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Previous: KEMPER SECURITIES TRUST, 497, 2000-03-30 |
Next: BURKE INDUSTRIES INC /CA/, 10-K405, 2000-03-30 |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE
YEAR ENDED DECEMBER 31, 1999
FEDERAL DATA CORPORATION
(Exact
name of Registrant as specified in its charter)
|
DELAWARE |
333-36447 |
52-0940566 |
|
(State or other jurisdiction
of |
(Commission File |
(I.R.S. Employer
Identification |
|
incorporation) |
No.) |
Number) |
4800 Hampden Lane Bethesda, MD
20814
(Address of principal executive offices) (Zip
Code)
(301) 986-0800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 27, 2000 is $317,412. Because Federal Data Corporation is privately held, the aggregate value of such voting stock was computed on the basis of a $27 per share price, the price paid by the Company to purchase treasury stock from a former officer of the Company in December 1999, the time of the most recent common stock transaction.
As of the close of business February 29, 2000, the Registrant had outstanding 2,917,996 shares of Common Stock, par value $.01 per share.
Documents Incorporated By Reference
None
PART I
Item 1. Business.
Federal Data Corporation and its subsidiaries (collectively, the "Company") are major suppliers of information technology to a wide range of customers within the U.S. federal government (the "Government"). The Company has assembled, through internal growth and strategic acquisitions, comprehensive information technology ("IT") services and products capabilities to address the unique needs of its Government customers. Management believes that the Company is strategically positioned to benefit from the current trends in the Government market for information technology and outsourcing of engineering, scientific and other professional services. The Government is among the world's largest purchasers of information technology with estimated total expenditures in the Government's 1999 fiscal year in excess of $33 billion. For the year ended December 31, 1999, the Company's total revenue was $583.8 million, loss before income taxes was $3.3 million, net loss was $4.2 million and EBITDA (as defined herein) was $27.8 million. Contributing to the Company's loss before income taxes for 1999 were non-cash charges totaling $9.1 million including $4.8 million related to amortization of certain intangible assets, $2.8 million related to a write-off of intangible assets associated with acquired contract backlog, and $1.5 million related to the vesting and issuance of stock options. These non-cash charges had a $7.4 million after-tax effect on the net loss. The intangible assets being amortized represent identifiable assets recorded in connection with the Company's acquisitions in 1997 and 1998, including contract backlog, covenants not to compete, work force, trade names and trademarks. The Company recorded $16.5 million of other intangible assets related to the acquired contract backlog which is equal to the present value of the pretax profits projected to be earned as a result of the Company's performance of such acquired contracts. This amount is being amortized over the remaining terms of the acquired contracts in the same manner and at the same time as the Company recognizes the related contract revenues. The value assigned to the other acquired intangible assets is $5.1 million and is being amortized over periods up to three years. Excluding the impact of future acquisitions, the Company expects that its non-cash charge for amortization of other intangible assets will decline in 2000 and thereafter. In 1998, the Company amended and restated its Stock Option Plan for Executives and Key Employees by accelerating the vesting of certain performance based options. In addition, the Company issued stock options in 1999 in accordance with the Company's 1995 merger agreement with FDC Holdings, Inc. Without regard to any future changes in its Stock Option Plan, the Company expects that it will record non-cash compensation related to this change of approximately $0.2 million in 2000 and none thereafter.
Founded in 1969, the Company serves a diverse and expanding customer base representing over 20 Government agencies including the Department of the Navy, the National Aeronautics and Space Administration ("NASA"), the Federal Aviation Administration ("FAA"), the Department of Veterans Affairs, the Internal Revenue Service ("IRS"), the National Institutes of Health ("NIH") and the Department of State. Management believes that the Company's established reputation and long-standing relationships with Government customers, and the extensive knowledge gained from those relationships, have been critical to the Company's strong record of growth and provide a key competitive advantage in pursuing business opportunities with new and existing customers.
TC Group, L.L.C. d/b/a/ The Carlyle Group ("Carlyle"), a Washington D.C.-based global private merchant bank founded in 1987, through its affiliates became the Company's controlling stockholder in a 1995 recapitalization of the Company. Carlyle and its affiliates currently manage over $6 billion of private equity capital through various funds focused around the world. Carlyle has made over 60 investments in select industries including aerospace, defense, information technology and related services, telecommunications, health care and the Internet.
Prior to December 1, 1995, a substantial majority of the Company's common stock was owned by its employees. On December 1, 1995, the Company effected a recapitalization, through which FDC Holdings, Inc. ("Holdings") merged with and into Federal Data Corporation with Federal Data Corporation continuing as the surviving corporation (the "Recapitalization"). Holdings was a company organized by Carlyle to facilitate the Recapitalization and had no operating activity or history. The Recapitalization resulted in a charge to stockholders' equity of $58.8 million to reflect redemption of certain common stock. Carlyle has supported the Company's acquisition strategy with its financial expertise and provided a critical source of equity capital for the implementation of the Company's growth strategy.
ACQUISITIONS AND REFINANCING
Consistent with its strategy of providing a complete range of information technology offerings to its Government customers, the Company has pursued strategic acquisitions to broaden and strengthen key skill areas. In May 1997, the Company purchased NYMA, Inc. ("NYMA"), a provider of sophisticated engineering and information technology services. NYMA complemented and significantly expanded the Company's core capabilities in the technology and engineering services sector, providing the Company with the ability to bid effectively on new contracts with a higher component of technical services requirements. In June 1997, the Company acquired Sylvest Management Systems Corporation ("Sylvest"), a value-added reseller of commercial off-the-shelf ("COTS") hardware, software and technical services supporting open systems architectures within the Government marketplace. Through the Sylvest acquisition, the Company has become a leading value-added direct marketing organization of COTS hardware and software to the Government and has substantially expanded the number of customers to which it can market its systems integration offerings.
To effect the acquisitions of NYMA and Sylvest and to secure the availability of additional capital for future acquisitions, in July 1997, the Company sold $105 million in aggregate principal amount of 10 1/8% Senior Subordinated Notes due 2005 (the "Private Notes") in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, (the "Private Placement"). The Company used the proceeds of the Private Placement to (i) prepay $11.7 million of indebtedness incurred in connection with the Recapitalization and acquisition of Sylvest, (ii) repay all amounts (approximately $80.4 million) of long-term debt owing under the prior senior credit facility, (iii) pay $7.0 million in fees and expenses associated with the Private Placement and the new senior secured revolving credit facility (the "New Senior Credit Facility") and (iv) generate $5.9 million in additional cash for working capital purposes. None of the proceeds of the Private Placement are remaining. In addition, the Company terminated the prior senior credit facility and executed the New Senior Credit Facility, which provides revolving borrowing availability up to $75.0 million, subject to a borrowing base limitation. In December 1997, the Company completed an offer to exchange $1,000 principal amount of its 10 1/8% Senior Subordinated Notes Due 2005 (the "Exchange Notes") for each $1,000 principal amount of its outstanding Private Notes (the "Exchange Offer"), which exchange was registered under the Securities Act of 1933, as amended, pursuant to a registration statement on Form S-4. As a result of such Exchange Offer, the Company issued $105 million in aggregate principal amount Exchange Notes in exchange for all of the issued and outstanding Private Notes.
The Company has continued its strategy of expanding its core customer base and strengthening its capability to service existing customers through acquisitions in 1998. In February 1998, the Company acquired R.O.W. Sciences, Inc. ("R.O.W."), a provider of information technology and health science research services. The acquisition of R.O.W. expanded and strengthened the Company's already substantial presence at the NIH and also broadened the Company's ability to offer professional services and information technology solutions to federal and commercial health science research organizations. In February 1998, the Company also acquired Telos Information Systems ("TIS"), a division of the Telos Corporation. TIS provides information technology and engineering services principally to NASA and the Jet Propulsion Laboratory ("JPL"). TIS expands the Company's Pasadena, California operations making it one of the leading information technology contractors at JPL and provides additional capability to service NASA, one of the Company's long-standing customers. In March 1998, the Company purchased Technical and Management Assistance, Inc. ("TMA"), a provider of software development services to Lockheed Martin Corporation, Computer Sciences Corporation, and the FAA. TMA specializes in air traffic control software and complements the Company's FAA business base.
The acquisitions have significantly enhanced the Company's presence in the Government marketplace. Management believes the information technology industry, particularly the portion serving Government customers, has and will continue to consolidate, resulting in additional opportunities for the Company to make attractive acquisitions that complement or expand its core capabilities.
INDUSTRY OVERVIEW
According to Federal Sources, Inc., ("Federal Sources") an independent market research firm specializing in the federal information technology market, the Government is the world's largest single buyer of information technology services and products. Federal Sources estimated fiscal 1999 Government spending specifically designated for information technology to have been in excess of $33 billion. Despite continual budget pressures, Government outlays for third-party technology services and outsourcing have increased steadily as the Government has sought to control its spending and gain the efficiencies and flexibility experienced by commercial purchasers of these services. The General Services Administration ("GSA") anticipates a continuation of this trend toward increased Government use of outside information technology providers and estimates that the majority of all Government agencies operating in-house data systems may eventually outsource information technology services to the private sector at a significant cost savings. The current legislative and regulatory environment has supported and been successful with initiatives in the Government information technology sector to change procurement practices and become more like the private sector. Several statutory and regulatory changes have brought about a significant transition in Government procurement practices, dramatically increasing the number of procurement "vehicles" available to Government customers and generally reducing the lead time required to buy information technology services and products. The use of these vehicles, whether indefinite delivery, indefinite quantity ("IDIQ") contracts awarded to multiple contractors or teams of contractors, or established GSA Schedules and multiple-agency contracts ("MAC"), allows the Government to address an increasing portion of its information technology needs through relatively inexpensive, open architecture systems based on COTS hardware and software. This trend toward commercialization of Government procurements will continue to change the marketplace enabling the mission critical operations of the Government to be met in a timely and efficient manner. See "--Government Contracts."
BUSINESS AND GROWTH STRATEGY
The Company's goal is to be a leading one-stop information technology solutions supplier, providing high-quality services and products that meet the complete needs of its Government customer base. The Company's strategies to meet this objective are the following:
- CREATE COMPREHENSIVE SKILL AND PRODUCT BASE. The Company seeks to continuously add new information technology capabilities and strategically expand existing business areas to meet the changing information technology needs and buying patterns of its Government customers. By expanding its extensive technical skill base and ability to supply a broad and diverse set of COTS hardware and software, the Company can provide its customers with the widest possible range of cost effective solutions and engender a high level of customer satisfaction. Management believes that such capabilities, together with the Company's in-depth knowledge of changing Government procurement practices, should continue to create new opportunities for the Company.
- STRONG CUSTOMER KNOWLEDGE AND FOCUS. The Company strives to understand the full range of each of its customers' information technology needs. This includes in-depth vertical expertise in selected high-potential markets such as space systems, air traffic management and health science research. The Company's strategy is to continue to leverage its strong customer knowledge, advanced technical skills and supplier relationships to tailor optimal solutions to its customers' specific needs and to offer technology infrastructures that anticipate its customers' rapidly evolving needs.
- PURSUE STRATEGIC ACQUISITIONS. The Company seeks to continue expanding the breadth and quality of the information technology services and products it offers. The acquisitions have added important complementary skills to the Company's information technology capabilities and vertical customer expertise. Management expects to continue to pursue strategic acquisitions, which it believes can contribute significantly to the Company's future business growth.
- MAXIMIZE FLEXIBILITY OF GOVERNMENT CUSTOMERS. A key component of the Company's success has been its ability to quickly adapt to the rapidly evolving Government procurement process. The Company continually pursues means of maximizing its customers' flexibility in acquiring a range of services and products with competitive prices and minimal bureaucratic delay by selecting the best methods available in the current, more streamlined procurement climate.
- CAPITALIZE ON OUTSOURCING OPPORTUNITIES. The Company seeks to pursue new opportunities created by changes in the Government information technology industry. In particular, although the Government has frequently hired service providers to fill specific roles in the past, the Government is increasingly considering opportunities to outsource entire functions to private industry. As part of this strategy, the Company intends to leverage its customer relationships, technical skills and access to COTS hardware and software in pursuing emerging opportunities in the outsourcing of certain Government information technology functions.
SERVICES AND PRODUCTS
The Company focuses on providing a comprehensive array of high technology professional services in combination with hardware and software products from a variety of manufacturers. Although the Company is engaged in a single business activity, it delivers these services and products to its Government customers through two operating units as described below. For financial reporting purposes, these operating units have been aggregated. See Notes 1 and 3 to the consolidated financial statements. The Services & Solutions Group focuses primarily on providing sophisticated technical, scientific and engineering services to enhance IT performance and productivity, and integrates diverse hardware and software components into a single turnkey system, usually selling COTS hardware and software products as an element of the integrated solution. The Systems & Technology Group is a leading value-added direct marketing organization of hardware, software and related services to the Government.
SERVICES & SOLUTIONS GROUP
The Company has developed, both internally and through acquisition,
a comprehensive array of high technology professional services and solutions
which it offers in combination with premium COTS hardware and software products
from a variety of leading original equipment manufacturers ("OEMs"). The Company's service offerings range from complex systems integration
projects to software development and networking solutions. Management believes
that the Company's broad range of capabilities strengthens its position as a
preferred provider by allowing the Company to support a wide array of its customer's
IT requirements. Historically, the Company has delivered the majority of its
services as part of large IT contracts, or programs, where it was the sole prime
contractor. These programs involve not only delivering the Company's technical
capabilities but also coordinating the efforts of subcontractors and vendors
of COTS hardware and software. As a result, the Company has developed effective
practices that ensure its ability to routinely deliver large-scale projects
efficiently and with results that exceed its customers' expectations. This methodology
contributes significantly to the Company's quality and consistency of performance
and has resulted in the Company's receiving a high percentage of repeat business.
In addition, the Company believes that the management experience, technical
skills, and customer relationships gained through these long-term projects contribute
to the Company's success across all of its service areas.
In conjunction with its services and solutions, the Company also
sells COTS hardware and software from leading manufacturers. An integral part
of management's strategy has been to focus on the sale of non-commodity products,
such as networking equipment, that require a high level of expertise to configure
and implement. As a result, the vast majority of the Company's product sales
are made as part of an agency marketing strategy that involves a major component
of associated services revenue. The Company's core competencies can generally
be categorized into the following groups: complex systems engineering and integration,
software engineering, technical consulting, data mining/warehousing, Microsoft
consulting, electronic commerce, web-based development, information security,
technology training, financial systems implementation, outsourcing and seat
management, engineering services and health and biomedical systems.
COMPLEX SYSTEMS ENGINEERING AND INTEGRATION. Systems
integration refers to the assimilation of diverse information technology services
and products , frequently including the combination of existing custom systems
with COTS hardware and software into a single turnkey system. The Company provides
large-scale, tailored solutions to its customers, generally including design,
construction, and implementation, as well as the sale of any COTS hardware and
software required for completion. In addition, these projects are characterized
by complex features such as multi-year systems life, multiple vendors, technical
complexity, the application and integration of leading-edge technology, and
the selection and management of subcontractors and teaming partners with specific
expertise. When no COTS solution or product exists, the Company also develops
custom software applications to provide a total compliant solution. Over the
past 30 years, the Company has completed contracts that have ranged from national
defense programs to administrative, payroll, and inventory control functions
of various Government departments and agencies. The Company's history and experience
with legacy systems, including traditional mainframe systems, are particularly
advantageous in integrating newer client/server architecture into existing environments.
SOFTWARE ENGINEERING. The Company develops software
under various contracts that support management information systems, air traffic
control systems, grants management systems, and scientific data processing systems.
The Company's experience includes a variety of platforms, languages, and operating
environments. The Company has an SEI level II rating on several of its development
projects and has achieved an SEI level III rating in one of the sectors of the Services
& Solutions Group. SEI level II or III are frequently required in Government
proposals and allow the Company to bid on contracts with more limited competition.
Management believes that SEI level III development skills are in high demand
and will contribute meaningfully to the Company's growth in the future.
TECHNICAL CONSULTING. The Company provides a wide
array of technical consulting services and solutions designed to help its customers
utilize information technology to leverage resources more efficiently. The Company
actively develops and directly markets these solutions, which combine the Company's
core technology competencies with appropriate COTS products from various vendors
to create effective, customized solutions for its customers. These
"packaged" solutions are focused on addressing several high-demand market segments:
data mining/warehousing, Microsoft consulting, electronic commerce, Web-based
development, information security, financial systems implementation, and technology
training. While these services are often employed in the Company's major systems
integration programs, they are also increasingly promoted on a stand-alone basis
to customers through Government wide acquisition contracts ("GWAC")
and IDIQ contracts. Management believes that the Company's competencies in these
areas are important to the sale of its other services and products.
DATA MINING/WAREHOUSING. Data mining and data
warehousing enable organizations to extract knowledge regarding mission-critical
needs and answer core business questions that otherwise would have remained
obscured in voluminous data. The Company provides a comprehensive set of data
mining/warehousing consulting services including the identification of
appropriate business objectives, data preparation, building specialized data
repositories, statistical analysis, model training, and extracted knowledge
reporting. These services are often part of a system solution that provides
knowledge extraction on an ongoing basis. The Company is currently receiving
extremely high demand for data mining/warehousing services, and management
believes that the Company's growth in this area will be
significant.
MICROSOFT CONSULTING. In 1998, the Company was selected
as a Microsoft "Alliance Partner," Microsoft's highest level business relationship,
to provide Government customers with comprehensive solutions and consulting
in the areas of messaging/collaboration, electronic commerce, network and intranet
integration, and systems accessibility. Consistent with the Company's strategy
of partnering with leading IT suppliers, this alliance provides business referrals,
exchange of technical expertise, joint marketing, and market recognition from
being associated with the leading software company in the world.
ELECTRONIC COMMERCE. Electronic commerce includes
many forms of online purchasing, information exchange, transaction processing,
and product support. The Company provides a wide variety of related services
including Internet and intranet consulting, web page development, hosting and
maintenance, integrating electronic catalogs with legacy systems, transaction
engine support, and online report viewing and is a recognized expert in electronic
data interchange ("EDI") applications. Networking and other new tools and technologies
have created a wide variety of applications for electronic commerce and thus,
a high demand for these related services. Management believes that the Company's
electronic commerce expertise positions the Company to take advantage of the
forecasted post-year 2000 surge of spending on "e-Government" initiatives.
WEB-BASED DEVELOPMENT. Web-enabled applications and
tools can dramatically reduce the costs of internal and external communication.
The Company specializes in web-enabling legacy systems, assessing enterprise web
potential, designing web-based applications, and building web infrastructures to
achieve these efficiencies for customers.
INFORMATION SECURITY. The Company advises customers
on the management and technical disciplines necessary to implement effective
information security measures. The Company assesses customers' security
requirements, recommends the best solutions available, and implements those
solutions. Management believes that information security is rapidly becoming a
significant IT issue and a substantial business opportunity in the post-year
2000 era.
TECHNOLOGY TRAINING. With over 15 years of experience, the Company is a premier provider of technical and end-user training. In 1999, the Company trained over 19,000 students in over 9,000 educational sessions. Many of the training sessions were conducted using the Company's student focused WorkSmart training methodology, which was developed in 1999. Throughout the Company's history, the total number of training sessions now exceeds 43,100. The Company provides training in a wide variety of IT areas and is a Microsoft Authorized Technical Education Center. Training is provided to Government and private sector customers and the Company personnel. Management believes that these training services play a meaningful role in retaining customers and key Company personnel.
FINANCIAL SYSTEMS IMPLEMENTATION.
Through the expertise of the Company's accounting and technology
professionals, the Company designs and deploys accounting and business
management systems for the commercial marketplace and for not-for-profit
customers. Together with its alliance partner, the Company has experience with
more than 250 not-for-profit customers and has a high degree of expertise with
Navision Financials, a software product for mid-sized organizations.
OUTSOURCING AND SEAT MANAGEMENT. The Company provides
asset management, infrastructure management, user support, and other services
and products to customers on the basis of a per user, or "seat," fee. As a prime
contractor, the Company has partnered with over 30 leading service and product
providers to subcontract certain functions such as help desk support and asset
management. Currently, the Company is one of only three companies that won both
of the major Government desktop outsourcing prime contracts awarded to date,
GSA Seat Management ("SEAT") and Outsourcing Desktop Initiative for
NASA ("ODIN"). In 1999, the Company won its first SEAT task order,
a $12 million contract over 10 years to manage 220 initial users, or "seats,"
for the Wright Patterson Air Force Base ("WPAFB"). After this pilot
program is implemented, the Company has the potential to add as many as 24,000
seats under the WPAFB contract. Management believes that outsourcing represents
a substantial growth opportunity for the Company and expects that outsourcing
will eventually be extended to almost every aspect of Government IT. Federal
Sources projects that the Government desktop outsourcing market will grow from
$140 million in 1999 to over $4 billion in 2003.
ENGINEERING SERVICES. In conjunction with its core
IT competencies, the Company has gained specialized expertise in engineering
services that are targeted to meet the most sophisticated technical requirements
of specific "vertical" government markets such as aerospace and transportation.
The Company has enhanced its reputation for sophisticated technical capabilities
by providing the highest quality engineering services in aeromechanics,
aerospace technology, space experimentation, structures, materials,
instrumentation, and aeronautics. The Company is currently ISO 9001 certified at
the NASA Glenn Research Center and the NASA Langley Research Center and is
working toward certification at the Kennedy Space Center and JPL. Under contract
to NASA, the Company has developed experiments and instruments that have flown
on over 60 space shuttle missions.
HEALTH AND BIOMEDICAL SYSTEMS. The Company is also a leader in providing health and biomedical related services that combine scientific expertise and state-of-the-art computer and communications capabilities to support NIH, Food and Drug Administration ("FDA"), and various other health related agencies. The Company's offerings in this area include research and services for health communications, education, and analysis for both public and private sector customers as well as outsourcing and laboratory services in support of biomedical research. Management believes these services are a critical differentiator in winning new IT contracts by increasing the Company's understanding of customer IT requirements, enhancing the Company's credibility with customers, and allowing the Company to identify potential IT requirements prior to public announcement.
SYSTEMS & TECHNOLOGY GROUP
The Company is a leading value-added direct marketing organization of hardware, software and related services to the Government. Consistent with the Company's strategy of offering solutions based on open computing architectures, the Company has focused its reselling activities on workstations, servers, enterprise networking hardware and related peripherals and software. Along with providing a broad range of top quality products through supplier and teaming relationships with hardware and software OEMs, the Company makes its technical personnel available to provide its customers with customized "value-added" technical support services. Information technology product sales have been a core business for the Company and have provided it with the marketing platform to become a major open systems solutions provider in the Government marketplace.
The Systems & Technology Group employs approximately 100 sales, marketing, business development and contract representatives and approximately 50 technical personnel, each of whom has been recruited based on his or her extensive knowledge of a particular customer group, particular products sold by the Company, or both. The sales force's extensive training in various Government procurement rules allows them to guide customers to the most efficient acquisition vehicle for the Company's products, whether that vehicle is an agency-specific IDIQ contract, a MAC, GWAC or a GSA Schedule. See "--Government Contracts." These representatives maintain regular contact and working relationships with a set of vendors and existing or potential customers.
The Company's product reselling activities add value for both IT manufacturers and Government customers. Manufacturers gain access to the Company's sales force and its experience in the Government procurement and sales process, including capabilities and experience in electronic commerce, order entry and invoicing. Customers benefit from the Company's technical knowledge of available products and vendors, and also from the Company's procurement expertise, which helps them select the optimal procurement vehicle to meet their needs. The Company's procurement personnel also make it easier for Government customers to place orders and configure and set-up new systems. Management believes that the new contract vehicles resulting from Government procurement reform (see "--Government Contracts") has enhanced the Company's opportunities to provide value-added services to both suppliers and customers by allowing the Company to demonstrate how these vehicles can be used by suppliers to sell more products and by customers to buy more services and products.
The Company is one of the leading providers of networking and storage design, implementation, and support services and associated products to the Government market. The Company has established preferred partnerships with leading IT suppliers such as Cisco Systems Inc., Cabletron Systems Inc., FORE Systems Inc., and EMC Corporation. These companies rely on the Company's technical capabilities and ability to access Government contracts and customers and navigate the Government procurement process. The Company's network engineers have experience in virtually all networking technologies and environments, and the Company has made substantial investments to maintain the highest degree of technical competency and certifications with all of its products. As a result, the Company has developed preferred referral and pricing relationships with the majority of its suppliers. Representative of this commitment, the Company is the only Cisco Gold-Certified partner, Cisco's highest certification level, dedicated exclusively to the Government market. According to Federal Sources, enterprise networking and storage solutions are expected to increase over 20% annually from 1999 through 2003, thus making networking solutions among the fastest-growing segments of the Government IT market. Management believes the Company's superior technical competencies, direct sales force, and strategic partnerships will allow the Company to accelerate growth in this attractive market.
Management believes the Company is on the leading edge of electronic commerce for sales of information technology to the Government. The Company has developed Internet facilities including a World Wide Web site to support "paperless" contracting with the GSA Schedules and under the NIH Electronic Computer Store II ("ECS II") contract. ECS II is a MAC vehicle providing an electronic catalog from which agencies may place individual orders ranging in value from a few thousand dollars to several million dollars. Customers typically select from among the participating vendors based on prior or existing service relationships, breadth of product offerings, reputation and price. Management believes the Company is well positioned to benefit from its electronic commerce capabilities as more and more Government procurement vehicles are requiring these competencies as a condition of award.
The Company also provides expertise in the Government procurement process as a subcontractor to OEMs, providing services including initial bid and proposal preparation, contract management, customer support services, technical management services and electronic commerce services. Under a NASA Scientific and Engineering Workstation Program II subcontract, the Company will provide several of these subcontracting services to a leading microcomputer and workstation manufacturer for a specified percentage of revenues.
Listed below are summary descriptions of the Company's major contracts and programs. Although the future status of any contract is uncertain after contract expiration, management believes that certain support and service functions being provided under many of these contracts may be subject to recompetition and rebid upon expiration, either alone or in combination with other services and/or products. However, the Company cannot guarantee with respect to any particular contract to which it is a party, that such contract will be rebid upon expiration or that if any such contract is rebid, that the follow-on contract will be awarded to the Company. For a description of Government contracts, see "--Government Contracts."
DEPARTMENT OF STATE. The Company provides various technical and hardware and software maintenance services functions in support of the Department of State mainframe processing centers.
DEPARTMENT OF VETERANS AFFAIRS. This contract forms the basis for information technology solutions for the Department of Veterans Affairs online processing systems in Austin, Texas. The Company provides mainframe hardware, software and services to the Austin Automation Center in support of its mission.
GSA SEAT MANAGEMENT . SEAT is a multiple-award, fixed-price-per-seat
IDIQ contract. This contract provides Government agencies with access to desktop
outsourcing that includes the management, operation, and maintenance of desktop
technology and its associated network infrastructure as a unified service. This
service includes the entire suite of hardware, software, connectivity and support
services required to support desktop computing in an administrative, engineering,
scientific, or mixed-work environment. In 1999, the Company was awarded a task
order under SEAT to provide outsourcing services to the Special Operations Forces,
System Program Office at Wright Patterson Air Force Base. The Company is currently
conducting a pilot program with an initial 220 seats.
HOST SOFTWARE SUPPORT. The Company is a
subcontractor to Lockheed Martin under a fixed-price labor hour contract and
provides software support to the FAA's center in Atlantic City, New Jersey as
well as the seven FAA Air Route Traffic Control Centers east of the Mississippi
River. The enroute system monitors and directs aircraft while in air space
between airports. The Company performs project activities including software
engineering and maintenance, systems enhancements, systems programming, and data
reduction and analysis.
IMPAC II. This cost-plus-fixed-fee contract was re-awarded
to the Company by NIH in 1999 under a GSA Schedule contract using fixed-price
labor hours. Under this contract, the Company maintains and enhances NIH's online
grants management system developed by the Company under IMPAC I. The IMPAC system
is a large-scale, Oracle-based grant management and financial database, which
manages nearly $10 billion in NIH grants annually.
JOINT BASE OPERATIONS AND SUPPORT CONTRACT. This
ten-year contract was awarded to the Company in 1998, as a subcontractor to
a joint venture led by Logicon/Northrup Grumman. This contract calls for the
Company to supply the initial hardware, software, and long term related services
for the management information system required to support a joint base operation
for the Kennedy Space Center and Patrick Air Force Base.
MICROGRAVITY SUPPORT CONTRACT. This contract,
awarded to the Company in 1999, calls for the Company to provide activities in
the development, fabrication, assembly, test, delivery, and operation of
microgravity research facilities and experiment payloads. The Company will
design and build the Fluids and Combustion Facility for the International Space
Station. The Company will also develop and build hardware and instruments for
microgravity flight experiments proposed by principal investigators that will be
flown aboard the Space Station, sounding rockets, or the Space Shuttle.
NATIONAL CENTER FOR TOXICOLOGICAL RESEARCH
("NCTR"). This five-year contract was re-awarded to the Company in
1999, and calls for the on-site support of NCTR's research center in Jefferson,
Arkansas. Under this contract, the Company provides sophisticated scientific
programming support to FDA researchers. The Company has had this contract for
five years and the successful recompete represents the first time that the
incumbent contractor has ever won the recompetition.
NIH CERTAN CORPORATE COMPUTING SYSTEMS. Under this
IDIQ type contract, the Company provides state-of-the-art hardware, software,
supplies, training, maintenance, and professional services for NIH's Center For
Information Technology and the Clinical Center's Information Systems
Department.
OUTSOURCING DESKTOP INITIATIVE FOR NASA. Under this multiple-award
"Master" contract, the Company offers comprehensive desktop computer, server,
and intra-center communications services to NASA and NASA contractors. Requirements
include the support and technology refreshment of general-purpose workstations
and servers; high performance workstations and servers; peripherals; and intra-center
communications such as LANs, voice, fax, pagers, audio/video, and cable plant
services. The Company also offers standard support services such as hardware
and software acquisition, installation, maintenance, shared services, and network
access; server system administration; help desk support; and network support
and management services. Under this contract, NASA will define the computer
and communications capabilities for each job within NASA and purchase a particular
bundle of equipment for each seat based on a fixed-price-per-seat. This contract
is available to all agencies of the Government and must be used by all NASA
centers. Individual awards are competed on a task order basis.
SCIENTIFIC AND ENGINEERING RELATED SERVICES. Under this
contract, the Company provides engineering services in the areas of
aeromechanics, aerospace technology, space experimentation, structures,
materials, instrumentation, aeronautics, and space mission operations at NASA's
Langley Research Center.
SERVICE OPERATIONS SUPPORT IV. This six-year,
cost-plus-fixed-fee contract was awarded in 1996 by the William J. Hughes
Technical Center of the FAA. Under this contract, the Company performs
second-level software maintenance for the FAA's automation-intensive systems,
including air traffic control.
TECHNICAL AND APPLICATION PROGRAM SUPPORT. The Company
won a recompete of this nine-year contract in 1999, under which it provides
software engineering, systems integration, systems administration, hardware
procurement, field installation, and support of various communications systems
at JPL.
TRAFFIC FLOW MANAGEMENT INFRASTRUCTURE ("TFMI").
Under this five-year contract, the Company manages the acquisition, development,
implementation, and life cycle support of decision support systems that increase
the capacity and efficiency of FAA Air Traffic Control and Traffic Flow
Management. TFMI was a follow-on to a previously awarded contract under which
the Company installed equipment at over 80 FAA facilities.
TREASURY DISTRIBUTION PROCESSING INFRASTRUCTURE ("TDPI"). TDPI is a five-year Blanket Purchase Agreement ("BPA") under which the Company provides high-performance servers, workstations, storage management systems, enterprise networking solutions, peripherals, and software as well as associated training and services. The primary customer for TDPI is the IRS, but other Treasury organizations may also use the contract.
VETERANS BENEFIT ADMINISTRATION ("VBA") MODERNIZATION. This contract provides for the modernization of the information technology environment in regional offices of the VBA. The Company is providing mid-range computing platforms, LAN servers, and workstations, which, in conjunction with existing mainframes, provide nationwide claims processing infrastructure for the Department of Veterans Affairs.
COMPETITION
In providing a broad range of services and products that address
the complete information technology needs of its customers, the Company participates,
to varying degrees, in multiple areas of the IT market, including markets for
systems engineering, development and integration, networking, and product and
component sales. In each area, the Company experiences vigorous competition
with firms of varying size and different specializations and skills. The number
and size of competitors vary among operating groups and within the individual
divisions of each group. Frequently, the number and identity of competitors
vary even from program to program within a given business area. While the recent
trend toward increased use of GSA and IDIQ contracts has changed some aspects
of how companies sell to the Government, the Company has experienced no material
change in the overall competitiveness of the federal market. Many of the Company's
competitors are significantly larger and have greater financial resources than
the Company. Some of these competitors are divisions or subsidiaries of large,
diversified companies that have access to the financial resources of their parent
companies. In the Systems & Technology Group, the Company competes with
certain computer manufacturers (including the Company's suppliers), who occasionally
sell directly to the Government market, as well as a substantial number of systems
integrators, resellers and distributors.
The Company believes that the principal competitive factors in the Government services market are technical knowledge, sales force expertise, management capability, past contract performance, personnel qualifications and price. During its recent history, the Company has been successful in winning new and repeat contract awards in each of its businesses and in having customers exercise contract option years in its services business, both of which the Company believes are attributable to the strength of its past contract performance, its technical knowledge, and its competitive prices. Further, the Company's senior management team has extensive, industry-specific technical and managerial experience. As a result, the Company believes that it has generally been able to compete successfully on each of the principal competitive factors within each of its business lines.
BACKLOG
The Company's total contract backlog is only a portion of the total contract capacity (i.e., the maximum amount that the Government can purchase under its contracts with the Company) and represents management's estimate of the aggregate revenue that is likely to be earned by the Company over the life of all of its contracts, including option periods. Because many of the Company's contracts are multi-year contracts and contracts with option years, total contract backlog represents revenue expected to be realized over a number of years into the future. In addition, the Government's ability to select multiple winners under IDIQ contracts, as well as its right to limit orders to any particular awardee, mean that there is no assurance that unfunded contract backlog will result in actual orders. The Company's estimated total contract backlog as of December 31, 1999 was approximately $1.6 billion. The Company's estimates of revenue from such contracts are based on the Company's history with such contracts and similar contracts, and management believes such estimates to be reasonable. However, because total contract backlog is based on management's estimate as to the future potential of existing contracts, there can be no assurances that all of such backlog will be recognized as revenue.
Because the Government operates under annual appropriations by Congress, agencies of the Government typically fund contracts on an incremental basis. Accordingly, only a portion of the Company's total contract backlog is "funded." Funded backlog consists of the aggregate dollar portion of contracts currently appropriated by Government customers and allocated to contracts under delivery orders by the purchasing Government agencies or otherwise allocated for payment by customers upon completion of specified work. As of December 31, 1999, the Company's funded contract backlog was approximately $226 million. Funded backlog generally varies depending on procurement and funding cycles and other factors beyond the Company's control. Accordingly, period-to-period comparisons are difficult and not necessarily indicative of any future trends in revenue.
The preceding information regarding contract backlog and future revenue to be derived therefrom, is forward-looking and is subject to certain risks and uncertainties including, but not limited to, a dependence on the continued funding of Government programs and contract procurements and the risk of contract termination described elsewhere in this report.
GOVERNMENT CONTRACTS
The Company derives substantially all of its revenue from business performed under Government contracts. These include services, systems integration and other contracts obtained through a negotiated procurement process, as well as product sales contracts made under GSA Schedules, MACs and similar IDIQ vehicles.
Traditional negotiated procurement contracts typically authorize a single contractor or team of contractors to provide a defined set of services and products to a single Government agency. These contracts include cost-reimbursement contracts (both cost-plus-fixed-fee and cost-plus-award-fee), time and materials contracts, fixed-price contracts and IDIQ contracts.
Cost-plus-fixed-fee contracts generally provide for the reimbursement of incurred costs during contract performance, to the extent that such costs are allowable and allocable, and the payment of a fee, the size of which is fixed in the contract. Cost-plus-award-fee contracts typically provide for the reimbursement of costs with a base fee and an additional fee that is based upon a periodic evaluation of the contractor's performance against specified criteria. Under time and materials contracts, the contractor agrees to provide certain categories of labor and materials at negotiated rates. To the extent a contractor's costs differ from the negotiated rates, the contractor realizes all of the benefit or detriment resulting from the difference between the contract price and the contractor's cost for a unit of labor or product. Risks associated with these fluctuations have been mitigated for information technology providers by the consistent decline in product costs over time, although these reductions must frequently be anticipated in the proposal process. Under fixed-price contracts, the contractor agrees to perform specified work for a fixed price and, accordingly, realizes all the benefit or detriment resulting from decreases or increases in the cost of performing the work.
The IDIQ contracts historically negotiated by the Company typically specify the prices at which certain services and/or products are to be provided. These contracts have been and continue to be used for large-scale Government purchases of integrated systems that include a significant service or maintenance component, along with the provision of computer hardware and software. These IDIQ contracts are typically awarded to a single bidder or team of bidders chosen through a formal competitive bidding process. The periods of performance for IDIQ contracts typically span a base year and a number of option years. IDIQ contracts do not obligate the Government to purchase goods or services at the levels set out in the request for proposal, and allow the Government to terminate the contract if it is dissatisfied with the contractor's pricing or performance, or simply for convenience. Alternatively, IDIQ vehicles offer both the Government and the contractor flexibility to introduce new services and products as technology changes over the life of the contract.
Over the past few years, reforms of the Government procurement process have introduced a dramatic increase in the flexibility and alternatives available to the federal information technology buyer. Regulations that effectively encouraged large scale, long term, single award procurements have given way to a more "commercial" buying approach. Government customers, particularly those buying computer hardware and software without a custom service element, are spending an increasing share of their procurement budgets through smaller scale, shorter term, multiple award, multiple agency contract vehicles and task orders. While each of these flexible contract vehicles has its own unique characteristics, they have several major elements in common. Because these vehicles do not require the Government to make specific purchases, they are generally characterized as IDIQ contracts, and function as procurement "schedules" or catalogs. Although contractors must compete for the right to participate in these multi-agency, multi-vendor vehicles, winning the right to participate does not guarantee revenues, which require an effective post-award sales effort.
In addition to purchasing from multiple IDIQ contracts, Government agencies may also purchase from GSA Schedules or Macs Historically, the GSA would produce schedules for each agency, after extensive bidding and review processes that would dictate the products, prices and vendors for all purchases by that agency. As a result of recent changes to the rules governing use of GSA Schedules for Government agency purchases of hardware, software and services, GSA Schedules now frequently act as broadly defined IDIQ contracts under which multiple Government agencies may procure hardware, software or related services from contractors authorized to sell under such GSA Schedules without minimum or maximum order limitations. Contractors participating in the GSA Schedule program are eligible to market their products to a broad range of Government customers. The GSA Schedules together with related Blanket Purchasing Agreements, for larger volume purchases at reduced prices, offer Government agencies the advantage of an established contracting infrastructure including staff who are expert in the technologies offered by various vendors, volume driven pricing, access to the latest technology and streamlined purchasing mechanisms.
At the time of initial award, prices to the end-users under the Company's GSA Schedules are set, either at a specified level for the duration of the contract or at specified levels varying over time. In addition, under certain circumstances, the Company is required under the terms of its GSA Schedules to pass on any savings, resulting from supplier discounts or other price reductions, to the Government in the form of corresponding price reductions. GSA Schedules do not have pre-set delivery schedules or minimum purchase levels. The uncertainties related to future contract performance costs, quantities to be shipped and dates of delivery make it difficult to predict the future revenue and profitability performance that may be associated with any particular GSA Schedule.
Similar to GSA Schedules, Macs offer multiple agencies the opportunity to procure products from a broad range of vendors. For example, 45 contractors, including the Company, now hold Macs through the NIH's ECS II contract, which is a series of electronic hardware and software catalogs from which any Government agency that elects to participate may order. Macs specify products and prices and are issued by a specific Government agency to multiple contractors.
The evolution of procurement methods has had the effect of making the procurement of information technology in the Government more similar to that in the commercial sector. The new procurement methods allow for more timely purchases of information technology products and for multiple vendors selling the same services and products, resulting in increasing competition for contract orders. Thus, whereas historically a contract award typically assured the winning bidder of a predictable amount of revenue, in the current environment the contractor's post-award sales, marketing, and customer service effectiveness frequently dictate the amount and timing of all revenue to be realized under the contract or schedule. In effect, the new vehicles necessitate two selling cycles: one to win participation as a vendor under the umbrella contract and a second to actually win specific orders after contract award.
SUPPLIERS
The Company maintains strong relationships with all of its key suppliers. These relationships allow the Company to work with these suppliers to fashion joint solutions for its customers. Management believes that the Company provides significant value to its suppliers by allowing them to take advantage of the Company's extensive knowledge of the Government and its procurement regulations. In addition, the Company's sales and marketing capabilities allow its suppliers to access new end-user markets without expanding their marketing functions. The Company currently has relationships with most leading hardware and software suppliers. The Company does not rely on any single supplier of services or products.
SALES AND MARKETING
The Company maintains dedicated resources across its business units that focus on pre-award sales, including identifying and qualifying new contracts for the Company to bid and responding to request for proposals. Pre-award sales are principally handled through group marketing organizations that coordinate the efforts of specialized resources throughout the Company depending on the particular needs of each proposal. These awards include agency-specific IDIQ contracts, GWACs, and BPAs.
After contract award, various post-award sales professionals assume responsibility for servicing and generating revenue under the contracts. In the case of many program-focused, single-award contracts, a post-award sales effort is less important as the quantity and type of services and products to be purchased are largely predetermined. However, an increasing number of contracts are multiple-award, which guarantee no revenue to the Company upon award and require a post-award sales effort to compete for task orders. Because the Company possesses a broad portfolio of contract vehicles, it can typically offer its customers a choice in procurement channels and direct customers to the most advantageous contracts for their needs. The emphasis of the Company's post-award sales efforts is on generating, without preference for the contract vehicle utilized, the highest volume of profitable revenue from its customers.
MAJOR CUSTOMERS
The Government accounted for substantially all the Company's revenue during 1997, 1998 and 1999. The Company has derived and expects to continue to derive substantially all of its revenue from Government contracts. Contracts with the Department of the Navy, NASA and FAA represented approximately 12%, 9% and 7% of 1999 revenue, respectively. Sales utilizing GSA Schedules accounted for approximately 37% of 1999 revenue. The various Government customers exercise independent purchasing decisions, and except for financial reporting purposes, sales to the Government are generally not regarded as constituting sales to one customer. Instead, each contracting entity is considered to be a separate customer.
EMPLOYEES
On December 31, 1999, the Company employed approximately 1,350 persons, 880 of these employees were technical personnel, 160 were marketing/sales personnel, 130 were program/project management personnel, and 180 were other administrative staff. The Company believes that it is competitive in hiring and retaining qualified personnel. None of the Company's employees are covered by collective bargaining agreements with labor unions. The Company considers its relations with its employees to be good and has not experienced any significant labor problems.
Item 2. Facilities.
The Company leases substantially all of the offices and facilities used in connection with its operations. The following table sets forth information relating to the significant facilities leased by the Company. In addition, the Company leases customer support offices near customer facilities in various states.
| Location | Purpose | Square Footage |
Expiration of |
| Bethesda, MD | Corporate headquarters, sales & contract support |
67,602 |
December 31, 2004
|
| Greenbelt, MD | Sales & contract support | 66,746 |
December 31, 2004
|
| Rockville, MD | Sales & contract support | 57,198 |
January 7, 2003
|
Item 3. Legal Proceedings.
The Company is not involved in any material legal proceedings. From time to time, the Company or its competitors file protests, as permitted under procurement regulations, in connection with specific contract awards. Historically, these proceedings have not had any material effect on the Company's financial condition, results of operations, or cash flow. There can be no assurance that the Company will not become involved in material legal proceedings or contract bid protest proceedings in the future.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
The Company's common stock is not traded on any established public trading market. As of March 27, 2000, there were 28 holders of record and approximately 22 beneficial owners of the Company's common stock. The majority of the shares of the Company's common stock are owned of record and beneficially by affiliates of TC Group, L.L.C. d/b/a/ The Carlyle Group or the directors and officers of the Company. The Company has not paid or announced a cash dividend on account of its common stock during the two fiscal years preceding December 31, 1999 or during the first quarter of 2000. The Company has no present intention to pay cash dividends on its common stock for the foreseeable future in order to retain all earnings for investment in the Company's business and the repayment of the Company's indebtedness. The Company's Senior Credit Facility and the trust indenture for the Exchange Notes include certain restrictions on the Company's ability to pay cash dividends on the Company's common stock including, without limitation an aggregate limitation on all dividends since July 25, 1997 in excess of 50% of the Company's consolidated net income since the date thereof.
Recent Sales of Unregistered Securities
Since January 1, 1999, the Company has sold and issued the following unregistered securities:
On June 21, 1999, options to purchase 4,675 shares of the Company's common stock were exercised at $2.00 per share.
No underwriters were engaged in connection with the foregoing sales of securities. Such sales were 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. Selected Financial Data.
The consolidated statements of operations data set forth below with respect to the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and the consolidated balance sheet data at December 31, 1995, 1996, 1997, 1998 and 1999 have been derived from, and are qualified by reference to, the Company's consolidated financial statements and notes thereto audited by PricewaterhouseCoopers LLP, independent accountants. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto in Items 7 and 8.
|
Year Ended December 31,
|
||||||||||
| (In thousands) |
1995
|
1996
|
1997
|
1998
|
1999
|
|||||
| Income Statement Data: | ||||||||||
| Revenue |
$129,819
|
$151,108
|
$336,306
|
$520,294
|
$583,824
|
|||||
| Expenses: | ||||||||||
| Cost of sales and services |
107,366
|
114,248
|
280,903
|
449,225
|
508,965
|
|||||
| Selling, general and administrative |
20,943
|
21,366
|
37,804
|
48,419
|
50,568
|
|||||
| Goodwill and intangibles |
-
|
-
|
5,031
|
12,035
|
11,827
|
|||||
| Interest (a) |
3,663
|
7,564
|
10,947
|
16,029
|
15,721
|
|||||
| Total expenses |
131,972
|
143,178
|
334,685
|
525,708
|
587,081
|
|||||
| (Loss) income before extraordinary | ||||||||||
| item and income taxes |
(2,153
|
)
|
7,930
|
1,621
|
(5,414
|
)
|
(3,257
|
) | ||
| Income tax (benefit) provision |
(3,950
|
) |
3,202
|
1,368
|
1,282
|
984
|
||||
| Income (loss) before extraordinary item |
1,797
|
4,728
|
253
|
(6,696
|
)
|
(4,241
|
) | |||
|
Extraordinary loss from
early retirement of |
-
|
-
|
(2,770
|
) |
-
|
-
|
||||
|
|
|
|
|
|
||||||
| Net income (loss) |
$1,797
|
$4,728
|
($2,517
|
) |
($6,696
|
)
|
($4,241
|
) | ||
| Operating Data (f): | ||||||||||
| EBITDA (c) |
($847
|
)
|
$14,082
|
$18,213
|
$27,354
|
$27,822
|
||||
| Net recourse interest expense (d) |
40
|
5,370
|
9,493
|
15,469
|
15,291
|
|||||
| Net cash recourse interest expense (e) |
40
|
3,926
|
8,689
|
14,520
|
14,342
|
|||||
| Depreciation and amortization |
1,266
|
782
|
7,099
|
15,241
|
14,253
|
|||||
| Non-cash stock compensation |
-
|
-
|
-
|
2,058
|
1,535
|
|||||
| Balance Sheet Data at End of Period: | ||||||||||
| Working capital |
$11,025
|
$16,249
|
$47,566
|
$55,044
|
$49,520
|
|||||
| Total assets |
150,102
|
83,286
|
192,966
|
231,921
|
226,164
|
|||||
| Long-term debt |
43,412
|
50,170
|
113,359
|
142,551
|
131,000
|
|||||
| Stockholders' (deficit) equity (g) |
(25,962
|
)
|
(22,826
|
)
|
1,017
|
(3,172
|
)
|
(6,252
|
) | |
(a) Interest expense includes interest on both recourse and nonrecourse notes payable and obligations under capital leases.
(b) During the year ended December 31, 1997, the Company wrote-off the deferred financing fees related to the Recapitalization and the NYMA and Sylvest acquisition debt that was refinanced in July 1997.
(c) EBITDA represents the sum of (loss) income before extraordinary item and income taxes, 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.
(d) Net recourse interest expense is interest expense minus interest expense on nonrecourse notes payable and nonrecourse obligations under capital leases of $2,669, $2,015, $1,161, $235 and $235 and minus interest income on cash balances of $954, $179, $293, $325 and $195 for the years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively.
(e) Net cash recourse interest expense is net recourse interest expense minus amortization of deferred financing costs of $817, $804, $949 and $949 for the years ended December 31, 1996, 1997, 1998 and 1999, respectively, and minus interest expense of $627 for the year ended December 31, 1996 on notes that were paid through the issuance of payment in kind notes.
(f) Net cash flows from operating activities was ($2,767), $1,452, $20,907, $15,666 and $20,231 for the years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively. Net cash flows from investing activities was ($52,841), $49,703, ($58,471), ($37,905) and ($9,378) for the years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively. Net cash flows from financing activities was $50,327, ($60,275), $42,700, $19,854 and ($10,700) for the years ended December 31, 1995, 1996, 1997, 1998 and 1999, respectively.
(g) Stockholders' (deficit) equity includes the effect of the Recapitalization which included a charge to stockholders' equity of $58.8 million in 1995. In connection with the Recapitalization and the acquisitions of NYMA and Sylvest, Carlyle and management have contributed approximately $43.1 million of cash to the Company. See Notes 2 and 4 to the Company's consolidated financial statements.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE COMPANY'S CONSOLIDATED FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS REPORT. EXCEPT AS EXPRESSLY INDICATED, THE FOLLOWING DISCUSSION DOES NOT GIVE EFFECT TO THE PRE-ACQUISITION OPERATIONS OF NYMA AND SYLVEST (COLLECTIVELY, THE "1997 ACQUISITIONS"), R.O.W., TIS AND TMA (COLLECTIVELY, THE "1998 ACQUISITIONS") OR INCLUDE PRO FORMA FINANCIAL INFORMATION.
GENERAL
The Company is a major supplier of information technology to a wide range of customers within the Government. The Company has assembled, through internal growth and strategic acquisitions, comprehensive information technology services and product capabilities to address the unique needs of its Government customers.
Prior to December 1, 1995, the majority of the Company's common stock was owned by its employees. On December 1, 1995, the Company effected the Recapitalization wherein FDC Holdings, Inc. ("Holdings") merged with and into the Company with the Company continuing as the surviving corporation. Holdings was a company organized by Carlyle to facilitate the Recapitalization and had no operating activity or history. The merger was accounted for as a recapitalization, which resulted in a charge to stockholders' equity of $58.8 million to reflect the redemption of common stock.
In May 1997, the Company purchased all of the outstanding shares of common stock of NYMA, Inc. ("NYMA") for $34.6 million. The purchase price consisted of $29.6 million in cash of which $1.8 million was paid in 1998 after certain operating objectives related to new business activity were met, and $5.0 million in subordinated notes. The Company financed the acquisition of NYMA through additional borrowing of $28.0 million and the sale of 555,556 shares of the Company's common stock, primarily to existing stockholders, for $15.0 million. A portion of the new borrowings was used to retire existing Company and NYMA indebtedness. NYMA is a provider of high technology engineering and information technology services under contracts with various Government agencies and subcontracts with large Government contractors. In June 1997, the Company purchased all of the outstanding shares of common stock of Sylvest Management Systems Corporation ("Sylvest") for $41.0 million. The purchase price consisted of $33.0 million in cash and subordinated notes of $8.0 million of which $1.0 million was issued in 1998 after certain earnings objectives were met. Subordinated notes of $4.0 million were prepaid in August 1997. The Company financed the acquisition of Sylvest through additional borrowing of $27.4 million and the sale of 444,444 shares of the Company's common stock, primarily to existing stockholders, for $12.0 million. A portion of the new borrowings was used to retire existing Sylvest indebtedness. Sylvest is a leading reseller and technical services vendor supporting open systems architecture within the federal marketplace. Of the total fees and expenses related to these transactions, $1.0 million was paid to an affiliate of Carlyle.
In December 1997, the Company sold substantially all of the assets of its wholly-owned subsidiary, DoxSys, Inc. for $7.0 million, of which $2.8 million was recorded in 1998 as a result of DoxSys achieving certain earnings objectives.
In February 1998, the Company purchased all of the outstanding common stock of R.O.W. Sciences, Inc. ("R.O.W.") for $9.7 million. The purchase price consisted of $8.7 million in cash, of which $0.5 million and $0.1 million were paid later in 1998 and 1999, respectively, after certain revenue objectives were met and $1.0 million in subordinated notes. The agreement also provides 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. In February 1998, the Company also purchased all of the assets of Telos Corporation's Telos Information Systems Division ("TIS") for $14.7 million. The entire purchase price was paid in cash. In March 1998, the Company purchased all of the outstanding common stock of Technical and Management Assistance, Inc. ("TMA") for $9.2 million. The purchase price consisted of $8.2 million in cash and $1.0 million in subordinated notes. The Company financed the R.O.W., TIS, and TMA acquisitions through borrowings under its existing revolving line of credit facility. R.O.W. provides services that combine expert knowledge in life and health sciences with state-of-the-art computer based technologies principally to Government agencies. TIS provides engineering and information technology services to JPL and other Government customers. TMA provides information technology services principally to the air traffic management function within the Federal Aviation Administration.
Management believes the continuing consolidation within the information technology industry, particularly among companies serving Government customers, should result in additional opportunities for the Company to make attractive acquisitions. As a result, the Company is continually involved in the investigation and evaluation of potential acquisition candidates. Any such transactions are typically subject to numerous conditions, including due diligence investigations, contract reviews and negotiation of a definitive purchase agreement in addition to availability of existing borrowing capacity. In evaluating acquisition targets, the Company considers, among other things, their competitive market position, management teams, growth potential, technical skills and contract base. As of March 27, 2000, the Company is not a party to any definitive binding acquisition, however at any time the Company may have one or more offers outstanding and may have executed one or more letters of intent. There can be no assurance, however, that any such understandings, letters of intent or discussions will result in any particular transaction being consummated, or that acceptable financing will be available.
The Company's operating performance is affected by the number of Government contracts held, the types of contracts, the timing of installation or delivery and the relative margins of the services performed or products sold, as the case may be. In general, the Company earns its highest margins on its most specialized systems integration work and lower margins on cost-plus services contracts and on sales of COTS products, which tend to have a lower services component associated with such sales and a more competitive after-award sales environment. However, profitability regularly varies from contract to contract and product to product over the contract term.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
For the year ended December 31, 1999, the Company's total revenue was $583.8 million, loss before income taxes was $3.3 million, net loss was $4.2 million and EBITDA (as defined herein) was $27.8 million. Contributing to the Company's loss before income taxes for 1999 were non-cash charges totaling $9.1 million including $4.8 million related to amortization of certain intangible assets, $2.8 million related to a write-off of intangible assets associated with acquired contract backlog, and $1.5 million related to the vesting and issuance of stock options. These non-cash charges had a $6.6 million after-tax effect on the net loss. The intangible assets being amortized represent identifiable assets recorded in connection with the Company's acquisitions in 1997 and 1998, including contract backlog, covenants not to compete, work force, trade names and trademarks. The Company recorded $16.5 million of other intangible assets related to the acquired contract backlog which is equal to the present value of the pretax profits projected to be earned as a result of the Company's performance of such acquired contracts. This amount is being amortized over the remaining terms of the acquired contracts in the same manner and at the same time as the Company recognizes the related contract revenues. The value assigned to the other acquired intangible assets is $5.1 million and is being amortized over periods up to three years. Excluding the impact of future acquisitions, the Company expects that its non-cash charge for amortization of other intangible assets will decline in 2000 and thereafter. In 1998, the Company amended and restated its Stock Option Plan for Executives and Key Employees by accelerating the vesting of certain performance based options. In addition, the Company issued stock options in 1999 in accordance with the Company's 1995 merger agreement with FDC Holdings, Inc. Without regard to any future changes in its Stock Option Plan, the Company expects that it will record non-cash compensation related to this change of approximately $0.2 million in 2000 and none thereafter.
The following table sets forth, for the periods indicated, selected consolidated statements of operations data as a percentage of total revenue:
|
Year Ended December 31,
|
|||||||||
|
1997
|
1998
|
1999
|
|||||||
| Revenue | |||||||||
|
Product
sales
|
62.8
|
%
|
65.7
|
%
|
70.3
|
% | |||
|
Professional
and support services
|
35.7
|
33.4
|
29.5
|
||||||
|
Interest
and other
|
1.5
|
0.9
|
0.2
|
||||||
|
|
|
|
|||||||
|
Total
revenue
|
100.0
|
100.0
|
100.0
|
||||||
|
|
|
|
|||||||
|
Expenses
|
|||||||||
|
Cost
of sales and services
|
83.5
|
86.3
|
87.2
|
||||||
|
Selling,
general and administrative
|
11.2
|
9.3
|
8.7
|
||||||
|
Goodwill
and intangibles
|
1.5
|
2.3
|
2.0
|
||||||
|
Interest
|
3.3
|
3.1
|
2.7
|
||||||
|
|
|
|
|||||||
|
Total
expenses
|
99.5
|
101.0
|
100.6
|
||||||
|
|
|
|
|||||||
| Income (loss) before extraordinary item and | |||||||||
|
income
taxes
|
0.5
|
%
|
-1.0
|
%
|
-0.6
|
% | |||
|
|
|
|
|||||||
REVENUE
Revenue for the year ended December 31, 1999 was $583.8 million, up $63.5 million
or 12% over 1998. The 1998 Acquisitions accounted for $9.7 million of the increase
in revenue over 1998. Revenue from product sales was $410.5 million, up $68.9
million or 20% over 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 $172.2 million, down $1.6 million from 1998. Excluding
the effect of the 1998 Acquisitions, professional and support services revenue
was down $11.3 million or 7% from 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 year ended December 31, 1998 was
a contract awarded to 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 1998 Acquisitions and revenue from recently awarded professional
and support services contracts.
COST OF SALES AND SERVICES
Cost of sales and services for the year ended December 31, 1999 was $509.0 million, up $59.7 million or 13% over 1998. The 1998 Acquisitions accounted for $8.1 million of the increase in cost of sales and services over 1998. Cost of sales and services for the year ended December 31, 1999 was 87% of product sales and professional and support services revenue which was not significantly different in 1998. Cost of sales and services and margin analysis do not reflect the amortization of the present value of contract profits acquired through the 1997 and 1998 Acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE
Selling, general and administrative expense for the year ended December 31,
1999 was $50.6 million, up $2.1 million or 4% over 1998. The 1998 Acquisitions
accounted for $0.8 million of the increase in selling, general and administrative
expense over 1998. During the year ended December 31, 1998, the Company modified
its Stock Option Plan for Executive and Other Key Employees by accelerating
the vesting of certain performance options. During the year ended December 31,
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 $2.1 million and $1.5 million during the years ended
December 31, 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 1998 Acquisitions and the non-cash compensation, selling, general and administrative
expense for the year ended December 31, 1999 was 8% of revenue, which was not
significantly different from 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 $65.0 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. In 1999, the Company expensed $2.8 million of intangible assets related to acquired contract backlog recorded in connection with certain acquisitions. This write-off was based on an analysis of the current net book value of these intangibles and the remaining estimated present value of the contract profits relating to the acquisitions. Other identified intangibles including covenants not to compete, work force and trade names and trademarks of $5.1 million acquired in acquisitions are being amortized over periods up to three years. Amortization of goodwill and intangibles for the year ended December 31, 1999 was $11.8 million, down $0.2 million, or 2% from 1998, primarily due to the amortization of the value of trade names and trademarks which was fully amortized by March 31, 1999, which was partially offset by the write-off of intangible assets related to acquired contract backlog.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1999 was $15.7 million, down
$0.3 million, or 2% from 1998, due to reduced level of borrowings under the
revolving line of credit.
INCOME TAXES
The effective tax provision rate for the year ended December 31, 1999 was 30%
as compared with 24% for 1998 due principally to an increased amount of non-deductible
goodwill and intangible assets. The 1999 tax provision resulted from the
effect of the taxable loss incurred during the year, offset by the non-deductibility
of the amortization of goodwill and the value assigned to other identified intangibles
associated with the acquisitions of NYMA and R.O.W. and the non-cash compensation
related to stock options.
NET LOSS
Net loss for the year ended December 31,
1999 was $4.2 million, a $2.5 million decrease from the net loss of $6.7 million
recorded in 1998 based on the factors discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUE
Revenue for the year ended December 31, 1998 was $520.3 million, up $184.0 million
or 55% over 1997. Revenue from product sales was $341.6 million, up $130.5 million
or 62% over 1997. The 1997 and 1998 Acquisitions accounted for $79.9 million
of the increase in product sales revenue over 1997. The
remaining increase in revenue from product sales is principally due to the strong
performance from the Company's sale of COTS products. Revenue from professional
and support services was $173.8 million, up $53.7 million or 45% over 1997.
The 1997 and 1998 Acquisitions accounted for $85.7 million of the increase in
professional and support services revenue over 1997. This increase in professional
and support services revenue was offset by reductions in professional and support
services revenue due to the expiration of existing contracts. The largest contract
that expired during 1998 was a contract awarded to 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, 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 year ended December 31, 1998 was $449.2 million, up $168.3 million or 60% over 1997. The 1997 and 1998 Acquisitions accounted for $146.4 million of the increase in cost of sales and services over 1997. Cost of sales and services in 1998 was 87% compared with 85% of sales and services revenue for 1997. Cost of sales and services and margin analysis do not reflect the amortization of the present value of contract profits acquired through the 1997 and 1998 Acquisitions.
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSE
Selling, general and administrative expense for the year ended December 31,
1998 was $48.4 million, up $10.6 million or 28% over 1997. The 1997 and 1998
Acquisitions accounted for a $12.1 million increase in selling, general and
administrative expense over 1997. In 1998, the Company amended and restated
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 $2.1 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 1997
and 1998 Acquisitions and the non-cash compensation, selling, general and administrative
expense for the year ended December 31, 1998 decreased $3.6 million from the
comparable period of 1997 primarily due to reductions associated with the expiration
of existing contracts. Excluding the effect of the 1997 and 1998 Acquisitions
and the non-cash compensation, selling, general and administrative expense for
the year ended December 31, 1998 was 10% of revenue compared with 15% in 1997.
This decrease in selling, general and administrative expense as a percent of
revenue was due primarily to economies of scale achieved during the period.
AMORTIZATION OF GOODWILL AND INTANGIBLE ASSETS
The excess of the cost of the 1997 and 1998 Acquisitions over the fair value of identifiable net tangible and intangible assets acquired was $64.9 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 the 1997 and 1998 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 $5.1 million acquired in the 1997 and 1998 Acquisitions are being amortized over periods up to three years. Amortization of goodwill and intangible assets for the year ended December 31, 1998 was $12.0 million, up $7.0 million, or 139% over 1997.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1998 was $16.0 million, up
$5.1 million, or 46% over the comparable period of 1997. Recourse interest expense
increased $6.0 million for the year ended December 31, 1998 over 1997 primarily
due to increased recourse debt used to partially finance the 1997 and 1998 Acquisitions.
Interest expense on nonrecourse debt declined $0.9 million for the
year ended December 31, 1998 from 1997 due to a reduced average level of capital
leases outstanding.
INCOME TAXES
The effective tax provision rate for
the year ended December 31, 1998 was 24% as compared with the effective tax
benefit rate of 12% for 1997. The 1998 tax provision resulted from the effect of
the taxable loss incurred during the year, offset by the non-deductibility of
the amortization of goodwill and the value assigned to other identified
intangibles associated with the acquisitions of NYMA and R.O.W. and the non-cash
compensation related to stock options.
NET LOSS
Net loss for the year
ended December 31, 1998 was $6.7 million, a $4.2 million increase from the net
loss of $2.5 million recorded in 1997 based on the reasons discussed
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash provided by operations. The Company's liquidity requirements vary seasonally with revenue, which is generally higher in the third and fourth quarters of each year. Historically, cash flow from the collection of accounts receivable from the Government has been predictable and dependable. Cash and cash equivalents were $4.1 million at December 31, 1999, a $0.2 million increase from December 31, 1998 as a result of net cash flow from operating activities of $20.2 million, being partially offset by net cash flow used in financing activities of $9.4 million and net cash flow used in investing activities of $10.7 million. Net cash flow from operating activities was primarily due to increases in accounts payable and other liabilities of $12.2 million, sales-type lease activity of $6.1 million, depreciation and amortization of $15.2 million and non-cash compensation of $1.5 million which was partially offset by the net loss of $4.2 million and increase in inventory of $5.1 million. Net cash used in investing activities amounted to $9.4 million for 1999, primarily as a result of purchases of equipment for sales-type leases and property and equipment totaling $9.7 million. Net cash flow used in financing activities was $10.7 million for 1999 primarily as a result of net repayments of $8.0 million under the revolving line of credit.
As of December 31, 1999, the Company had outstanding recourse debt of $133.0 million, which includes $105.0 million of Senior Subordinated Notes. The Company may from time to time consider purchasing all or any portion of the outstanding Senior Subordinated Notes in the open market if market conditions are appropriate and if excess cash is available to make such a purchase. However, the Company may decide to continue to apply any excess cash balances towards the prepayment of bank debt as it has to date or to use such excess cash for other purposes such as acquisitions, capital expenditures or working capital needs. In order to purchase the Senior Subordinated Notes in the open market, the Company would need approval under its Senior Credit Facility. The total recourse debt excludes $1.7 million of nonrecourse obligations under capital leases, which the Company recorded in connection with the financing of certain equipment sales and leases.
The Company's Senior Credit Facility and the trust indenture with respect to the Exchange Notes includes certain restrictions as to the Company's ability, among other things, to acquire or dispose of assets, to pay dividends and to incur additional indebtedness. In addition, the Company is required to maintain a minimum net worth and certain operating ratios, including, among others, interest and leverage coverage. Such requirements could limit the Company's ability to incur debt and could thereby limit the Company's liquidity and ability to make certain acquisitions. All of the Company's assets not otherwise pledged are utilized as collateral under the Company's Senior Credit Facility. The Senior Credit Facility also provides for a maximum availability based upon a borrowing base comprised of 85% of Eligible Receivables and 60% of Eligible Inventory (as defined in the Senior Credit Facility), up to a maximum availability of $75.0 million. At March 24, 2000 there were borrowings of $34.0 million outstanding under the revolving line of credit. The Senior Credit Facility bears interest at either (a) 1.25% plus the highest of the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate (3.99% at December 31, 1999) or the prime lending rate (8.50% at December 31, 1999) or (b) 2.25% plus the eurodollar rate (6.50% at December 31, 1999). At March 24, 2000, the Company had $28.7 million available under the Senior Credit Facility.
The Company also maintains an inventory and receivables financing facility ("Floor Plan Financing Facility") with an asset-based lender to facilitate the purchase of inventory from approved vendors for prompt resale to customers. The Company pays no interest on accounts drawn under such Floor Plan Financing Facility for negotiated periods and such drawn amounts are reflected in accounts payable and accrued contract expenses during such periods.
In March 2000, the Company amended its Senior Credit Facility to modify certain financial covenants and to provide an increase in the aggregate amount of borrowings available under the Senior Credit Facility and the Floor Plan Financing Facility.
Stockholders' deficit amounted to $6.3 million at December 31, 1999, an increase in stockholders' deficit of $3.1 million from December 31, 1998. This increase is principally due to the 1999 net loss of $4.2 million. In 1998, the Company amended and restated its Stock Option Plan for Executive and Other Key Employees by accelerating the vesting of certain performance options. In addition, 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 $1.5 million in 1999 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. The stockholders' equity amounted to $3.2 million at December 31, 1998, a reduction in stockholders' equity of $4.2 million from December 31, 1997. This reduction is principally due to the 1998 net loss of $6.7 million. In 1998, the Company recorded non-cash compensation of $2.1 million and a related increase in capital in excess of par value based the amendment and restatement of its Stock Option Plan for Executive and Other Key Employees.
As of December 31, 1999, the Company had no significant capital expenditure commitments.
Based on the Company's current level of operations, management believes that available cash, together with the available borrowings under the Senior Credit Facility and the Floor Plan Financing Facility, should be adequate to meet the Company's anticipated future requirements for working capital, capital expenditures and scheduled payments of principal and interest on its debts through at least the next twelve months.
INFLATION AND GENERAL ECONOMIC CONDITIONS
Although the Company cannot accurately anticipate the effect of inflation on its operations, it does not believe that inflation has had, or is likely in the foreseeable future to have, a material impact on its results of operations. Unlike other service providers, the Company does not have a significant number of fixed price service contracts where the Company bears the risk of cost increases. The Company's operating results would be adversely affected by increases in interest rates which would result in higher interest payments by the Company under its variable rate credit facilities. As of March 24, 2000, the Company had borrowings of $34.0 million outstanding under its variable rate credit facilities. If interest rates rise, the Company's cost of capital and debt service requirements would increase. The Company has not historically entered into hedging transactions with respect to its variable rate debt, but may do so in the future.
YEAR 2000 DISCLOSURE
To date, the Company has not experienced any significant failures or disruptions in its internal operating systems or in its dealings with third party suppliers and customers. The Company continues to monitor its infrastructure and its critical business partners to ensure continued Year 2000 compliance. There can be no assurance that the Company will not experience unanticipated negative consequences and/or material costs caused by undetected errors or defects in the technology used in its internal systems, which are comprised of third party products, or by unidentified problems experienced by its suppliers or customers. However, the Company does not believe that a material adverse effect from Year 2000 issues is likely. The Company incurred $0.9 million in connection with Year 2000 compliance, and does not anticipate any significant future costs.
###
This annual report on Form 10-K 405 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 services or products 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.
###
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Company is exposed to market risks from adverse changes in interest rates. See Notes 3 and 9 to the consolidated financial statements.
Item 8. Consolidated Financial Statements.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Operations for the Years Ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
Financial statement schedules are omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
REPORT OF
INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of
Federal Data Corporation
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in stockholders' (deficit) equity and of cash flows present fairly, in all material respects, the financial position of Federal Data Corporation and its subsidiaries (the Company) at December 31, 1998 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the Unites States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Washington, D.C.
March 24, 2000
Federal Data Corporation
Consolidated Balance
Sheets
(In thousands, except share data)
|
December 31,
|
||||
|
1998
|
1999
|
|||
| Assets | ||||
|
Cash and cash equivalents
|
$3,942
|
$4,095
|
||
|
Accounts receivable
|
126,840
|
129,774
|
||
|
Net investment in
sales-type leases
|
5,221
|
5,672
|
||
|
Inventory
|
963
|
6,020
|
||
|
Other assets
|
8,156
|
3,317
|
||
|
Total
current assets
|
145,122
|
148,878
|
||
|
Net
investment in sales-type leases
|
2,997
|
2,714
|
||
|
Leased and other property
and equipment
|
5,120
|
6,071
|
||
|
Goodwill and intangibles
|
69,411
|
57,718
|
||
|
Other assets
|
9,271
|
10,783
|
||
|
Total
assets
|
$231,921
|
$226,164
|
||
| Liabilities and stockholders' deficit | ||||
|
Accounts payable
and other liabilities
|
$87,846
|
$95,667
|
||
|
Recourse notes
payable
|
-
|
2,000
|
||
|
Nonrecourse
obligations under capital leases
|
2,232
|
1,691
|
||
|
Total
current liabilities
|
90,078
|
99,358
|
||
|
Recourse notes payable
|
141,000
|
131,000
|
||
|
Nonrecourse obligations
under capital leases
|
1,551
|
-
|
||
|
Other liabilities
|
2,464
|
2,058
|
||
|
Total
liabilities
|
235,093
|
232,416
|
||
|
Stockholders' deficit
|
||||
| Common stock, $.01 par value: 8,000,000 shares authorized; | ||||
| 2,927,521 shares issued and outstanding in 1998 and | ||||
|
2,932,196
shares issued and 2,917,996 outstanding in 1999
|
29
|
29
|
||
|
Capital in
excess of par value
|
42,807
|
43,968
|
||
|
Accumulated
deficit
|
(46,008
|
)
|
(50,249
|
) |
|
Total
stockholders' deficit
|
(3,172
|
)
|
(6,252
|
) |
| Commitments and contingencies (Note 15) | ||||
|
Total
liabilities and stockholders' deficit
|
$231,921
|
$226,164
|
||
The accompanying notes are an integral part of
these consolidated financial statements
Federal Data Corporation
Consolidated Statements of Operations
(In thousands)
|
Year Ended December 31,
|
||||||
|
1997
|
1998
|
1999
|
||||
| Revenue | ||||||
|
Product sales
|
$211,118 |
$341,592 |
$410,478 |
|||
|
Professional and support services |
120,150 |
173,818 |
172,183 |
|||
|
Interest and
other |
5,038
|
4,884
|
1,163
|
|||
|
Total
revenue |
336,306
|
520,294
|
583,824
|
|||
|
Expenses |
||||||
|
Cost of sales and
services |
280,903 |
449,225 |
508,965 |
|||
|
Selling,
general and administrative |
37,804 |
48,419 |
50,568 |
|||
|
Goodwill and
intangibles |
5,031 |
12,035 |
11,827 |
|||
|
Interest |
10,947
|
16,029
|
15,721
|
|||
|
Total
expenses |
334,685
|
525,708
|
587,081
|
|||
| Income (loss) before extraordinary item and | ||||||
|
income
taxes |
1,621 |
(5,414 |
) |
(3,257 |
) | |
| Income tax provision |
1,368
|
1,282
|
984
|
|||
| Income (loss) before extraordinary item |
253 |
(6,696 |
) |
(4,241 |
) | |
| Extraordinary loss from early retirement of debt, | ||||||
| net of income tax benefit of $1,697 |
(2,770
|
) |
-
|
-
|
||
| Net loss |
($2,517
|
) |
($6,696
|
) |
($4,241
|
) |
The accompanying notes are an integral part of
these consolidated financial statements
Federal Data Corporation
Consolidated
Statements of Changes in Stockholders' (Deficit) Equity
(In thousands, except
share data)
|
Common Stock
|
Capital in Excess of |
Accumulated |
||||||||
|
Shares
|
Par Value
|
Par Value
|
Deficit
|
Total
|
||||||
| Balance, December 31, 1996 |
1,910,896 |
$19 |
$13,950 |
($36,795 |
) |
($22,826 |
) | |||
| Net loss |
- |
- |
- |
(2,517 |
) |
(2,517 |
) | |||
| Proceeds from sale of common stock, | ||||||||||
| net of expenses of $882 |
1,000,000 |
10 |
26,108 |
- |
26,118 |
|||||
| Deferred compensation |
-
|
-
|
242
|
-
|
242
|
|||||
| Balance, December 31, 1997 |
2,910,896 |
29 |
40,300 |
(39,312 |
) |
1,017 |
||||
| Net loss |
- |
- |
- |
(6,696 |
) |
(6,696 |
) | |||
| Proceeds from sale of common stock |
16,625 |
- |
449 |
- |
449 |
|||||
| Non-cash compensation related to | ||||||||||
| stock options |
-
|
-
|
2,058
|
-
|
2,058
|
|||||
| Balance, December 31, 1998 |
2,927,521 |
29 |
42,807 |
(46,008 |
) |
(3,172 |
) | |||
| Net loss |
- |
- |
- |
(4,241 |
) |
(4,241 |
) | |||
| Proceeds from sale of common stock |
4,675
|
- |
9 |
- |
9 |
|||||
| Non-cash compensation related to | ||||||||||
| stock options |
- |
- |
1,535 |
- |
1,535 |
|||||
| Purchase of treasury stock |
(14,200
|
) |
-
|
(383
|
) |
-
|
(383
|
) | ||
| Balance, December 31, 1999 |
2,917,996
|
$29
|
$43,968
|
($50,249
|
) |
($6,252
|
) | |||
The accompanying notes are an integral part of
these consolidated financial statements
Federal Data Corporation
Consolidated
Statements of Cash Flows
(In thousands)
|
Year Ended December 31,
|
||||||
|
1997
|
1998
|
1999
|
||||
| Cash flows from operating activities: | ||||||
|
Net
loss
|
($2,517
|
)
|
($6,696
|
)
|
($4,241
|
) |
|
Adjustments to reconcile
net loss to
|
||||||
|
net cash
flows from operating activities:
|
||||||
|
Extraordinary loss from early
retirement of debt,
|
||||||
| net of income tax benefit of $1,697 |
2,770
|
-
|
-
|
|||
|
Depreciation and amortization
|
7,099
|
15,241
|
14,253
|
|||
|
Amortization of deferred
financing cost
|
804
|
949
|
949
|
|||
|
Non-cash compensation related
to stock options
|
-
|
2,058
|
1,535
|
|||
|
Gain on sale of subsidiaries
|
(1,600
|
)
|
(2,825
|
)
|
-
|
|
| Gain on sale of property and equipment |
-
|
-
|
(172
|
)
|
||
|
Loss (income) recorded
on sales-type leases
|
465
|
357
|
(1,427
|
) | ||
|
Collections from sales-type
leases
|
5,655
|
5,189
|
7,532
|
|||
|
(Increase) decrease in
inventory
|
(1,347
|
)
|
4,473
|
(5,057
|
) | |
|
Decrease (increase) in
accounts receivable
|
11,511
|
(15,000
|
)
|
(2,934
|
) | |
|
Increase in accounts
payable
|
||||||
|
and
accrued expenses
|
1,626
|
9,250
|
12,182
|
|||
|
Net change in other
assets and liabilities
|
(3,559
|
)
|
2,670
|
(2,389
|
) | |
|
Net cash flows from
operating activities
|
20,907
|
15,666
|
20,231
|
|||
|
Cash flows from investing activities:
|
||||||
|
Acquisitions of businesses,
net of cash received
|
(54,175
|
)
|
(32,638
|
)
|
(134
|
) |
|
Purchase of equipment for
sales-type leases
|
(2,151
|
)
|
(3,271
|
)
|
(6,039
|
) |
| Net proceeds from sale of property and equipment |
-
|
-
|
488
|
|||
|
Purchase of property
and equipment
|
(2,145
|
)
|
(1,996
|
)
|
(3,693
|
) |
|
Net cash flows from
investing activities
|
(58,471
|
)
|
(37,905
|
)
|
(9,378
|
) |
| Cash flows from financing activities: | ||||||
|
Proceeds from borrowings
|
160,400
|
-
|
-
|
|||
|
Repayments of borrowings
|
(99,650
|
)
|
(801
|
)
|
-
|
|
|
Net
(repayments) borrowings under line of credit
|
(29,058
|
)
|
21,246
|
(8,000
|
) | |
|
Proceeds from sale of common
stock
|
27,000
|
449
|
9
|
|||
|
Purchase of treasury stock
|
-
|
-
|
(383
|
) | ||
|
Recapitalization, stock
issuance and debt
|
||||||
|
acquisition
costs
|
(10,988
|
)
|
-
|
-
|
||
|
Repayments of capital lease
obligations
|
(5,004
|
)
|
(1,040
|
)
|
(2,326
|
) |
|
Net
cash flows from financing activities
|
42,700
|
19,854
|
(10,700
|
) | ||
| Net change in cash and cash equivalents |
5,136
|
(2,385
|
)
|
153
|
||
|
Cash and cash equivalents, beginning of year
|
1,191
|
6,327
|
3,942
|
|||
| Cash and cash equivalents, end of year |
$6,327
|
$3,942
|
$4,095
|
|||
The accompanying notes are an integral part of
these consolidated financial statements
Federal Data Corporation
Notes to
Consolidated Financial Statements
(In thousands, except share
data)
Note 1 - Nature of Business
The accompanying consolidated financial statements include the accounts of Federal Data Corporation and its wholly-owned subsidiaries (collectively, the "Company"). The Company engages in the sale of high technology professional services in combination with hardware and software products from a variety of manufacturers to the United States Government ("Government"). The Government accounted for substantially all of the Company's revenue during 1997, 1998 and 1999. The Company, which is engaged in a single business activity, delivers these services and products through two operating units. For financial reporting purposes, these operating units have been aggregated (see Note 3).
The Company's information technology solutions are sold or leased to the Government under various types of agreements providing for, in certain cases, purchase options or other lease to ownership arrangements. Most contracts with Government agencies expire on September 30 of each year (the Government's fiscal year end) and are renewable for additional fiscal years subject to the appropriation of funding. While the Company's Government contracts provide for fiscal funding termination, the Company has not experienced any early terminations of significant contracts since its inception.
Note 2 - Merger
In December 1995, FDC Holdings, Inc. ("Holdings") merged with and into the Company with the Company continuing as the surviving corporation (the "Merger"). Holdings was a company organized by The Carlyle Group ("Carlyle") to facilitate the Merger and had no operating activity or history. 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.
Concurrent with the acquisition of a controlling interest in the Company by Carlyle in 1995, the Company entered into a management agreement with an affiliate of Carlyle for certain management and financial advisory services to be provided to the Company and its subsidiaries. The agreement provides for the payment of annual management fees in an amount equal to $300. In addition, concurrent with the acquisition of Carlyle's controlling interest, the Company entered into a three-year consulting agreement with the former majority shareholder and a three-year agreement to lease a corporate aircraft with an affiliate of the former majority shareholder. The consulting agreement provided for annual payments of $200 and the lease of the aircraft provided for annual payments of $300 plus a usage charge which amounted to $48 and $95 during 1997 and 1998, respectively. The lease of the aircraft and the consulting agreement expired in November 1998 and January 1999, respectively.
Note 3 - Summary of Significant Accounting Policies
The accounting policies of the Company conform to generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated in consolidation. Those policies significantly affecting the consolidated financial statements are summarized below.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenue from fixed price sales and sales-type leases is recorded upon installation or shipment to the customer's site, depending on contractual terms. On cost reimbursable contracts, revenue is recorded as contract costs are incurred, plus a proportionate amount of the fee expected to be realized on the contract. Other professional and support service revenue is recognized as services are provided.
Depreciation and Amortization
Leased and other property and equipment are stated at cost, net of accumulated depreciation and amortization, and are depreciated and amortized by the Company using principally straight-line methods over their estimated useful lives. The estimated useful lives of principal items of computer, furniture, office and other equipment range from three to ten years. Leasehold improvements are amortized over the term of the related lease. Deferred financing fees are being amortized over the terms of the related notes payable.
Cash, Cash Equivalents and Short-term Investments
Cash and cash equivalents consist primarily of short-term, highly liquid investments with insignificant interest rate risk and original maturities of three months or less at date of acquisition. Similar investments with original maturities beyond three months are considered short-term investments and are carried at cost, which approximates market value.
Inventory
Inventory of computer equipment and software is carried at the lower of cost or market, using the specific identification method.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate their carrying value because of their short-term nature. The fair value of long-term debt has been estimated using quoted market prices or discounted cash flow analysis using rates currently available to the Company for debt with similar terms and maturities.
The carrying and fair value of the Company's long-term debt including current maturities consist of the following as of December 31:
|
1998
|
1999
| ||||||
|
Carrying
Value |
Fair
Value |
Carrying
Value |
Fair
Value | ||||
| Long-term debt including current maturities |
$141,000 |
$142,050 |
$133,000 |
$178,000 | |||
The Company recognizes deferred income taxes for the expected future tax consequences of "temporary differences" by applying enacted statutory tax rates to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and accounts receivable. The Company maintains its cash principally in one United States bank. Accounts receivable result primarily from contracts with the Government. Contracts with the Government do not require collateral or other arrangements. The Company does not believe significant credit risk exists as of December 31, 1999.
Goodwill and Intangible Assets
Goodwill represents the excess of the cost of acquiring businesses over the fair value of identifiable net tangible and intangible assets acquired. Goodwill is amortized on a straight-line basis over the period for which the Company estimates it will benefit directly from the acquisition. Although the period of benefit from the goodwill can be difficult to estimate, the Company considers goodwill to be recoverable as long as the acquisition generates positive cash flow from operations after implementation of the Company's strategic plan or completion of reorganization efforts, if any. Recoverability of goodwill is evaluated periodically based on current undiscounted cash flow projections of each specific acquired business. Goodwill related to the acquisitions described in Note 4 amounted to $64,992 and is being amortized over fifteen years. Goodwill amortization expense for the years ended December 31, 1997, 1998 and 1999 was $1,784, $4,036 and $4,275, respectively.
Other intangible assets represents covenants not to compete, work force, trade names and trademarks and contract backlog which is recorded at the present value of the projected pretax profits. The present value of the contract profits relating to the acquisitions described in Note 4 of $16,519 is being amortized over the remaining terms of the acquired contracts in relation to the recognition of related contract revenue. In 1999, the Company expensed $2,778 of intangible assets related to acquired contract backlog recorded in connection with certain acquisitions. This write-off was based on an analysis of the current net book value of these intangibles and the remaining estimated present value of the contract profits relating to the acquisitions.The value assigned to covenants not to compete, work force and trade names and trademarks of $5,100 acquired in the acquisitions is being amortized over periods up to three years. The amortization of these intangible assets amounted to $3,247, $7,999 and $7,552 for the years ended December 31, 1997, 1998 and 1999, respectively.
Earnings per Share
The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). Under SFAS 128, the Company is not required to present earnings per share for as long as the common stock of the Company is not publicly held.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards for the reporting and presenting of comprehensive income and its components (revenue, expenses, gains and losses) in a full set of general-purpose financial statements. For the years ended December 31, 1997, 1998 and 1999, there was no impact on the Company's financial reporting as a result of its adoption of SFAS 130.
Segment Data
The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 defines segments under the "management" approach, which designates the internal reporting that is used by management for making operating decisions and assessing performance as the source of the Company's reportable segments. SFAS 131 also requires disclosures about services and products, geographic areas and major customers. The adoption of SFAS 131 did not affect the Company's results of operations or financial position. The Company's two operating units have been reflected as a single reporting segment in accordance with the aggregation criteria of SFAS 131.
Reclassification
Certain amounts have been reclassified in the prior years to conform to the current year presentation. These reclassifications had no effect on net loss or retained earnings as previously reported.
Note 4 - Acquisitions
In May 1997, the Company purchased all of the outstanding shares
of common stock of NYMA, Inc. ("NYMA") for $34,582. The purchase price
consisted of $29,582 in cash, of which $1,802 was paid in 1998 after certain
new business activity objectives were met and $5,000 in subordinated notes.
The Company financed the acquisition of NYMA through additional borrowing of
$28,000 and the sale of 555,556 shares of the Company's common stock, primarily
to existing stockholders, for $15,000. A portion of the new borrowings was used
to retire existing Company and NYMA working capital debt. NYMA is a provider
of high technology engineering and information technology services under contracts
with various Government agencies and subcontracts with large Government contractors.
In June 1997, the Company purchased all of the outstanding shares of common
stock of Sylvest Management Systems Corporation ("Sylvest") for $41,017.
The purchase price consisted of $33,017 in cash and subordinated notes of $8,000,
of which $1,000 was issued during 1998 after certain earnings objectives were
met. Subordinated notes of $4,000 were paid in August 1997. The Company financed
the acquisition of Sylvest through additional borrowing of $27,400 and the sale
of 444,444 shares of the Company's common stock, primarily to existing stockholders,
for $12,000. A portion of the new borrowings was used to retire existing Sylvest
working capital debt. Sylvest is a leading reseller and technical services vendor
supporting open systems architecture within the federal marketplace. Of the
total fees and expenses related to these transactions, $1,000 was paid to an
affiliate of Carlyle.
In February 1998, the Company purchased all of the outstanding common stock of R.O.W. Sciences, Inc. ("R.O.W.") for $9,672. The purchase price consisted of $8,672 in cash, of which $475 and $135 were paid later in 1998 and 1999, respectively, after certain revenue objectives were met and $1,000 in subordinated notes. The agreement also provides for additional cash payments up to $390 if certain revenue objectives are met. Such payments, if any, will be accounted for as adjustments to the purchase price. In February 1998, the Company also purchased all of the assets of Telos Corporation's Telos Information Systems Division ("TIS") for $14,740. The entire purchase price was paid in cash. In March 1998, the Company purchased all of the outstanding common stock of Technical and Management Assistance, Inc. ("TMA") for $9,187. The purchase price consisted of $8,187 in cash and $1,000 in subordinated notes. The Company financed the R.O.W., TIS and TMA acquisitions through borrowings under its existing revolving line of credit facility. R.O.W. provides services that combine expert knowledge in life and health sciences with state-of-the-art computer based technologies principally to Government agencies. TIS provides engineering and information technology services to the Jet Propulsion Laboratory and other Government customers. TMA provides information technology services principally to the air traffic management function within the Federal Aviation Administration.
Condensed unaudited pro forma operating data which gives effect to the acquisitions of NYMA, Sylvest, R.O.W., TMA and TIS for the years ended December 31, 1997 and 1998 is provided below. Such unaudited pro forma operating data has been prepared as if the acquisitions occurred as of the beginning of 1997.
|
1997
|
1998
|
|||
|
Revenue
|
$505,283
|
$529,890
|
||
|
Loss before extraordinary item and income taxes
|
($5,056
|
) |
($5,510
|
) |
|
Net loss
|
($5,306
|
) |
($6,828
|
) |
In the opinion of management, the unaudited pro forma combined results of operations are not indicative of the actual results that would have occurred had the acquisitions been consummated at the beginning of 1997 or of future operations of the combined companies under the ownership and management of the Company.
Note 5 - Accounts Receivable
Accounts receivable consisted of the following as of December 31:
|
1998
|
1999
|
|||
|
Billed |
$114,674 |
$113,359 |
||
|
Unbilled |
9,150 |
9,899
|
||
|
Other |
3,471 |
7,102
|
||
|
Less allowance for doubtful
accounts |
(455
|
) |
(586
|
) |
|
Total accounts receivable |
$126,840
|
$129,774
|
Unbilled accounts receivable consisted primarily of revenue not yet billable because of contract terms, differences between actual and provisional indirect rates for years open to Government audit and contract retainages. Retainages are generally billable upon acceptance of work by customers or completion of contract audits by the Government.
Note 6 - Net Investment in Sales-Type Leases
Net investment in sales-type leases consisted of the following as of December 31:
|
1998
|
1999
|
|||
|
Minimum lease payments
receivable |
$8,909 |
$9,117 |
||
|
Less unearned income |
(691
|
) |
(731
|
) |
|
Total net investment in sales-type
leases |
8,218 |
8,386 |
||
|
Less current portion |
5,221
|
5,672
|
||
|
Long-term net investment in sales-type
leases |
$2,997
|
$2,714
|
Future minimum lease payments receivable as of December 31, 1999 are due as follows:
|
2000
|
$6,127
|
|
2001
|
2,510
|
|
2002
|
480
|
Note 7 - Other Assets
Other assets consisted of the following as of December 31:
|
1998
|
1999
| ||||||
|
Current
|
Long-term
|
Current
|
Long-term
| ||||
|
Deferred financing fees |
$0 |
$6,241 |
$0 |
$5,292 | |||
|
Prepaid expenses |
2,823 |
559 |
2,041 |
1,377 | |||
|
Deferred income tax asset |
- |
2,156 |
- |
3,905 | |||
|
Refundable income taxes |
1,467 |
- |
797 |
- | |||
|
Receivable from sale of
subsidiary |
3,100 |
- |
-
|
- | |||
| Other |
766
|
315
|
479
|
209
| |||
| Total other assets |
$8,156
|
$9,271
|
$3,317
|
$10,783
| |||
In 1997, the Company recorded a charge to earnings of $4,467 related to deferred financing fees associated with the debt incurred to finance the Merger and the NYMA and Sylvest acquisitions. This debt was refinanced with proceeds from the Senior Subordinated Notes. This charge to earnings was reduced by an income tax benefit of $1,697 which produced an extraordinary loss of $2,770. Amortization of deferred financing fees which is included in interest expense amounted to $804, $949 and $949 during 1997, 1998 and 1999, respectively.
In 1997, the Company sold substantially all the assets and business of its wholly-owned subsidiaries, DoxSys, Inc. ("DoxSys") and VAD International, Inc. ("VAD") resulting in a pretax gain of $1,600. The operations of DoxSys and VAD were not material to the Company's financial condition or results of operations. During 1998, the Company recorded an additional pretax gain of $2,825 as a result of DoxSys achieving certain earnings objectives.
Note 8 - Leased and Other Property and Equipment
Leased and other property and equipment consisted of the
following as of December 31:
|
1998
|
1999
|
|||
|
Furniture, office and other
equipment |
$11,553
|
$13,573
|
||
|
Leasehold improvements |
4,428
|
4,208
|
||
|
Less accumulated depreciation and
amortization |
(10,861
|
) |
(11,710
|
) |
|
Total leased and other property and
equipment |
$5,120
|
$6,071
|
Total depreciation and amortization expense related to leased and other property and equipment during 1997, 1998 and 1999 was $1,326, $2,315 and $2,426, respectively. In 1999, the Company sold or disposed of $1,893 of leased and other property and equipment with associated accumulated depreciation and amortization of $1,577.
Note 9 - Notes Payable
Recourse notes payable consisted of the following as of December 31:
|
1998
|
1999
|
|||
|
Senior Subordinated Notes payable in August
2005 |
$105,000 |
$105,000 |
||
|
Revolving line of credit |
25,000 |
17,000 |
||
|
Other subordinated notes |
11,000
|
11,000
|
||
|
Total recourse notes payable |
141,000 |
133,000 |
||
|
Less current portion |
-
|
2,000
|
||
|
Long-term recourse notes
payable |
$141,000
|
$131,000
|
In July 1997, the Company issued $105,000 of
Senior Subordinated Notes and utilized the proceeds to repay its indebtedness
under its existing term loans as well as the additional borrowings incurred to
finance the NYMA and Sylvest acquisitions. 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 the 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.
The Senior Subordinated Notes bear interest at 10.125% per annum with interest payable semi-annually. The principal of the Senior Subordinated Notes is due in August 2005. The Company may redeem a portion of the Senior Subordinated Notes at any time prior to August 2001 with the net proceeds of one or more public equity offerings. At any time after August 2001, the indenture provides that a portion of the Senior Subordinated Notes may be redeemed upon a change of control and also provides for other optional redemptions. All redemptions prior to August 2005 require the Company to pay a premium. The indenture includes certain restrictions as to the Company's ability, among other things, to acquire or dispose of assets, incur additional debt, or to pay dividends. In addition, the Company is required to maintain a minimum net worth and certain operating ratios, including among others, interest and leverage coverage.
At December 31, 1999, the Company had a $75,000 revolving line of credit facility which expires in July 2002. Interest accrues on borrowings under the revolving line of credit at either (a) 1.25% plus the highest of the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate (3.99% at December 31, 1999) or the prime lending rate (8.50% at December 31, 1999) or (b) 2.25% plus the eurodollar rate (6.50% at December 31, 1999). In addition, the Company pays a commitment fee of 0.5% of the unused line of credit facility. At December 31, 1999, the Company had outstanding borrowings of $15,000 at 8.75% and $2,000 at 9.75%. The Company's revolving line of credit agreement includes certain restrictions as to the Company's ability, among other things, to acquire or dispose of assets or to pay dividends. In addition, the Company is required to maintain a minimum net worth and certain operating ratios, including among others, interest and leverage coverage. All of the Company's assets not otherwise pledged are utilized as collateral under the Company's credit agreements.
The other subordinated notes outstanding as of December 31, 1999 were issued by the Company in connection with the NYMA, Sylvest, R.O.W. and TMA acquisitions. The NYMA and Sylvest subordinated notes bear interest payable semi-annually at increasing rates starting at 9% per annum and increasing to 13% per annum. The principal of these notes is due in 2004. The R.O.W. and TMA subordinated notes bear interest payable semi-annually at 9% per annum and the principal is due in 2000.
The Company finances certain equipment leases to Government customers with borrowings or capital leases that are recourse only to the related payment stream and property leased. In most circumstances, the Company's future obligation under nonrecourse agreements, in the event of default by the end user lessee, would be limited to ensuring the return of the associated assets to the lender.
Note 10 - Nonrecourse Obligations Under Capital Leases
Nonrecourse obligations under capital leases consisted of the following as of December 31:
|
1998
|
1999
|
|||
|
Minimum lease payments |
$4,077 |
$1,750 |
||
|
Less deferred interest |
(294
|
) |
(59
|
) |
|
Total nonrecourse obligations under capital
leases |
3,783 |
1,691 |
||
|
Less current portion |
2,232
|
1,691
|
||
|
Long-term nonrecourse obligations under
capital leases |
$1,551
|
$0
|
Note 11 - Accounts Payable and Other Liabilities
Accounts payable and other liabilities consisted of the
following as of December 31:
|
1998
|
1999
| ||||||
|
Current
|
Long-term
|
Current
|
Long-term
| ||||
|
Accounts payable |
$50,829 |
$0 |
$44,269 |
$0 | |||
|
Accrued contract expenses |
11,730 |
- |
30,153 |
- | |||
|
Other accrued expenses |
14,188 |
1,316 |
12,571 |
1,187 | |||
|
Accrued interest payable |
4,657 |
- |
4,524 |
- | |||
|
Deferred income |
3,309 |
1,148 |
2,238 |
871 | |||
| Income taxes payable |
2,496 |
- |
1,428 |
- | |||
| Deferred income tax liability |
57 |
- |
390 |
- | |||
| Other |
580
|
-
|
94
|
-
| |||
| Total accounts payable and other liabilities |
$87,846
|
$2,464
|
$95,667
|
$2,058
| |||
As of December 31, 1999, accounts payable and accrued contract
expenses include approximately $26,600 in amounts payable to an asset-based
lender under an arrangement established to facilitate the purchase of inventory.
Under this arrangement, the lender directly pays the vendors for purchases made
by the Company. The arrangement provides the Company with up to $30,000 in credit
from the lender for inventory purchases. The terms of the arrangement enable
the Company to repay outstanding amounts paid by the lender, interest free,
within a stipulated time period from the initial purchase from the vendors.
After the stipulated time period, interest under this arrangement accrues at
the prime rate plus 2.0% as determined by the lender (10.50% at December 31,
1999). This arrangement requires the Company to maintain a minimum net worth
and certain operating ratios, including among others, interest and leverage
coverage.
In connection with this arrangement, the asset-based lender entered into an Intercreditor and Subordination Agreement (the "Intercreditor Agreement") with the bank group that has extended the Company a revolving line of credit facility (see Note 9). Under the Intercreditor Agreement, all advances made by the asset-based lender are collateralized by the Company's inventory and accounts receivable resulting from the sale of inventory purchased under the above arrangement.
Note 12 - Income Taxes
The income tax (benefit) provision consisted of the following for the years ended December 31:
|
1997
|
1998
|
1999
|
||||
| Current income tax provision: | ||||||
| Federal |
$364
|
$1,552
|
$1,190
|
|||
| State |
157
|
1,041
|
1,208
|
|||
| Total current income tax provision |
521
|
2,593
|
2,398
|
|||
| Deferred income tax benefit: | ||||||
| Federal |
(723
|
)
|
(1,114
|
)
|
(1,202
|
) |
| State |
(127
|
)
|
(197
|
)
|
(212
|
) |
| Total deferred income tax benefit |
(850
|
)
|
(1,311
|
)
|
(1,414
|
) |
| Total income tax (benefit) provision |
($329
|
)
|
$1,282
|
$984
|
Income tax (benefit) provision as reflected on the
consolidated statements of operations consisted of the following:
|
1997
|
1998
|
1999
|
||||
| Income (loss) before extraordinary item | ||||||
| and income taxes |
$1,368 |
$1,282 |
$984 |
|||
| Extraordinary loss |
(1,697
|
) |
-
|
-
|
||
| Total income tax (benefit) provision |
($329
|
) |
$1,282
|
$984
|
Deferred tax assets and
liabilities consisted of the following as of December 31:
|
1998
|
1999
|
|||
|
Deferred tax assets: |
||||
|
Deferred
income |
$1,641 |
$1,189 |
||
|
Compensation and employee
benefits |
1,458 |
970 |
||
|
Accounts receivable
reserves |
102 |
223 |
||
| Goodwill and intangibles |
1,157 |
2,129 |
||
|
Other |
1,017
|
1,614
|
||
|
Total deferred tax
assets |
5,375
|
6,125
|
||
|
Deferred tax liabilities: |
||||
|
Contractually unbilled
revenue |
2,266 |
2,024 |
||
|
Accrual to cash
conversion |
559 |
- |
||
| Fixed assets |
- |
301 |
||
|
Other |
451
|
285
|
||
|
Total deferred tax
liabilities |
3,276
|
2,610
|
||
|
Net deferred tax asset
|
$2,099
|
$3,515
|
Net deferred income taxes as reflected on the consolidated
balance sheets consisted of the following as of December 31:
|
1998
|
1999
|
|||
|
Current deferred income tax asset
|
$2,863
|
$1,728
|
||
|
Less current deferred income tax liability
|
(2,920
|
)
|
(2,118
|
) |
|
Net current deferred income tax liability
|
(57
|
)
|
(390
|
) |
|
Long-term deferred income tax asset
|
2,512
|
4,397
|
||
|
Less long-term deferred income tax liability
|
(356
|
)
|
(492
|
) |
|
Net long-term deferred income tax asset
|
2,156
|
3,905
|
||
|
Net deferred income tax asset
|
$2,099
|
$3,515
|
A reconciliation between the (benefit) provision for income taxes computed on income before tax at the statutory federal tax rate and the (benefit) provision for income taxes is as follows for the years ended December 31:
|
1997
|
1998
|
1999
|
||||
| Statutory federal income tax rate |
-34.0% |
-34.0% |
-34.0% |
|||
|
State income taxes. net of federal
benefit |
3.6% |
12.7% |
3.1% |
|||
|
Nondeductible goodwill and intangibles |
37.8% |
37.3% |
53.3% |
|||
|
Other nondeductible expenses |
1.4% |
1.1% |
2.4% |
|||
| Other |
-20.4%
|
6.6%
|
5.4%
|
|||
| Effective income tax rate |
-11.6%
|
23.7%
|
30.2%
|
At December 31, 1997, 1998 and 1999, the Company has not recorded any tax valuation allowance to reflect management's assessment that the realization of the deferred tax asset is more likely that not.
Note 13 - Stockholders' Equity and Transactions with Stockholders
In 1984, a principal stockholder of the Company transferred shares of the Company's common stock to certain key employees. The Company has accounted for this transaction as if the Company, and not the principal stockholder, had transferred the stock. At December 31, 1997, the Company had fully amortized the compensation expense related to this transaction.
In 1996, the Company adopted a Stock Option Plan for Executives
and Key Employees of Federal Data Corporation (the "Plan"). Under the Plan, options
may be granted at not less than fair value to purchase up to 445,645 shares
of common stock. Options granted under the Plan have vesting periods of up to
ten years and all expire ten years from the date of grant or in accordance with
other terms as specified by the Company's Board of Directors. In 1998, the Company
amended and restated the Plan by accelerating the vesting of certain performance
based options. Accordingly, the Company recorded non-cash compensation of $2,058
in 1998 and $524 in 1999 and related increases 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.
Immediately prior to the Merger, options to purchase 93,500 shares of the Company's
common stock at a weighted average exercise price of $7.53 per share were outstanding
and exercisable under the then existing stock incentive plan. In accordance
with the Merger agreement, the Company was to replace these options with options
in the surviving corporation that provided substantially the same economic benefit
to the option holder as the benefits provided prior to the Merger. To fulfill
this obligation, in 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 in 1999 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.
The following is a summary of stock option activity for outstanding options:
|
Weighted Average
Exercised Price |
Number of
Shares |
|||
|
Balance at December 31, 1996 |
$10.00 |
243,000 |
||
|
|
||||
|
Granted |
- |
- |
||
|
Exercised |
- |
- |
||
|
Forfeited |
10.00 |
(12,000 |
) | |
|
Cancelled
|
- |
-
|
||
|
Balance at December 31, 1997 |
10.00 |
231,000 |
||
|
|
||||
|
Granted |
29.21 |
192,000 |
||
|
Exercised |
- |
- |
||
|
Forfeited |
15.39 |
(20,500 |
) | |
|
Cancelled |
- |
-
|
||
|
Balance at December 31, 1998 |
18.89 |
402,500 |
||
|
|
||||
|
Granted |
2.00 |
40,425 |
||
|
Exercised |
2.00 |
(4,675 |
) | |
|
Forfeited |
- |
- |
||
|
Cancelled |
19.33 |
(43,500
|
) | |
|
Balance at December 31, 1999 |
$17.31 |
394,750
|
As of December 31, 1999, options to purchase 43,500 shares were available for granting.
The following is a summary of stock options outstanding and
exercisable as of December 31, 1999:
|
Outstanding
|
Exercisable
| |||||||||
|
Exercise
Price Range |
Options
|
Weighted
Average Remaining Contractual Life (Yrs.) |
Weighted Average Exercise Price |
Options
|
Weighted
Average Exercise Price | |||||
|
$2.00 |
35,750 |
9.2 |
$2.00 |
35,750 |
$2.00 | |||||
|
$10.00 |
205,000 |
6.2 |
$10.00 |
135,300 |
$10.00 | |||||
|
$27.00 |
133,500 |
8.3 |
$27.00 |
76,763 |
$27.00 | |||||
|
$54.00 |
20,500
|
8.4 |
$54.00 |
10,250
|
$54.00 | |||||
|
394,750 |
7.3 |
$17.31 |
258,063 |
$15.70 | ||||||
The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation." Had compensation cost for the Company's stock option plan been
determined based on the fair value at the grant date for awards in 1997, there
would not have been a material impact on the Company's results of operations.
In 1998 and 1999, the net loss would have been increased by $1,100 and $627,
respectively. The weighted average fair value of stock options granted under the
stock option plan during 1997, 1998 and 1999 was $0.00, $4.82 and $25.00, respectively.
The fair value was estimated using the Minimum Value Approach based
on the weighted average assumptions of:
|
1998
|
1999
|
|||
| Expected life in years |
5
|
5
|
||
|
Risk-free interest rate
|
5.7%
|
6.2%
|
||
|
Dividend yield
|
0.0%
|
0.0%
|
In 1999, the Company purchased 14,200 shares of treasury stock at $27.00 per share from former officers of the Company.
Note 14 - Supplemental Disclosure of Cash Flow Information
|
1997
|
1998
|
1999
|
||||
| Cash paid during the year for: | ||||||
| Interest |
$5,621 |
$15,453 |
$14,905 |
|||
|
Income
taxes |
1,452 |
567 |
3,456 |
|||
| Details of acquisitions (Note 4): | ||||||
| Fair value of assets acquired |
$127,572 |
$42,563 |
$0 |
|||
| Liabilities assumed |
54,775 |
9,724 |
- |
|||
|
Subordinated notes issued
and paid |
4,000 |
- |
- |
|||
| Subordinated notes issued |
8,000
|
2,000
|
-
|
|||
| Cash paid at acquisition |
60,797 |
30,839 |
- |
|||
| Earnout payments |
- |
2,427 |
134 |
|||
| Less cash required |
6,622
|
628
|
-
|
|||
| Net Cash paid for acquisitions |
$54,175
|
$32,638
|
$134
|
In 1998, the Company issued additional subordinated
notes amounting to $1,000 in connection with an earnout associated with the
Sylvest acquisition after certain earning objectives were met.
During 1997, 1998 and 1999, the Company financed through capital leases the acquisition of computer equipment which was sold to customers of $0, $1,828 and $234, respectively.
Note 15 - Commitments and Contingencies
The Company leases office space and equipment under various operating lease agreements. Leases for principal office space typically have terms of five to seven years and carry optional renewal periods of three to five years. Most leases include provisions for fixed annual increases to base rent payments and escalations based on increases in operating expenses and real estate taxes.
Future minimum payments as of December 31, 1999, for all noncancellable operating leases with initial terms of one year or more are as follows:
|
2000
|
$5,279
|
|
|
2001
|
5,241
|
|
|
2002
|
4,790
|
|
|
2003
|
3,666
|
|
|
2004
|
3,610
|
Operating lease expense was $3,879, $4,165 and $5,246 during 1997, 1998 and 1999, respectively. The Company received $0, $316 and $0 from sublease rentals during 1997, 1998 and 1999, respectively.
The Company is subject to contract audits by Government agencies. Completed and future audits may result in various billed and unbilled costs being disallowed. As of December 31, 1999, audits have been completed through 1996. In the opinion of management, adequate reserves have been provided for the remaining open audit periods.
In the ordinary course of business, the Company may be party to various legal proceedings. In the opinion of management, the Company's liability, if any, in all pending litigation or other legal proceedings will not have a material effect upon the Company's financial condition, results of operations or cash flows.
Note 16 - Retirement Plans
The Company sponsors several defined contribution plans that provide all salaried employees, that meet certain age requirements, and certain hourly employees an opportunity to accumulate funds for their retirement. The Company's contributions to these plans are based on either a percentage of employee contributions or an amount at the discretion of the Company. The Company recognized expense of $1,029, $2,548 and $2,153 during 1997, 1998 and 1999, respectively.
Item 9. Disagreements on Accounting and Financial
Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The following table sets forth certain information with respect to the members of the Board of Directors and the executive officers of the Company. Executive officers of the Company are chosen by the Board of Directors and serve at its discretion. Directors of the Company serve until the election and qualification of their successors.
|
Name |
Title |
Age |
|
|
||
|
William E. Conway, Jr. |
Chairman of the Board |
50 |
|
C. Robert Hanley
|
Director and Chairman
Emeritus |
67 |
|
Daniel R. Young |
Vice Chairman and CEO |
66 |
|
Harry T. Marren |
Director, President and COO |
65 |
|
Peter J. Clare |
Director |
34 |
|
Allan M. Holt |
Director and Secretary |
48 |
|
Peter C. Belford, Sr. |
Senior Vice President |
53 |
|
Rene B. LaVigne |
Senior Vice President, Systems &
Technology Group |
38 |
|
Paul A. Taltavull
|
Senior Vice President, Services &
Solutions Group |
45 |
|
John W. Wayne |
Senior Vice President, Services &
Solutions Group, Solutions Sector |
43 |
|
James M. Dean |
Vice President, Chief Financial Officer
and Treasurer |
52 |
|
Maggie M. Hird |
Vice President, Human
Resources |
42 |
|
Sterling E. Phillips, Jr.
|
Vice President, Services &
Solutions Group, Science & Engineeing Sector |
53 |
William E. Conway, Jr. was elected as a Director of the
Company in 1996. He has been a Managing Director of The Carlyle Group, a
Washington, D.C.-based private merchant bank, since 1987. Mr. Conway was Senior
Vice President and Chief Financial Officer of MCI Communications Corporation
from 1984 until 1987, and was a Vice President and Treasurer of MCI from 1981 to
1984. Mr. Conway presently serves on the Board of Directors of Nextel
Communications, Inc. and several privately held companies.
C. Robert Hanley has been a Director of the Company since its founding in 1969. Mr. Hanley was President and Chief Executive Officer of the Company from 1969 until 1985, when he became its Chairman and Chief Executive Officer. He retired in January 1996, and served as a consultant to the Company until January 1999.
Daniel R. Young has been a Director of the Company since 1977 and was named Vice Chairman of the Board of Directors in 1998. He has been the Chief Executive Officer since 1996 and its President from 1985 through 1998. Mr. Young joined the Company in 1976 as its Executive Vice President and became its President and Chief Operating Officer in 1985. Prior to joining the Company, Mr. Young was employed by Data Transmission Company as Executive Vice President and held various management positions at Texas Instruments Incorporated.
Harry T. Marren was elected as a Director of the Company in 1997 and became its President and Chief Operating Officer in 1998. He has been President of FDC Technologies, Inc. and its predecessor organization, Federal Data Systems Corporation, since 1989. Mr. Marren joined the Company in 1977 as General Manager of Operations and was promoted to Vice President in 1980 and Senior Vice President in 1988.
Peter J. Clare was elected as a Director of the Company in 1996. He is currently a Managing Director with The Carlyle Group, a Washington, D.C.-based private merchant bank which he joined in 1992. Mr. Clare was previously with First City Capital, a private investment group. From 1987 to 1989, he worked in the mergers and acquisitions and merchant banking groups at Prudential-Bache. Mr. Clare currently serves on the boards of several privately held companies.
Allan M. Holt was elected as a Director of the Company in 1996. He is a Managing Director of The Carlyle Group, a Washington, D.C.-based private merchant bank which he joined in 1991. He was previously with Avenir Group, a private investment and advisory group, and from 1984 to 1987 was Director of Planning and Budgets at MCI Communications Corporation, which he joined in 1982. Mr. Holt currently serves on the boards of several privately held companies.
Peter C. Belford, Sr. has been Senior Vice President of the Company since 1998, having previously been Senior Vice President of the Science & Engineering Group since 1997, and President and Chief Operating Officer of NYMA, Inc. since 1994. Mr. Belford joined NYMA in 1985 as its Executive Vice President. Mr. Belford was previously employed by Computer Sciences Corporation ("CSC") as Vice President, Product Management and Product Assurance. He joined CSC in 1977 as a Program Manager and became Assistant to the President of the System Sciences Division of that company, with executive management responsibilities.
Rene B. LaVigne has been Senior Vice President of the Systems & Technology Group since 1999, having previously been Vice President of the Systems & Technology Group from 1994 to 1999. He was previously Chief Financial Officer of Sylvest Management Systems Corporation from 1993 to 1994, and was previously employed by Ernst & Young from 1983 to 1993.
Paul A. Taltavull has been Senior Vice President of the Services & Solutions Group since 1999, having previously been Senior Vice President of the Solutions Group since 1997. Mr. Taltavull joined the Company in 1982 as a Federal Marketing Representative and has held a series of marketing management positions with the Company, including Senior Vice President of Marketing from 1992 to 1997. Before joining the Company, Mr. Taltavull was a sales representative for Hewlett-Packard Company and a practicing engineer for the U.S. Government.
John W. Wayne has been Senior Vice President of the Services & Solutions Group, Solutions Sector since 1999, having previously been Senior Vice President of the Systems Integration Group since 1998 and Vice President of the Systems Integration Group since 1990. He previously directed the Company's systems design and engineering group. He joined Federal Data Corporation in 1981 as an Operations Project Manager and was subsequently promoted to Director of Technical Services. Prior to joining the Company, Mr. Wayne was employed as a Systems Engineer with Inforex Incorporated and by TRW Data Systems as a Customer Engineer.
James M. Dean has been Vice President and Chief Financial Officer of the Company since 1986 and its Treasurer since 1987. Mr. Dean joined Federal Data Corporation in 1983 as its Controller. He was previously employed by Price Waterhouse from 1969 to 1983.
Maggie M. Hird has been Vice President of Human Resources since 1998. From 1996 to 1998, she served as Vice President of Human Resources for AMERICOM, Inc. From 1989 to 1996, Ms. Hird served as Vice President and Chief Administrative Officer of KCI Technologies, Inc., where she was also a member of the Board of Directors.
Sterling E. Phillips, Jr. has been Vice President of the Services & Solutions Group, Science & Engineering Sector since 1999, having previously been Vice President of the Science & Engineering Group since 1998 and Vice President of Corporate Marketing since 1997. He joined FDC Technologies, Inc. in 1996 as Vice President of its Services Group. He was previously employed as Chief Operating Officer of TRI-COR Industries, Inc. and President of Business Development of the federal business unit of Computer Sciences Corporation. From 1968 to 1992, Mr. Phillips held various positions in management, sales and marketing with the IBM Corporation.
The Company does not currently pay any fees or remuneration to its directors for service on the Board.
Item 11. Executive Compensation.
The following table sets forth information with respect to the compensation paid by the Company for services rendered in the years ended December 31, 1997, 1998 and 1999 to the Chief Executive Officer and to each of the four other most highly compensated executive officers of the Company (the "Named Executive Officers"), and two additional employees for whom disclosure would have been required if they were executive officers.
|
Annual Compensation
|
Long-Term Compensation
|
|||||||||||||||
| Awards
Payouts |
||||||||||||||||
|
Name
|
Year
|
Salary
($) |
Bonus (1)
($) |
Other Annual
Compen- sation (2) ($) |
Restricted
Stock Award(s) ($) |
Securities
Under- lying Options/ SARs(3) (#) |
OLTIP
Payouts ($) |
All Other
Compen- sation ($) |
||||||||
|
Daniel R. Young
|
1999
|
300,000
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Vice
Chairman and
|
1998
|
300,000
|
150,000
|
-
|
-
|
10,000
|
-
|
-
|
||||||||
|
Chief
Executive Officer
|
1997
|
300,000
|
200,000
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Harry T. Marren
|
1999
|
200,000
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
President
and
|
1998
|
200,000
|
100,000
|
-
|
-
|
10,000
|
-
|
-
|
||||||||
| Chief Operating Officer |
1997
|
200,000
|
175,000
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Peter C. Belford, Sr. (4)
|
1999
|
224,280
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Senior
Vice President
|
1998
|
250,000
|
-
|
-
|
-
|
25,000
|
-
|
-
|
||||||||
|
1997
|
148,130
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||
| Rene B. LaVigne (4) |
1999
|
131,333
|
153,011
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Senior
Vice President
|
1998
|
115,000
|
156,318
|
-
|
-
|
20,000
|
-
|
-
|
||||||||
|
1997
|
60,000
|
63,241
|
-
|
-
|
-
|
-
|
-
|
|||||||||
|
Paul A. Taltavull
|
1999
|
186,000
|
-
|
-
|
-
|
16,500
|
-
|
-
|
||||||||
|
Senior
Vice President
|
1998
|
175,000
|
100,000
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
1997
|
175,000
|
100,000
|
-
|
-
|
-
|
-
|
-
|
|||||||||
|
Lorraine A. Guevara
|
1999
|
60,000
|
463,362
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Account
Manager
|
1998
|
57,000
|
333,246
|
-
|
-
|
1,000
|
-
|
-
|
||||||||
|
1997
|
50,004
|
143,137
|
-
|
-
|
-
|
-
|
-
|
|||||||||
|
Paul H. Tardif (4)
|
1999
|
188,664
|
80,237
|
-
|
-
|
-
|
-
|
-
|
||||||||
|
Vice President, Systems &
|
1998
|
174,019
|
82,500
|
-
|
-
|
1,000
|
-
|
-
|
||||||||
| Applied Sciences Sector |
1997
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||
(1) Bonus awards include commissions and other incentive
compensation and are reflected in the year to which they are attributable and
not the year in which they are actually paid. Bonuses are awarded to executive
officers at the discretion of management subject to review by the Board of
Directors.
(2) Fringe benefit amounts are omitted to the extent the aggregate value of such benefits is less than 10% of the salary and bonus, or $50,000.
(3) The options listed were awarded in 1998 and 1999 pursuant to the Company's Stock Option Plan for Executives and Other Key Employees (the "Plan"). Options granted under the Plan have vesting periods of up to 10 years and all expire 10 years from the date of grant or in accordance with other terms as specified by the Company's Board of Directors. In 1998, the Company amended and restated this Plan by accelerating the vesting of certain performance based options.
(4) Messrs. Belford, LaVigne and Tardif joined the Company in May 1997, June 1997 and February 1998, respectively.
OPTIONS GRANTED IN LAST FISCAL YEAR
|
Individual Grants
|
||||||||||||||||
|
Number of
Securities Underlying Option/SRAs |
Percent of Total
Options/SRAs Granted To Employees in |
Exercise or Base Price
|
Market Price at
Grant Date |
Expiration
|
Potential Realizable Value at Assumed Annual
Rates of Stock Price Appreciation for Option Term
|
|||||||||||
|
Name
|
Granted (#)
|
Fiscal Year
|
($/sh)
|
($/sh)
|
Date
|
0% ($)
|
5% ($)
|
10% ($)
|
||||||||
|
Paul A. Taltavull
|
16,500
|
46%
|
2
|
27
|
March 30,2009
|
412,500
|
535,583
|
684,482
|
||||||||
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding the
Company's option grants during the fiscal year ended December 31, 1999. The
Company has granted no stock appreciation rights.
|
Number of
Securities
Underlying Unexercised Options At Fiscal Year-End (#) |
Value of Unexercised
In the Money Options at Fiscal Year-End ($) (1) | |||||||
|
Name
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
| ||||
|
Daniel R. Young |
55,250 |
29,750 |
841,500 |
433,500 | ||||
| Harry T. Marren |
32,150 |
17,850 |
448,800 |
231,200 | ||||
| Peter C. Belford, Sr. |
14,375 |
10,625 |
237,050 |
86,700 | ||||
| Rene B. LaVigne |
11,500 |
8,500 |
- |
- | ||||
| Paul A. Taltavull |
33,000 |
8,500 |
693,000 |
144,500 | ||||
| Lorraine A. Guevara |
538 |
462 |
- |
- | ||||
| Paul H. Tardif |
500 |
500 |
- |
- | ||||
(1) As a privately held Company not then engaged in any transaction
requiring a current valuation of its shares, the Company did not determine the
value of its common stock at year-end. The aggregate value of such voting stock
was computed on the basis of a $27 per share price, the price paid by the Company
to purchase treasury stock from a former officer of the Company in December 1999, the time of the
most recent common stock transaction.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth the ownership of common stock of the Company by each person known by the Company to be the owner of 5% or more of the Company's outstanding common stock, by each person who is a director or Named Executive Officer of the Company and by all directors and executive officers of the Company as a group.
|
Beneficial Owner (1)
|
All Outstanding
Common Stock |
Percentage of
Number of Shares | ||
|
TCG Holdings, L.L.C. (2) |
2,485,356 |
78.8 | ||
|
William E. Conway, Jr. (3)
|
- |
- | ||
|
C. Robert Hanley (4) (7)
|
73,172 |
2.3 | ||
|
Daniel R. Young (5) (6)
|
155,407 |
4.9 | ||
|
Harry T. Marren (6)
|
31,000 |
1.0 | ||
|
Peter J. Clare (3)
|
- |
- | ||
|
Allan M. Holt (3)
|
- |
- | ||
|
Peter C. Belford, Sr. (6)
|
47,208 |
1.5 | ||
|
Rene B. LaVigne (6)
|
4,625 |
* | ||
|
Paul A. Taltavull (6)
|
15,880 |
* | ||
|
All directors and executive officers as a
group (13 persons) |
343,087 |
11.8 |
* less than one percent
(1) Except as otherwise indicated, each beneficial owner has the sole power to vote, as applicable, and to dispose of all units owned by such beneficial owner.
(2) TCG Holdings, L.L.C., a Delaware limited liability company, is the sole managing member of TC Group, L.L.C., a Delaware limited liability company, which is the sole general partner of Carlyle Partners II, L.P., a Delaware limited partnership, Carlyle Partners III, L.P., a Delaware limited partnership, Carlyle International Partners II, L.P., a Cayman Islands limited partnership, Carlyle International Partners III, L.P., a Cayman Islands limited partnership, and certain other partnerships formed by Carlyle, each of which is a record holder of the Company's common stock. TC Group, L.L.C. or an affiliate also exercises investment discretion and management, with respect to the shares of common stock held of record by certain other investors. The address of TCG Holdings L.L.C. is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004. William E. Conway, Jr., Daniel A. D'Aniello and David M. Rubenstein, as the managing members of TCG Holdings, L.L.C., may be deemed to share beneficial ownership of the shares shown as beneficially owned by TCG Holdings, L.L.C. Such persons disclaim such beneficial ownership.
(3) The address of such person is c/o The Carlyle Group, 1001 Pennsylvania Avenue, N.W., Washington, D.C. 20004.
(4) The address of C. Robert Hanley is 2808 Tarflower Way, Naples, Florida 34105.
(5) 7,000 of these shares (0.2% of the total outstanding shares of the Company) are owned by the Daniel R. Young Irrevocable Unitrust U/A dated November 16, 1994, for which Daniel R. Young is the trustee.
(6) The address of such person is c/o Federal Data Corporation, 4800 Hampden Lane, Bethesda, Maryland 20814.
(7) All of these shares are owned by the C. Robert Hanley Grantor Retained Annuity Trust dated July 15, 1998, for which C. Robert Hanley is the trustee.
Item 13. Certain Relationships and Related Transactions.
Concurrent with the acquisition of the Company by Carlyle in 1995, the Company entered into a management agreement (the "Management Agreement") with TC Group, L.L.C. for certain management and financial advisory services to be provided to the Company. In consideration of the management and financial advisory services, the Company pays TC Group, L.L.C. an annual management fee of $300,000. Based on fees being paid by comparably situated companies, the Company believes that this Management Agreement is on terms no less favorable to the Company than could have been obtained from an independent third party.
In connection with the Recapitalization, the Company sold an airplane to an entity controlled by C. Robert Hanley, a Director of the Company and its former Chief Executive Officer. Mr. Hanley purchased the airplane for approximately $1.5 million, its aggregate estimated value. The Company entered into a three-year consulting agreement with Mr. Hanley, which expired in January 1999, and a three-year agreement for use of the airplane from an affiliate of Mr. Hanley, which expired in December 1998. The consulting agreement provided for annual payments of $200,000, and the lease of the airplane provided for annual payments of $300,000 plus a usage charge which amounted to approximately $95,000 in the year ended December 31, 1998. Mr. Hanley regularly provided consulting services to the Company pursuant to the consulting agreement and continues to serve as Director to the Company without compensation.
In 1999, the Company purchased 1,200 and 13,000 shares of treasury stock at $27.00 per share from former officers of the Company, Michael D. Brant and Charles M. Mathews, respectively.
In connection with the Recapitalization, the stockholders of the Company executed a Holders Agreement dated as of November 30, 1995 (as amended, supplemented or replaced, the "Holders Agreement"). The Holders Agreement restricts transfer of the common stock of the Company (except to affiliates, to the public in a registered offering or pursuant to Rule 144 under the Securities Act, transfers in a merger or sale of the Company, or transfer pursuant to certain rights under the Holders Agreement). The Holders Agreement also provides for tag-along rights on transfers of more than 15% of the common stock, bring-along rights with respect to more than 50% of the common stock and registration rights.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(1) - - Financial Statements
The following Consolidated Financial Statements of the Company and its subsidiaries are included in this Report:
1. Financial Statements:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Operations for the years ended December 31, 1997, 1998 and 1999
Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the years ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the notes thereto under Item 8.
3. Exhibits:
|
EXHIBIT
NUMBER |
DESCRIPTION |
|
|
(d)2.5
|
Stock Purchase Agreement by and among Federal Data Corporation and Ralph O. Williams, Frederic M. Cullen, Trustees of R.O.W. Sciences ESOP, John C. Smith, Paul H. Tardif and R.O.W. Sciences, Inc. dated as of February 17, 1998 | |
|
(e)2.5
|
Asset Purchase Agreement dated as of February 20, 1998 by and among Telos Corporation and NYMA, Inc. | |
|
(e)2.6
|
Interim Agreement dated as of February 28, 1998 by and among Telos Corporation and NYMA, Inc. | |
|
(f)2.7
|
Stock Purchase Agreement among Federal Data Corporation and Harry P. Headley, as Trustee, Dorothy Headley, as Trustee, Michael K. Headley, Kathleen Kowis, George Kowis and Technical and Management Assistance, Inc. dated March 11, 1998 | |
|
(a)3.1
|
Certificate of Incorporation of Federal Data Corporation | |
|
(a)3.2
|
By-laws of Federal Data Corporation | |
|
(a)3.3
|
Certificate of Incorporation of FDCT Corp. | |
|
(a)3.4
|
By-laws of FDCT Corp. | |
|
(a)3.5
|
Articles of Incorporation of NYMA, Inc. | |
|
(a)3.6
|
By-laws of NYMA, Inc. | |
|
(a)3.7
|
Articles of Incorporation of Sylvest Management Systems Corporation | |
|
(a)3.8
|
By-laws of Sylvest Management Systems Corporation | |
|
(a)3.9
|
Certificate of Incorporation of FDC Technologies, Inc. | |
|
(a)3.10
|
By-laws of FDC Technologies, Inc. | |
|
(f)3.15
|
Certificate of Incorporation of R.O.W. Sciences, Inc. | |
|
(f)3.16
|
By-laws of R.O.W. Sciences, Inc. | |
|
(f)3.17
|
Articles of Incorporation of Technical and Management Assistance, Inc. | |
|
(f)3.18
|
By-laws of Technical and Management Assistance, Inc. | |
|
(a)4.1
|
Indenture dated as of July 15, 1997 among Federal Data Corporation, FDCT Corp., NYMA, Inc., Sylvest Management Systems Corporation, FDC Technologies, Inc., DoxSys, Inc., VAD International, Inc. and Norwest Bank Minnesota, National Association | |
|
(a)4.2
|
Specimen Certificate of 10 1/8% Senior Subordinated Notes due 2005 (included in Exhibit 4.1) | |
|
(a)4.3
|
Purchase Agreement dated as of July 18, 1997
among Federal Data Corporation, BT Securities Corporation and Lehman Brothers |
|
|
(a)4.4
|
Registration Rights Agreement dated as of July
25, 1997 among Federal Data Corporation, BT Securities Corporation and Lehman Brothers |
|
|
(b)4.5
|
Credit Agreement dated as of July 25, 1997 among Federal Data Corporation, various lending institutions signatories thereto and Bankers Trust Company as Agent, as amended by First Amendment to Credit Agreement dated as of August 4, 1997 among Federal Data Corporation, various lending institutions signatory thereto and Bankers Trust Company as Agent | |
|
(a)4.6
|
Form of 9% Increasing Rate Subordinated Note due 2004 dated May 21, 1997 | |
|
(a)4.7
|
Form of 9% Increasing Rate Subordinated Note due 2004 dated June 30, 1997 | |
|
(f)4.8
|
Form of 9% Rate Subordinated Note due 2000 dated February 17, 1998 | |
|
(f)4.9
|
Form of 9% Rate Subordinated Note due 2000 dated March 13, 1998 | |
|
4.10
|
The Company is a party to several non-recourse financing agreements evidenced by promissory notes, none of which exceed 10 percent of the total assets of the Company and its subsidiaries on a consolidated basis. The Company hereby agrees to furnish a copy of such agreements to the Commission upon request. | |
|
(c)4.11
|
Security Agreement-Inventory dated September 5, 1997 among Federal Data Corporation, Sylvest Management Systems Corporation, FDC Technologies, Inc. and Nationscredit Commercial Corporation of America | |
|
(c)4.12
|
Intercreditor Agreement dated as of September 11, 1997 between Bankers Trust Company, as Agent, and Nationscredit Commercial Corporation of America | |
|
(c)4.13
|
First Supplemental Indenture dated as of December 19, 1997 between Federal Data Corporation and Norwest Bank, Minnesota, National Association | |
| (g)4.14 | Amendment to the Senior Credit Facility dated April 23, 1999 | |
| (h)4.15 | Amendment to the Senior Credit Facility dated October 22, 1999 | |
| * 4.16 | Amendment to the Senior Credit Facility dated March 23, 2000 | |
|
(a)10.1
|
+Employment Agreement dated April 30, 1997 between NYMA, Inc. and Peter C. Belford | |
|
(b)10.2
|
+Stock Option Plan dated February 16, 1996 for Executives and Other Key Employees | |
|
(b)10.3
|
+Form of Executive Management Incentive Stock Option Agreement | |
|
(a)10.4
|
Agreement of Lease dated December 5, 1984 between
Federal Data Corporation and Community Motors Property Associates Limited Partnership |
|
|
(a)10.6
|
Lease Agreement dated February 2, 1988 between Second Trade Center Office Associates Limited Partnership and NYMA, Inc., as modified by Lease Modification Agreement dated December 22, 1988 between Second Trade Center Office Associates Limited Partnership and NYMA, Inc. | |
|
(f)10.7
|
Lease Assignment, Modification and Extension Agreement | |
|
(a)10.9
|
Trust Agreement dated December 27, 1994 among
Federal Data Corporation, Charles R. Hanley, II, Daniel Young, Harry Marren, Marvin Haber and Paul Taltavull |
|
|
(b)10.10
|
+Management Agreement dated as of December 1,
1995 among FDC Technologies, Inc., the subsidiaries listed on Schedule A thereto and TC Group, L.L.C. |
|
|
* 21.1
|
Subsidiaries of Federal Data Corporation | |
|
* 27
|
Financial Data Schedule | |
|
*
|
Filed herewith | |
|
(a)
|
Incorporated by reference to exhibits to the Company's Registration Statement on Form S-4, filed on September 26, 1997. | |
|
(b)
|
Incorporated by reference to exhibits to the Company's Amendment No. 1 to Registration Statement on Form S-4, filed on November 26, 1997. | |
|
(c)
|
Incorporated by reference to exhibits to the Company's Amendment No. 2 to Registration Statement on Form S-4, filed on December 19, 1997. | |
|
(d)
|
Incorporated by reference to the exhibits to the Company's Report on form 8-K, filed on March 3, 1998. | |
|
(e)
|
Incorporated by reference to the exhibits to the Company's Report on form 8-K, filed on March 16, 1998. | |
|
(f)
|
Incorporated by reference to the exhibits to the Company's Report on form 10-K 405, filed on March 31, 1998. | |
| (g) | Incorporated by reference to the exhibits to the Company's Report on form 10-Q, filed on May 13, 1999. | |
| (h) | Incorporated by reference to the exhibits to the Company's Report on form 10-Q, filed on November 12, 1999. | |
|
+
|
Executive Compensation Plan or Arrangement |
(4) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in Bethesda, Maryland on March 28, 2000.
|
FEDERAL DATA CORPORATION | |
|
By: |
/s/ James M. Dean
|
|
James M. Dean Vice President, Chief Financial Officer and Treasurer |
Pursuant to the requirements of the Securities Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and the dates indicated.
|
SIGNATURE
|
TITLE
|
DATE
| ||
|
/s/ William E. Conway, Jr.
William E. Conway, Jr.
|
Chairman of the Board |
March 27, 2000 | ||
|
/s/ Daniel R. Young
Daniel R. Young
|
Vice Chairman and Chief
Executive Officer |
March 27, 2000 | ||
|
/s/ James M. Dean
James M. Dean
|
Vice President, Chief Financial
Officer and Treasurer (Principal Financial and Accounting Officer) |
March 27, 2000 | ||
|
/s/ Allan M. Holt
Allan M. Holt
|
Director and Secretary |
March 27, 2000 | ||
|
/s/ Peter J. Clare
Peter J. Clare
|
Director |
March 27, 2000 | ||
|
/s/ Harry T. Marren
Harry T. Marren
|
Director, President and
Chief Operating Officer |
March 27, 2000 | ||
|
/s/ C. Robert Hanley
C. Robert Hanley
|
Director and Chairman
Emeritus |
March 27,
2000 |
QUICKLINKS
Part I
Item 1. Business.
Item 2. Facilities.
Item 3.
Legal Proceedings.
Item 4. Submission of Matters to a vote of Security
Holders.
Part II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 8. Consolidated Financial Statements.
Index to Financial Statements.
Report of
Independent Accountants
Consolidated Balance Sheets as of December 31, 1998 and
1999
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999
Consolidated
Statements of Changes in Stockholders' (Deficit) Equity for the Years Ended
December 31, 1997, 1998 and 1999
Consolidated
Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and
1999
Notes to Consolidated Financial Statements
Note 1- Nature of Business
Note 2 - Merger
Note 3 - Summary of
Significant Accounting Policies
Note 4 - Acquisitions
Note 5 - Accounts
Receivable
Note 6 - Net Investment in Sales-Type Leases
Note 7 - Other
Assets
Note 8 - Leased and Other Property and Equipment
Note 9 - Notes
Payable
Note 10 - Nonrecourse Obligations Under Capital Leases
Note 11 -
Accounts Payable and Other Liabilities
Note 12 - Income Taxes
Note 13 -
Stockholders' Equity and Transactions with Stockholders
Note 14 -
Supplemental Disclosure of Cash Flow Information
Note 15 - Commitments and
Contingencies
Note 16 - Retirement Plans
Item 9. Disagreements on
Accounting and Financial Disclosure.
Part III
Item 10.
Directors and Executive Officers of the Registrant.
Item 11. Executive
Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Item 13. Certain Relationships and Related
Transactions.
Part IV
Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K.
Signatures.
|
|