<PAGE>
- --------------------------------------------------------------------------------
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 17, 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)
- --------------------------------------------------------------------------------
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The audited financial statements of R.O.W. Sciences, Inc. ("R.O.W."),
including independent auditors' report thereon, as of June 30, 1997 and
1996 and for each of the three years in the period ended June 30, 1997
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 acquisition of R.O.W, 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 R.O.W., including independent
auditors' report thereon, as of June 30, 1997 and 1996 and for each of
the three years in the period ended June 30, 1997.
99(b) Pro forma unaudited condensed consolidated financial information
for Federal Data Corporation giving effect to the acquisition of R.O.W.
as of, and for the year ended December 31, 1997.
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 hereunto duly authorized.
Federal Data Corporation
By: /s/ James M. Dean
-------------------------
James M. Dean
Vice President and
Chief Financial Officer
Date: May 4, 1998
<PAGE>
Exhibit 99 (a)
R.O.W. SCIENCES, INC.
--------
FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Description Pages
- ----------- -----
<S> <C>
Independent Auditors' Report 1
Balance Sheets 2
Statements of Income 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6-14
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
R.O.W. Sciences, Inc.
We have audited the accompanying balance sheets of R.O.W. Sciences, Inc. as
of June 30, 1997 and 1996, and the related statements of income, stockholders'
equity and cash flows for each of the three years in the period ended June 30,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of R.O.W. Sciences, Inc. as of
June 30, 1997 and 1996, and the results of its operations and cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.
/S/ Rubino & McGeehin
August 22, 1997
Bethesda, Maryland
1
<PAGE>
R.O.W. SCIENCES, INC.
BALANCE SHEETS
June 30, 1997 and 1996
----------
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current assets
Cash and cash equivalents $ 438,246 $ 743,367
Accounts receivable 9,061,165 8,683,230
Employee and other receivables 32,331 50,276
Prepaid expenses 132,429 142,169
Income taxes receivable 41,223 67,400
Deferred income taxes 383,518 381,865
------------ -----------
Total current assets 10,088,912 10,068,307
Property and equipment, net of accumulated
depreciation and amortization 1,327,578 1,611,190
Deposits 32,982 42,030
------------- ------------
Total assets $ 11,449,472 $ 11,721,527
------------- ------------
------------- ------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current liabilities
Notes payable, current portion $ 3,373,276 $ 157,309
Accounts payable 1,288,824 2,206,942
Accrued expenses 2,528,428 2,494,308
Capital lease obligations, current portion 39,574 64,269
Income taxes payable - 2,732
-------------- ------------
Total current liabilities 7,230,102 4,925,560
Long-term liabilities, less current portion
Notes payable 2,116,698 298,070
Capital lease obligation - 39,574
Deferred rent 492,757 503,423
-------------- ------------
Total liabilities 9,839,557 5,766,627
-------------- ------------
Stockholders' equity
Common stock; $.01 par value; 1,000,000
shares authorized; 693,328 and 943,500
shares outstanding 6,933 9,435
Additional paid-in capital 39,983 8,995
Retained earnings 3,824,903 5,936,470
Less: unearned ESOP shares (2,261,904) -
-------------- ----------
Total stockholders' equity 1,609,915 5,954,900
-------------- ----------
Total liabilities and stockholders' equity $ 11,449,472 $ 11,721,527
-------------- ----------
-------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
R.O.W. SCIENCES, INC.
STATEMENTS OF INCOME
Years Ended June 30, 1997, 1996 and 1995
-----------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Contract revenue $ 38,652,447 $ 38,307,848 $ 42,915,063
Contract and operating costs 36,185,371 36,046,368 40,376,425
------------- ------------- -------------
Income from operations 2,467,076 2,261,480 2,538,638
Other income (expenses)
Interest income 31,113 10,400 7,040
Interest expense (160,988) (97,983) (225,448)
------------- ------------- -------------
Income before provision for income taxes 2,337,201 2,173,897 2,320,230
Provision for income taxes 951,991 879,197 901,020
------------- ------------- -------------
Net income $ 1,385,210 $ 1,294,700 $ 1,419,210
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
R.O.W. SCIENCES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additional Unearned Total
Common Paid-In Retained ESOP Stockholders'
Stock Capital Earnings Shares Equity
----- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 $ 9,985 $ - $ 4,221,005 $ - $ 4,230,990
Repurchase of common stock
(30,500 shares) (305) - (548,695) - (549,000)
Net income for the year - - 1,419,210 - 1,419,210
------- -------- ------------ ------------ ------------
Balance, June 30, 1995 9,680 - 5,091,520 - 5,101,200
Repurchase of common stock
(25,000 shares) (250) - (449,750) - (450,000)
Issuance of common stock
(500 shares) 5 8,995 - - 9,000
Net income for the year - - 1,294,700 - 1,294,700
------- -------- ------------ ------------ ------------
Balance, June 30, 1996 9,435 8,995 5,936,470 - 5,954,900
Repurchase of common stock
(253,082 shares) (2,531) (8,995) (3,496,777) - (3,508,303)
Issuance of common stock
(2,910 shares) 29 39,983 - - 40,012
Unearned ESOP shares - - - (2,261,904) (2,261,904)
Net income for the year - - 1,385,210 - 1,385,210
------- -------- ------------ ------------ ------------
Balance, June 30, 1997 $ 6,933 $ 39,983 $ 3,824,903 $ (2,261,904) $ 1,609,915
------- -------- ------------ ------------ ------------
------- -------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
R.O.W. SCIENCES, INC.
STATEMENTS OF CASH FLOWS
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,385,210 $ 1,294,700 $ 1,419,210
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 659,352 649,304 606,452
Deferred income taxes (1,653) (11,288) (270,292)
(Increase) decrease in:
Accounts receivable (377,935) 1,080,226 1,217,336
Other receivables-employees and others 17,945 77,441 (61,605)
Prepaid expenses 9,740 10,818 (11,917)
Income taxes receivable 26,177 (67,400) -
Deposits 9,048 13,247 10,887
Increase (decrease) in:
Accounts payable (918,118) 443,698 (128,454)
Accrued expenses 34,120 (189,484) 349,842
Income taxes payable (2,732) (56,637) 28,138
Deferred rent (10,666) 17,991 94,153
------------ ------------ ------------
Net cash provided by operating activities 830,488 3,262,616 3,253,750
------------ ------------ -------------
Cash flows from investing activities:
Acquisition of property and equipment (375,740) (661,088) (588,704)
------------ ------------ -------------
Net cash used by investing activities (375,740) (661,088) (588,704)
------------ ------------ -------------
Cash flows from financing activities:
Net proceeds (payments) under line of credit
agreement 2,930,000 (1,079,016) (2,326,795)
Payments on long-term debt (157,309) (194,932) (227,965)
Payments on capital lease obligations (64,269) (75,982) (103,183)
Proceeds from issuance of common stock 40,012 9,000 -
Repurchase of common stock (3,508,303) (559,800) -
------------ ------------ -------------
Net cash used by financing activities (759,869) (1,900,730) (2,657,943)
------------ ------------ -------------
Net (decrease) increase in cash (305,121) 700,798 7,103
Cash and cash equivalents, beginning of year 743,367 42,569 35,466
------------ ------------ -------------
Cash and cash equivalents, end of year $ 438,246 $ 743,367 $ 42,569
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
1. Organization
R.O.W. Sciences, Inc. (the Company) was incorporated in February 1983 under
the laws of the state of Delaware. The Company provides research and
consulting services specializing in medical and scientific applications,
primarily under prime contracts and subcontracts for agencies of the federal
government.
2. Summary of Significant Accounting Policies
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Accounting policies which affect
significant aspects of the Company's financial statements are summarized
below.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Revenue Recognition
Revenue from cost-plus-fixed-fee contracts is recorded on the basis of
direct costs plus indirect costs incurred and includes estimated earned fees
based on the contract fee percentages multiplied by the contract costs
incurred. Revenue from fixed-price contracts is recognized on the
percentage-of-completion method, measured by the cost-to-cost method for
each contract. Revenue from time and materials contracts is recognized based
on fixed hourly rates for direct labor hours expended. The fixed rate
includes direct labor, indirect expenses and profit. Materials and other
specified direct costs are recorded at actual costs.
Contract costs include all direct material and labor costs and indirect
costs related to contract performance. Contract costs and general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined. Changes in job performance, job conditions, and
estimated profitability, including final contract settlements, may result in
revisions to costs and income and are recognized in the period in which the
revisions are determined.
6
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
2. Summary of Significant Accounting Policies (continued)
Income Taxes
The Company follows the liability method of accounting for income taxes.
Deferred income tax liabilities and assets are recognized for cumulative
temporary differences between book and tax bases of assets and liabilities
as of the balance sheet date based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable
income. Income tax expense is the tax payable for the period and the change
during the period in the deferred tax assets and liabilities.
Depreciation and Amortization
Property and equipment are recorded at cost and depreciated by charges to
operating expenses, using straight-line and accelerated methods, at rates
based on estimated useful lives of five to ten years. Leasehold improvements
are capitalized at cost and amortized on a straight-line basis over lease
terms.
Maintenance and repair costs are charged to expense as incurred.
Replacements and betterments are capitalized. At the time properties are
retired or otherwise disposed of, the property and related accumulated
depreciation or amortization accounts are relieved of the applicable amounts
and any gain or loss is credited or charged to income.
Cash Concentration
The Company maintains deposits with federally insured financial
institutions. Balances often exceed insured limits. Management, however,
does not consider this a significant concentration of credit risk.
Cash Equivalents
Cash equivalents consist of short-term investments with original maturities
under 90 days. The Company's cash equivalents consist of overnight
investments in repurchase agreements.
Reclassification
Certain amounts in the prior years financial statements have been
reclassified for comparative purposes to conform with the presentation in
the current year financial statements.
7
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
3. Accounts Receivable
Accounts receivable as of June 30, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Billed
U.S. Government
Prime Contracts $ 7,507,456 $ 7,372,140
Subcontracts 516,040 493,595
------------ ------------
Total U.S. Government 8,023,496 7,865,735
Commercial and other 243,987 31,148
------------ ------------
Total billed 8,267,483 7,896,883
------------ ------------
Unbilled
U.S. Government
Prime Contracts 792,381 596,116
Subcontracts (8,898) 6,487
------------ ------------
Total U.S. Government 783,483 602,603
Commercial and other 10,199 183,744
------------ ------------
Total unbilled 793,682 786,347
------------ ------------
Total accounts receivable $ 9,061,165 $ 8,683,230
------------ ------------
------------ ------------
</TABLE>
Unbilled accounts receivable consist principally of costs incurred which are
billable subsequent to year end under contract terms, and the excess of actual
indirect cost rates over provisional rates. The excess generally becomes
billable after the indirect cost rates are audited by the Defense Contract Audit
Agency (DCAA). Substantially all unbilled accounts receivable will likely be
collected after one year.
4. Property and Equipment
Property and equipment as of June 30, 1997 and 1996, consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Furniture, fixtures and equipment $ 3,952,589 $ 3,623,396
Leasehold improvements 652,897 606,350
Less: accumulated depreciation
and amortization (3,277,908) (2,618,556)
---------------- ----------------
$ 1,327,578 $ 1,611,190
---------------- ----------------
---------------- ----------------
</TABLE>
8
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
5. 401(k) Savings Plan
The Company has established a 401(k) tax-deferred savings plan. The plan
provides for contributions by employees and the Company, with the Company's
contribution consisting of a partial matching of employee's contributions
and a discretionary contribution. The cost of the 401(k) plan contribution
charged against current earnings was $32,288, $209,738 and $212,233, for the
years ended June 30, 1997, 1996 and 1995, respectively.
6. Employee Stock Ownership Plan
The Company established an Employee Stock Ownership Plan (ESOP) and a
related ESOP Trust in 1993. The plan covers substantially all permanent
employees. Contributions are made at the discretion of the Board of
Directors. Employees immediately become 100% vested after five years of
service.
ESOP expense is based on contributions made to the ESOP Trust. ESOP expense
charged to current earnings was $743,013 (of which $118,961 represents an
amount equal to the interest expense related to the ESOP debt discussed
below), $213,990 and $318,638, for the years ended June 30, 1997, 1996 and
1995, respectively.
The Company has an obligation to repurchase shares of the Company's common
stock distributed from the ESOP at the time of an employee's retirement or
termination from the Company. The Company did not repurchase any ESOP shares
during the years ended June 30, 1997, 1996 and 1995. At June 30, 1997, 1996
and 1995, the ESOP owned 223,245 shares, 28,667 shares and 28,667 shares,
respectively. The appraised value per share was between $14.47 and $14.57
per share on a minority interest basis at June 30, 1996, and $17.04 and
$18.49 per share at June 30, 1995. The appraisal at June 30, 1997 had not
yet been completed at August 22, 1997.
During the year ended June 30, 1997, the ESOP arranged a loan of $2,500,000,
from a bank to acquire Company stock from the majority shareholder. The
proceeds of the loan were used to purchase 181,818 shares at $13.75 per
share. The loan bears interest at the bank's prime rate (8.5% at June 30,
1997) payable monthly. The principal of the loan is payable by the ESOP
Trust at $29,762 monthly with a balloon payment due November 1, 2001. The
Company is a guarantor on this loan. Because its ESOP contributions fund the
loan repayment, the Company has reported in the accompanying balance sheet
the outstanding balance of this debt (see Note 7) and a corresponding
reduction in stockholders' equity for unearned ESOP shares.
As collateral for the loan, the bank holds shares of stock acquired with the
loan proceeds. The bank releases shares to the ESOP as of the last day of
the plan year (June 30). In accordance with U.S. Treasury regulations, the
number of shares released is based on the loan payments by the ESOP Trust.
Of the 223,245 shares owned by the ESOP June 30, 1997, the bank holds
161,722 shares as collateral for the outstanding loan balance.
9
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
7. Notes Payable
Notes payable consist of the following at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Line of credit with bank $ 2,930,000 $ -
Note to former officer, payable in monthly
installments of $8,905 including interest at 8% 298,070 377,601
Guarantee of ESOP debt (see Note 6) 2,261,904 -
Note to bank, secured by equipment, payable
in monthly installments of $11,111 plus
interest at 7.25% - 77,778
----------- -----------
5,489,974 455,379
Less current portion 3,373,276 157,309
----------- -----------
Long-term portion $ 2,116,698 $ 298,070
----------- -----------
----------- -----------
</TABLE>
The line of credit agreement is for a maximum of $6,000,000. Borrowings
under the line of credit agreement bear interest at the London Interbank
Offered Rate (LIBOR) plus 1.90% (for an effective rate of 7.587% at June 30,
1997) with interest payable monthly. The line of credit allows the Company
to borrow up to $4,000,000 to finance the purchase of the Company's common
stock through January 31, 1998, as well as borrow against accounts
receivable for working capital needs. The line of credit is secured by
substantially all corporate assets and expires October 31, 2001. In
addition, the line of credit agreement contains a minimum tangible net worth
and other financial covenants for the Company.
The following is a schedule of future minimum payments on the above notes
payable as of June 30, 1997:
<TABLE>
<S> <C> <C>
Year ending June 30, 1998 $ 3,373,276
1999 450,425
2000 458,167
2001 374,778
2002 833,328
--------------
$ 5,489,974
--------------
--------------
</TABLE>
10
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
8. Accrued Expenses
Accrued expenses at June 30, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued 401(k) contribution $ 42,930 $ 195,920
Accrued ESOP contribution 350,000 194,000
Accrued vacation 554,115 483,877
Accrued salaries and bonuses 1,075,900 960,072
Accrued payroll taxes 98,372 244,540
Health insurance reserve 429,405 429,405
Miscellaneous (22,294) (13,506)
------------ ------------
Total $ 2,528,428 $ 2,494,308
------------ ------------
------------ ------------
</TABLE>
9. Income Taxes
The Company utilizes the accrual accounting method for tax reporting
purposes. Deferred income taxes arise primarily from the temporary
differences in the treatment of accrued vacation, depreciation, deferred
rent, accrued medical insurance, and bad debt expense for book and tax
purposes.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current provision:
Federal $ 761,884 $ 739,845 $ 982,865
State 191,760 150,640 188,447
----------- ----------- ------------
Total current
provision 953,644 890,485 1,171,312
----------- ----------- ------------
Deferred provision:
Federal (1,353) (9,378) (245,400)
State (300) (1,910) (24,892)
----------- ----------- ------------
Total deferred
benefit (1,653) (11,288) (270,292)
----------- ----------- ------------
Total provision $ 951,991 $ 879,197 $ 901,020
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
11
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
9. Income Taxes (continued)
The net deferred tax asset, based on an estimated effective tax rate of
38.6%, consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax asset for accrued vacation and
other liabilities deductible in the future when paid $ 431,768 $ 449,395
Deferred tax liability for accumulated tax
depreciation in excess of book (48,250) (67,530)
----------- -----------
Deferred tax asset, net $ 383,518 $ 381,865
----------- -----------
----------- -----------
</TABLE>
The effective income tax rate differs from the federal statutory rate
due to the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
State income tax, net of
federal benefit 4.6% 4.6% 4.6%
Other items, net, primarily
non-deductible expenses and
changes in tax estimates 2.1% 1.8% .2%
------ ------ ------
40.7% 40.4% 38.8%
------ ------ ------
------ ------ ------
</TABLE>
10. Capitalized Lease Obligation
Future minimum lease payments under capital leases as of June 30, 1997,
payable in the next fiscal year total $39,574, net of imputed interest of
$911. The book value of equipment under capital leases was $99,556, $135,526
and $185,012 at June 30, 1997, 1996 and 1995, respectively, net of
accumulated amortization of $301,294, $265,324 and $215,838.
12
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
11. Commitments and Contingencies
Operating Leases
The Company's current lease for office space expires in 2002. The Company
also is leasing space for its laboratory division which expires in 2003. The
future minimum lease payments as of June 30, 1997, relating to these leases
are as follows:
<TABLE>
<S> <C> <C>
Year ending June 30, 1998 $ 1,567,632
1999 1,562,321
2000 1,598,827
2001 1,636,225
2002 1,531,568
Thereafter 629,453
--------------
$ 8,526,026
--------------
--------------
</TABLE>
The Company's office lease includes rent abatement for various periods. The
deferred rent liability is being amortized over the life of the lease. Rent
expense is based on minimum lease payments plus increases in the lessor's
operating expenses and real estate taxes. Total rent expense for the years
ended June 30, 1997, 1996 and 1995, was $1,409,919, $1,351,827 and
$1,521,158, respectively, net of sublease income of $165,710, $164,896 and
$27,483.
The Company also leases furniture and equipment and an automobile under
operating leases expiring in various years through 2002. The future minimum
lease payments as of June 30, 1997, relating to these leases are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Year ending June 30, 1998 $ 190,244
1999 171,351
2000 163,030
2001 141,948
2002 140,111
--------------
$ 806,684
--------------
--------------
</TABLE>
Rent expense under these leases for the years ended June 30, 1997, 1996 and
1995 was $36,566, $41,878 and $58,283, respectively.
13
<PAGE>
R.O.W. SCIENCES, INC.
NOTES TO FINANCIAL STATEMENTS
Years Ended June 30, 1997, 1996 and 1995
------
11. Commitments and Contingencies (continued)
Government Audit
A significant portion of the revenues of the Company represent payments made
by the federal government on contracts which are subject to audit by the
government. The disallowance of contract costs by the government would
reduce contract profitability. The Defense Contract Audit Agency (DCAA) has
completed its audits of the Company's incurred cost submissions through the
fiscal year ended June 30, 1995. There were no material adjustments to the
Company's submitted costs. Management believes any adjustments by government
auditors for fiscal years 1997 and 1996 when audited will not be material to
the Company's financial statements.
Stock Repurchases
Under the terms of the stockholders' agreements, the Company must purchase
certain stockholders' outstanding stock for the most recent appraised
valuation price. As of June 30, 1997, there are 8,810 shares subject to the
repurchase requirement. In addition, as discussed in Note 6, the Company has
an obligation to purchase shares of the Company's stock distributed from the
ESOP Trust.
Litigation
The Company is involved in certain litigation and proceedings related to
former employees. Management believes that liabilities, if any, arising from
these matters will not be material to the Company's financial statements.
12. Supplemental Cash Flows Information
<TABLE>
<CAPTION>
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Cash paid for interest $ 145,998 $ 70,528 $ 225,448
----------- ------------ ------------
----------- ------------ ------------
Cash paid for income taxes $ 937,349 $ 1,015,904 $ 1,141,389
----------- ------------ ------------
----------- ------------ ------------
Non-Cash Transaction
</TABLE>
During 1995, the Company agreed to repurchase 30,500 shares of its stock
from a former officer for $549,000. A note payable for $439,200, (see Note
7), and an account payable for $109,800, for cash paid after June 30, 1995,
were recorded at June 30, 1995.
14
<PAGE>
Exhibit 99 (b)
Federal Data Corporation
Unaudited Pro Forma Condensed Consolidated Financial Statements
Giving Effect to the Acquisition of R.O.W. Sciences, Inc.
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 Acquisition of R.O.W. Sciences, Inc.
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 acquisition of R.O.W. Sciences, Inc. ("R.O.W.") as described
in Note 1. R.O.W.'s fiscal year end is June 30, while the year end of Federal
Data Corporation ("FDC") is December 31. The unaudited pro forma condensed
consolidated balance sheet as of December 31, 1997, has been prepared by
combining the consolidated balance sheet of FDC as of December 31, 1997, with
the balance sheet of R.O.W. 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 twelve months ended December 31, 1997. FDC and
R.O.W., 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 and R.O.W. and the related notes thereto.
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 acquisition 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. Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $6,327 $0 $6,327
Accounts receivable 96,074 8,956 105,030
Net investment in sales-type leases 6,839 - 6,839
Inventory 6,346 - 6,346
Other assets 8,376 554 8,930
--------- -------- ---------
Total current assets 123,962 9,510 133,472
Net investment in sales-type leases 1,203 - 1,203
Leased and other property and equipment 3,746 1,346 5,092
Goodwill and intangibles 54,161 - $7,472 (a) 61,633
Other assets 9,894 33 - 9,927
--------- -------- ---------- ---------
Total assets $192,966 $10,889 $7,472 $211,327
--------- -------- ---------- ---------
--------- -------- ---------- ---------
Liabilities and stockholders' equity
Short-term recourse debt $0 $3,786 ($3,786) (b) $0
Short-term nonrecourse debt 3,114 - - 3,114
Accounts payable and other liabilities 73,282 2,574 - 75,856
--------- -------- ---------- ---------
Total current liabilities 76,396 6,360 (3,786) 78,970
Long-term recourse debt 113,000 1,678 13,229 (c) 127,907
Long-term nonrecourse debt 359 - - 359
Other liabilities 2,194 880 - 3,074
--------- -------- ---------- ---------
Total liabilities 191,949 8,918 9,443 210,310
Stockholders' equity 1,017 1,971 (1,971) (d) 1,017
--------- -------- ---------- ---------
Total liabilities and stockholders' equity $192,966 $10,889 $7,472 $211,327
--------- -------- ---------- ---------
--------- -------- ---------- ---------
</TABLE>
See accompanying note to unaudited pro forma condensed consolidated financial
statements.
<PAGE>
Federal Data Corporation
Unaudited Pro Forma Condensed Consolidated Statement of
Operations
Fiscal Year Ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
FDC R.O.W. Pro Forma
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $336,306 $37,760 $374,066
---------- ---------- ---------
Expenses
Cost of sales and services 280,903 32,364 313,267
Selling, general and administrative 37,804 3,155 ($220) (e) 40,739
Goodwill and intangibles 5,031 - 2,117 (f) 7,148
Interest 10,947 310 835 (g) 12,092
---------- ---------- ----------- ---------
Total expenses 334,685 35,829 2,732 373,246
---------- ---------- ----------- ---------
Income before extraordinary item and
income taxes 1,621 1,931 (2,732) 820
---------- ---------- ----------- ---------
Income tax provision 1,368 595 (234) (h) 1,729
---------- ---------- ----------- ---------
Income (loss) before extraordinary item $253 $1,336 ($2,498) ($909)
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
</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.
as of, and for the Year Ended December 31, 1997
Note 1. R.O.W. ACQUISITION
On February 17, 1998, FDC acquired all of the outstanding stock of 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. The acquisition will be
accounted for using the purchase method of accounting. The purchase price was
allocated to net tangible and identifiable intangible assets and liabilities
based on preliminary estimates of fair value as of the date 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 price 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,
included elsewhere in this filing 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 following pro forma adjustments for the acquisition of R.O.W. 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 statements of operations for the
fiscal year ended December 31, 1997.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
(a) Goodwill and other intangible assets resulting from the allocation of
the purchase price. Other intangible assets represent contract backlog at
the acquisition date and is recorded at the present value of the projected
pretax profits.
(b) Repayment of certain R.O.W. notes payable.
(c) Long-term debt incurred to finance this acquisition and the repayment of
certain R.O.W. notes payable.
(d) Elimination of R.O.W.'s shareholders' equity upon consolidation with
FDC.
<PAGE>
Unaudited Pro Forma Condensed Consolidated Statement of Operations
(e) 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.
(f) Amortization of estimated goodwill and other intangible assets. 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.
(g) Interest expense on net borrowings needed to fund the purchase price
using an effective annual interest rate of 9% for the year ended December
31, 1997.
(h) Reduction of federal and state income tax expense resulting from the
additional interest expense net of the lower general and administrative
costs.
