<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): February 28, 1998
FEDERAL DATA CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 333-36447 52-0940566
(State or other jurisdiction of (Commission File No.) (I.R.S. Employer
incorporation) Identification Number)
4800 Hampden Lane
Bethesda, MD 20814
(Address of principal executive offices) (Zip Code)
(301) 986-0800
(Registrant's telephone number, including area code)
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<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The audited financial statements of Telos Information Systems (TIS), a
division of Telos Corporation, including report of independent
accountants thereon, as of December 31, 1997 and for the year then
ended are included at Exhibit 99 (a) and incorporated herein by
reference.
(b) Pro Forma Financial Information.
Pro forma unaudited condensed consolidated financial information for
Federal Data Corporation giving effect to the acquisitions of R.O.W.
Sciences, Inc. (R.O.W.) and TIS as of and for the year ended December
31, 1997, is included at Exhibit 99 (b) and incorporated herein by
reference.
(c) Exhibits.
99(a) Audited financial statements of TIS, including report of independent
accountants thereon, as of December 31, 1997 and for the year then
ended.
99(b) Pro forma unaudited condensed consolidated financial information for
Federal Data Corporation giving effect to the acquisitions of R.O.W.
and TIS as of, and for the year ended December 31, 1997.
SIGNATURE
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 hereunto duly authorized.
Federal Data Corporation
/s/ James M. Dean
By:
--------------------------------------
James M. Dean
Vice President and
Chief Financial Officer
Date: May 14, 1998
<PAGE>
Exhibit 99 (a)
Telos Information Systems
(a Division of Telos Corporation)
Report and Financial Statements
December 31, 1997
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Telos Corporation
In our opinion, the accompanying balance sheet and the related statements of
income and divisional equity and of cash flows present fairly, in all material
respects, the financial position of Telos Information Systems (a division of
Telos Corporation) at December 31, 1997, and the results of its operations and
its cash flows for the year then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Telos Corporation's management; our responsibility is to express an opinion on
these financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Washington, DC
May 8, 1998
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
STATEMENT OF INCOME AND DIVISIONAL EQUITY
Year Ended December 31, 1997
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Revenue $ 23,750
---------
Expenses
Cost of revenue 20,068
Selling, general and administrative expenses 1,862
Goodwill amortization 350
---------
22,280
---------
Income before income taxes 1,470
Provision for income taxes 729
---------
Net income 741
Divisional equity, beginning of year 7,749
Change in divisional equity due to intercompany transactions (1,124)
---------
Divisional equity, end of year $ 7,366
---------
---------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
2
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
BALANCE SHEET
December 31, 1997
(amounts in thousands)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets
Accounts receivable, net $ 4,155
Deferred income taxes 203
Prepaid expenses and other current assets 69
--------
Total current assets 4,427
--------
Property and equipment
Furniture and equipment 475
Leasehold improvements 160
--------
635
Accumulated depreciation and amortization (521)
--------
114
Goodwill, net of accumulated amortization of $2,136 5,102
Deferred income taxes 42
--------
Total assets $9,685
--------
--------
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Accounts payable $ 46
Accrued compensation and benefits 1,190
Other current liabilities 14
Billings in excess of revenue recognized 1,069
--------
Total current liabilities 2,319
--------
Commitments and contingencies (Note 6)
Divisional equity 7,366
--------
Total liabilities and divisional equity $9,685
--------
--------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE>
TELOS INFORMATION SYSTEMS
(a Division of Telos Corporation)
STATEMENT OF CASH FLOWS
Year Ended December 31, 1997
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C>
Operating activities:
Net income $ 741
Adjustments to reconcile net income to cash used in operating activities:
Depreciation and amortization 58
Goodwill amortization 350
Changes in assets and liabilities
Increase in accounts receivable (95)
Increase in prepaid expenses and other current assets (58)
Increase in deferred tax assets (10)
Increase in accounts payable, accrued expenses and other current liabilities 113
Increase in billings in excess of revenue recognized 153
------
Cash provided by operating activities 1,252
------
Investing activities:
Purchase of property and equipment (128)
------
Financing activities:
Net payments on intercompany borrowing (1,124)
------
Change in cash and cash equivalents --
Cash and cash equivalents at beginning of year --
------
Cash and cash equivalents at end of year $ --
------
------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
NOTES TO FINANCIAL STATEMENTS
Note 1. Business and Summary of Significant Accounting Policies
Business
Telos Information Systems (the "Division" or "TIS") is a division of
Telos Corporation (California), a subsidiary of Telos Corporation (Maryland)
("Telos" or the "Company"), formerly C3 Inc. Telos was founded in 1968 and is
incorporated under the laws of the State of Maryland. In connection with the
acquisition of Telos Corporation (California) in 1992, the Company changed its
name to Telos. TIS provides software engineering and information technology
solutions primarily to the U.S. Federal government. TIS has specialized
expertise in telemetry systems, satellite tracking and control systems, computer
communications systems, network and database management and software
installation and support.
In accordance with an Asset Purchase Agreement dated February 28, 1998,
Telos sold substantially all of the net assets of the Division to NYMA, Inc., a
subsidiary of Federal Data Corporation of Bethesda, Maryland for approximately
$14.7 million in cash. The net assets sold consist primarily of contracts with
the Jet Propulusion Laboratory in Pasadena, California including related
accounts receivable and furniture and equipment.
Basis of Presentation
These financial statements were prepared in accordance with generally
accepted accounting principles. The Division's financial statements have been
derived from the consolidated financial statements of Telos and include
allocations of certain corporate expenses, assets and liabilities in addition to
revenue and expenses directly associated with the Division. As a division of
Telos, the financial statements presented may not be indicative of the results
that would have been achieved had the Division operated as a non-affiliated,
independent entity.
Industry Segment and Significant Customers
The Division operates in one industry segment and is engaged in
providing software and hardware system design, development, implementation and
maintenance. The Division primarily earns revenue based on contracts with the
Jet Propulusion Laboratory; such contracts represent 86.2% of the revenue earned
for 1997.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Significant estimates and assumptions used in the preparation
of the Division's financial statements include the allowance for uncollectible
accounts receivable and valuation of goodwill and deferred tax assets. Actual
results could differ from those estimates.
5
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
NOTES TO FINANCIAL STATEMENTS
Revenue Recognition
Substantially all of the Division's sales are made directly or
indirectly to the Federal government. Revenues are derived from time and
materials and cost reimbursement contracts, under which revenue is recognized as
services are performed and costs are incurred. The Division records loss
provisions for its contracts, if required, at the time such losses are
identified.
Billings in Excess of Revenue Recognized
Billings in excess of revenue recognized represents overpayments
received from various customers, as a result of provisional billing rates
exceeding actual rates, which are ultimately expected to be repaid.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on the
straight-line method at rates based on the estimated useful lives of the
individual assets or classes of assets as follows:
Furniture and equipment 3-7 Years
Leasehold improvements Life of Lease
Goodwill
Goodwill arose from the acquisition of Telos Corporation (California)
in 1992 and has been allocated to the Division based on the expected future cash
flows of the Division as compared to the expected future cash flows of the
Company. Goodwill is amortized over twenty years. This period considers a number
of factors including the Division's maintenance of long-term significant
customer relationships for periods of up to twenty-seven years and the
Division's strong position in the marketplace.
The Division assesses the potential impairment and recoverability of goodwill on
an annual basis and more frequently if factors dictate. Management forecasts are
used to evaluate the recovery of goodwill by determining whether amortization of
goodwill can be recovered through projected undiscounted future cash flows.
6
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
NOTES TO FINANCIAL STATEMENTS
Income Taxes
All of the Division's operations are included in a consolidated Federal
income tax return, a combined California income tax return and a Maryland income
tax return which are filed by Telos. The income tax provision for the Division
reported in the accompanying financial statements has been determined on a
separate return basis as required by Statement of Financial Accounting Standards
(SFAS) No. 109. Under this asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences of
temporary differences and income tax credits. Deferred tax assets and
liabilities are measured by applying enacted statutory tax rates that are
applicable to the future years in which deferred tax assets or liabilities are
expected to be settled or realized to the differences between the financial
statement carrying amounts and the tax bases of existing assets and liabilities.
The Division provides a valuation allowance that reduces deferred tax assets
when it is "more likely than not" that deferred tax assets will not be realized.
Accounting for Stock Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method provided by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." To the extent stock options are granted to
Division employees, pro forma disclosures are presented as if the fair value
measurement provisions of SFAS No. 123 had been used in determining compensation
expense and as if the related expense was allocated to the Division by the
Company.
Earnings per Share
Earnings per share data has not been presented since neither Telos nor
TIS has publicly traded common stock.
Financial Instruments
The Division's financial instruments include accounts receivable,
accounts payable and accrued expenses. Due to their short-term nature, the
carrying amount approximates fair value.
Note 2. Revenue and Accounts Receivable
Revenue resulting from contracts and subcontracts with the Federal
government accounted for 97.2% of revenue in 1997. As the Division's primary
customer is the Federal government, the Division has a concentration of credit
risk associated with its accounts receivable. However, the Division does not
believe the likelihood of loss arising from such concentration is significant.
The Division performs ongoing credit evaluations of its customers and generally
does not require collateral from its customers. The Division maintains
allowances for potential losses on its accounts receivable.
7
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
NOTES TO FINANCIAL STATEMENTS
The components of accounts receivable are as follows at December 31,
1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Billed accounts receivable $2,268
Unbilled accounts receivable (amounts currently billable) 1,899
Allowance for doubtful accounts (12)
-------
$4,155
-------
-------
</TABLE>
The provision for doubtful accounts was immaterial in 1997.
Note 3. Transactions with Telos
Cash Management
Telos maintains a centralized cash management process for all of its
Divisions. Activity supporting the Division's operations is therefore recorded
through the divisional equity account with Telos. Telos has not allocated any
portion of its debt or related interest cost to the Division and no portion of
Telos' debt is specifically related to the operations of the Division.
Accordingly, the financial statements include no interest charges.
Corporate Allocations
These financial statements include an allocation of certain corporate
expenses related to the management and operations of the Division. Corporate
allocations related to executive management, accounting, systems support and
certain other overhead costs are allocated based upon the ratio of total cost
related to TIS as compared to total cost for Telos as a whole. Corporate
allocations relating to contract management, human resources, and bid and
proposal costs are based upon the ratio of labor hours incurred to provide those
services to TIS compared to labor hours incurred to provide these services to
Telos as a whole. All other significant expenses are specifically identified and
directly charged to TIS as incurred.
Management believes that the foregoing allocations were made on a
reasonable basis.
8
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
NOTES TO FINANCIAL STATEMENTS
Note 4. Employee Benefits
Stock Options
Telos provides stock options to certain employees of TIS under the
Telos 1996 Stock Option Plan. Stock options are granted at fair market on date
of grant, fair market value having been determined by the Board of Directors of
Telos and independent valuations of Telos. Accordingly, no compensation cost has
been recorded related to stock options in the accompanying financial statements.
At December 31, 1997, 100,000 options were outstanding related to TIS employees
of which 27,000 options were exercisable. Had compensation cost been determined
based on the SFAS No. 123 fair value methodology and had compensation cost been
allocated to TIS, the effect on reported net income would not have been
material.
Telos Shared Savings Plan
Telos sponsors a defined contribution employee savings plan (the
"Plan") under which substantially all full-time employees of the Division are
eligible to participate. Telos matches one-half of voluntary participant
contributions to the Plan up to a maximum contribution of 3% of a participant's
salary. Total contributions to this Plan related to employees of the Division
for 1997 were $206,000 which has been recorded as an expense in the Division's
financial statements.
Note 5. Income Taxes
The provision for income taxes for 1997 includes the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Current provision
Federal $ 575
State 164
------
Total current provision 739
------
Deferred benefit
Federal (8)
State (2)
------
Total deferred benefit (10)
------
$ 729
------
------
</TABLE>
9
<PAGE>
TELOS INFORMATION SYSTEMS
(a division of Telos Corporation)
NOTES TO FINANCIAL STATEMENTS
The provision for income taxes varies from the amount determined by
applying the federal income tax statutory rate to the Division's income before
income taxes. The reconciliation of these differences for 1997 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Computed expected income tax provision 34.0 %
Goodwill amortization 8.1
State income taxes, net of federal income tax benefit 5.8
Other 1.7
-----
49.6 %
-----
-----
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 6
Accrued compensation 197
Property and equipment, principally due
to differences in depreciation methods 42
-----
Total deferred tax assets $245
-----
-----
</TABLE>
Note 6. Commitments and Contingencies
Leases
Telos leases certain office space and equipment specifically for the
benefit of TIS under non-cancelable operating leases with various expiration
dates, some of which contain renewal options. Future minimum lease payments for
such non-cancelable operating leases used for the benefit of TIS are as follows
at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $317
1999 86
----
Total minimum lease payments $403
----
----
Rent expense charged to operations for 1997 totaled $308,000.
</TABLE>
Legal
The Division is a party to various other lawsuits arising in the
ordinary course of business. In the opinion of management, while the results of
litigation cannot be predicted with certainty, the final outcome of such matters
will not have a material adverse effect on the Division's financial position,
results of operations or cash flows.
10
<PAGE>
Exhibit 99 (b)
Federal Data Corporation
Unaudited Pro Forma Condensed Consolidated Financial Statements
Giving Effect to the Acquisitions of R.O.W. Sciences, Inc. and
Telos Information Systems (a Division of Telos Corporation)
as of, and for the Year Ended December 31, 1997
<PAGE>
Federal Data Corporation
Unaudited Pro Forma Condensed Consolidated Financial Statements
Giving Effect to the Acquisitions of R.O.W. Sciences, Inc. and
Telos Information Systems (a Division of Telos Corporation)
as of, and for the Year Ended December 31, 1997
Basis of Presentation
The accompanying unaudited pro forma condensed consolidated financial
statements give effect to the acquisitions of R.O.W. Sciences, Inc. (R.O.W.)
and Telos Information Systems (TIS), a division of Telos Corporation, as
described in Note 1. The unaudited pro forma condensed consolidated balance
sheet as of December 31, 1997, has been prepared by combining the
consolidated balance sheet of Federal Data Corporation (FDC) as of December
31, 1997, with the unaudited balance sheet of R.O.W. as of December 31, 1997
and the balance sheet of TIS as of December 31, 1997. The unaudited pro forma
condensed consolidated statement of operations for the fiscal year ended
December 31, 1997, has been prepared by combining FDC's consolidated
statement of operations for the year ended December 31, 1997, with R.O.W.'s
unaudited statement of earnings for the year ended December 31, 1997 and
TIS's statement of income for the year ended December 31, 1997. FDC, R.O.W.
and TIS, on a combined basis, are referred to herein as the "Company".
The unaudited pro forma condensed consolidated financial statements have been
prepared by the Company's management and should be read in conjunction with
the historical financial statements of FDC, R.O.W. and TIS and the related
notes thereto. The historical financial statements of R.O.W. were included in
the Company's Form 8-K/A filed with the Securities and Exchange Commission on
May 4, 1998. The unaudited pro forma condensed consolidated statement of
operations is not necessarily indicative of the results of operations that
may have actually occurred had the acquisitions taken place on January 1,
1997, or of the future results of the Company.
<PAGE>
Federal Data Corporation
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
FDC R.O.W. TIS Pro Forma
Historical Historical Historical Adjustments Pro Forma
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Cash and cash equivalents...................... $ 6,327 $ 0 $ 0 $ 6,327
Accounts receivable............................ 96,074 8,956 4,155 109,185
Net investment in sales-type leases............ 6,839 -- -- 6,839
Inventory...................................... 6,346 -- -- 6,346
Other assets................................... 8,376 554 272 $ (203)(a) 8,999
-------- ------- ------ ------- --------
Total current assets......................... 123,962 9,510 4,427 (203) 137,696
Net investment in sales-type leases............ 1,203 -- -- 1,203
Leased and other property and equipment........ 3,746 1,346 114 5,206
Goodwill and intangibles....................... 54,161 -- 5,102 (5,102)(b) 73,273
19,112 (c)
Other assets................................... 9,894 33 42 (42)(a) 9,927
-------- ------- ------ ------- --------
Total assets................................. $192,966 $10,889 $9,685 $13,765 $227,305
-------- ------- ------ ------- --------
-------- ------- ------ ------- --------
Liabilities and stockholders' equity
Short-term recourse debt....................... $ 0 $ 3,786 $ 0 $(3,786)(d) $ 0
Short-term nonrecourse debt.................... 3,114 -- -- -- 3,114
Accounts payable and other liabilities......... 73,282 2,574 2,319 -- 78,175
-------- ------- ------ ------- --------
Total current liabilities.................... 76,396 6,360 2,319 (3,786) 81,289
Long-term recourse debt........................ 113,000 1,678 -- 26,888 (e) 141,566
Long-term nonrecourse debt..................... 359 -- -- -- 359
Other liabilities.............................. 2,194 880 -- -- 3,074
-------- ------- ------ ------- --------
Total liabilities............................ 191,949 8,918 2,319 23,102 226,288
Stockholders' equity........................... 1,017 1,971 7,366 (9,337)(f) 1,017
-------- ------- ------ ------- --------
Total liabilities and stockholders' equity... $192,966 $10,889 $9,685 $13,765 $227,305
-------- ------- ------ ------- --------
-------- ------- ------ ------- --------
</TABLE>
See accompanying note to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
Federal Data Corporation
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
FDC R.O.W. TIS Pro Forma
Historical Historical Historical Adjustments Pro Forma
---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues......................................... $336,306 $37,760 $23,750 $397,816
-------- ------- ------ --------
Expenses
Cost of sales and services..................... 280,903 32,364 20,068 333,335
Selling, general and administrative............ 37,804 3,155 1,862 $ (220)(g) 42,601
Goodwill and intangibles....................... 5,031 -- 350 (350)(h) 8,361
3,330 (i)
Interest....................................... 10,947 310 -- 2,064 (j) 13,321
-------- ------- ------ ------- --------
Total expenses............................... 334,685 35,829 22,280 4,824 397,618
-------- ------- ------ ------- --------
Income before extraordinary item and
income taxes................................... 1,621 1,931 1,470 (4,824) 198
Income tax provision............................. 1,368 595 729 (1,162)(k) 1,530
-------- ------- ------ ------- --------
Income (loss) before extraordinary item.......... $ 253 $ 1,336 $ 741 $(3,662) $ (1,332)
-------- ------- ------ ------- --------
-------- ------- ------ ------- --------
</TABLE>
See accompanying note to unaudited pro forma condensed
consolidated financial statements.
<PAGE>
Federal Data Corporation
Note to Unaudited Pro Forma Condensed Consolidated Financial Statements
Giving Effect to the Acquisition of R.O.W. Sciences, Inc. and
Telos Information Systems (a Division of Telos Corporation)
as of, and for the Year Ended December 31, 1997
Note 1. ACQUISITIONS
On February 17, 1998, Federal Data Corporation (FDC) acquired all of the
outstanding stock of R.O.W. Sciences, Inc. (R.O.W.) for an aggregate purchase
price of $9 million, consisting of $8 million in cash and $1 million in
promissory notes. The purchase price may be increased by up to $1 million if
certain revenue objectives are met. Such payments, if any, will be accounted
for as adjustments to the purchase price. R.O.W. provides information
technology and health science research services to federal and commercial
clients. On February 28, 1998, FDC acquired substantially all of the assets
and business of Telos Information Systems (TIS) from Telos Corporation. The
total purchase price was $14.7 million in cash. TIS provides information
technology and engineering services principally to NASA and the Jet
Propulsion Laboratory. Both acquisitions will be accounted for using the
purchase method of accounting. The purchase prices were allocated to net
tangible and identifiable intangible assets and liabilities based on
preliminary estimates of fair value as of the dates of acquisition. The
excess of purchase price over the estimated fair value of net tangible and
identifiable intangible assets and liabilities was allocated to goodwill. The
final allocation of the purchase prices will be determined during the
remainder of fiscal year 1998 when appraisals or other studies are completed.
The historical balances of R.O.W. as of December 31, 1997, were derived from
R.O.W.'s interim unaudited financial statements. The historical balances of
R.O.W as presented in the accompanying unaudited pro forma condensed
consolidated statement of operations for the year ended December 31, 1997,
were derived using the actual audited results of operations as presented in
R.O.W.'s historical financial statements for its fiscal year ended June 30,
1997 and R.O.W.'s interim unaudited financial statements for the six months
ended December 31, 1996 and 1997. Certain amounts in R.O.W.'s historical
financial statements have been reclassified to conform to the presentation
used in the accompanying unaudited pro forma condensed consolidated financial
statements. The audited financial statements of R.O.W. were included in the
Company's Form 8-K/A filed with the Securities and Exchange Commission on
May 4, 1998.
The historical balances of TIS as presented in the accompanying unaudited pro
forma condensed consolidated financial statements as of December 31, 1997 and
for the year then ended, were derived from the actual TIS audited financial
statements, included elsewhere in this filing. Certain amounts in TIS's
historical financial statements have been reclassified to conform to the
presentation used in the accompanying unaudited pro forma condensed
consolidated financial statements.
<PAGE>
The following pro forma adjustments for the acquisitions of R.O.W. and TIS
are reflected as of December 31, 1997, in the case of the unaudited pro forma
condensed consolidated balance sheet, and as of January 1, 1997, in the case
of the unaudited pro forma condensed consolidated statement of operations for
the fiscal year ended December 31, 1997.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(a) Elimination of deferred income taxes recorded by TIS.
(b) Elimination of goodwill recorded by TIS in connection with the
acquisition of Telos Corporation (California) in 1992.
(c) Goodwill and other intangible assets resulting from the allocation of
the purchase prices. Other intangible assets represent contract backlog
at the acquisition dates and is recorded at the present value of the
projected pretax profits.
(d) Repayment of certain R.O.W. notes payable.
(e) Long-term debt incurred to finance the acquisitions and the repayment
of certain R.O.W. notes payable.
(f) Elimination of R.O.W.'s shareholders' equity and TIS's division
equity upon consolidation with FDC.
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(g) Reduction of general and administrative expenses attributable to the
termination of R.O.W.'s principal shareholder's employment offset by
consulting service payments to such individual.
(h) Elimination of goodwill recorded by TIS in connection with the
acquisition of Telos Corporation (California) in 1992.
(i) Amortization of estimated goodwill and other intangible assets related
to R.O.W. and TIS acquisition. Goodwill is amortized on a straight line
basis over fifteen years. The present value of the contract profits is
being amortized over the remaining terms of the acquired contracts in
relation to the recognition of related contract revenue.
(j) Interest expense on net borrowings needed to fund the purchase prices
using an effective annual interest rate of 9% for the year ended December
31, 1997.
(k) Reduction of federal and state income tax expense resulting from the
additional interest expense and amortization of deductible goodwill and
intangible assets net of the lower general and administrative costs.
