ManTech International
Annual Report 2004

Plain-text annual report

2004 ANNUAL REPORT Leading the Convergence of National Security and Technology MANTECH AT A GLANCE • Leading provider of innovative technologies and solutions focused on mission-critical national security programs for the U.S. Intelligence Community and Departments of Defense, State, Homeland Security, Justice and other federal government agencies • 2004 revenues of $842.4 million — up 20 percent from $701.6 million in 2003 • More than 90 percent of revenue from U.S. Intelligence Community and Departments of Defense, State, Homeland Security, Justice and other federal agencies • 5,500+ highly skilled employees — approximately 75 percent with active security clearances • 180 locations worldwide with operations in 40 countries and 30 states • 36-plus-years tradition of excellence providing technology solutions and national security support • Selected as one of Business Week magazine’s Top 100 Hot Growth Companies for 2004 • IPO 2002 — NASDAQ: MANT • Strong history of organic growth and acquisitions FINANCIAL HIGHLIGHTS REVENUE (in millions) TOTAL ASSETS (in millions) TOTAL STOCKHOLDERS’ EQUITY (in millions) OPERATING RESULTS in thousands, except per share data amounts Revenues Gross profit Income from operations Income from continuing operations Net income Basic earnings per share from continuing operations Diluted earnings per share from continuing operations BALANCE SHEET SUMMARY 2004 2003 2002 2001 2000 $ 842,422 128,986 40,945 24,707 24,707 $ $ 0.76 0.76 $ 701,601 $ 500,219 $ 431,436 $ 378,827 131,833 60,964 35,160 35,160 $ $ 1.10 1.09 92,903 38,540 22,832 19,151 78,099 30,050 16,240 795 63,413 18,589 7,125 1,739 $ $ 0.89 0.88 $ $ 0.87 0.87 $ $ 0.39 0.38 Cash and cash equivalents $ 22,935 $ 9,166 $ 81,096 $ 26,902 $ 29,578 Working capital Total assets Long-term debt Total stockholders’ equity 122,284 467,582 104 320,523 131,841 435,740 25,184 287,704 152,700 364,388 25,000 245,988 67,622 186,242 70,343 22,557 71,882 186,843 73,000 21,794 1 ManTech International Corporation achieved significant operational and strategic progress in 2004. We continued to execute on our strategic plan which focuses on the high-end defense, intelligence, homeland security and State and Justice Department marketplaces. Our innovative technologies and solutions, developed and delivered by our highly qualified staff and manage- ment team, continue to attract new customers. Last year’s performance is especially significant considering that our personnel security investigations (PSI) business operated at a loss and as a result our earnings were below expectations. With the Defense Security Services (DSS) personnel security investigations contract now behind us, and after our decision to put our MSM PSI business into discontinued operations and offer it for sale, we look for- ward to improving profitability. Exiting the PSI business, along with the divestiture of our ManTech Environmental Technology, Inc. business unit, has left us solidly positioned to take advantage of budget and market trends requiring ever-more advanced technology solutions for national security and the fight against terrorism. TO OUR SHAREHOLDERS 2 REVENUE GROWTH Our revenue in 2004 was $842.4 million, an increase of 20 percent over 2003. This was well within the targets we set for ourselves at the beginning of the year and is solid proof of the strength and resilience of our core business. Sales growth in 2004 was attributable to new business supporting national security programs for the Intelligence Community and the U.S. Departments of Defense, State, Homeland Security, Justice and other federal civilian agency customers. The results reflect a full year organic growth rate of 16 percent based on year-over-year pro forma revenue. It’s noteworthy to mention that at the end of 2001, prior to our IPO in February 2002, we had revenues of $431 million — thus our revenues have almost doubled over a three-year period. Our operating income for 2004, in operations other than our MSM subsidiary, grew to $68.5 million, up from $54.8 million for the total company in 2003. In 2004, MSM had an operating loss of approximately $27.5 million, resulting in our reported operating income of $40.9 million. Due to MSM, our reported operating margin was 4.9 percent. Without MSM, our operating margins in 2004 were 8.3 percent, versus 8.2 percent (without MSM) in 2003. The impact of MSM’s losses were also reflected in the net income from continuing operations of $24.7 million for 2004. Excluding MSM, we estimate our net income from continuing operations in 2004 was $41.9 million, compared to $31.6 million (without MSM) in 2003. Diluted EPS for 2004 were $0.76, as compared to $1.09 in 2003. We estimate on a similar basis that, excluding MSM, diluted EPS were $1.29 for 2004, compared to $0.98 for 2003. PERSONNEL SECURITY INVESTIGATIONS BUSINESS Obviously, our venture into the PSI business significantly impacted our operations in 2004 and our involvement merits an explana- tion of the difficulties we experienced. The PSI business had been a small part of ManTech’s operations for several years when the U.S. Government Accountability Office (GAO) reported in 2002 that the backlog of security clearances in the U.S. was in the range of 500,000 and becoming a critical national problem. In January 2003, we were awarded a $50 million contract by DSS to perform background investigations. Shortly thereafter, we acquired MSM Security Services, Inc., our joint venture partner on the DSS contract. When the DSS contract started we were processing approximately 35 to 40 clearances per day. DSS then asked us to increase our capability to 400-plus cases per day. We significantly expanded our internal staff from approximately 90 personnel to over 300, and investigative staff from approximately 1,500 to 2,700 — in response to that request. Additionally, we invested in software management tools to support those operations. In mid-2003, the government announced that DSS would merge with another government agency, the Office of Personnel Management (OPM) on October 1, 2003. This merger did not take place until February 2005, but DSS nonetheless, in 2003 stopped giv- ing us new cases. The government’s decision to stop providing new cases impacted us in two ways. First, the reduced volume of business over the remaining term of the contract no longer supported the expansion of the staff and facilities. Second, it changed the characteristics of the cases from a blend of easy and hard cases, to far more hard cases that were significantly more com- plex than anticipated, requiring substantially more work to complete than our 3 George J. Pedersen (right) Chairman of the Board & CEO Robert A. Coleman (left) President & COO prior experience indicated. The changes in the government’s organization and posture and the associated merger delays — as well as the increased costs associated with this fixed price contract, reduced our earnings and resulted in an operating loss in our MSM operation of $27.5 million. On October 30, 2004, we delivered all remaining cases on the DSS contract and in 2005 we collected all remaining receivables and made a decision to exit the business. “HOT GROWTH” As we’ve said, despite our PSI difficulties, our business expanded significantly last year. ManTech was awarded contracts with an estimated value of approxi- mately $1.2 billion in 2004. Due to the nature of our business with the Intelligence Community and other customers where our work is classified, many of our awards were not announced. For the year, reported backlog as of December 31, 2004 was $1.7 billion, an increase from $1.5 billion as of December 31, 2003. Funded backlog also increased during the year to $450 million from $375 million at the end of 2003. Our achievements in 2004 were recognized by some important opinion leaders. Business Week magazine, one of the most highly respected business publications in the world, selected ManTech as one of its top 100 Hot Growth Companies of 2004. We were chosen from a list of more than 10,000 eligible companies. MAJOR SUCCESSES One of our more significant operational successes in 2004 was for the Department of Homeland Security (DHS), involving the Joint Regional Information Exchange System (JRIES). We originally developed JRIES for the Defense Intelligence Agency, but it was later adopted by DHS as part of their Homeland Security Information Network (HSIN). The HSIN allows all 50 states and major urban areas to collect and disseminate information between federal, state and local agencies involved in combating terrorism. The network is a secure 24x7 real-time collaborative tool that has interactive connectivity with the DHS operations center. This secure system significantly strengthens the exchange of real-time threat information at the sensitive-but- unclassified level. Initially HSIN was to be made available to all 50 states, but DHS has decided to expand its reach to include more than 3,000 counties throughout the U.S. Advanced technology solutions such as JRIES, or the Sensitive Compartmented Information Operational Network (SCION) we developed for the FBI, have helped ManTech develop a strong reputation as a leading provider of secure collaborative solutions that allow our customers to seamlessly share informa- tion on a need-to-know basis. The sharing of information within this commu- nity has become even more important with the signing of the Intelligence Reform and Terrorism Prevention Act of 2004. 4 NEW LEADERSHIP One of the important strategic actions we took in 2004 was to elect Bob Coleman as President and Chief Operating Officer of ManTech International. He was the founder and president of Integrated Data Systems, a company ManTech acquired in 2003. Bob’s vision, energy, leadership skills, industry experience and technical knowledge have already made a substantial contri- bution to ManTech’s progress. Concurrent with that announcement, we also named Maj. Gen. Eugene C. Renzi, USA (Ret.), President of the ManTech Defense Systems Group and ManTech Executive Vice President, to the newly created position of ManTech Senior Executive Vice President. Gene is also President of one of our largest subsidiaries, ManTech Telecommunications and Information Systems Corporation. He has grown that business substantial- ly over the years and in his new role he has broad responsibilities in support of Bob and the entire management team. Additionally, within the last year, we named three new business unit presidents, and all of three of them came from within ManTech — a testament to the strength and depth of our management team. OUR EMPLOYEES As always, we recognize the contributions of our employees, whose dedication and skill form the bedrock of ManTech’s success. They are our greatest asset. Tragically, we lost two of our employees, Ryan Hogan and Erik Wellumson, who perished in an Afghan plane crash in February 2005 while supporting an important government program. While we deeply mourn their loss, we also praise their spirit and pay tribute to the ultimate sacrifice they made on behalf of our country. We also express our gratitude to the hundreds of other ManTech employees who are currently supporting the missions of our U.S. Armed Forces, Intelligence Agencies, State Department embassies and other customers here and around the world in 40 countries. We think of them always and hope for their safety. A BRIGHT FUTURE ManTech’s future looks very bright, thanks to the sustained growth and development of new technology we have achieved over the past three years and the trusted relationships we continue to enhance with our customers. We remain confident that our leading-edge technology solutions and services will remain in high demand from our government customers, particularly as the Intelligence Community and Departments of Defense, State, Homeland Security and Justice budgets continue to grow. George J. Pedersen Chairman of the Board and Chief Executive Officer Robert A. Coleman President and Chief Operating Officer 5 LEADING THE CONVERGENCE OF NATIONAL SECURITY AND TECHNOLOGY From its beginning in 1968, ManTech International Corporation has consis- tently delivered innovative technology solutions and technical services to its federal government customers. ManTech is one of the U.S. government’s leading providers of advanced technologies and solutions for mission-critical national security programs supporting the Intelligence Community and the U.S. Departments of Defense, State, Homeland Security, Justice and other federal government agencies. ManTech’s expertise covers systems engineering, systems integration, software development, enterprise security architecture, information assurance, intelligence operations support, network and critical infrastructure protection, information technology, communications integration, and engineering support. 6 ManTech Data Point: Since going public in February 2002, ManTech has made five acquisitions: Aegis Research Corporation and CTX Corporation in 2002; Integrated Data Systems Corporation and MSM Security Services, Inc. in 2003; and certain assets from Affiliated Computer Services, Inc. in 2004. These acquisitions have significantly broadened ManTech’s presence Intelligence Community and other mission- critical, national security areas. the in Whether the company is providing risk management solutions, cyber or physi- cal security for the Department of State and its embassies around the world, or delivering advanced information technology solutions for the U.S. Army, Navy, Air Force or the Intelligence Community, ManTech is committed to helping its customers accomplish their critical national security missions. The company supports the advanced telecommunications systems that are used in Operation Iraqi Freedom and in other parts of the world. It has developed a secure, col- laborative communications system for the Department of Homeland Security that will significantly strengthen the exchange of real-time threat information used to combat terrorism. The Department of Justice’s U.S. Marshals Service relies on ManTech to help them deploy a common, office automation system. ManTech also provides extensive, advanced information technology support to many Intelligence Community customers. ManTech has more than 5,500 highly qualified employees that operate in the United States and 40 countries worldwide. These uniquely skilled employ- ees have military and intelli- gence experience, security clearances and advanced infor- mation and other technology skills that allow ManTech to address its customers’ key tech- nology priorities and most pressing security needs — whether in secure environments or on front-line deployments. These capabilities, along with ManTech’s comprehensive knowledge of its customers’ missions, enable the company to build trusted and long-standing relationships with customers. 7 ManTech Data Point: In 2004, four ManTech employees received the “Civilian Meritorious Service Medal” from the U.S. Army. This is the highest award that civilians can receive. Lee Medina, Jack Thomas, Dave Washam and Rob Price, nicknamed “ManTech Rangers,” received the medal for “extraordinary performance,” rec- ognizing their service and support to military intelligence battalions and other units during Operations Iraqi Enduring Freedom and Freedom. According to the Army, the ManTech team was “renowned for Intelligence Electronic Warfare tactical equip- ment problem regardless of the hour, location or harsh conditions.” curing any 8 HERE ARE SOME EXAMPLES OF HOW MANTECH SUPPORTS ITS CUSTOMERS: • ManTech’s solutions enhance signal intelligence systems, infrastructure avail- ability, and mission-critical functionality. The U.S. Army counts on ManTech to operate regional support centers in the United States, Iraq, Afghanistan, Germany, Korea, Kuwait, Bosnia and elsewhere for intelligence, electronic warfare and related missions. ManTech performs systems and network trou- bleshooting, maintenance, repair and installation, as well as integration and testing of electronic, electrical and mechanical equipment designed for vehic- ular, airborne and portable platforms. ManTech personnel stationed at these regional support centers have supported every major military deployment since 1990. Beginning with Desert Storm and currently for Iraqi Freedom, ManTech personnel have provided Command, Control, Communications, Computers and Intelligence (C4I) systems operations and maintenance sup- port to deployed units in hostile environments. As part of other overseas activities, ManTech has personnel deployed at locations in Afghanistan, Uzbekistan and Kyrgyzstan in support of Air Force operations. • ManTech is a global leader recognized for providing physical and technical security to the Department of State, U.S. embassies and consulates and other federal executive agencies. ManTech security professionals have surveyed, designed and installed leading edge technology and equipment in over 100 U.S. government facilities. ManTech has assisted in developing a secure glob- al network and infrastructure for 190 Foreign Service installations worldwide. ManTech’s segmented architectures enable Internet access from each depart- ment desktop worldwide — with a secure infrastructure for both local and wide area networks. The company’s network and PC-based intrusion detection program works with the evolving virtual private networks of the Department of State and the foreign affairs community. • ManTech has created a Computer Forensics and Intrusion Analysis unit made up of highly-skilled technical specialists in the fields of computer forensics, intrusion analysis, computer and network vulnerability testing, and atypical research and development. The group can provide full scope digital analysis, which includes everything from traditional forensic services to more advanced capabilities such as advanced data hiding analysis, pro- tocol replication and reverse engineering. • ManTech has developed NetWitness®, a network wiretap tool that gives law enforcement, government agencies or any other organization the ability to quickly investigate and prosecute Internet crimes. It forensically collects and analyzes data so that network events — such as e-mails, instant messag- ing, audio, etc. — can easily be reviewed. It helps officials to clear cases faster and make better use of resources than conventional, manual methods of network traffic analysis. • ManTech provides systems engineering, integration and secrecy support to military space customers such as the Army Space and Missile Defense Battle Lab and the Army Strategic Command. The company also provides a broad range of support to the Air Force’s efforts to develop network-centric warfare capabilities by integrating its command and control, intelligence, surveillance and reconnaissance systems. • ManTech has been working with the U.S. Navy for more than 36 years sup- porting every major weapons platform and providing a range of systems engineering solutions and services covering warfare analysis, tactical com- munications, open architecture software development, logistics, advanced signal processing, combat identification systems, distance learning, acoustics systems engineering, and reliability and maintainability. ManTech has devel- oped two of the Navy’s largest databases, the Naval Aviation Logistics Data Analysis database and the Naval Aviation Logistics Command Management Information System; has performed acoustic testing for every operational Navy combatant, both surface and submarine; and offers CMM Level 3 soft- ware services. • ManTech has been supporting the NASA Goddard Space Flight Center for more than 30 years as the principal contractor responsible for providing comprehensive integration, environmental test engineering and operations support for systems such as the Hubble Space Telescope. In 2003, ManTech received the highly regarded George M. Low Award as the premier large business services contractor for NASA. 9 BOARD OF DIRECTORS TOP ROW (LEFT TO RIGHT) George J. Pedersen Chairman of the Board and CEO Admiral David E. Jeremiah U.S. Navy (Ret.) Former Vice Chairman of the Joint Chiefs of Staff Barry G. Campbell Former Chairman and CEO, Tracor Systems Technology, Inc. Richard J. Kerr Former Deputy Director, Central Intelligence Agency Stephen W. Porter Partner, Arnold and Porter BOTTOM ROW (LEFT TO RIGHT) Ronald R. Spoehel Executive Vice President and CFO Walter R. Fatzinger, Jr. Vice Chairman and Director, ASB Capital Management, Inc. Dr. Paul G. Stern Partner and Co-founder, Thayer Capital Partners Partner and Co-founder, Arlington Capital Partners Chairman Claris Capital Partners ADVISORY BOARD General Thomas C. Richards U.S. Air Force (Ret.) Chairman of the Advisory Board Former President and CEO, National Security Industrial Association Former Administrator, Federal Aviation Administration Mary K. Bush President, Bush International, Inc. Edward M. Cook President and CEO, Migration Software President and CEO, eBoomerang, Inc. General Ralph E. “Ed” Eberhart U.S. Air Force (Ret.) Lt. General Lincoln D. Faurer U.S. Air Force (Ret.) President, LDF Inc. Dr. Robert J. Hermann Senior Partner, Global Technology Partners, LLC Robert Fogel Dean of Administration, Harvard University Lt. General Harley A. Hughes U.S. Air Force (Ret.) Graduate School of Education Lt. General Gordon E. Fornell U.S. Air Force (Ret.) William H. Geiger Former President and CEO, Aegis Research Corporation Dr. Roger L. Hagengruber Former Senior Vice President, National Security, Sandia National Laboratory Joseph H. Rothenberg Former NASA Associate Administrator, Space Flight Former Director, Goddard Space Flight Center President and member of the Board of Directors, Universal Space Network 10 MANAGEMENT TEAM TOP ROW (LEFT TO RIGHT) George J. Pedersen Chairman of the Board and CEO Robert A. Coleman President and Chief Operating Officer Ronald R. Spoehel Director, Executive Vice President and CFO Maj. General Eugene C. Renzi U.S. Army (Ret.) Senior Executive Vice President and President, Defense Systems Group Gary A. Dorland President, Security and Mission Assurance MIDDLE ROW (LEFT TO RIGHT) BOTTOM ROW (LEFT TO RIGHT) Kenneth J. Farquhar President, Systems Engineering Corporation Shawn O’Brien Senior Vice President of Jo-An (Jaye) Free Corporate Vice President and Corporate Secretary Joseph R. Fox President, Information Systems and Technology Jay W. Kelley President, Space Systems Program/Business Development Kevin M. Phillips Corporate Vice President and Chief of Staff Kurt J. Snapper, Jr., Ph.D. Senior Corporate Vice President, President, Security Technologies Corporation Tracy Graves-Stevens President, MSM Security Services Peter B. LaMontagne Senior Corporate Vice President Stan Surrette, Ed.D. Executive Vice President, Human Resources 11 MANTECH’S COMMITMENT TO CORPORATE GOVERNANCE Investor confidence in ManTech is of paramount importance to us and our corporate governance policies provide a framework for the efficient opera- tion of our company, consistent with the best interests of our stockholders and applicable legal and regulatory requirements. ManTech has a system of controls and procedures designed to ensure the integrity and accuracy of our financial results. At ManTech, we have always been diligent in complying with our established financial accounting policies (consistent with GAAP), and in reporting our results with objectivity and the highest degree of integrity. We are committed to providing financial informa- tion that is transparent, timely, complete, relevant and accurate. We are also committed to rigorously and diligently exercising our oversight responsibilities throughout the company, managing our affairs consistent with the highest principles of business ethics, and meeting or exceeding the corporate governance requirements of the SEC and NASDAQ. Some of the steps we have taken to fulfill this commitment include: • A majority of our Board members are independent of ManTech and its management; • Our key Board committees — the Audit Committee, the Compensation Committee and the Nominations Committee — are comprised solely of independent directors; • Our independent directors meet regularly in executive session, without management present; • The charters of our key Board committees clearly establish their respective roles and responsibilities and are publicly available; • We have established a process by which our stockholders can communicate with our Board of Directors on matters important to them; • Our Nominations Committee has established a formal policy regarding the recommendation of director candidates by our stockholders, a copy of which is available on our Web site; • We have a code of business conduct and ethics that is monitored by our Corporate Compliance department, a copy of which is available on our Web site; and • We have an ethics office with a hotline available to all of our employees, and our Audit Committee has procedures in place for the anonymous submission of employee complaints about accounting, internal control or auditing matters. We are dedicated to ensuring that the high standards that we have established are consistently maintained. Our culture demands integrity and an unyielding commitment to strong internal practices and policies. We have the highest con- fidence in our financial reporting, our underlying system of internal controls and our people. We thank you for the confidence you have placed in us. 12 Sincerely, George J. Pedersen Chairman of the Board and CEO CORPORATION INFORMATION SHAREHOLDER INFORMATION Corporate Headquarters Transfer Agent ManTech International Corporation 12015 Lee Jackson Highway Fairfax, VA 22033-3300 Main: (703) 218-6000 Fax: (703) 218-8296 Website www.mantech.com Employment It is ManTech’s policy to recruit, hire, employ, train and promote persons in all job classifications without regard to race, color, religion, sex, age, national origin or disability. Stockholders may obtain information with respect to share position, transfer requirements, address changes, lost stock certificates and duplicate mailings by writing or telephoning: American Stock Transfer & Trust Co. 59 Maiden Lane New York, NY 10038 Attn: Shareholder Services 800-937-5449 or 718-921-8200 www.amstock.com Annual Meeting ManTech’s Annual Meeting will be held on Wednesday, June 8, 2005 at 11:00 a.m. ET at the Fair Lakes Hyatt, Fairfax, Virginia. Class A Common Stock Stock symbol: MANT Listed: NASDAQ National Market Independent Auditors Deloitte & Touche LLP Investor Communications Investors seeking the form 10-K and additional information about the company may call 703-218-6000, write to Investors Relations at our corporate headquarters, or send an e-mail to investor@mantech.com. ManTech’s earnings announcements, news releases, SEC filings and other investor information are available in the Investors section of our Web site. FORWARD-LOOKING STATEMENT Certain statements and assumptions regarding our business, financial condition, results of operations and prospects made in this annual report contain or are based on “forward-looking” information that we believe to be within the definition in the Private Securities Litigation Reform Act of 1995. Although they are not the exclusive means of identifying forward-looking statements, you can often identify these statements by the use of words such as “may,” “will,” “intend,” “should,” “expect,” “plans,” “project,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” “opportunity” or variations on such words. These forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those anticipated, including, without limitation: adverse changes in U.S. government spending priorities; failure to retain existing U.S. government contracts or win new contracts; failure to obtain option awards, task orders, or funding under contracts; risks of contract performance; uncertainties specifically related to discontinued operations; adverse results of U.S. government audits of our U.S. government contracts; risks associated with complex U.S. government procurement laws and regulations; failure to experience favorable results from acquisition synergies; risks of contract termination, either for default or for the convenience of the U.S. government; and material changes in laws or regulations applicable to the company's businesses. These and other risk factors are more fully discussed in the section entitled “Risks Related to the Company Business” in ManTech’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission, and from time to time in ManTech’s other filings with the Commission, including its reports on Form 8-K and Form 10-Q. The forward-looking statements in this annual report are made only as of the date of this publica- tion. We undertake no obligation to revise or update any of the forward-looking statements made herein, whether as a result of new information, subsequent events or circumstances, changes in expectations or otherwise. Satellite cover graphic courtesy of AGI. 12015 Lee Jackson Highway, Suite 800 Fairfax, VA 22033-3300 (703) 218-6000 www.mantech.com 

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