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)            April 17, 2006           

Digi International Inc.

(Exact name of Registrant as specified in its charter)

Delaware		0-17972		41-1532464
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)
11001 Bren Road East
Minnetonka, Minnesota				55343
(Address of principal executive offices)				(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))

 

 

Item 2.02. Results of Operations and Financial Condition.

     On April 17, 2006, Digi International Inc. (the “Company”) reported its financial results for the second quarter of fiscal 2006. See the Company’s press release dated April 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 April 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.

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)

		Three months ended								Six months ended
		March 31, 2006				March 31, 2005				March 31, 2006				March 31, 2005
Gross profit, before stock-based compensation expense		$	19,509			$	17,984			$	38,894			$	36,295
Stock-based compensation expense			23				—				42				—
Gross profit		$	19,486			$	17,984			$	38,852			$	36,295
Total operating expenses, before stock-based compensation expense			15,665				13,788				31,639				27,998
Stock-based compensation expense			609				—				1,122				—
Total operating expenses			16,274				13,788				32,761				27,998
Operating income		$	3,212			$	4,196			$	6,091			$	8,297
Income before income taxes		$	3,766			$	4,508			$	6,977			$	8,799
Income taxes impact of stock-based compensation expense			209				—				384				—
One-time reversal of previously established tax reserves			—				(5,688	)			—				(5,688	)
Income tax provision			990				1,397				1,843				2,727
Net income		$	2,567			$	8,799			$	4,750			$	11,760
Net income per common share, basic		$	0.11			$	0.39			$	0.21			$	0.53
Net income per common share, diluted		$	0.11			$	0.37			$	0.20			$	0.50
Impact of stock-based compensation expense, basic		$	0.02			$	—			$	0.03			$	—
Impact of stock-based compensation expense, diluted		$	0.02			$	—			$	0.04			$	—
Impact of one-time reversal of previously established tax reserves, basic		$	—			$	(0.25	)		$	—			$	(0.26	)
Impact of one time reversal of previously established tax reserves, diluted		$	—			$	(0.24	)		$	—			$	(0.24	)
Net income per common share, basic, excluding stock-based compensation expense		$	0.13			$	—			$	0.24			$	—
Net income per common share, diluted, excluding stock-based compensation expense		$	0.13			$	—			$	0.24			$	—
Net income per common share, basic, adjusted for impact of one-time reversal of previously established income tax reserves		$	—			$	0.14			$	—			$	0.27
Net income per common share, diluted, adjusted for impact of one-time reversal of previously established income tax reserves		$	—			$	0.13			$	—			$	0.26
Weighted average common shares, basic			23,001				22,477				22,890				22,277
Weighted average common shares, diluted			23,687				23,645				23,609				23,473

Reconciliation of Reported Diluted Earnings per Share Guidance for Fiscal 2006 to
Diluted Earnings per Share, Excluding the Impact of Stock-Based Compensation Expense

		Q3 2006 - Estimated Range								Fiscal 2006 - Estimated Range
		for EPS Guidance								for EPS Guidance
		Low				High				Low				High
Reported diluted earnings per share anticipated for Q3 2006 and fiscal 2006		$	0.08			$	0.14			$	0.40			$	0.52
Estimated impact of stock-based compensation expense in Q3 2006 and fiscal 2006			0.02				0.02				0.08				0.08
Diluted earnings per share anticipated for fiscal 2006, excluding the impact of estimated stock-based compensation expense		$	0.10			$	0.16			$	0.48			$	0.60

Reconciliation of Income before Income Taxes to Earnings before Taxes, Depreciation and Amortization
(In thousands of dollars and as a percent of Net Sales)

		For the three months ended March 31, 2006				% of net sales
Net sales		$	34,380				100.0	%
Income before income taxes		$	3,766				11.0	%
Depreciation and amortization			2,578				7.5	%
Earnings before taxes, depreciation, and amortization		$	6,344				18.5	%

Item 9.01. Financial Statements and Exhibits.

     The following Exhibit is furnished herewith:

99

Press Release dated April 17, 2006 announcing financial results for the second quarter of fiscal 2006.

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.

EXHIBIT INDEX

No.		Exhibit		Manner of Filing
99		Press Release dated April 17, 2006 announcing financial results for the second quarter of fiscal 2006.		Filed Electronically