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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) July 17, 2006
Digi International Inc.
(Exact name of Registrant as specified in its charter)
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| Delaware
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0-17972
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41-1532464 |
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(State or other jurisdiction
of incorporation)
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(Commission File Number)
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(IRS Employer
Identification No.) |
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11001 Bren Road East
Minnetonka, Minnesota
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55343 |
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(Zip Code) |
Registrant’s telephone number, including area code (952) 912-3444
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
TABLE OF CONTENTS
Item 2.02. Results of Operations and Financial Condition.
On July 17, 2006, Digi International Inc. (the “Company”) reported its financial results for
the third quarter of fiscal 2006. See the Company’s press release dated July 17, 2006, which is
furnished as Exhibit 99 and incorporated by reference in this Current Report on Form 8-K.
NON-GAAP FINANCIAL MEASURES
The press release furnished as Exhibit 99 and certain information the Company intends to
disclose on the conference call scheduled for 5:00 p.m. eastern time on July 17, 2006 include
certain non-GAAP financial measures. These measures include (i) earnings per diluted share
excluding the impact of stock-based compensation expense, (ii) earnings per diluted share excluding
the impact of the favorable tax settlement, (iii) earnings before taxes, depreciation and
amortization and (iv) guidance disclosed by the Company related to earnings per diluted share
excluding the impact of stock-based compensation expense. The reconciliations of these measures to
the most directly comparable GAAP financial measures are included in the earnings release and/or
are included below.
With respect to the measures that exclude the favorable tax settlement, management believes
that excluding this one-time non-recurring item provides useful information to investors regarding
the Company’s results of operations and financial condition and permits a more meaningful
comparison and understanding of the Company’s operating performance. Management believes that
earnings before taxes, depreciation and amortization helps investors compare operating results and
corporate performance exclusive of the impact of the Company’s capital structure and the method by
which assets were acquired. Management believes that providing earnings per diluted share
exclusive of the impact of stock-based compensation expense, both on a historical basis and with
respect to the Company’s guidance, allows investors to compare results and expected results with
results for prior periods that did not include stock-based compensation expense. Management uses
these various non-GAAP measures to monitor and evaluate ongoing operating results and trends and to
gain an understanding of the comparative operating performance of the Company.
2
Reconciliation of Reported Earnings Per Diluted Share to Earnings Per Diluted Share
Excluding Stock-Based Compensation Expense and One-time Reversal of Tax Reserves
(in thousands, except per share amounts)
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Three months ended |
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Nine months ended |
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June 30, 2006 |
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June 30, 2005 |
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June 30, 2006 |
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June 30, 2005 |
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Gross profit, before stock-based compensation expense |
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$ |
20,660 |
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$ |
18,205 |
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$ |
59,555 |
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$ |
54,500 |
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Stock-based compensation expense |
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22 |
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— |
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65 |
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— |
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Gross profit |
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$ |
20,638 |
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$ |
18,205 |
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$ |
59,490 |
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$ |
54,500 |
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Total operating expenses, before stock-based compensation expense |
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16,330 |
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14,522 |
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47,971 |
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42,520 |
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Stock-based compensation expense |
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557 |
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— |
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1,677 |
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— |
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Total operating expenses |
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16,887 |
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14,522 |
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49,648 |
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42,520 |
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Operating income |
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$ |
3,751 |
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$ |
3,683 |
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$ |
9,842 |
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$ |
11,980 |
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Income before income taxes |
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$ |
4,326 |
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$ |
3,989 |
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$ |
11,303 |
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$ |
12,789 |
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Income taxes impact of stock-based compensation expense |
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131 |
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— |
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495 |
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— |
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One-time reversal of previously established tax reserves |
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— |
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— |
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— |
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(5,688 |
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Income tax provision |
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847 |
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1,505 |
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2,710 |
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4,233 |
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Net income |
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$ |
3,348 |
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$ |
2,484 |
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$ |
8,098 |
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$ |
14,244 |
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Net income per common share, basic |
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$ |
0.14 |
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$ |
0.11 |
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$ |
0.35 |
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$ |
0.64 |
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Net income per common share, diluted |
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$ |
0.14 |
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$ |
0.11 |
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$ |
0.34 |
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$ |
0.61 |
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Impact of stock-based compensation expense, basic |
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$ |
0.02 |
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$ |
— |
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$ |
0.05 |
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$ |
— |
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Impact of stock-based compensation expense, diluted |
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$ |
0.02 |
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$ |
— |
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$ |
0.05 |
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$ |
— |
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Impact of one-time reversal of previously established tax reserves, basic |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
(0.25 |
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Impact of one time reversal of previously established tax reserves, diluted |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
(0.24 |
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Net income per common share, basic, excluding stock-based compensation
expense |
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$ |
0.16 |
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$ |
— |
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$ |
0.41 |
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$ |
— |
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Net income per common share, diluted, excluding stock-based compensation
expense |
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$ |
0.16 |
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$ |
— |
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$ |
0.39 |
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$ |
— |
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Net income per common share, basic, adjusted for impact of one-time
reversal of previously established income tax reserves |
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$ |
— |
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$ |
0.11 |
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$ |
— |
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$ |
0.38 |
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Net income per common share, diluted, adjusted for impact of one-time
reversal of previously established income tax reserves |
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$ |
— |
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$ |
0.11 |
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$ |
— |
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$ |
0.37 |
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Weighted average common shares, basic |
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23,124 |
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22,588 |
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22,968 |
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22,381 |
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Weighted average common shares, diluted |
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23,904 |
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23,296 |
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23,695 |
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23,420 |
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3
Reconciliation of Reported Diluted Earnings per Share Guidance for Fiscal 2006 to
Diluted Earnings per Share, Excluding the Impact of Stock-Based Compensation Expense
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Q4 2006-Estimated Range |
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Fiscal 2006-Estimated Range |
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for EPS Guidance |
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for EPS Guidance |
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Low |
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High |
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Low |
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High |
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Reported diluted earnings per share anticipated for Q4 2006 and fiscal 2006 |
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$ |
0.09 |
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$ |
0.16 |
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$ |
0.43 |
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$ |
0.50 |
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Estimated impact of stock-based compensation expense in Q4 2006 and fiscal
2006 |
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0.02 |
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0.02 |
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0.07 |
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0.07 |
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Diluted earnings per share anticipated for fiscal 2006, excluding the
impact of estimated stock-based compensation expense |
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$ |
0.11 |
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$ |
0.18 |
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$ |
0.50 |
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$ |
0.57 |
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4
Reconciliation of Income before Income Taxes to Earnings before Taxes, Depreciation and Amortization
(In thousands of dollars and as a percent of Net Sales)
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For
the three months
ended June 30, 2006 |
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% of net sales |
Net sales |
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$ |
35,860 |
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100.0 |
% |
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Income before income taxes |
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$ |
4,326 |
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12.1 |
% |
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Depreciation and amortization |
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2,596 |
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7.2 |
% |
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Earnings before taxes, depreciation, and amortization |
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$ |
6,922 |
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19.3 |
% |
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5
Item 9.01. Financial Statements and Exhibits.
The following Exhibit is furnished herewith:
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99 |
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Press Release dated July 17, 2006 announcing financial
results for the third quarter of fiscal 2006. |
6
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.
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DIGI INTERNATIONAL INC. |
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Date: July 17, 2006
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By
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/s/ Subramanian Krishnan |
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Subramanian Krishnan
Senior Vice President, Chief Financial Officer and Treasurer |
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7
EXHIBIT INDEX
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Exhibit |
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Manner of Filing |
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99
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Press Release dated July 17, 2006 announcing
financial results for the third quarter of
fiscal 2006.
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Filed
Electronically |