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, 1999 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 29, 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 September 30, 1999 (Unaudited)................................3
Consolidated Statements of Operations for the Three Months
Ended September 30, 1998 and 1999 (Unaudited) and the Nine Months
Ended September 30, 1998 and 1999 (Unaudited).....................4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 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 6. Exhibits and Reports on Form 8-K.................................13
2
<PAGE>
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,
1998 1999
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents.................................... $3,942 $13,869
Accounts receivable.......................................... 126,840 127,490
Net investment in sales-type leases.......................... 5,221 5,161
Inventory.................................................... 963 4,430
Other assets................................................. 8,156 3,520
----------- ------------
Total current assets.................................... 145,122 154,470
Net investment in sales-type leases.......................... 2,997 2,451
Leased and other property and equipment...................... 5,120 5,589
Goodwill and intangibles..................................... 69,411 61,840
Other assets................................................. 9,271 9,702
----------- ------------
Total assets............................................ $231,921 $234,052
=========== ============
Liabilities and stockholders' deficit
Accounts payable and other liabilities....................... $87,846 $89,687
Nonrecourse obligations under capital leases................. 2,232 2,156
----------- ------------
Total current liabilities............................... 90,078 91,843
Recourse notes payable....................................... 141,000 146,400
Nonrecourse obligations under capital leases................. 1,551 -
Other liabilities............................................ 2,464 2,207
----------- ------------
Total liabilities....................................... 235,093 240,450
----------- ------------
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 44,221
Accumulated deficit.......................................... (46,008) (50,648)
----------- ------------
Total stockholders' deficit............................. (3,172) (6,398)
----------- ------------
Commitments and contingencies
Total liabilities and stockholders' deficit............. $231,921 $234,052
=========== ============
</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,
------------------------ ------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Product sales...................................... $100,884 $112,048 $236,303 $283,715
Professional and support services.................. 43,502 43,068 127,010 126,083
Interest and other................................. 683 774 1,660 1,508
----------- ----------- ----------- -----------
Total revenue................................. 145,069 155,890 364,973 411,306
----------- ----------- ----------- -----------
Expenses
Cost of sales and services......................... 127,878 135,399 316,095 358,403
Selling, general and administrative................ 11,037 12,728 34,812 38,315
Goodwill and intangibles........................... 2,920 2,554 7,893 7,679
Interest........................................... 4,223 4,091 11,936 11,975
----------- ----------- ----------- -----------
Total expenses................................ 146,058 154,772 370,736 416,372
----------- ----------- ----------- -----------
(Loss) income before income tax provision (benefit)..... (989) 1,118 (5,763) (5,066)
Income tax provision (benefit).......................... 850 889 556 (426)
----------- ----------- ----------- -----------
Net (loss) income....................................... ($1,839) $229 ($6,319) ($4,640)
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FEDERAL DATA CORPORATION
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1998 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ ($6,319) ($4,640)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization....................... 9,932 9,452
Non-cash compensation related to stock options...... 1,740 1,405
Amortization of deferred financing costs............ 712 712
Gain on sale of assets.............................. - (125)
Income recorded on sales-type leases................ (333) (858)
Collections from sales-type leases.................. 3,084 6,133
Increase in accounts receivable..................... (16,701) (650)
Decrease (increase) in inventory.................... 808 (3,467)
Increase in accounts payable and accrued expenses... 8,138 1,572
Net change in other assets and liabilities.......... (1,552) 3,464
----------- -----------
Net cash flows from operating activities.......... (491) 12,998
----------- -----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash received.... (30,641) (68)
Net proceeds from sale of property and equipment.... - 488
Purchase of equipment for sales-type leases......... (2,022) (4,476)
Purchase of property and equipment.................. (1,819) (2,604)
----------- -----------
Net cash flows from investing activities............ (34,482) (6,660)
----------- -----------
Cash flows from financing activities:
Repayments of borrowings............................ (551) -
Net borrowings under line of credit................. 31,571 5,400
Proceeds from sale of common stock.................. 449 9
Repayments of capital lease obligations............. (854) (1,820)
----------- -----------
Net cash flows from financing activities............ 30,615 3,589
----------- -----------
Net change in cash and cash equivalents................. (4,358) 9,927
Cash and cash equivalents, beginning of period.......... 6,327 3,942
----------- -----------
Cash and cash equivalents, end of period................ $1,969 $13,869
=========== ===========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
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 nine months ended September
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.
Certain amounts have been reclassified in prior periods to conform to the
current period presentation. These reclassifications had no effect on net (loss)
income or accumulated deficit as previously reported.
Note 2 - Stockholders' Equity
In December 1995, FDC Holdings, Inc. merged with and into the Company with the
Company continuing as the surviving corporation. The merger was accounted for as
a recapitalization which resulted in a charge to stockholders' equity of $58,795
to reflect the redemption of common stock. 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 $33.6
million. The purchase price consisted of $31.6 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 SEPTEMBER 30, 1999 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE
Revenue for the three months ended September 30, 1999 was $155.9 million, up
$10.8 million or 7% over the comparable period of 1998. Revenue from product
sales was $112.0 million, up $11.2 million or 11% over the comparable period of
1998. The increase in revenue from product sales is primarily due to increased
volume as a result of repeat customer business, partner referrals, outbound
solicitation and electronic commerce. Revenue from professional and support
services was $43.1 million, down $0.4 million or 1% over the comparable period
of 1998.
COST OF SALES AND SERVICES
Cost of sales and services for the three months ended September 30, 1999 was
$135.4 million, up $7.5 million or 6% over the comparable period of 1998. Cost
of sales and services for the three months ended September 30, 1999 was 87%
compared with 89% of sales and services revenue for the comparable period of
1998. The increase in gross margin percentage was primarily due to improved
margins on recently awarded professional and support services contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the three months ended September
30, 1999 was $12.7 million, up $1.7 million or 15% over the comparable period of
1998. The increase in selling, general and administrative expense was primarily
related to increased personnel engaged in sales and marketing activities,
increased sales commissions, and training related to network services
activities. Selling, general and administrative expense for the three months
ended September 30, 1999 was 8% of revenue which was not significantly different
from 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 $64.5 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 three months ended September 30, 1999 was
$2.6 million, down $0.4 million, or 13% over the comparable period of 1998,
primarily due to the amortization of the value assigned to trade names and
trademarks which was fully amortized by March 31, 1999.
7
<PAGE>
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1999 was $4.1 million,
down $0.1 million, or 3% over the comparable period of 1998 due to an overall
reduction in the average daily borrowings under the Company's revolving credit
facility.
INCOME TAX PROVISION
The income tax provision for the three months ended September 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 September 30, 1998.
NET INCOME/LOSS
Net income for the three months ended September 30, 1999 was $0.2 million, a
$2.0 million increase from the net loss of $1.8 million recorded in the
comparable period of 1998 based on the factors discussed above.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUE
Revenue for the nine months ended September 30, 1999 was $411.3 million, up
$46.3 million or 13% 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 $283.7 million, up $47.4 million or 20%
over the comparable period of 1998. The increase in revenue from product sales
is primarily due to increased volume as a result of repeat customer business,
partner referrals, outbound solicitation and electronic commerce. Revenue from
professional and support services was $126.1 million, down $0.9 million from the
comparable period of 1998. Excluding the effect of the Acquisitions,
professional and support services revenue was down $10.6 million or 8% over the
comparable period of 1998. This reduction in professional and support services
revenue was primarily due to the expiration of existing contracts. The largest
contract that expired during the nine months ended September 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 and revenue from
recently awarded professional and support services contracts.
COST OF SALES AND SERVICES
Cost of sales and services for the nine months ended September 30, 1999 was
$358.4 million, up $42.3 million or 13% 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
nine months ended September 30, 1999 was 88% of sales and services revenue which
was not significantly different from the comparable period of 1998.
8
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the nine months ended September
30, 1999 was $38.3 million, up $3.5 million or 10% 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 nine months ended September 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 nine months ended September 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 $1.7 million and $1.4 million during the nine months ended
September 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 nine months ended September 30, 1999 was 9% of revenue, which
was not significantly different from 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 $64.5 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 nine months ended September 30, 1999 was
$7.7 million, down $0.2 million, or 3% over the comparable period of 1998,
primarily due to the amortization of the value of trade names and trademarks
which was fully amortized by March 31, 1999.
INTEREST EXPENSE
Interest expense for the nine months ended September 30, 1999 was $12.0 million
which was not significantly different from the comparable period of 1998.
INCOME TAX PROVISION/BENEFIT
The income tax benefit for the nine months ended September 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 and the
non-cash compensation related to the accelerated vesting of stock options in
1998, the effective tax provision rate for the year ending December 31, 1999 is
estimated to be 40%, approximately the same rate recorded during the nine months
ended September 30, 1998.
NET LOSS
Net loss for the nine months ended September 30, 1999 was $4.6 million, a $1.7
million decrease from the net loss of $6.3 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 the U.S. Government (the Government) has generally been
predictable and dependable. Cash and cash equivalents were $13.9 million at
September 30, 1999, up $9.9 million from December 31, 1998 primarily as a result
of net cash generated in operating activities of $13.0 million and net cash
generated in financing activities of $3.6 million being partially offset by cash
used in investing activities of $6.7 million. Net cash
9
<PAGE>
generated in operating activities was primarily a result of depreciation and
amortization of $9.5 million, collections from sales-type leases of $6.1 million
and the change in other assets and liabilities of $3.5 million, partially offset
by the net loss of $4.6 million and an increase in inventory of $3.5 million.
Net cash used in investing activities amounted to $6.7 million for the nine
months ended September 30, 1999, primarily as a result of purchases of equipment
for sales-type leases totaling $4.5 million. Net cash flow from financing
activities was $3.6 million for the nine months ended September 30, 1999
primarily as a result of net borrowings under the Company's revolving credit
facility of $5.4 million.
In October 1999, the Company amended its revolving credit facility to provide
for a seasonal increase in the aggregate amount of borrowings available under
the revolving credit facility and an agreement with an asset-based lender
related to inventory purchases. The amendment corresponds with the Company's
liquidity requirements, which are historically higher in the third and fourth
quarters of each fiscal year.
EBITDA represents the sum of loss before income tax provision (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):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------- -----------
1998 1999
----------- -----------
<S> <C> <C>
Loss before income tax provision (benefit).............. ($5,763) ($5,066)
Net recourse interest expense........................... 11,536 11,664
Non-cash compensation related to stock options.......... 1,740 1,405
Depreciation and amortization........................... 9,932 9,452
----------- -----------
EBITDA............................................. $17,445 $17,455
=========== ===========
</TABLE>
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. This process is complete for the Company's
critical systems. The Company estimates that this effort is approximately 95%
complete for its non-critical systems. The expected completion date for the
remaining non-critical systems is November 30, 1999. All of the Company's core
administrative systems, including payroll, human resources, operations and
finance, are commercial off-the-shelf products that are Year 2000 compliant.
Although the Company has completed
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assessments of core administrative systems and assets with embedded systems,
assessments will be ongoing in order 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 $900,000 to remediate any material Year 2000 issues, of
which approximately $775,000 has been incurred through September 30, 1999.
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 products delivered by the Company. 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 that all information
technology acquired by Government agencies be Year 2000
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<PAGE>
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 delivered, or services performed,
solely by the Company.
Contingency Plans: The Company is finalizing appropriate contingency plans for
items which are deemed likely to have a significant impact on the Company's
business operations, if not Year 2000 compliant. The Company intends to complete
such contingency plans by November 30, 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. Plans are in place 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 6 (a). Exhibits.
4.15 Amendment to the Senior Credit Facility.
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: November 12, 1999
13
EXHIBIT 4.15
SUBSIDIARIES OF FEDERAL DATA CORPORATION
AMENDMENT
-----------
AMENDMENT (this "Agreement"), dated as of October 22, 1999
among FEDERAL DATA CORPORATION (the "Borrower"), the institutions party to the
Credit Agreement referred to below (the "Banks") and BANKERS TRUST COMPANY, as
Agent (the "Agent"). All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the Credit
Agreement referred to below.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Agent are parties to a Credit
Agreement dated as of July 25, 1997 (as amended, modified or supplemented to
date, the "Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein
provided;
NOW, THEREFORE, it is agreed:
1. The reference to "through March 31, 1999" in each of Section
8.04(f) and the definition of Available Amount in Section 10 is changed to read
"from October 29, 1999 through March 31, 2000".
2. In order to induce the Banks to enter into this Agreement, the
Borrower represents and warrants that no Default or Event of Default exists on
the Effective Date referred to below after giving effect to this Agreement.
3. This agreement is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
4. This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
5. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE Of NEW YORK.
6. This Agreement shall become effective on the date (the
"Effective Date") when each of the Borrower and the Required Banks shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered (including by way of telecopier) the same to the Agent at its Notice
Office.
<PAGE>
7. At all times on and after the Effective Date, all references
in the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to such Credit Agreement after giving effect to
this Agreement.
* * *
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written:
FEDERAL DATA CORPORATION
/s/ James M. Dean
BY:
-------------------------------
Name: James M. Dean
Title: Vice President and Chief
Financial Officer
BANKERS TRUST COMPANY, Individually
and as agent
/s/ Gregory Shefrin
BY:
-------------------------------
Name: Gregory Shefrin
Title: Principal
IBJ WHITEHALL BANK & TRUST
COMPANY
/s/ David Thalmann
BY:
-------------------------------
Name: David Thalmann
Title: Director
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC.
/s/ Patrick Rounds
BY:
-------------------------------
Name: Patrick Rounds
Title: Vice President
/s/ James McCann
BY:
-------------------------------
Name: James McCann
Title: Vice President
FIRST SOURCE FINANCIAL LLP
/s/ David C. Wagner
BY:
-------------------------------
Name: David C. Wagner
Title: Vice President
<PAGE>
BANKBOSTON, N.A.
/s/ Marie V. Duprey
BY:
-------------------------------
Name: Marie V. Duprey
Title: Vice President
THE BANK OF NEW YORK
/s/ Ronald R. Reedy
BY:
-------------------------------
Name: Ronald R. Reedy
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
/s/ Attila Koc
BY:
-------------------------------
Name: Attila Koc
Title: First Vice President
PNC BANK, NATIONAL ASSOCIATION
/s/ Troy H. Bell
BY:
-------------------------------
Name: Troy H. Bell
Title: Assistant Vice President
<PAGE>
FIRST UNION COMMERCIAL CORP.
/s/ Barbara Boehm
BY:
-------------------------------
Name: Barbara Boehm
Title: Vice President
EXHIBIT 21.1
SUBSIDIARIES OF FEDERAL DATA CORPORATION
State of Doing
Subsidiaries Incorporation Business Name
- ------------------------- ------------------ --------------------------
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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,869
<SECURITIES> 0
<RECEIVABLES> 127,902
<ALLOWANCES> 412
<INVENTORY> 4,430
<CURRENT-ASSETS> 154,470
<PP&E> 21,349
<DEPRECIATION> 15,760
<TOTAL-ASSETS> 234,052
<CURRENT-LIABILITIES> 91,843
<BONDS> 146,400
0
0
<COMMON> 29
<OTHER-SE> (6,427)
<TOTAL-LIABILITY-AND-EQUITY> 234,052
<SALES> 409,798
<TOTAL-REVENUES> 411,306
<CGS> 358,403
<TOTAL-COSTS> 416,372
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 41
<INTEREST-EXPENSE> 11,975
<INCOME-PRETAX> (5,066)
<INCOME-TAX> (426)
<INCOME-CONTINUING> (4,640)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,640)
<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>
