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:
June 30, 1999 333-36447
FEDERAL DATA CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 52-0940566
(State or other (I.R.S. Employer
jurisdiction of Identification Number)
incorporation)
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 July 30, 1999, the registrant had outstanding
2,932,196 shares of common stock, par value $.01 per share.
================================================================================
<PAGE>
INDEX
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements.
Consolidated Balance Sheets as of December 31, 1998
and June 30, 1999 (Unaudited)....................................3
Consolidated Statements of Operations for the Three
Months Ended June 30, 1998 and 1999 (Unaudited) and
the Six Months Ended June 30, 1998 and 1999 (Unaudited)..........4
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1998 and 1999 (Unaudited)...............................5
Notes to Consolidated Financial Statements (Unaudited)...........6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................7
Item 3. Quantitative and Qualitative Disclosure about Market Risk.......12
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.......................13
Item 6. Exhibits and Reports on Form 8-K................................13
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)
December 31, June 30,
1998 1999
---------- ----------
Assets (Unaudited)
Cash and cash equivalents.......................... $3,942 $3,342
Accounts receivable................................ 126,840 139,259
Net investment in sales-type leases................ 5,221 4,983
Inventory.......................................... 963 2,782
Other assets....................................... 8,156 4,054
---------- ----------
Total current assets........................... 145,122 154,420
Net investment in sales-type leases................ 2,997 2,869
Leased and other property and equipment............ 5,120 4,795
Goodwill and intangibles........................... 69,411 64,353
Other assets....................................... 9,271 9,654
---------- ----------
Total assets................................... $231,921 $236,091
========== ==========
Liabilities and stockholders' deficit
Accounts payable and other liabilities............. $87,846 $87,849
Nonrecourse obligations under capital leases....... 2,232 2,411
---------- ----------
Total current liabilities...................... 90,078 90,260
Recourse notes payable............................. 141,000 150,000
Nonrecourse obligations under capital leases....... 1,551 498
Other liabilities.................................. 2,464 2,091
---------- ----------
Total liabilities.............................. 235,093 242,849
---------- ----------
Stockholders' deficit
Common stock, $.01 par value: 8,000,000 shares
authorized; shares issued and outstanding,
2,927,521 in 1998 and 2,932,196 in 1999........... 29 29
Capital in excess of par value..................... 42,807 44,090
Accumulated deficit................................ (46,008) (50,877)
---------- ----------
Total stockholders' deficit.................... (3,172) (6,758)
---------- ----------
Commitments and contingencies
Total liabilities and stockholders' deficit.... $231,921 $236,091
========== ==========
See notes to consolidated financial statements.
3
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Federal Data Corporation
Consolidated Statements of Operations
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1998 1999 1998 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue
Product sales............................. $76,930 $109,017 $130,131 $171,667
Professional and support services......... 50,586 42,901 88,796 83,015
Interest and other........................ 539 287 977 734
-------- --------- --------- ---------
Total revenue.............. 128,055 152,205 219,904 255,416
-------- --------- --------- ---------
Expenses
Cost of sales and services.............. 108,979 134,964 188,217 223,977
Selling, general and administrative..... 13,480 12,210 23,775 24,614
Goodwill and intangibles................ 2,805 2,329 4,973 5,125
Interest................................ 4,133 4,018 7,713 7,884
-------- --------- --------- ---------
Total expenses............. 129,397 153,521 224,678 261,600
-------- --------- --------- ---------
Loss before income tax provision (benefit).. (1,342) (1,316) (4,774) (6,184)
Income tax provision (benefit).............. 674 (45) (294) (1,315)
-------- --------- --------- ---------
Net loss.................................... ($2,016) ($1,271) ($4,480) ($4,869)
======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
4
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Federal Data Corporation
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 30,
1998 1999
---------- ----------
Cash flows from operating activities:
Net loss........................................... ($4,480) ($4,869)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization...................... 6,279 6,404
Non-cash compensation related to stock options..... 1,422 1,274
Amortization of deferred financing costs........... 474 474
Gain on sale of assets............................. - (125)
Income recorded on sales-type leases............... (446) (617)
Collections from sales-type leases................. 1,223 4,298
Increase in accounts receivable.................... (5,052) (12,419)
Increase in inventory.............................. (2,168) (1,819)
Increase (decrease) in accounts payable and
accrued expenses................................ 1,584 (568)
Net change in other assets and liabilities......... (3,481) 3,376
---------- ----------
Net cash flows from operating activities........... (4,645) (4,591)
---------- ----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash received... (30,346) -
Net proceeds from sale of property and equipment... - 488
Purchase of equipment for sales-type leases........ (989) (3,176)
Purchase of property and equipment................. (1,325) (1,317)
---------- ----------
Net cash flows from investing activities........... (32,660) (4,005)
---------- ----------
Cash flows from financing activities:
Repayments of borrowings........................... (551) -
Net borrowings under line of credit................ 34,171 9,000
Proceeds from sale of common stock................. - 9
Repayments of capital lease obligations............ (705) (1,013)
---------- ----------
Net cash flows from financing activities........... 32,915 7,996
---------- ----------
Net change in cash and cash equivalents.............. (4,390) (600)
Cash and cash equivalents, beginning of period....... 6,327 3,942
---------- ----------
Cash and cash equivalents, end of period............. $1,937 $3,342
========== ==========
See notes to consolidated financial statements.
5
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Federal Data Corporation
Notes to Consolidated Financial Statements
(In thousands, except share data)
(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, 1998.
The results of operations for the three months and six months ended June 30,
1999, are not necessarily indicative of the results to be expected for the full
fiscal year ending December 31, 1999.
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 - Stockholders' Equity
In December 1995, FDC Holdings, Inc. merged with and into the Company with the
Company continuing as the surviving corporation. In accordance with the merger
agreement, the Company was to replace options previously outstanding at the
merger date with options in the surviving corporation that provide substantially
the same economic benefit to the option holder as the benefits provided prior to
the merger. To fulfill this obligation, in March 1999, the Company issued fully
vested options to purchase 40,425 shares of the Company's common stock at an
exercise price of $2.00 per share. These options expire ten years from the date
of grant. Accordingly, the Company recorded non-cash compensation of $1,011 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. In June 1999, options to purchase 4,675 shares of the Company's
common stock were exercised at $2.00 per share.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ACQUISITIONS
In February and March 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 in February 1998, purchased all of the assets of Telos
Corporation's Telos Information Systems Division (TIS), (collectively, the
Acquisitions). The aggregate purchase price of the Acquisitions was $33.5
million. The purchase price consisted of $31.5 million in cash and $2.0 million
in subordinated notes. The agreements also provide for additional cash payments
up to $0.4 million if certain revenue objectives are met. Such payments, if any,
will be accounted for as adjustments to the purchase price. Except as expressly
indicated, the following discussion does not give effect to the pre-acquisition
operations of R.O.W., TMA and TIS, or include pro forma financial information.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1998
REVENUE
Revenue for the three months ended June 30, 1999 was $152.2 million, up $24.2
million or 19% over the comparable period of 1998. Revenue from product sales
was $109.0 million, up $32.1 million or 42% over the comparable period of 1998.
The increase in revenue from product sales is principally due to increased
emphasis on the Company's sale of commercial off-the-shelf (COTS) products.
Revenue from professional and support services was $42.9 million, down $7.7
million or 15% over the comparable period of 1998. This reduction in
professional and support services revenue was principally due to the
expiration of existing contracts. The largest contract that expired during the
three months ended June 30, 1998 was a contract awarded to NYMA, Inc. (NYMA) in
1993 under section 8(a) of the Small Business Act, which is intended to foster
growth of small businesses owned and controlled by socially and economically
disadvantaged individuals. After the acquisition of NYMA by the Company in May
1997, NYMA's continued participation as a prime contractor required a waiver
from the Administrator of the Small Business Administration which was not
received.
COST OF SALES AND SERVICES
Cost of sales and services for the three months ended June 30, 1999 was $135.0
million, up $26.0 million or 24% over the comparable period of 1998. Cost of
sales and services for the three months ended June 30, 1999 was 89% compared
with 85% of sales and services revenue for the comparable period of 1998. The
reduction in gross margin percentage was due to a larger proportion of sales of
COTS products which typically have a lower gross margin percentage than the
Company's other sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the three months ended June 30,
1999 was $12.2 million, down $1.3 million or 9% over the comparable period of
1998. During the three months ended June 30, 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
non-cash compensation of $1.4 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. Excluding the effect of the
non-cash compensation, selling, general and administrative expense for the three
months ended June 30, 1999 was 8% of revenue compared with 9% in the comparable
period of 1998.
AMORTIZATION OF GOODWILL AND INTANGIBLES
The excess of the cost of acquisitions over the fair value of identifiable net
tangible and intangible assets acquired was $64.4 million and is being amortized
on a straight-line basis over fifteen years. The present
7
<PAGE>
value of the contract profits of $16.5 million acquired in acquisitions is being
amortized over the remaining terms of the acquired contracts in relation to the
recognition of related contract revenue. Other identified intangibles including
covenants not to compete, work force and trade names and trademarks of $5.5
million acquired in acquisitions are being amortized over periods up to three
years. Amortization of goodwill and intangibles for the three months ended June
30, 1999 was $2.3 million, down $0.5 million, or 17% over the comparable period
of 1998, principally due to the amortization of the value assigned to trade
names and trademarks which was fully amortized by March 31, 1999.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1999 was $4.0 million, down
$0.1 million, or 3% over the comparable period of 1998. Recourse interest
expense decreased $0.1 million for the three months ended June 30, 1999 over the
comparable period of 1998. Interest expense on nonrecourse debt was $0.1 million
for the three months ended June 30, 1999 and 1998.
INCOME TAX BENEFIT
The income tax benefit for the three months ended June 30, 1999 is based on an
estimated annual effective rate, excluding expenses not deductible for income
tax purposes. Before giving effect to the non-deductibility of the amortization
of goodwill and intangibles associated with certain acquisitions, the effective
tax provision rate for the year ending December 31, 1999 is estimated to be 40%,
approximately the same rate recorded during the three months ended June 30,
1998.
NET LOSS
Net loss for the three months ended June 30, 1999 was $1.3 million, a $0.7
million decrease from the net loss of $2.0 million recorded in the comparable
period of 1998 based on the factors discussed above.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1998
REVENUE
Revenue for the six months ended June 30, 1999 was $255.4 million, up $35.5
million or 16% over the comparable period of 1998. The Acquisitions accounted
for $9.7 million of the increase in revenue over the comparable period of 1998.
Revenue from product sales was $171.7 million, up $41.5 million or 32% over the
comparable period of 1998. The increase in revenue from product sales is
principally due to increased emphasis on the Company's sale of commercial
off-the-shelf (COTS) products. Revenue from professional and support services
was $83.0 million. Excluding the effect of the Acquisitions, professional and
support services revenue was down $15.5 million or 17% over the comparable
period of 1998. This reduction in professional and support services revenue was
principally due to the expiration of existing contracts. The largest contract
that expired during the six months ended June 30, 1998 was a contract awarded
to NYMA, Inc. (NYMA) in 1993 under section 8(a) of the Small Business Act,
which is intended to foster growth of small businesses owned and controlled by
socially and economically disadvantaged individuals. After the acquisition of
NYMA by the Company in May 1997, NYMA's continued participation as a prime
contractor required a waiver from the Administrator of the Small Business
Administration which was not received. The reduction in professional and support
services revenue was partially offset by professional and support services
revenue of $9.7 million related to the Acquisitions.
COST OF SALES AND SERVICES
Cost of sales and services for the six months ended June 30, 1999 was $224.0
million, up $35.8 million or 19% over the comparable period of 1998. The
Acquisitions accounted for $8.1 million of the increase in cost of sales and
services over the comparable period of 1998. Cost of sales and services for the
six months ended June 30, 1999 was 88% of sales and services revenue compared
with 86% of sales and services
8
<PAGE>
revenue for the comparable period of 1998. The reduction in gross margin
percentage was due to a larger proportion of sales of COTS products which
typically have a lower gross margin percentage than the Company's other sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the six months ended June 30,
1999 was $24.6 million, up $0.8 million or 4% over the comparable period of
1998. The Acquisitions accounted for $0.8 million of the increase in selling,
general and administrative expense over the comparable period of 1998. During
the six months ended June 30, 1998, the Company modified its Stock Option Plan
for Executive and Other Key Employees by accelerating the vesting of certain
performance options. During the six months ended June 30, 1999, the Company
issued stock options in accordance with the Company's 1995 merger agreement with
FDC Holdings, Inc. Accordingly, the Company recorded non-cash compensation
of $1.4 million and $1.0 million during the six months ended June 30, 1998 and
1999, respectively, 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. Excluding the effect of the Acquisitions and the
non-cash compensation, selling, general and administrative expense for the six
months ended June 30, 1999 was 9% of revenue compared with 10% in the
comparable period of 1998.
AMORTIZATION OF GOODWILL AND INTANGIBLES
The excess of the cost of acquisitions over the fair value of identifiable net
tangible and intangible assets acquired was $64.4 million and is being amortized
on a straight-line basis over fifteen years. The present value of the contract
profits of $16.5 million acquired in acquisitions is being amortized over the
remaining terms of the acquired contracts in relation to the recognition of
related contract revenue. Other identified intangibles including covenants not
to compete, work force and trade names and trademarks of $5.5 million acquired
in acquisitions are being amortized over periods up to three years. Amortization
of goodwill and intangibles for the six months ended June 30, 1999 was $5.1
million, up $0.2 million, or 3% over the comparable period of 1998.
INTEREST EXPENSE
Interest expense for the six months ended June 30, 1999 was $7.9 million, up
$0.2 million, or 2% over the comparable period of 1998. Recourse interest
expense increased $0.1 million for the six months ended June 30, 1999 over the
comparable period of 1998 primarily due to increased recourse debt used to
finance the Acquisitions. Interest expense on nonrecourse debt was $0.1 million
for the six months ended June 30, 1999 and 1998.
INCOME TAX BENEFIT
The income tax benefit for the six months ended June 30, 1999 is based on
an estimated annual effective rate, excluding expenses not deductible for income
tax purposes. Before giving effect to the non-deductibility of the amortization
of goodwill and intangibles associated with certain acquisitions, the effective
tax provision rate for the year ending December 31, 1999 is estimated to be 40%,
approximately the same rate recorded during the six months ended June 30, 1998.
NET LOSS
Net loss for the six months ended June 30, 1999 was $4.9 million, a $0.4 million
increase from the net loss of $4.5 million recorded in the comparable period of
1998 based on the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash provided by operations and
financing activities. In general, the Company's liquidity requirements vary
seasonally with revenue, which are historically higher in the third and fourth
quarters of each fiscal year. Cash flow from the collection of accounts
receivable from
9
<PAGE>
the U.S. Government (the Government) has generally been predictable and
dependable. Cash and cash equivalents were $3.3 million at June 30, 1999, down
$0.6 million from December 31, 1998 primarily as a result of net cash used in
operating activities of $4.6 million and net cash used in investing activities
of $4.0 million being partially offset by cash generated from financing
activities of $8.0 million. Net cash used from operating activities was
primarily a result of an increase in accounts receivable of $12.4 million and
the net loss of $4.9 million. This use of cash was partially offset by
depreciation and amortization of $6.4 million, collections from sales-type
leases of $4.3 million and the change in other assets and liabilities of $3.4
million. Net cash used in investing activities amounted to $4.0 million for the
six months ended June 30, 1999, primarily as a result of purchases of equipment
for sales-type leases totaling $3.2 million. Net cash flow from financing
activities was $8.0 million for the six months ended June 30, 1999 primarily as
a result of net borrowings under the Company's working capital line of credit of
$9.0 million. In April 1999, the Company amended certain financial covenants
within its Senior Credit Facility.
EBITDA represents the sum of loss before income tax benefit, net recourse
interest expense, depreciation and amortization and one-time non-cash charges.
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):
Six Months Ended
June 30,
--------------------
1998 1999
--------- ---------
Loss before income tax benefit.................... ($4,774) ($6,184)
Net recourse interest expense..................... 7,482 7,644
Non-cash compensation related to stock options.... 1,422 1,274
Depreciation and amortization..................... 6,279 6,404
--------- ---------
EBITDA....................................... $10,409 $9,138
========= =========
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 95% complete. The expected completion date is August 31, 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 COTS products that are either Year 2000 compliant,
or have vendor supplied Year 2000 modifications which are in their final phase
of testing. Although the Company has
10
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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 has assessed the potential for Year 2000 issues with third parties
with whom the Company has a material relationship. The Company believes, as a
result of this assessment, that Year 2000 issues will not have a material
adverse effect on the Company's business or results of operations due to the
Company's relationship with these third parties. The Company will continue to
contact new suppliers with whom the Company may have a material relationship
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 $625,000 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 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 Regulations 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
11
<PAGE>
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.
Contingency plans are also being created to cover the failure of significant
third party service providers where feasible. Extensive plans are being
implemented to verify that all critical systems are functioning properly during
the weekend of January 1, 2000.
###
This quarterly report on Form 10-Q 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
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 included elsewhere in this report.
###
Item 3. Quantitative and Qualitative Disclosure about Market Risk.
The Company is exposed to market risk from changes in interest rates due to
investments in instruments made for non-trading purposes. The interest rate risk
relates primarily to the Company's portfolio of short-term investment grade
securities. The Company is also subject to risk relating to fluctuating interest
rates under its Senior Credit Facility. The Company believes that interest rate
risk is immaterial to the Company.
12
<PAGE>
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds.
In June 1999, the Company issued 4,675 shares of the Company's common stock
related to the exercise of stock options for an aggregate price of $9,350.
No underwriters were engaged in connection with the foregoing sale of
securities. Such sale was made in reliance upon the exemption from the
registration provisions of the Securities Act set forth in Section 4(2) thereof
as transactions not involving a public offering, the respective purchasers
thereof having acquired such shares for their respective accounts without a view
to the distribution thereof.
Item 6 (a). Exhibits.
21.1 Subsidiaries of Federal Data Corporation.
27 Financial Data Schedule.
Item 6 (b). Reports on Form 8-K.
None.
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: August 12, 1999
13
EXHIBIT 21.1
SUBSIDIARIES OF FEDERAL DATA CORPORATION
<TABLE>
<CAPTION>
State of Doing
Subsidiaries Incorporation Business Name
- -------------- --------------- -----------------------
<S> <C> <C>
FDCT Corp. Delaware FDCT Corp.
FDC Technologies, Inc. Delaware FDC Technologies, Inc.
NYMA, Inc. Maryland NYMA, Inc.
Sylvest Management Sylvest Management
Systems Corporation Maryland Systems Corporation
R.O.W. Sciences, Inc. Delaware R.O.W. Sciences, Inc.
Technical and Management Technical and Management
Assistance, Inc. New Jersey Assistance, Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,342
<SECURITIES> 0
<RECEIVABLES> 139,702
<ALLOWANCES> 443
<INVENTORY> 2,782
<CURRENT-ASSETS> 154,420
<PP&E> 19,873
<DEPRECIATION> 15,078
<TOTAL-ASSETS> 236,091
<CURRENT-LIABILITIES> 90,260
<BONDS> 150,000
0
0
<COMMON> 29
<OTHER-SE> (6,787)
<TOTAL-LIABILITY-AND-EQUITY> 236,091
<SALES> 254,682
<TOTAL-REVENUES> 255,416
<CGS> 223,977
<TOTAL-COSTS> 261,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34
<INTEREST-EXPENSE> 7,884
<INCOME-PRETAX> (6,184)
<INCOME-TAX> (1,315)
<INCOME-CONTINUING> (4,869)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,869)
<EPS-BASIC> 0<F1>
<EPS-DILUTED> 0<F1>
<FN>
<F1> NOT REQUIRED TO PRESENT EPS AS LONG AS THE COMPANY IS NOT
PUBLICLY HELD.
</FN>
</TABLE>
