaction model, and by observation of demonstrable fair
values of comparable entities. The Company determined that
there was no impairment of its goodwill as of the January 1,
2002 implementation date of SFAS 142.
In fourth quarter 2002, in connection with the combination of
its Zeta division with Signia, the Company determined the
value of the Zeta division using a discounted cash flow model
and wrote off the remaining unamortized goodwill balance
associated with the division.
The Company completed its first annual impairment testing of
goodwill as of December 31, 2002 using a discounted cash flow
model and a transaction model and determined that there was no
further impairment of its goodwill. There have been no events
or changes in circumstances during the first six months of
2003 which would indicate additional impairment of the
Company's goodwill.
Changes in the carrying amount of the Company's goodwill
during the first six months of 2003 were as follows:
-------------------------------------------------------------------------------------------
Electronic Diagnostics Communications
Combat & Power & Surveillance
Systems Systems Systems Total
-------------------------------------------------------------------------------------------
(In thousands)
Balance as of January 1, 2003 $53,221 $20,075 $70,513 $143,809
Signia purchase price adjustments
(see Note 3) --- --- (1,685) (1,685)
-------------------------------------------------------------------------------------------
Balance as of June 27, 2003 $53,221 $20,075 $68,828 $142,124
===========================================================================================
Other Intangible Assets
-------------------------------------------------------------------------------------------
As of June 27, 2003
-------------------
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
-------------------------------------------------------------------------------------------
(In thousands)
Trade names and trademarks $ 1,581 $ 105 $ 1,476
Patents and proprietary technology 13,870 614 13,256
Customer relationships 40,912 880 40,032
-------------------------------------------------------------------------------------------
Total $56,363 $1,599 $54,764
===========================================================================================
Annual amortization expense for each of the next five years
should approximate $2,400,000.
NOTE 6: PROPERTY AND EQUIPMENT
Property and equipment, net includes allowances for
depreciation of $77,338,000 and $71,043,000 at June 27, 2003
and December 31, 2002, respectively.
NOTE 7: INTEREST RATE SWAP AGREEMENTS
The Company at times uses interest rate swap agreements to
manage the risk associated with interest rate fluctuations on
its variable rate debt. In October 2000, the Company entered
into three such agreements with notional amounts of
$25,000,000, $10,000,000, and $60,000,000, under which the
Company paid fixed interest rates ranging from 6.39% to 6.75%
and received a variable LIBOR-based rate of interest from the
holders of the agreements. On March 4, 2002, in connection
with its debt retirement and refinancing (see Note 2), the
Company paid $7,571,000 to terminate these interest rate swap
agreements. This expense is reflected as a component of
"Refinancing costs" in the Company's consolidated statement of
operations for the six months ended June 30, 2002.
On December 31, 2002, the Company entered into an interest
rate swap agreement with a notional amount of $115,000,000,
under which the Company pays a fixed interest rate of 1.815%
and receives a variable LIBOR-based rate of interest from the
holder of the agreement. LIBOR approximated 1.4% at December
31, 2002 and 1.1% at June 27, 2003. As such, the swap
agreement had a negative fair value of $458,000 ($291,000 net
of tax benefit) at December 31, 2002 and $425,000 ($270,000
net of tax benefit) at June 27, 2003. These fair values,
representing the approximate cost of terminating the swap on
those dates, are reflected as "Derivative liabilities" and as
a component of "Accumulated other comprehensive loss" in the
Company's consolidated balance sheets. The interest rate swap
agreement is scheduled to terminate in December 2003, and as
such, the accumulated other comprehensive loss associated with
the agreement, if any, can be expected to be reclassified into
earnings during 2003.
The difference between the pay and receive rates of interest
on the Company's interest rate swap agreements is charged or
credited to interest expense as incurred and reflected as a
reclassification adjustment out of other comprehensive income
(loss). In the first six months of 2002 and 2003, the
Company's swap agreements increased its interest expense by
$830,000 and $272,000, respectively.
There was no impact to earnings due to hedge ineffectiveness
during the first six months of 2002 and 2003. The Company
does not use derivative financial instruments for speculative
or trading purposes.
NOTE 8: EARNINGS (LOSS) PER SHARE ("EPS")
The Company reports both basic and diluted EPS figures. Basic
EPS is computed using the weighted average number of common
shares outstanding. Diluted EPS is computed using the weighted
average number of common and equivalent common shares
outstanding. Historically, common stock warrants have been the
Company's only common stock equivalent and have been included
in the Company's EPS calculations only if dilutive.
On February 5, 2002, the Company's Board of Directors approved
a 198.6359 to 1 common stock split. All share and per share
amounts for the six months ended June 30, 2002 reflect this
stock split.
On February 27, 2002, in connection with its initial public
stock offering, the Company issued 6,000,000 additional shares
of common stock, and warrant holders converted outstanding
warrants into 235,749 shares of the Company's common stock.
On September 6, 2002, warrant holders converted the remaining
outstanding warrants into 1,526,939 shares of restricted
common stock. The Company no longer has any common stock
warrants outstanding.
Common stock warrants outstanding during the quarter and six
months ended June 30, 2002 equated to 1,526,946 dilutive
weighted-average equivalent shares and 1,601,187 anti-dilutive
weighted-average equivalent shares for the respective periods.
The Company had no common stock warrants outstanding during
the six months ended June 27, 2003.
NOTE 9: COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes net income (loss) as well
as all other nonowner changes in equity. The components of the
Company's comprehensive income (losses) for the quarters and
six month periods ended June 27, 2003 and June 30, 2002 are
presented below, net of related income tax effects. See Note
7 for further information regarding the interest rate swap
agreements used by the Company and the impact of those
agreements on its consolidated financial position and results
of operations.
- -------------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 27, June 30, June 27, June 30,
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------
(In thousands)
Net income (loss) $4,475 $4,490 $7,504 $(6,582)
Other comprehensive income (loss):
Unrealized losses on interest rate swap agreements (37) --- (152) (656)
Realized losses on interest rate swap agreements
charged to net income (loss) 97 --- 173 5,198
Minimum pension liability adjustment 113 (46) 100 (25)
- -------------------------------------------------------------------------------------------------
Comprehensive income (loss) $4,648 $4,444 $7,625 $(2,065)
=================================================================================================
NOTE 10:SEGMENT INFORMATION
The Company's business presently consists of three
operating segments: Electronic Combat Systems, Diagnostics &
Power Systems, and Communications & Surveillance Systems.
These reportable segments are defined primarily by their
economic characteristics, the nature of their products and
services, and by their class of customer.
The Electronic Combat Systems segment designs, integrates,
manufactures, and sells electronics and avionics equipment
primarily to the U.S. Government for military, civil, and
governmental uses, and designs, manufactures, and supports
advanced test and evaluation systems, rangeless air combat
training systems, threat simulation equipment, high power
transmitters, and control subsystems for both guided bombs and
missile launching systems for the U.S. Department of Defense,
major defense prime contractors, and foreign government
defense agencies.
The Diagnostics & Power Systems segment is a contractor
primarily to the U.S. Government and to foreign governments,
and designs, manufactures, and supports test equipment,
vehicle electronics systems, and energy management systems
primarily for military combat vehicle applications.
The Communications & Surveillance Systems segment designs and
manufactures meteorological surveillance and analysis systems,
more commonly known as Doppler weather radar systems, and
designs and produces advanced electronics systems, subsystems,
components, and radio frequency surveillance equipment for the
defense, aerospace, and communications industries for U.S. and
foreign government agencies and commercial customers.
The Company evaluates the performance of its operating
segments based upon revenue and earnings before interest,
taxes, depreciation, and amortization ("EBITDA") (1),
calculated as income from operations plus depreciation and
amortization expense. The accounting policies of the
operating segments are consistent across segments and are the
same as those used in preparation of the consolidated
financial statements of the Company. (See Note 2 of Notes to
Consolidated Financial Statements included in the Company's
2002 Annual Report to Stockholders.) Sales among the operating
segments are insignificant. The Company's corporate expenses
are allocated in full to the segments on the basis of relative
employment, revenue, and selected assets. Corporate assets
are included in "All other" in the following table.
Set forth below are revenue and EBITDA by operating segment
for the quarters and six month periods ended June 27, 2003 and
June 30, 2002.
------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 27, June 30, June 27, June 30,
2003 2002 2003 2002
------------------------------------------------------------------------------------------
(In thousands)
Revenues from Unaffiliated Customers:
Electronic Combat Systems $37,276 $35,904 $ 68,919 $ 68,125
Diagnostics & Power Systems 22,797 19,902 41,071 41,587
Communications & Surveillance Systems 33,345 16,253 64,327 30,485
All other --- 40 --- 295
------------------------------------------------------------------------------------------
Total $93,418 $72,099 $174,317 $140,492
==========================================================================================
Other Financial Information:
------------------------------------------------------------------------------------------
EBITDA:
Electronic Combat Systems $ 6,867 $6,408 $11,787 $11,630
Diagnostics & Power Systems 2,542 2,110 4,644 4,287
Communications & Surveillance Systems 4,913 2,455 9,900 4,524
All other 26 (134) 79 (318)
------------------------------------------------------------------------------------------
Total $14,348 $10,839 $26,410 $20,123
==========================================================================================
The increase in Communications & Surveillance Systems'
revenue and EBITDA is due primarily to the acquisition of
Signia in the fourth quarter of 2002. Signia's revenue and
EBITDA for the first six months of 2003 totaled $36,633,000
and $7,494,000, respectively.
(1) EBITDA is not a presentation made in accordance with
accounting principles generally accepted in the United
States ("U.S. GAAP"), and as such, it should not be
considered in isolation or as a substitute for net income
(loss), cash flows from operating activities, or other
income or cash flow statement data prepared in accordance
with U.S. GAAP, or as a measure of profitability or
liquidity. The Company monitors EBITDA by segment to
determine each segment's ability to satisfy its debt
service, capital expenditure, and working capital
requirements and because certain covenants in the Company's
revolving credit and term loan facility are based upon
similar measures. EBITDA does not fully consider the impact
of investing or financing transactions as it specifically
excludes depreciation and amortization charges, which should
be considered in the overall evaluation of results.
Additionally, the Company's EBITDA is not necessarily
comparable to other similarly titled captions used by other
companies. A reconciliation of the Company's EBITDA to
income (loss) before income taxes is presented in the
following table.
Reconciliation of EBITDA to income (loss) before income taxes:
---------------------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 27, June 30, June 27, June 30,
2003 2002 2003 2002
---------------------------------------------------------------------------------------------
(In thousands)
EBITDA $14,348 $10,839 $26,410 $20,123
Less: Depreciation and amortization expense 4,485 2,974 8,936 5,903
Interest expense 3,001 1,027 6,087 4,858
Refinancing costs --- --- --- 20,696
Add back other income 185 231 430 252
---------------------------------------------------------------------------------------------
Income (loss) before income taxes $7,047 $7,069 $11,817 $(11,082)
=============================================================================================
The following table presents total assets for each of the
Company's operating segments as of June 27, 2003 and
December 31, 2002.
---------------------------------------------------------------------
June 27, December 31,
2003 2002
---------------------------------------------------------------------
(In thousands)
Total assets:
Electronic Combat Systems $161,126 $163,615
Diagnostics & Power Systems 54,711 57,216
Communications & Surveillance Systems 207,798 202,004
All other 23,223 24,865
---------------------------------------------------------------------
Total $446,858 $447,700
=====================================================================
NOTE 11:RECENT ACCOUNTING PRONOUNCEMENTS
In fourth quarter 2002, the Company early adopted the
provisions of FASB Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), which rescinded FASB Statement of
Financial Accounting Standards No. 4, Reporting Gains and
Losses from Extinguishment of Debt ("SFAS 4"), and made other
technical corrections to existing authoritative
pronouncements. SFAS 4 required companies to classify all
gains and losses from extinguishment of debt as extraordinary
items, net of the related tax effects, in their statements of
operations. SFAS 145 requires gains and losses from
extinguishment of debt to be classified as income or loss from
continuing operations unless they meet the criteria for
classification as extraordinary items contained in Accounting
Principles Board Opinion No. 30. In accordance with the
provisions of SFAS 145, the Company has reclassified its first
quarter 2002 early debt extinguishment loss of $13,125,000,
which was previously classified as an extraordinary item, net
of tax, into its loss from continuing operations. This loss
is included in "Refinancing costs" in the Company's
consolidated statement of operations for the six months ended
June 30, 2002. See Note 2 for further discussion of the
Company's refinancing costs.
NOTE 12:COMMITMENTS AND CONTINGENCIES
Retention Agreements - In March 2003, the Company's Board of
Directors, in connection with its decision to explore
strategic alternatives for the Company and thereby maximize
stockholder value, adopted a retention incentive program for
certain key employees to ensure their continuous full-time
employment with the Company. The employees covered under this
program are eligible to receive special retention bonuses in
varying fixed amounts in the event of a sale, merger,
consolidation, or other business combination resulting in a
change of control of the Company. The aggregate amount of the
Company's contingent liability with respect to the retention
agreements under this program is $3,200,000, but such amount
is not payable absent a change of control event.
Additionally, all agreements under this program will terminate
if such an event has not occurred prior to December 31, 2003.
Product Warranties - Due to the nature and variability of its
products and customers, the Company has no standard warranty
policy applicable to all of its products and business
segments. When applicable, warranties are limited to defects
in material and workmanship, with specific terms and duration
based upon contractual agreements with individual customers.
For products sold with warranties, a provision for future
warranty costs is estimated based upon historical experience
and recorded when the product is shipped. The adequacy of the
recorded warranty liability is assessed each quarter and
adjusted as necessary.
The Company's liability for estimated warranty obligations is
included as a component of "Other accrued expenses" in its
consolidated balance sheets. Changes in the Company's
warranty liability during the six months ended June 27, 2003
were as follows:
(In thousands)
--------------
Balance at December 31, 2002 $ 2,522
Product warranty accrual 118
Warranty costs incurred (95)
--------
Balance at March 28, 2003 2,545
Product warranty accrual 236
Transfer from program estimate
of cost to complete 1,809
Warranty costs incurred (416)
--------
Balance at June 27, 2003 $4,174
========
Letters of Credit - At June 27, 2003, the Company had
outstanding letters of credit of approximately $14,720,000.
These letters of credit, substantially all of which expire
within a year, relate primarily to the Company's contracts
with foreign governments.
Claims and Legal Proceedings - As further described in the
Company's 2002 Annual Report to Stockholders, the Company is
involved in various legal actions arising in the normal course
of its business, including a National Park Service
investigation regarding the presence of residual radioactive
materials and contamination at a uranium mine previously owned
by a predecessor of one of the Company's subsidiaries.
Although the ultimate cost of these matters cannot be
predicted with certainty, the outcomes of such legal actions
are not expected, either individually or in the aggregate, to
result in a material adverse effect on the Company's business,
results of operations, or financial condition. There were no
material developments with respect to these matters during the
first six months of 2003.
ITEM 2.
INTEGRATED DEFENSE TECHNOLOGIES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Integrated Defense Technologies, Inc. (the "Company") is a
designer and developer of advanced electronics and technology
products for the defense and intelligence industries. The Company's
products are installed on or used in support of a broad array of
military platforms in order to enhance their operational performance
or extend their useful lives. The Company's customers include all
branches of the military services, major domestic prime defense
contractors such as The Boeing Company, General Dynamics
Corporation, Lockheed Martin Corporation, Northrop Grumman
Corporation, Raytheon Company, and United Defense Industries, Inc.,
foreign defense contractors, foreign governments, and U.S.
Government agencies.
The Company's contracts typically fall into two categories:
cost-plus and fixed-price contracts. Contracts for research,
engineering, prototypes, repair and maintenance, and similar are
typically cost-plus arrangements. Customer-funded research and
development costs are typically included in the Company's contracts
and booked as revenue and cost of revenue.
In a fixed-price contract, the price is not subject to
adjustment based upon cost incurred to perform the required work
under the contract. In a cost-plus contract, the Company is
reimbursed for allowable incurred costs plus a fee, which may be
fixed or variable. The price on a cost-plus contract is based upon
allowable costs incurred, but generally is subject to contract
funding limitations. Under fixed-price contracts, the Company agrees
to perform for a predetermined contract price. Although fixed-price
contracts generally permit the Company to keep profits if costs are
less than projected, the Company bears the risk that increased or
unexpected costs may reduce profit or cause the Company to sustain
losses on the contracts. Generally, fixed-price contracts offer
higher margins than cost-plus type contracts.
All of the Company's domestic U.S. Government contracts and
subcontracts are subject to audit and various cost controls and
include standard provisions for termination at the convenience of
the U.S. Government or for default. The Department of Defense
generally has the right to object to costs as not allowable or as
unreasonable, which can increase the level of costs the Company
bears. Multi-year U.S. Government contracts and related orders are
subject to cancellation if funds for contract performance for any
subsequent year are not available. Foreign government contracts
generally include comparable provisions relating to termination at
the convenience of the foreign government or for default.
Prior to its November 1, 2002 acquisition of Signia (see the
Company's Annual Report on Form 10-K for the year ended December 31,
2002 for further discussion), the Company accounted for
substantially all of its contracts using the percentage-of-
completion method of accounting. As revenues of the Signia business
are generated primarily from shorter-term production jobs which are
recognized at delivery, the Company's mix of percentage-of-
completion revenues to total revenues has declined to approximately
80%. Under the percentage-of-completion method of accounting,
revenue is matched with the cost incurred on each unit produced at
the time the Company recognizes its sale based upon an estimate of
the gross profit margin the Company expects to receive over the life
of the contract. The Company currently evaluates its estimates of
gross margin on a monthly basis. In addition, the Company uses the
cumulative catch-up method to recognize its changes in estimates of
sales and gross margins during the period in which those changes are
determined. The Company charges any anticipated losses on a contract
to operations as soon as those losses are determined. The principal
components of the Company's cost of revenue are materials,
subcontractor costs, labor, and overhead. The Company charges all of
these costs to the respective contracts as incurred.
The Company expenses operating costs such as sales and
marketing expenses, general and administrative expenses, independent
research and development costs, and bid and proposal costs in the
period incurred. The major components of these costs are
compensation and overhead. Capitalized debt issuance costs,
qualifying software development costs, and intangible assets are
amortized over their useful lives, with the amortization of
capitalized software development costs included as a component of
the Company's cost of revenue. Since January 1, 2002, the Company
has been subject to a new accounting standard under which it no
longer amortizes goodwill, although it must test its goodwill
periodically for impairment.
The Company's results of operations, particularly its revenue
and its cash flows, may vary significantly from period to period
depending upon the timing of delivery of finished products, the
terms of contracts, and the level of export sales. As a result,
period-to-period comparisons may show substantial changes
disproportionate to the Company's underlying business activity.
Accordingly, the Company does not believe that its quarterly results
of operations are necessarily indicative of results for future
periods.
Forward Looking Statements
The information contained in this report includes forward-
looking statements, including in particular statements about plans,
strategies, and prospects under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Words such as "may," "will," "expect," "anticipate," "believe,"
"estimate," "plan," "intend," and similar expressions in this report
identify forward-looking statements. These forward-looking
statements are based upon current views with respect to future
events and financial performance of the Company based upon
assumptions made by management. Actual results could differ
materially from those projected in the forward-looking statements.
The Company's forward-looking statements are subject to risks
and uncertainties, including:
o the Company's dependence upon the defense industry and the
business risks peculiar to that industry, including changing
priorities due to geopolitical conditions or otherwise, or
reductions in the U.S. Government defense budget;
o the Company's ability to obtain future government contracts on
a timely basis;
o the availability of government funding and customer
requirements;
o the potential development of new and competing technologies and
the Company's ability to compete technologically;
o difficulties encountered in the integration of acquired
businesses;
o general economic conditions, the competitive environment of the
defense industry, international business and political conditions,
and timing of awards and contracts; and
o other factors described under "Factors Which May Affect
Financial Condition and Future Results" in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002.
As for the forward-looking statements that relate to future
financial results and other projections, actual results could be
different due to the inherent uncertainty of estimates, forecasts,
and projections and may be better or worse than anticipated. Given
these uncertainties, no reliance should be placed upon forward-
looking statements. Forward-looking statements represent the
Company's estimates and assumptions only as of the date they were
made. The Company expressly disclaims any duty to provide updates to
forward-looking statements and the estimates and assumptions
associated with them after the date of this report in order to
reflect changes in circumstances or expectations or occurrence of
unanticipated events, except to the extent required by applicable
securities laws.
Results of Operations
The following tables summarize the Company's operating
information as a percentage of revenue and its segment data for the
quarters and six month periods ended June 27, 2003 and June 30,
2002:
- --------------------------------------------------------------------------------
Quarter Ended Six Months Ended
June 27, June 30, June 27, June 30,
2003 2002 2003 2002
- --------------------------------------------------------------------------------
Statement of operations and other
financial information:
Revenue 100.0% 100.0% 100.0% 100.0%
Cost of revenue 68.5 69.7 68.3 70.6
- --------------------------------------------------------------------------------
Gross profit 31.5 30.3 31.7 29.4
Sales and marketing expense 4.3 4.0 4.4 4.8
General and administrative expense 8.7 8.9 9.3 8.5
Research and development and bid
and proposal expenses 7.1 6.2 7.1 5.7
Amortization expense .8 .3 .9 .3
- --------------------------------------------------------------------------------
Income from operations 10.6% 10.9% 10.0% 10.1%
================================================================================
EBITDA (1) 15.4% 15.0% 15.2% 14.3%
================================================================================
Operations information by segment and other financial information:
(In millions)
Revenue:
Electronic Combat Systems $37.3 $35.9 $68.9 $ 68.1
Diagnostics & Power Systems 22.8 19.9 41.1 41.6
Communications & Surveillance Systems 33.3 16.3 64.3 30.5
Other --- --- --- .3
- --------------------------------------------------------------------------------
Total revenue $93.4 $72.1 $174.3 $140.5
================================================================================
Gross profit:
Electronic Combat Systems $11.4 $11.8 $20.1 $ 21.5
Diagnostics & Power Systems 5.5 4.7 10.3 9.1
Communications & Surveillance Systems 12.5 5.3 24.8 10.7
Other --- --- --- .1
- --------------------------------------------------------------------------------
Total gross profit $29.4 $21.8 $55.2 $ 41.4
================================================================================
EBITDA (1) :
Electronic Combat Systems $6.9 $ 6.4 $11.8 $ 11.6
Diagnostics & Power Systems 2.5 2.1 4.6 4.3
Communications & Surveillance Systems 4.9 2.5 9.9 4.5
Other --- (.2) .1 (.3)
- --------------------------------------------------------------------------------
Total EBITDA $14.3 $10.8 $26.4 $ 20.1
================================================================================
(1) The Company's EBITDA (earnings before interest, taxes,
depreciation, and amortization) represents income (loss) from
operations plus depreciation and amortization expense. EBITDA is
not a presentation made in accordance with accounting principles
generally accepted in the United States ("U.S. GAAP"), and as
such, it should not be considered in isolation or as a substitute
for net income (loss), cash flows from operating activities, or
other income or cash flow statement data prepared in accordance
with U.S. GAAP or as a measure of profitability or liquidity.
EBITDA is the measure of segment profit or loss which is reviewed
by the Company's Chief Executive Officer and Board of Directors,
and as such, in accordance with the provisions of Financial
Accounting Standards Board ("FASB") Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, it is the measure used for the
Company's segment disclosures. The Company monitors EBITDA by
segment to determine each segment's ability to satisfy its debt
service, capital expenditure, and working capital requirements and
because certain covenants in the Company's revolving credit and
term loan facility are based upon similar measures. EBITDA does
not fully consider the impact of investing or financing
transactions as it specifically excludes depreciation and
amortization charges, which should be considered in the overall
evaluation of results. Additionally, the Company's EBITDA is not
necessarily comparable to other similarly titled captions used by
other companies. For a reconciliation of the Company's EBITDA to
income (loss) before income taxes, see Note 10 of Notes to
Consolidated Financial Statements contained in this quarterly
report on Form 10-Q.
Results of Operations. In second quarter 2003, the Company
earned net income of $4.5 million on revenues of $93.4 million, up
from a first quarter 2003 net income of $3.0 million on revenues of
$80.9 million and flat with second quarter 2002 net income of $4.5
million on revenues of $72.1 million.
For the first half of 2003, the Company earned net income of
$7.5 million on revenues of $174.3 million, compared to a first half
2002 net loss of $6.6 million on revenues of $140.5 million. The
Company's first half 2002 results included charges totaling $20.7
million ($12.6 million after tax, or $0.71 per share) for debt
retirement and refinancing concurrent with the Company's February
27, 2002 initial public offering. These charges, which included
prepayment penalties, payments to terminate interest rate swap
agreements, and write-offs of capitalized debt issuance costs and
unamortized discounts associated with the extinguished debt, are
reflected as "Refinancing costs" in the Company's consolidated
statement of operations for the first six months of 2002. See Note
2 of Notes to Consolidated Financial Statements contained in this
quarterly report on Form 10-Q for further details regarding these
charges.
Revenue. Revenue for second quarter 2003 was $93.4 million,
up 15% from the first quarter 2003 level and up 30% from the same
prior year period. Year to date revenues are $174.3 million, up 24%
from the first six months of 2002.
The revenue improvement over the prior year levels is directly
attributable to the Company's acquisition of Signia in fourth
quarter 2002. Signia's revenues, which are included in the results
of the Company's Communications & Surveillance Systems segment,
totaled $19.2 million and $36.6 million, respectively, for the
second quarter and first half of 2003. Compared to the first
quarter of the year, all of the Company's operating segments
experienced second quarter revenue growth as the first quarter was
negatively impacted by booking and program delays.
The Company's Communications & Surveillance Systems segment
earned revenues of $33.3 million in second quarter 2003 and $64.3
million year to date. Excluding the impact of Signia, the segment's
second quarter revenues were down 13% from the same prior year
period, but up 5% from the first quarter 2003 level, and its year to
date revenues were down 9% from the first half 2002 level. Portions
of the business of this segment are subject to frequent delays in
international business. However, the negative impact of these
booking delays on the segment's revenues was partially offset by
revenues generated from strong first quarter 2003 domestic
television orders for the segment's Doppler weather radar systems.
The Company's Electronic Combat Systems segment earned revenues
of $37.3 million in second quarter 2003, up 18% and 4%,
respectively, from the first quarter 2003 and second quarter 2002
levels. Year to date revenues were $68.9 million, up 1% from the
first half 2002 level. Current year revenues for this segment,
particularly those for the first quarter, were negatively impacted
by a temporary delay in a large U.S. Air Force program. This
program is now in progress and began to benefit the segment's
revenues in the second quarter. In addition, a loss of
congressional funding for programs of a portion of the segment's
business has acted to lower current year revenue growth in the
segment.
Revenues for the Company's Diagnostics & Power Systems segment
were $22.8 million for the quarter, up 25% from the first quarter
2003 level and 15 % from the same prior year period. Year to date
revenues were $41.1 million, down 1% from the first half 2002 level.
This segment had a very strong first quarter 2002 due to strong
fourth quarter 2001 orders for embedded diagnostics, additions to
the scope of the Abrams Systems Technical Support program, and
earlier than expected booking of the Common Support Function Module
program. Revenues for this segment continued to be strong in second
quarter 2002 as the result of these programs and an early contract
award for the 10th Year Power Supplies and Displays program. The
segment's 2003 revenues have been negatively impacted by various
program delays, though some recovery occurred in the second quarter.
Year to date bookings for the Company's Electronic Combat
Systems, Communications & Surveillance Systems, and Diagnostics &
Power Systems segments totaled $68.2 million, $66.1 million, and
$32.1 million, respectively. The program delays experienced in all
of these operating segments relate primarily to timing issues, due
in part to Department of Defense attention to the Iraqi conflict.
Gross Profit. The Company's gross profit for the quarter was
$29.4 million, up from $25.8 million in first quarter 2003 and
$21.8 million in second quarter 2002. Year to date gross profit was
$55.2 million, up from $41.4 million in the first half of 2002. The
dollar increases in gross profit were the direct result of the
previously described revenue increases.
As a percentage of revenue, gross profit for the quarter was
31.5%, relatively flat with the first quarter 2003 level and up 1.2
points from the same prior year period. Year to date gross profit
was 31.7% of revenue, up 2.3 points from the first half of 2002.
First half gross profit margins have been unusually high due to high
margins earned by the newly acquired Signia business, as its first
half sales mix included more high margin products.
Sales and Marketing Expense. The Company's sales and
marketing expense for second quarter 2003 was $4.0 million, up $.3
million from the first quarter 2003 level and $1.2 million from the
same prior year period. Year to date expenses were $7.7 million, up
$1.0 million from the first half 2002 level. The expense increases
from the prior year levels were primarily the result of the Signia
acquisition. Signia's sales and marketing expense for the second
quarter and first half of 2003 approximated $1.0 million and $2.0
million, respectively. Excluding the impact of Signia,
Communications & Surveillance Systems' and Electronic Combat
Systems' year to date expenses declined by $.2 million and $.7
million, respectively, from the first half 2002 levels due to
declines in commission expenses resulting from a lower mix of
international revenues. Commission expenses are generally higher on
international jobs and will vary from quarter to quarter with the
mix of international revenues to total revenues. Diagnostics & Power
Systems' expenses were relatively flat with the first half 2002
level.
As a percentage of revenue, sales and marketing expense has
declined from 4.8% in the first half of 2002 to 4.4% in the current
year period as the result of the shift in revenue mix toward
domestic jobs.
General and Administrative Expense. The Company's general
and administrative expense for second quarter 2003 was $8.1 million,
flat with the first quarter 2003 level and up $1.7 million from the
same prior year period. Year to date expenses were $16.3 million,
up $4.3 million from the first half 2002 level. Signia accounted
for approximately $1.1 million of the increase from second quarter
2002 and $2.1 million of the year to date increase. The remainder
of the expense increases over the prior year levels was due to bad
debt expenses incurred by the Company's Diagnostics & Power Systems
segment, additional spending associated with the operational
combination of Zeta and Signia, and incremental expenses associated
with public company status for the entire first half of 2003.
Excluding the impact of Signia, Electronic Combat Systems',
Diagnostics & Power Systems' and Communications & Surveillance
Systems' year to date general and administrative expenses increased
by $.8 million, $.8 million, and $.7 million, respectively.
As a percentage of revenue, general and administrative expense
has increased from 8.5% in the first half of 2002 to 9.3% in the
current year period due to the aforementioned factors.
Research and Development and Bid and Proposal Expenses. The
Company's research and development and bid and proposal expenses
were $6.7 million for second quarter 2003, up $1.1 million from the
first quarter 2003 level and $2.2 million from the same prior year
period. Year to date expenses were $12.3 million, up $4.2 million
from the first half 2002 level. Signia's expenses, which totaled
$2.2 million for second quarter 2003 and $4.5 million year to date,
accounted for essentially all of the increase from the prior year
levels. Excluding the impact of Signia, Diagnostics & Power
Systems' and Communications & Surveillance Systems' year to date
expenses increased by $.2 million and $.3 million, respectively,
while Electronic Combat Systems' expenses were down $.8 million from
an unusually high first half 2002 level caused by a higher level of
bid and proposal activity.
Other than the expenses incurred by Signia, most of the
Company's first quarter research and development expenses related to
projects which were carried over from 2002. In second quarter 2003,
the Company's research and development spending began to increase
due to commencement of new projects. Bid and proposal expenses
also increased in the second quarter due to an increase in the
number of projects being proposed. Both bid and proposal and
research and development expenses may continue to increase in the
second half of the year.
As a percentage of revenue, research and development and bid
and proposal expenses were 7.1% for both the second quarter and
first half of 2003, up from 5.7% in the first half of 2002.
Amortization Expense. The Company's amortization expense,
excluding amounts included in cost of revenue for amortization of
its internally developed software, was $.8 million and $1.5 million,
respectively, in the second quarter and first half of 2003, up from
$.2 million and $.4 million, respectively, in the comparable prior
year periods. The Company's amortization expense increase is the
direct result of the Signia acquisition in fourth quarter 2002. See
Note 5 of Notes to Consolidated Financial Statements contained in
this quarterly report on Form 10-Q for details of the Company's
intangible assets, substantially all of which were acquired in the
purchase of Signia.
Income from Operations. The Company's income from operations
was $9.9 million, or 10.6% of revenue, for second quarter 2003, up
from $7.6 million, or 9.4% of revenue, in first quarter 2003 and
$7.9 million, or 10.9% of revenue, in second quarter 2002. Year to
date, the Company's income from operations was $17.5 million, or
10.0% of revenue, up from $14.2 million, or 10.1% of revenue, for
first half 2002, despite the increase in amortization expense.
Communications & Surveillance Systems' operating income for the
second quarter and first half of 2003 was $3.2 million and $6.4
million, respectively, up by approximately $1.2 million and $2.9
million, respectively, from the comparable prior year levels.
Signia contributed $2.6 million and $5.3 million, respectively, to
the segment's second quarter and first half 2003 operating income.
However, this increase was offset by losses incurred by the
segment's Zeta division, additional expenses associated with the
combination of Zeta and Signia, and reduced revenues and margins
resulting from slow international orders. Operating earnings for
this segment should improve in the second half of the year as the
transition of Zeta into Signia is complete.
Diagnostics & Power Systems' operating income for the second
quarter and first half of 2003 was $2.0 million and $3.7 million,
respectively, up by approximately $.4 million and $.3 million,
respectively, from the comparable prior year levels. Improvements
in the segment's gross profit margin from the prior year levels were
partially offset by bad debt expenses incurred in the first half of
2003.
Electronic Combat Systems' operating results for the second
quarter and first half of 2003 were relatively flat with those for
the comparable prior year levels on flat revenues and gross profit
margins resulting from booking and program delays.
Interest Expense. The Company's interest expense for the
second quarter and first half of 2003 was $3.0 million and $6.1
million, respectively, up $2.0 million and $1.2 million,
respectively, from the comparable prior year levels. The interest
expense increase from the first half 2002 level was due primarily to
the additional debt incurred in connection with the fourth quarter
2002 acquisition of Signia. See "Liquidity and Capital Resources"
following for further information regarding the Company's financing
activities.
Income Tax Expense. In the second quarter and first half of
2003, the Company recorded income tax expense of $2.6 million and
$4.3 million, respectively, or 36.5% of pretax income. The Company
recorded income tax expense of $2.6 million, or 36.5% of pretax
income, in second quarter 2002 and an income tax benefit of $4.5
million, or 40.6% of pretax loss, in first half 2002. The
Company's effective income tax rates exceeded the U.S. federal
statutory rates in all periods due primarily to state income taxes
and to non-deductible expenses such as meals and entertainment.
EBITDA. The Company's EBITDA was $14.3 million, or 15.4% of
revenue, for second quarter 2003, up from $12.1 million, or 15.0% of
revenue, in first quarter 2003 and $10.8 million, or 15.0% of
revenue, in second quarter 2002. Year to date, the Company's EBITDA
was $26.4 million, or 15.2% of revenue, up from $20.1 million, or
14.3% of revenue, for the first half of 2002.
Communications & Surveillance Systems' EBITDA for the second
quarter and first half of 2003 was $4.9 million and $9.9 million,
respectively, up $2.4 million and $5.4 million, respectively, from
the comparable prior year periods. The improvement from the prior
year levels is due primarily to the acquisition of Signia in fourth
quarter 2002, though losses incurred by the segment's Zeta division
and reduced revenues and margins resulting from a slowdown in
international orders served to partially offset this positive
impact.
Diagnostics & Power Systems' EBITDA for the second quarter and
first half of 2003 was $2.5 million and $4.6 million, respectively,
up $.4 million and $.3 million, respectively, from the comparable
prior year periods. The current year improvement was primarily the
result of improved gross margins, partially offset by increased bad
debt expenses.
Electronic Combat Systems' EBITDA for the second quarter and
first half of 2003 was $6.9 million and $11.8 million,
respectively, up $.5 million and $.2 million, respectively, from the
comparable prior year periods. The negative effects of bookings
and program delays on the segment's revenues and gross margins were
offset by declines in the segment's operating expenses.
Liquidity and Capital Resources
In the first six months of 2003, the Company generated positive
cash of $4.8 million, primarily from its operations, compared to a
net cash generation of $14.0 million in the first half of 2002 from
its operations and the net proceeds of its initial public offering
and debt refinancing.
Year to date cash provided by operations totaled $24.5 million,
compared to $9.7 million generated in the first half of 2002. The
significant improvement from the prior year period reflects
improvements in the Company's operating earnings and working capital
management.
Capital expenditures in the first half of 2003 were
$7.2 million, up $3.0 million from the first half of 2002. The
Company's capital expenditures consist primarily of purchases of
engineering equipment, office equipment, and building and leasehold
improvements. Due to the nature of the Company's business, capital
expenditures historically have not been substantial. The increase
in the first half of 2003 was due primarily to additional
investments by Electronic Combat Systems in airborne instrumentation
pods which are leased to the U.S. Air Force in Europe. The Company
expects that its total capital expenditures for 2003 will
approximate $10 million.
In first quarter 2002, the Company completed an initial public
offering of 8 million shares of common stock at $22 per share. In
the offering, the Company sold 6 million primary shares, generating
net cash proceeds of approximately $116.7 million. Concurrent with
the closing of the offering, the Company repaid the outstanding
balances of its revolving credit and term loan agreement and its
senior subordinated notes ($125.8 million and $51.3 million,
respectively) and replaced the previous revolving credit and term
loan facility with a new facility provided by a syndicate of
financial institutions. Refinancing costs paid in connection with
this early retirement and refinancing of the credit facility totaled
$14.8 million ($14.7 million of which was paid in the first half of
2002), including prepayment penalties of $2.6 million, new debt
issuance costs of $4.6 million, and a $7.6 million payment to
terminate interest rate swap agreements associated with the
extinguished debt. This new credit facility provided financing of
up to $125 million, consisting of a $40 million five-year revolving
credit facility, a $40 million five-year term loan, and a $45
million six-year term loan.
On November 1, 2002, in connection with the Signia acquisition,
the Company amended and restated its revolving credit and term loan
facility. The amendment increased the six-year term loan by $135
million, increased availability under the revolving credit facility
by $5 million, and updated the financial covenants in the agreement
to reflect the integration of Signia into the Company's
Communications & Surveillance Systems segment.
On March 31, 2003, the Company repaid the $2.5 million amount
outstanding under the revolving credit facility, and on June 27,
2003, it prepaid $10 million of the balance due under the term loan
facility, consisting of $1.7 million paid on the five-year term loan
and $8.3 million paid on the six-year term loan. This prepayment
also served to reduce the Company's remaining scheduled quarterly
payments under the term loan facility by approximately 4.7%.
At June 27, 2003, the Company had outstanding borrowings of
$204.4 million under the facility, consisting of $33.8 million under
the five-year term loan and $170.5 million under the six-year term
loan. In addition, $14.7 million of the credit line was allocated
to support the Company's letters of credit on that date, leaving
available borrowings under the facility of $30.3 million. The
Company has not utilized the revolving credit facility since the
March 31, 2003 repayment.
On June 30, 2003, the Company made its scheduled payments on
the five- and six-year term loans of $1.4 million and $.5 million
respectively. Current interest rates on the remaining outstanding
loan balances are 4.1% and 5.1%, respectively.
Borrowings under the amended facility are secured by a pledge
of substantially all of the Company's assets and bear interest at a
base rate or LIBOR plus an applicable margin ranging from 1% to 4%.
Available borrowings under the revolving credit facility are
determined by the Company's borrowing base, which is calculated
based upon eligible accounts receivable and inventories as defined
in the agreement.
The amended revolving credit and term loan agreement contains
certain financial covenants of the Company, including minimum net
worth, minimum EBITDA, and maximum total leverage ratio, and places
limitations or restrictions on various business transactions,
including capital expenditures, investments, purchases of the
Company's stock, dividend payments, and asset sales. The Company
was in compliance with these covenants on June 27, 2003.
Historically, the Company's primary sources of liquidity have
been cash provided by operations and its revolving credit agreement.
The Company's liquidity position is dependent upon a number of
factors, including the timing of production and delivery on sales
contracts and the timing of billing and collection activity.
Purchases of materials for production and payment for labor and
overhead expenses can represent significant advance expenditures,
and billings to and collection from customers can lag these
expenditures significantly on some longer-term customer contracts.
The Company's billing arrangements include (a) monthly progress
payments (typically on fixed-price contracts) in which customers are
billed 80% of incurred cost plus general and administrative expenses
but without profit, (b) monthly billing in full at cost incurred
plus profit (typically on cost-plus contracts), (c) periodic
milestone achievement-based billing at cost incurred plus profit,
and (d) billing at final delivery at cost incurred plus profit.
Fixed-price contracts, some milestone-based contracts, and bill-at-
delivery contracts represent a significant required use of working
capital for the Company that must be funded by operations or through
external sources.
The Company has three defined benefit pension plans covering
certain of its employees. See Note 13 of Notes to Consolidated
Financial Statements contained in the Company's 2002 Annual Report
to Stockholders for a complete description of these plans, including
details regarding fluctuations in the fair values of plan assets and
the projected benefit obligations associated with these plans for
the three years ended December 31, 2002. While the cash
requirements and expenses associated with these plans were minimal
during this three year period, the Company anticipates that, absent
a recovery in the equity market, it may be required to make
increased cash contributions to the plans in 2003 in order to meet
minimum plan funding requirements, though it doesn't anticipate that
such contributions will have a material impact on its consolidated
cash flow for the year.
The Company's liquidity and ability to generate cash has
improved significantly throughout the past year, and the Company
anticipates further improvement throughout 2003 as the result of
improved profitability and continuing focus on working capital
management. Based upon its current level of operations and
anticipated growth, the Company believes that cash from operations
and other available sources of liquidity, including available
borrowings under the amended revolving credit facility, will be
sufficient to fund its operations for at least the next two years.
The Company does not anticipate any significant nonoperating events
that will require the use of cash.
The Company has contractual obligations to make future payments
under its amended term loan agreement and under long-term
noncancelable lease agreements. The following table sets forth
these contractual obligations as of June 27, 2003.
- -------------------------------------------------------------------------------
Payments due by period
- -------------------------------------------------------------------------------
Contractual Obligation 2003 2004-2007 2008 and beyond Total
- -------------------------------------------------------------------------------
(In millions)
Term loans $5.4 $36.6 $162.4 $204.4
Capital leases .1 .1 --- .2
Operating leases 2.5 14.7 2.7 19.9
- -------------------------------------------------------------------------------
Total $8.0 $51.4 $165.1 $224.5
===============================================================================
The Company's term loan obligations for 2008 and beyond relate
to its six-year term loan, which must be paid in full by March 4,
2008. The Company may prepay any obligations under its revolving
credit and term loan facility without penalty. In addition, the
lenders under the facility may require prepayments from the proceeds
of certain transactions, including sales of net assets, issuance of
equity securities, insurance/condemnation settlements, and the
reversion of surplus assets from pension plans, as well as from any
excess cash flows, as defined in the agreement, generated by the
Company during a fiscal year.
The Company's noncancelable operating leases are primarily for
office space and manufacturing equipment. Certain of these
agreements are subject to periodic escalation provisions for
increases in real estate taxes and other charges.
At June 27, 2003, the Company had outstanding letters of credit
of approximately $14.7 million. These letters of credit,
substantially all of which expire within a year, relate primarily to
the Company's contracts with foreign governments.
Backlog
The Company defines backlog as the value of contract awards
received from customers which have not yet been recognized as sales.
Funded backlog refers to contract awards for which the Company has
received orders and the customer has obligated funds. Unfunded
backlog consists of potential product orders relating to existing
customer contracts that are the subject of customer options for
additional products or potential orders under existing contracts
that receive annual or incremental funding. A significant portion
of the Company's sales are to prime contractors, the Department of
Defense, and foreign governments pursuant to long-term contracts.
Accordingly, the Company's backlog consists in large part of orders
under these contracts. As of June 27, 2003, the Company's funded
backlog was $276.1 million, and its total backlog was
$759.2 million.
The following depicts the Company's backlog of orders by
business segment at June 27, 2003 and December 31, 2002:
- ---------------------------------------------------------------------------------------------
Funded Unfunded
------ --------
June 27, December 31, June 27, December 31,
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------
(In millions)
Electronic Combat Systems $139.3 $140.2 $464.8 $ 98.3
Diagnostics & Power Systems 50.4 59.4 15.8 17.9
Communications & Surveillance Systems 86.4 86.2 2.5 .9
- ---------------------------------------------------------------------------------------------
Total Backlog $276.1 $285.8 $483.1 $117.1
=============================================================================================
Electronic Combat Systems' unfunded backlog at June 27, 2003
includes approximately $367.5 million of the segment's estimated 70%
share of a ten year indefinite delivery, indefinite quantity
contract to provide the U.S. Air Force, U.S. Navy, U.S. Marine
Corps., and Air National Guard with an interoperable air combat
training capability under a cooperative multi-service effort with
Cubic Defense Applications.
While it is expected that a substantial portion of funded
backlog will be converted to revenue during 2003, the Company cannot
provide assurance that the backlog, both funded and unfunded, will
become revenue in any particular period, if at all. Uncertain
timing of bookings and revenue recognition is typical in the
industry in which the Company conducts business.
Seasonality
The Company's business is seasonal, with a concentration of
revenue in the fourth quarter of the year, as many of the Company's
sales contracts expire on December 31 of each year. As a result,
product sales efforts at year end are expedited to fulfill funding
terms prior to expiration of the contracts.
Related Party Transactions
The Company pays Veritas Capital Management, L.L.C. ("Veritas")
an annual management fee. Veritas controls the Company's principal
stockholder, IDT Holding, L.L.C. The Company paid $450,000 in
management fees to Veritas in both first half 2003 and 2002. In
addition, in connection with the Company's initial public offering
on February 27, 2002, the Company paid a $1.5 million transaction
advisory fee to The Veritas Capital Fund, L.P. The Company was not
indebted to its principal stockholder or to Veritas at June 27, 2003
or December 31, 2002. Robert B. McKeon and Thomas J. Campbell, the
Chairman and Secretary of the Company, respectively, and members of
its Board of Directors, are managing members of Veritas.
William G. Tobin, a member of the Company's Board of Directors
and audit committee, is a Managing Director and Chairman of the
Defense and Aerospace practice of Korn/Ferry International, an
executive search firm. The Company contracted with Korn/Ferry in
2002 to conduct its search for a Chief Operating Officer. During
2002, the Company made payments to Korn/Ferry totaling $179,000 in
connection with this search, including $146,000 paid in the first
six months of 2002. The search was concluded in 2002, and no
further payments to Korn/Ferry in connection with the search have
been made.
Edward N. Ney, a member of the Company's Board of Directors and
audit committee, is Chairman Emeritus of Young & Rubicam, an
advertising firm for which he previously served as President and
Chief Executive Officer. The Company has contracted with Burson-
Marsteller, an affiliate company of Young & Rubicam, to manage its
investor relations functions. During the six month periods ended
June 27, 2003 and June 30, 2002, the Company made payments to Burson-
Marsteller totaling approximately $81,000 and $145,000,
respectively. On June 27, 2003, the Company owed Burson-Marstellar
approximately $27,000 for services rendered during the second
quarter of 2003. This payable is included in "Other accrued
expenses" in the Company's consolidated balance sheet as of that
date.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and
Results of Operations is based upon the Company's consolidated
financial statements, which have been prepared in accordance with
U.S. GAAP. The preparation of these financial statements requires
management to make estimates and assumptions which affect the
amounts reported in the financial statements and determine whether
contingent assets and liabilities, if any, are disclosed in the
financial statements. On an ongoing basis, the Company evaluates
its estimates and assumptions, including those related to long-term
contracts, product returns and warranty obligations, bad debts,
inventories, the recoverability of goodwill and other intangible
assets, fixed asset lives, income taxes, self-insurance reserves,
pensions and other post-retirement benefits, environmental matters,
litigation, and other contingencies. The Company bases its
estimates and assumptions on historical experience and on various
other factors which are believed to be reasonable under the
circumstances, including current and expected economic conditions,
the results of which form the basis for making judgments about the
carrying values of assets and liabilities which are not readily
apparent from other sources. Actual results could differ materially
from the Company's estimates under different assumptions or
conditions.
The Company believes the following critical accounting policies
affect its more significant estimates and assumptions used in the
preparation of its consolidated financial statements:
Revenue Recognition. The Company recognizes revenue and profit
on approximately 80% of its contracts using the percentage-of-
completion method of accounting, which relies on estimates of total
expected contract revenues and costs. The Company follows this
method since reasonably dependable estimates of the revenues and
costs applicable to various stages of the contracts can be made.
Recognized revenues and profit are subject to revisions as the
projects progress to completion. Revisions to the Company's profit
estimates are charged to income in the period in which the facts
that give rise to the revisions become known. Although the Company
makes provisions for losses on its contracts in its financial
statements, it cannot provide assurance that such contract loss
provisions, which are based upon estimates, will be adequate to
cover all future losses or that it will not be required to restate
prior period quarterly or annual financial statements as the result
of errors in its estimates.
Goodwill. The Company has in its June 27, 2003 consolidated
balance sheet a goodwill asset in the amount of $142.1 million. In
accordance with the provisions of FASB Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets
("SFAS 142"), the Company performs periodic impairment tests of its
goodwill. The process of evaluating goodwill for impairment
involves the determination of the fair value of the Company's
business units. Inherent in such fair value determinations are
certain judgments and estimates, including the interpretation of
current economic indicators and market valuations, and assumptions
about the Company's strategic plans with regard to its operations.
To the extent additional information arises or the Company's
strategies change, it is possible that the Company's conclusions
regarding goodwill impairment could change and result in a material
effect on its consolidated financial position or results of
operations.
Other Intangible Assets. The Company's June 27, 2003
consolidated balance sheet contains other intangible assets totaling
$54.8 million, substantially all of which were acquired in the
Signia acquisition. These intangible assets consist of trade names
and trademarks, patents and proprietary technology, and customer
relationships. In accordance with the provisions of FASB Statement
of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"), the
Company performs periodic impairment tests of its intangible assets
when events and circumstances warrant such a review. The process of
evaluating intangible assets for impairment involves the estimation
of their remaining useful lives and the projection of future cash
flows related to the assets. Factors that may impact these estimates
and projections include, among other things, the level of brand
support, customer demand, governmental regulation, the ability to
raise prices, maintenance of historical market share and margins,
and other factors. Changes in the Company's estimates and
assumptions regarding these factors could affect the Company's
conclusions regarding the value of its intangible assets and result
in a material effect on its financial position or results of
operations.
Inventories. The Company reduces the value of its inventories
for estimated obsolescence or unmarketable items in an amount equal
to the difference between the cost of inventories and their
estimated market values based upon assumptions about future demand
and market conditions. If actual future demand or market conditions
are less favorable than those projected by management, inventory
write-downs may be required.
Contingencies. As discussed in its Annual Report on Form 10-K
for the year ended December 31, 2002, the Company is involved in
various legal actions arising in the normal course of its business,
including a National Park Service investigation regarding the
presence of residual radioactive materials and contamination at a
uranium mine previously owned by a predecessor of one of the
Company's subsidiaries. The outcomes of such legal actions are not
expected, either individually or in the aggregate, to result in a
material adverse effect on the Company's business, results of
operations, or financial condition. It is possible, however, that
future results of operations for any particular quarterly or annual
period could be materially affected by changes in the Company's
assumptions related to these proceedings. The Company accrues its
best estimate of the probable cost for the resolution of legal
claims. Such estimates are developed in consultation with outside
counsel handling these matters and are based upon a combination of
litigation and settlement strategies. To the extent additional
information arises or the Company's strategies change, it is
possible that the Company's best estimate of its liability in these
matters, if any, may change.
Pension and Other Postretirement Benefits. The Company follows
the guidance of FASB Statement of Financial Accounting Standards No.
87, Employers' Accounting for Pensions ("SFAS 87"), and FASB
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions ("SFAS
106"), when accounting for pension and postretirement benefits.
Under these accounting standards, assumptions are made regarding the
valuation of benefit obligations and the performance of plan assets.
Delayed recognition of differences between actual results and
expected or estimated results is a guiding principle of these
standards. This delayed recognition of actual results allows for a
smoothed recognition of changes in benefit obligations and plan
performance over the working lives of the employees who benefit
under the plans. The primary assumptions are as follows:
o Discount rate - The discount rate is used in calculating the
present value of benefits, which is based upon projections of
benefit payments to be made in the future.
o Expected return on plan assets - Management projects the future
return on plan assets based principally upon prior performance.
These projected returns reduce the net benefit costs the Company
will record currently.
During 2002, the Company made changes to its assumptions
related to the discount rate and the expected return on plan assets.
Management consults with its actuaries when selecting each of these
assumptions.
In selecting the discount rate, the Company considers fixed-
income security yields, specifically AA-rated corporate bonds. At
December 31, 2002, the Company decreased the discount rates used for
all of its plans to 6.5% from the range of 7.0% to 7.25% used in the
prior year as a result of decreased yields for long-term AA-rated
corporate bonds.
In estimating the expected return on plan assets, the Company
considers past performance and future expectations for the types of
investments held by the plans as well as the expected long-term
allocations of plan assets to these investments. At December 31,
2002, the Company decreased the expected return on plan assets for
all of its plans to 8.5% from the range of 8.5% to 9% used in the
prior year.
A variance in the assumptions described above would have an
impact on the projected benefit obligations, the accrued other
postretirement benefit liabilities, the annual net periodic pension
and other postretirement benefit cost, and the Company's other
comprehensive loss associated with its minimum pension liability
adjustment.
The fair value of the Company's pension plan assets declined
from $27.3 million at December 31, 2001 to $23.7 million at December
31, 2002 due to the payment of benefits and the decline in the
equity markets. This decline will serve to increase pension expense
for 2003 through the calculation of "market-related value", which
recognizes changes in fair value averaged on a systematic basis over
five years, but the amount of these contributions has not yet been
determined.
For additional information regarding the Company's pension and
postretirement plans, see Note 13 of Notes to Consolidated Financial
Statements contained in the Company's 2002 Annual Report to
Stockholders.
The above listing is not intended to be a comprehensive list of
all of the Company's accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically
dictated by U.S. GAAP, with no need for management's judgment of
their application. There are also areas in which management's
judgment in selecting an available alternative would not produce a
materially different result. See the Company's audited financial
statements and notes thereto contained in its 2002 Annual Report to
Stockholders for a discussion of the Company's accounting policies
and other disclosures required by U.S. GAAP.
Recent Accounting Pronouncements
In fourth quarter 2002, the Company early adopted the
provisions of FASB Statement of Financial Accounting Standards No.
145 ("SFAS 145"), which rescinded FASB Statement of Financial
Accounting Standards No. 4, Reporting Gains and Losses from
Extinguishment of Debt ("SFAS 4"), and made other technical
corrections to existing authoritative pronouncements. SFAS 4
required companies to classify all gains and losses from
extinguishment of debt as extraordinary items, net of the related
tax effects, in their statements of operations. SFAS 145 requires
gains and losses from extinguishment of debt to be classified as
income or loss from continuing operations unless they meet the
criteria for classification as extraordinary items contained in
Accounting Principles Board Opinion No. 30. In accordance with the
provisions of SFAS 145, the Company has reclassified its first
quarter 2002 early debt extinguishment loss of $13.1 million, which
was previously classified as an extraordinary item, net of tax, into
its loss from continuing operations. This loss is included in
"Refinancing costs" in the Company's consolidated statement of
operations for the six months ended June 30, 2002. See Note 2 of
Notes to Consolidated Financial Statements contained in this
quarterly report on Form 10-Q for further discussion of the
Company's refinancing costs.
Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company has experienced no material changes in its market
risk exposures which would affect the quantitative and qualitative
disclosures provided in its Annual Report on Form 10-K for the year
ended December 31, 2002.
Item 4: Controls and Procedures
Under the supervision and with the participation of the
Company's management, including its Chief Executive Officer and
Chief Financial Officer, the Company has evaluated the effectiveness
of the design and operation of its disclosure controls and
procedures within 90 days of the filing date of this quarterly
report on Form 10-Q. Based upon this evaluation, the Chief Executive
Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures are adequate and
effective to ensure that material information relating to the
Company and its consolidated subsidiaries is made known to them by
others within those entities, particularly during the period in
which this quarterly report on Form 10-Q was prepared. There were
no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls
subsequent to the date of their evaluation.
INTEGRATED DEFENSE TECHNOLOGIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Integrated Defense Technologies, Inc. held its Annual Meeting of
Stockholders on June 3, 2003. The results of the meeting were as
follows.
(1) Four Class I Directors were re-elected to the Board of
Directors to serve a three-year term expiring at the 2006 Annual
Meeting of Stockholders, or until their respective successors are
duly elected and qualified.
-------------------------------------------
Votes
-------------------------------------------
Against or Abstentions and
For Withheld Non-Votes
-------------------------------------------
Robert B. McKeon 18,778,242 1,366,765 1,182,924
General Richard E. Hawley 20,054,312 90,695 1,182,924
Admiral Joseph W. Prueher 20,054,312 90,695 1,182,924
General Anthony C. Zinni 20,054,212 90,795 1,182,924
(2) Ratification of the selection by the Audit Committee of the
Board of Directors of Deloitte & Touche LLP as the Company's
independent auditor for fiscal year 2003 was approved by a vote of
19,665,026 for, 477,388 against, and 1,185,517 abstentions and non-
votes.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Certification of the Chief Executive Officer
Pursuant to Exchange Act Rule 13a-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
Exhibit 31.2 Certification of the Chief Financial Officer
Pursuant to Exchange Act Rule 13a-14, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 Certifications 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
On July 29, 2003, the Company filed a report on Form 8-K to
furnish the July 29, 2003 announcement of its earnings results for
the quarter ended June 27, 2003 pursuant to Item 12. Results of
Operations and Financial Condition.
INTEGRATED DEFENSE TECHNOLOGIES, INC.
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.
INTEGRATED DEFENSE TECHNOLOGIES, INC.
-----------------------------------------------------
(Registrant)
By: /s/ Thomas J. Keenan By: /s/ John W. Wilhoite
---------------------------- ------------------------------
Thomas J. Keenan John W. Wilhoite
Chief Executive Officer Vice President of Finance and
(Principal Executive Officer) Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: August 8, 2003 Date: August 8, 2003