<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: Commission File Number:
September 30, 1998 333-36447
FEDERAL DATA CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 52-0940566
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) Number)
4800 Hampden Lane, Bethesda, MD 20814
(Address of principal executive offices) (Zip Code)
(301) 986-0800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address, and former fiscal year, if
changed since last report)
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 / /
As of the close of business October 31, 1998, the registrant had outstanding
2,927,521 shares of Common Stock, par value $.01 per share.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
------
<S> <C>
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1997
and September 30, 1998 (Unaudited) .................................... 3
Consolidated Statements of Operations for the Three Months
Ended September 30, 1997 and 1998 (Unaudited) and the Nine Months Ended
September 30, 1997 and 1998
(Unaudited) ........................................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended September 30, 1997 and 1998 (Unaudited) and the Nine Months Ended
September 30, 1997 and 1998
(Unaudited) ........................................................... 5
Notes to Consolidated Financial Statements (Unaudited) ................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .......................................... 8
Part II. Other Information
Item 5. Submission of Matters to a Vote of Security
Holders ...................................................................... 11
Item 6. Exhibits and Reports on Form 8-K .................................... 12
</TABLE>
2
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Part I. Financial Information
Item 1. Consolidated Financial Statements
Federal Data Corporation
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------- -------------
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents .......................................... $ 6,327 $ 1,969
Accounts receivable ................................................ 96,074 128,214
Net investment in sales-type leases ................................ 6,839 5,974
Inventory .......................................................... 6,346 5,538
Other assets ....................................................... 8,376 5,294
--------- ---------
Total current assets .................................. 123,962 146,989
Net investment in sales-type leases ................................ 1,203 3,295
Leased and other property and equipment ............................ 3,746 5,594
Goodwill and intangibles ........................................... 54,161 72,260
Other assets ....................................................... 9,894 7,579
--------- ---------
Total assets .......................................... $ 192,966 $ 235,717
--------- ---------
--------- ---------
Liabilities and stockholders' equity (deficit)
Accounts payable and other liabilities ............................. $ 73,760 $ 80,541
Obligations under capital leases - nonrecourse ..................... 2,636 2,157
--------- ---------
Total current liabilities ............................. 76,396 82,698
Notes payable - recourse ........................................... 113,000 151,325
Obligations under capital leases - nonrecourse ..................... 359 1,925
Other liabilities .................................................. 2,194 2,928
--------- ---------
Total liabilities ..................................... 191,949 238,876
--------- ---------
Stockholders' equity (deficit)
Common stock, $.01 par value: 8,000,000 shares authorized; shares
issued and outstanding, 2,910,896 and 2,927,521 in 1997
and 1998 ...................................................... 29 29
Capital in excess of par value ..................................... 40,300 42,443
Accumulated deficit ................................................ (39,312) (45,631)
--------- ---------
Total stockholders' equity (deficit) .................. 1,017 (3,159)
--------- ---------
Total liabilities and stockholders' equity
(deficit) ............................................ $ 192,966 $ 235,717
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Federal Data Corporation
Consolidated Statements of Operations
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- ------------------------
1997 1998 1997 1998
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues
Equipment and software sales ............... $ 73,831 $ 97,613 $ 115,866 $ 227,744
Maintenance and support services ........... 49,771 46,773 93,800 135,569
Interest and other ......................... 1,295 683 2,403 1,660
--------- --------- --------- ---------
Total revenues ................ 124,897 145,069 212,069 364,973
--------- --------- --------- ---------
Expenses
Cost of sales and services ................. 107,855 127,878 178,132 316,095
Selling, general and administrative ........ 10,871 11,037 23,624 34,812
Goodwill and intangibles ................... 962 2,920 1,195 7,893
Interest ................................... 3,390 4,223 7,124 11,936
--------- --------- --------- ---------
Total expenses ................ 123,078 146,058 210,075 370,736
--------- --------- --------- ---------
Income (loss) before extraordinary item and
income taxes ............................... 1,819 (989) 1,994 (5,763)
Income tax provision ............................ 868 850 1,031 556
--------- --------- --------- ---------
Income (loss) before extraordinary item ......... 951 (1,839) 963 (6,319)
Extraordinary loss from early retirement of debt,
net of tax benefit of $1,770 ............... (2,655) -- (2,655) --
--------- --------- --------- ---------
Net loss ........................................ ($ 1,704) ($ 1,839) ($ 1,692) ($ 6,319)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Federal Data Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................................. ($1,704) ($1,839) ($1,692) ($6,319)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Extraordinary loss from early retirement of debt,
net of tax benefit of $1,770 ............................ 2,655 - 2,655 -
Depreciation and amortization ............................. 1,409 3,653 2,051 9,932
Non-cash charge related to vesting of stock options ....... - 318 - 1,740
Loss (income) recorded on sales-type leases ............... 764 113 1,219 (333)
Collections from sales-type leases ........................ 1,193 1,861 3,046 3,084
(Increase) decrease in inventory .......................... (1,140) 2,976 - 808
Increase in accounts receivable ........................... (16,548) (11,649) (1,013) (16,701)
Increase in accounts payable and accrued expenses ......... 11,472 6,554 3,346 8,138
Net change in other assets and liabilities ................ 10,686 2,167 5,315 (840)
---------- ---------- ---------- ----------
Net cash flows from operating activities .................. 8,787 4,154 14,927 (491)
---------- ---------- ---------- ----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash received .......... - (295) (58,125) (30,641)
Purchase of equipment for sales-type leases ............... - (1,033) - (2,022)
Purchase of property and equipment ........................ (494) (494) (1,582) (1,819)
---------- ---------- ---------- ----------
Net cash flows from investing activities .................. (494) (1,822) (59,707) (34,482)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from borrowings .................................. 105,000 - 160,400 -
Repayments of borrowings .................................. (94,636) - (98,101) (551)
Net (repayments) borrowings under line of credit .......... (10,368) (2,600) (25,855) 31,571
Proceeds from sale of common stock ........................ - 449 27,000 449
Recapitalization, stock issuance and debt
acquisition costs ................................... (6,882) - (10,202) -
Repayments of capital lease obligations ................... (660) (149) (1,630) (854)
---------- ---------- ---------- ----------
Net cash flows from financing activities .................. (7,546) (2,300) 51,612 30,615
---------- ---------- ---------- ----------
Net change in cash and cash equivalents ........................ 747 32 6,832 (4,358)
Cash and cash equivalents, beginning of period ................. 7,276 1,937 1,191 6,327
---------- ---------- ---------- ----------
Cash and cash equivalents, end of period ....................... $8,023 $1,969 $8,023 $1,969
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
Federal Data Corporation
Notes to Consolidated Financial Statements
(In thousands)
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Federal Data Corporation and its wholly owned subsidiaries
(collectively, the Company) and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in the annual financial statements, prepared
in accordance with generally accepted accounting principles, have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made are adequate to make the information
presented not misleading.
In the opinion of management, the accompanying unaudited consolidated financial
statements reflect all necessary adjustments and reclassifications (all of which
are of a normal, recurring nature) that are necessary for fair presentation for
the periods presented. It is suggested that these unaudited consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto included in the Company's latest annual report
to the Securities and Exchange Commission on Form 10-K 405 for the year ended
December 31, 1997.
The results of operations for the three month and nine month periods ended
September 30, 1998, are not necessarily indicative of the results to be expected
for the full fiscal year ending December 31, 1998.
All of the Company's direct and indirect wholly owned subsidiaries have fully
and unconditionally guaranteed, on a joint and several basis, the Company's
obligations under its Senior Subordinated Notes. The Company is a holding
company with no assets or operations other than its investments in its
subsidiaries. The separate financial statements of the subsidiary guarantors are
not presented because the Company's management believes that such financial
statements are not material to investors.
Note 2 - Acquisitions
During the quarter ended June 30, 1997, the Company purchased all of the
outstanding shares of common stock of NYMA, Inc. (NYMA) and Sylvest Management
Systems Corporation (Sylvest) (collectively, the 1997 Acquisitions) for an
aggregate purchase price of $74,519. NYMA is a provider of high technology
engineering and information technology services under contracts with various
United States Government (the Government) agencies and subcontracts with large
government contractors. Sylvest is a leading reseller and technical services
vendor supporting open systems architecture within the federal marketplace.
During the quarter ended March 31, 1998, the Company purchased all of the
outstanding common stock of R.O.W. Sciences, Inc. (R.O.W.) and Technical and
Management Assistance, Inc. (TMA), and also purchased all of the assets of Telos
Information Systems (TIS), a division of Telos Corporation, (collectively, the
1998 Acquisitions). The aggregate purchase price of the 1998 Acquisitions was
$33,270. The Company financed the 1998 Acquisitions principally through
borrowings under its existing line of credit facility. R.O.W. provides
information technology and health science research services to federal and
commercial clients. TMA provides software development services principally to
the air traffic management function within the Federal Aviation Administration.
TIS provides information technology and engineering services principally to NASA
and the Jet Propulsion Laboratory.
The Company recorded goodwill of $48,491 and $18,952 related to the 1997 and
1998 Acquisitions, respectively, which is being amortized over fifteen years.
The purchase price of the acquisitions includes identifiable intangible
assets of $12,504 and $5,238 for the 1997 and 1998 Acquisitions,
respectively. The identifiable intangible assets primarily represent contract
backlog at the acquisition date and are recorded at the present value of
6
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the projected pretax profits. The present value of the contract backlog is being
amortized over the remaining terms of the acquired contracts in relation to the
recognition of related contract revenue.
Condensed unaudited pro forma operating data which gives effect to all of the
acquisitions described above for the year ended December 31, 1997 and the nine
months ended September 30, 1997 and 1998 is provided below. Such condensed
unaudited pro forma operating data has been prepared as if the acquisitions
occurred as of the beginning of the reporting period. The Company is currently
conducting an analysis of the allocation of the purchase price for the 1998
Acquisitions. The purchase price allocation may change during the year ending
December 31, 1998 as additional information concerning the net asset valuation
is obtained.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
1997 1997 1998
------------- ----------- -----------
<S> <C> <C> <C>
Revenues ........................................... $505,283 $362,942 $ 374,569
-------- --------- ----------
-------- --------- ----------
Loss before extraordinary item and income tax
provision ......................................... ($ 5,056) ($ 4,072) ($ 5,859)
-------- --------- ----------
-------- --------- ----------
Loss before extraordinary item ..................... ($ 5,306) ($ 4,844) ($ 6,451)
-------- --------- ----------
-------- --------- ----------
</TABLE>
In the opinion of management, the condensed unaudited pro forma operating data
is not indicative of the actual results that would have occurred had the
acquisitions been consummated at the beginning of 1997 or at the beginning of
1998 or of future operations of the combined companies under the ownership and
management of the Company.
Note 3 - Stockholders' Equity
During 1998, the Company modified its Stock Option Plan for Executive and Other
Key Employees by accelerating the vesting of certain performance options.
Accordingly, the Company recorded a non-cash charge of $1.7 million and a
related increase in capital in excess of par value based on the difference
between the exercise price of the stock options and the current fair market
value.
Note 4 - Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 establishes standards for the reporting and presenting of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. At September 30, 1998, there
is no impact on the Company's financial reporting as a result of its adoption of
SFAS No. 130.
Also in June 1997, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131). SFAS No. 131 establishes standards for the
manner in which public business enterprises report information about operating
segments and the related disclosures about products and services, geographic
area, and major customers. SFAS No. 131 is effective for financial statements
issued for fiscal years beginning after December 15, 1997. At September 30,
1998, there is no impact on the Company's financial reporting as a result of its
adoption of SFAS No. 131.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits" (SFAS No. 132). SFAS No. 132 standardizes the
employers' disclosure requirements for pension and other postretirement benefit
plans. SFAS No. 132 is effective for financial statements issued for fiscal
years beginning after December 15, 1997. At September 30, 1998, there is no
impact on the Company's financial reporting as a result of its adoption of SFAS
No. 132.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
EXCEPT AS EXPRESSLY INDICATED, THE FOLLOWING DISCUSSION DOES NOT GIVE EFFECT TO
THE PRE-ACQUISITION OPERATIONS OF NYMA, SYLVEST, R.O.W., TIS AND TMA
(COLLECTIVELY, THE ACQUISITIONS) OR INCLUDE PRO FORMA FINANCIAL INFORMATION.
Results of Operations
Three Months Ended September 30, 1998 Compared With Three Months Ended September
30, 1997
Revenues
Revenues for the three months ended September 30, 1998 were $145.1 million, up
$20.2 million or 16% over the comparable period of 1997. Revenue from equipment
and software sales was $97.6 million, up $23.8 million or 32% over the
comparable period of 1997. This increase in equipment and software sales revenue
is principally due to increased sales of commercial off-the-shelf (COTS)
products. Revenue from maintenance and support services was $46.8 million, down
$3.0 million or 6% over the comparable period of 1997. This decrease in
maintenance and support services revenue is principally due the expiration of
existing contracts. This reduction was substantially offset by increases in
maintenance and support services revenue due to the Acquisitions of $17.8
million over the comparable period of 1997.
Cost of Sales and Services
Cost of sales and services for the three months ended September 30, 1998 was
$127.9 million, up $20.0 million or 19% over the comparable period of 1997. Cost
of sales and services in 1998 was 89% of sales and services revenues compared
with 87% of sales and services revenues for the comparable period of 1997.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three month period ended
September 30, 1998 was $11.0 million, up $0.2 million or 2% over the comparable
period of 1997. The Acquisitions accounted for $1.5 million of the increase in
selling, general and administrative expense over the comparable period of 1997.
This increase in selling, general and administrative expense was substantially
offset by reductions in selling, general and administrative expense associated
with the expiration of existing contracts. Excluding the effect of the 1998
Acquisitions, selling, general and administrative expense for the three month
period ended September 30, 1998 was 8% of revenues, compared with 9% in the
comparable period of 1997.
Amortization of Goodwill and Intangible Assets
The excess of the cost of the Acquisitions over the fair value of identifiable
net tangible and intangible assets acquired was $67.4 million and is being
amortized on a straight-line basis over fifteen years. The present value of the
contract profits of $17.7 million acquired in the Acquisitions is being
amortized over the remaining terms of the acquired contracts in relation to the
recognition of related contract revenue. Amortization of goodwill and intangible
assets for the three months ended September 30, 1998 was $2.9 million.
Interest Expense
Interest expense for the three months ended September 30, 1998 was $4.2 million,
up $0.8 million, or 25% over the comparable period of 1997. Recourse interest
expense increased $1.1 million for the three months ended September 30, 1998
over the comparable period of 1997 primarily due to increased recourse debt
used to partially finance the 1998 Acquisitions. Interest expense on
nonrecourse debt declined $0.3 million for the three months ended September
30, 1998 from the comparable period of 1997 due to a reduced average level of
capital leases outstanding. Interest expense is expected to be higher in 1998
than in 1997, reflecting
8
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the higher level of indebtedness to be outstanding for the full year, as a
result of the acquisitions of NYMA and Sylvest, and the additional indebtedness
incurred to finance the acquisitions of R.O.W., TIS and TMA.
Income Tax Provision
The income tax provision for the three month period ended September 30, 1998 is
based on an estimated annual effective rate, excluding expenses not deductible
for income tax purposes. Before giving effect to the Acquisitions, the effective
tax provision rate for the year ending December 31, 1998 is estimated to be 40%.
The Company believes that the nondeductibility of the additional amortization of
goodwill and the value related to contract backlog associated with the NYMA and
R.O.W. acquisitions and the non-cash charge related to vesting of stock options
will cause the annual effective tax rate for 1998 to be higher than the annual
effective tax rate in 1997.
Extraordinary Loss
During the quarter ended September 30, 1997, the Company recorded a charge to
earnings of $4.4 million related to deferred financing fees associated with the
debt incurred to finance the prior Senior Credit Facility and the NYMA and
Sylvest acquisitions. This debt was refinanced with proceeds from the Senior
Subordinated Notes. This charge to earnings was reduced by an income tax benefit
of $1.8 million which produced an extraordinary loss of $2.7 million.
Net Loss
Net loss for the three months ended September 30, 1998 was $1.8 million, a $0.1
million increase from the net loss of $1.7 million recorded in the comparable
period of 1997 based on the reasons discussed above.
Nine Months Ended September 30, 1998 Compared With Nine Months Ended September
30, 1997
Revenues
Revenues for the nine months ended September 30, 1998 were $365.0 million, up
$152.9 million or 72% over the comparable period of 1997. Revenue from equipment
and software sales was $227.7 million, up $111.9 million or 97% over the
comparable period of 1997. The Acquisitions accounted for $79.9 million of the
increase in equipment and software sales revenue over 1997. The remaining
increase in revenue from equipment and software sales is principally due to
increased emphasis on the Company's sale of COTS products. Revenue from
maintenance and support services was $135.6 million, up $41.8 million or 45%
over the comparable period of 1997. The Acquisitions accounted for $59.1 million
of the increase in maintenance and support services revenue over the comparable
period of 1997. This increase in maintenance and support services revenue was
partially offset by reductions in maintenance and support services revenue due
to the expiration of existing contracts.
Cost of Sales and Services
Cost of sales and services for the nine months ended September 30, 1998 was
$316.1 million, up $138.0 million or 77% over the comparable period of 1997.
Cost of sales and services in 1998 was 87% of sales and services revenues
compared with 85% of sales and services revenues for the comparable period of
1997.
Selling, General and Administrative Expense
Selling, general and administrative expense for the nine month period ended
September 30, 1998 was $34.8 million, up $11.2 million or 47% over the
comparable period of 1997. The Acquisitions accounted for $11.3 million of the
increase in selling, general and administrative expense over the comparable
period of 1997. During 1998, the Company modified its Stock Option Plan for
Executive and Other Key Employees by accelerating the vesting of certain
performance options. Accordingly, the Company recorded a non-cash charge of $1.7
million and a related increase in capital in excess of par value based on the
difference
9
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between the exercise price of the stock options and the current fair market
value. This increase in selling, general and administrative expense was
partially offset by reductions in selling, general and administrative expense
associated with the expiration of existing contracts. Excluding the effect of
the Acquisitions and the non-cash charge related to the stock options, selling,
general and administrative expense for the nine month period ended September 30,
1998 was 10% of revenues, compared with 14% in the comparable period of 1997.
This decrease in selling, general and administrative expense as a percent of
revenue was due primarily to economies of scale achieved during the period.
Amortization of Goodwill and Intangible Assets
The excess of the cost of the Acquisitions over the fair value of identifiable
net tangible and intangible assets acquired was $67.4 million and is being
amortized on a straight-line basis over fifteen years. The present value of the
contract profits of $17.7 million acquired in the Acquisitions is being
amortized over the remaining terms of the acquired contracts in relation to the
recognition of related contract revenue. Amortization of goodwill and intangible
assets for the nine months ended September 30, 1998 was $7.9 million.
Interest Expense
Interest expense for the nine months ended September 30, 1998 was $11.9 million,
up $4.8 million, or 68% over the comparable period of 1997. Recourse interest
expense increased $5.7 million for the nine months ended September 30, 1998 over
the comparable period of 1997 primarily due to increased recourse debt used to
partially finance the Acquisitions. Interest expense on nonrecourse debt
declined $0.9 million for the nine months ended September 30, 1998 from the
comparable period of 1997 due to a reduced average level of capital leases
outstanding. Interest expense is expected to be higher in 1998 than in 1997,
reflecting the higher level of indebtedness to be outstanding for the full year,
as a result of the acquisitions of NYMA and Sylvest, and the additional
indebtedness incurred to finance the acquisitions of R.O.W., TIS and TMA.
Income Tax Provision
The income tax provision for the nine month period ended September 30, 1998 is
based on an estimated annual effective rate, excluding expenses not deductible
for income tax purposes. Before giving effect to the Acquisitions, the effective
tax provision rate for the year ending December 31, 1998 is estimated to be 40%.
The Company believes that the nondeductibility of the additional amortization of
goodwill and the value related to contract backlog associated with the NYMA and
R.O.W. acquisitions and the non-cash charge related to vesting of stock options
will cause the annual effective tax rate for 1998 to be higher than the annual
effective tax rate in 1997.
Extraordinary Loss
During the quarter ended September 30, 1997, the Company recorded a charge to
earnings of $4.4 million related to deferred financing fees associated with the
debt incurred to finance the prior Senior Credit Facility and the NYMA and
Sylvest acquisitions. This debt was refinanced with proceeds from the Senior
Subordinated Notes. This charge to earnings was reduced by an income tax benefit
of $1.8 million which produced an extraordinary loss of $2.7 million.
Net Loss
Net loss for the nine months ended September 30, 1998 was $6.3 million, a $4.6
million increase from the net loss of $1.7 million recorded in the comparable
period of 1997 based on the reasons discussed above.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash provided by operations. The
Company's liquidity requirements generally vary seasonally with revenues, which
are generally higher in the third and fourth quarters of each fiscal year.
Historically, cash flow from the collection of accounts receivable from the
10
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Government has generally been predictable and dependable. Cash and cash
equivalents were $2.0 million at September 30, 1998, down $4.4 million from
December 31, 1997 primarily as a result of net cash flows used in operating
activities of $0.5 million and net cash flows used in investing activities of
$34.5 million being offset by net cash flows from financing activities of $30.6
million. Net cash flows used in operating activities was primarily a result of
the net loss of $6.3 million and an increase in accounts receivable of $16.7
million which were partially offset by depreciation and amortization of $9.9
million and an increase in accounts payable and accrued expenses of $8.1
million. Net cash used in investing activities amounted to $34.5 million for the
nine months ended September 30, 1998, primarily as a result of the acquisition
of R.O.W., TMA and TIS totaling $30.6 million, the purchase of equipment for
sales-type leases of $2.0 million and the purchases of property and equipment
totaling $1.8 million. Net cash flows from financing activities was $30.6
million for the nine months ended September 30, 1998 primarily as a result of
net borrowings under the Company's working capital line of credit of $31.6
million which was used primarily to finance the 1998 Acquisitions. Additionally,
this cash was used, in part, to repay and retire line of credit balances of
acquired companies of $3.8 million.
EBITDA represents the sum of income (loss) before income tax provision
(benefit), net recourse interest expense and depreciation and amortization.
EBITDA is not a measure of performance or financial condition under generally
accepted accounting principles, but is presented to provide additional
information related to debt service capability. EBITDA should not be considered
in isolation or as a substitute for other measures of financial performance or
liquidity under generally accepted accounting principles. While EBITDA is
frequently used as a measure of operations and the ability to meet debt service
requirements, it is not necessarily comparable to other similarly titled
captions of other companies due to the potential inconsistencies in the method
of calculation. The following presentation represents the Company's computation
of EBITDA (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1997 1998
--------- --------
<S> <C> <C>
Income (loss) before extraordinary item and income tax provision $1,994 ($ 5,763)
Net recourse interest expense .................................. 6,023 11,536
Non-cash charge related to vesting of stock options ............ -- 1,740
Depreciation and amortization .................................. 2,051 9,932
-------- --------
EBITDA .................................................... $ 10,068 $ 17,445
-------- --------
-------- --------
</TABLE>
###
The foregoing discussion of various factors that may impact 1998 performance
contains certain forward-looking statements. In addition, the Company or its
representatives from time to time may make or have made certain forward-looking
statements. Those forward looking statements made by the Company or its
representatives are qualified in their entirety by reference to the discussion
in this document, other public documents, and the discussion of important
factors that could cause the Company's actual results to differ materially from
those projected or discussed in those forward looking statements. It is intended
that the foregoing constitute meaningful cautionary statements so as to obtain
the protections of the safe harbor established for such statements by the
Private Securities Litigation Reform Act of 1995.
###
Part II. Other Information
Item 5. Submission of Matters to a Vote of Security Holders
On July 14, 1998, the stockholders of the Company holding 2,332,493 shares of
common stock of the Corporation, which number of shares constitutes a majority
of the voting stock, took action by written
11
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consent without a meeting to approve an increase in the number of shares subject
to the Stock Option Plan for Executive and Other Key Employees of Federal Data
Corporation and its Subsidiaries from 407,000 to 415,000.
Item 6 (a). Exhibits.
27 Financial Data Schedule.
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
By: /s/ James M. Dean
--------------------------------
James M. Dean
Vice President and
Chief Financial Officer
Date: November 12, 1998
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,969
<SECURITIES> 0
<RECEIVABLES> 129,040
<ALLOWANCES> 826
<INVENTORY> 5,538
<CURRENT-ASSETS> 146,989
<PP&E> 22,939
<DEPRECIATION> 17,345
<TOTAL-ASSETS> 235,717
<CURRENT-LIABILITIES> 82,698
<BONDS> 151,325
0
0
<COMMON> 29
<OTHER-SE> (3,188)
<TOTAL-LIABILITY-AND-EQUITY> 235,717
<SALES> 363,313
<TOTAL-REVENUES> 364,973
<CGS> 316,095
<TOTAL-COSTS> 370,736
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,936
<INCOME-PRETAX> (5,763)
<INCOME-TAX> 556
<INCOME-CONTINUING> (6,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,319)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
