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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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.
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The Company's report on Form 10-Q for the period ended September 30, 1998 is
amended to add the following section to Item 2, Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Year 2000 Compliance
State of Readiness: The Company is aware of the issues associated with the
programming code in existing computer systems as the year 2000 approaches.
Certain computer operations will be affected by the roll-over of the two-digit
year value to 00. The issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail.
In order to attempt to identify and remediate any material Year 2000 issues that
may affect the Company, the Company has formed a Year 2000 Readiness Team led by
the Vice Presidents of its operating divisions and supported by appropriate
contracts and technical resources throughout the Company. The Readiness Team's
plan addresses internal systems and processes, critical suppliers and
customers. A Year 2000 analysis of the Company's core software and hardware
systems is underway, focusing on the most critical systems first. This process
includes the following steps: inventory, classification of criticality,
assessment of compliance, remediation and testing. The Company estimates that
this effort is approximately 60% complete. The expected completion date is June
30, 1999, for critical systems and September 30, 1999, for non-critical systems.
All of the Company's core administrative systems, including payroll, human
resources, operations and finance, are commercial off-the-shelf products that
are either Year 2000 compliant or have Year 2000 compliant versions of the
software available under maintenance agreements. The Company is currently in the
process of upgrading its Deltek accounting system, and expects that such upgrade
will be completed during the second quarter of 1999. Although the Company has
completed assessments of core administrative systems and assets with embedded
systems, assessments will continue to occur until the year 2000. This ongoing
assessment is needed to make sure new assets and systems are compliant.
The Company is assessing the potential for Year 2000 issues with third parties
with whom the Company has a material relationship. The Company expects to
complete this assessment phase by August 1, 1999. The Company has been, and
continues to contact suppliers regarding such suppliers' potential Year 2000
issues. The Company has made reasonable efforts to incorporate the Year 2000
requirements and warranty provisions of its customer contracts into its material
supply agreements so as to achieve "back-to-back" warranties from its suppliers.
However, in some instances the customer's requirement may vary from a supplier's
commercial terms relative to the Year 2000. In the event that any key supplier's
products are not found to be Year 2000 compliant, the end-user customer will be
so notified, and the Company will work with such customer to identify a Year
2000 compliant alternative. Despite such efforts, the Company expects to have
only a limited understanding of the potential Year 2000 shortcomings of many of
its suppliers, and will therefore be uncertain as to the full nature and extent
of the potential supplier-derived impact on the Company. Should supplier Year
2000 issues arise, such issues could interrupt the flow of products and services
to the Company, which could in turn impact the Company's timely delivery under
its customer contracts.
Costs to Address the Company's Year 2000 Issues: The Company is incurring
internal staff costs as well as certain consulting expenses and product costs to
examine and address its Year 2000 readiness. The Company estimates that it will
incur approximately $700,000 to remediate any material Year 2000 issues, of
which approximately $500,000 has been incurred to date. Management does not
believe that future project costs will have a material adverse effect on the
Company's business or results of operations. Maintenance, modification costs and
software purchased with the express purpose of fixing the Year 2000 issue will
be expensed as incurred in accordance with the Emerging Issues Task Force of the
Financial Accounting
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Standards Board Issue No. 96-14, "Accounting for the Costs Associated with
Modifying Computer Software for the Year 2000". Network components that may have
Year 2000 compliance issues such as workstations, printers and network
components are being systematically repaired or replaced as part of the normal
information technology infrastructure replacement strategy. The annual
expenditures for these components are not significantly above levels that the
Company has historically incurred in the normal course of business. The
Company's Year 2000 program is an ongoing effort and the estimated costs and
completion dates set forth herein are subject to change. The Company cannot
assure that these estimates will prove accurate. Specific factors that could
cause material differences include, but are not limited to, the availability and
cost of personnel skilled in Year 2000 remediation, the ability to identify,
assess, remediate and test all relevant computer codes, third party remediation
plans and similar uncertainties.
Risks of the Company's Year 2000 Issues: Due to the varying degrees of Year 2000
readiness of the Government agencies with whom the Company does business, the
Company is unable to estimate the possible impact of the Year 2000 on its
customers' operations or buying patterns. While such agencies have indicated
that they are working to resolve their year 2000 problems, the Company regards
their ability to achieve this objective as uncertain. Because the Company's
understanding of the ways in which the Government could experience Year 2000
difficulties is inherently limited, the Company is uncertain as to the full
nature and extent of the potential Government-derived Year 2000 impact on the
Company. However, the Company is concerned that Year 2000 problems affecting
Government financial administration functions could interrupt or delay the
orderly flow of payments to the Company under its Government contracts. Because
of the Company's substantial debt service obligations and reliance on Government
contracts, any such interruption or delay could severely impact the Company's
financial condition.
The Company continues to receive requests for certifications, representations or
other commentary regarding Year 2000 issues from its customers. In some cases,
such requests have resulted in contract modifications regarding statements about
the Year 2000 compliance of the Company's products. In addition, the Federal
Acquisition Regulation requires that each contract entered into with the
Government after October 21, 1997 incorporate by reference a provision of the
Federal Acquisition Regulations which requires that all information technology
acquired by Government agencies be Year 2000 compliant. There can be no
assurance that the Company will not be adversely affected if its customers
enforced Year 2000 requirements contained in the Company's prime contracts,
whether through incorporation of the Federal Acquisition Regulations or
otherwise, which are found to be inconsistent with the Company's suppliers'
commitments with respect to Year 2000 compliance or warranty or which are
related to products produced, or services performed, solely by the Company.
Contingency Plans: The Company will develop appropriate contingency plans for
any items which are not Year 2000 Compliant and which are deemed likely to have
a significant impact on the Company's business operations. The Company intends
to implement any such contingency plans by October 31, 1999. Management believes
it is expending appropriate efforts in addressing the Year 2000 issue so that
the Company's business operations will not be significantly disrupted. However,
there can be no assurance that the Company will not incur Year 2000 problems
relating to its efforts or those involving its customers or suppliers or that
the costs of such efforts will not be greater than currently estimated.
###
This quarterly report on Form 10-Q/A contains statements which, to the
extent that they are not recitations of historical fact, constitute
"forward-looking statements" that are based on management's expectations,
estimates, projections and assumptions. Words such as "expects," "anticipates,"
"plans," "believes," "estimates," variations of such words and similar
expressions are intended to identify such forward-looking statements that
include, but are not limited to, projections of future performance, assessment
of contingent liabilities and expectations concerning liquidity, cash flow and
contract awards. Such forward-looking statements are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. These
statements are not guarantees of future performance and involve certain risks
and uncertainties that are difficult to predict. Therefore, actual future
results and trends may
2
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differ materially from what is forecast in forward-looking statements due to a
variety of factors, including the Company's successful execution of internal
performance plans; performance issues with key suppliers and subcontractors;
developments with respect to contingencies such as legal proceedings or
administrative proceedings challenging any contract award; labor negotiations;
changing priorities or reductions in the budgets of Government agencies who
purchase products or services from the Company; termination of Government
contracts due to unilateral Government action; and the impact of the "Year 2000"
issue on the Company and its customers and suppliers. For additional
information, see "Risk Factors" in the Company's Registration Statement on Form
S-4, SEC File Number 333-36447.
The previous discussion and analysis should be read in conjunction with the
financial statements and related notes and the other financial information,
included elsewhere in this report.
###
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
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James M. Dean
Vice President, Chief Financial
Officer and Treasurer
Date: March 25, 1999
3
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K 405 FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,942
<SECURITIES> 0
<RECEIVABLES> 127,295
<ALLOWANCES> 455
<INVENTORY> 963
<CURRENT-ASSETS> 145,122
<PP&E> 20,220
<DEPRECIATION> 15,100
<TOTAL-ASSETS> 231,921
<CURRENT-LIABILITIES> 90,078
<BONDS> 141,000
0
0
<COMMON> 29
<OTHER-SE> (3,201)
<TOTAL-LIABILITY-AND-EQUITY> 231,921
<SALES> 515,410
<TOTAL-REVENUES> 520,294
<CGS> 449,225
<TOTAL-COSTS> 525,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 16,029
<INCOME-PRETAX> (5,414)
<INCOME-TAX> 1,282
<INCOME-CONTINUING> (6,696)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,696)
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1> NOT REQUIRED TO PRESENT EPS FOR AS LONG AS THE COMPANY IS NOT
PUBLICLY HELD.
</FN>
</TABLE>
