|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
|
For the Quarter
Ended: |
|
Commission File
Number: |
|
March 31, 2000 |
333-36447 |
FEDERAL DATA CORPORATION
(Exact
name of Registrant as specified in its charter)
|
DELAWARE |
|
52-0940566 |
|
(State or other jurisdiction
of |
(I.R.S. Employer
Identification | |
|
incorporation) |
Number) |
4800 Hampden Lane Bethesda, MD
20814
(Address of principal executive offices) (Zip
Code)
(301) 986-0800
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former
address, and former fiscal year. if
changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of the close of business April 30, 2000, the Registrant had outstanding 2,917,996 shares of Common Stock, par value $.01 per share.
INDEX
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and March 31, 2000 (Unaudited)
Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 1999 and 2000
Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 1999 and 2000
Notes to Consolidated Financial Statements (Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Item 6. Exhibits and Reports on Form 8-K
Item 1. Consolidated Financial Statements
Federal Data Corporation
Consolidated Balance
Sheets
(In thousands, except share data)
|
December 31, |
March 31, |
|||
|
1999
|
2000
|
|||
| Assets |
(Unaudited) |
|||
|
Cash and cash
equivalents |
$4,095 |
$1,226 |
||
|
Accounts
receivable |
129,774 |
118,428 |
||
|
Net investment in
sales-type leases |
5,672 |
6,014 |
||
|
Inventory
|
6,020 |
5,908 |
||
|
Other
assets |
3,317
|
5,102
|
||
|
Total
current assets |
148,878 |
136,678 |
||
|
Net
investment in sales-type leases |
2,714 |
1,140 |
||
|
Leased and other property
and equipment |
6,071 |
6,003 |
||
|
Goodwill and
intangibles |
57,718 |
55,992 |
||
|
Other
assets |
10,783
|
10,685
|
||
|
Total
assets |
$226,164
|
$210,498
|
||
| Liabilities and stockholders' deficit | ||||
|
Accounts
payable and other liabilities |
$95,667 |
$66,787 |
||
|
Recourse
notes payable |
2,000 |
- |
||
|
Nonrecourse
obligations under capital leases |
1,691
|
1,216
|
||
|
Total
current liabilities |
99,358 |
68,003 |
||
|
Recourse notes
payable |
131,000 |
150,440 |
||
|
Other
liabilities |
2,058
|
939
|
||
|
Total
liabilities |
232,416
|
219,382
|
||
|
Stockholders' deficit |
||||
| Common stock, $.01 par value: 8,000,000 shares authorized; | ||||
| 2,932,196 shares issued and 2,917,996 outstanding in 1999 and 2000 |
29 |
29 |
||
|
Capital in
excess of par value |
43,968 |
44,019 |
||
|
Accumulated
deficit |
(50,249
|
) |
(52,932
|
) |
|
Total
stockholders' deficit |
(6,252
|
) |
(8,884
|
) |
| Commitments and contingencies | ||||
|
Total
liabilities and stockholders' deficit |
$226,164
|
$210,498
|
See notes to consolidated financial
statements
Federal Data Corporation
Consolidated
Statements of Operations
(In thousands)
(Unaudited)
|
Three Months Ended
March 31, |
||||
|
1999
|
2000
|
|||
| Revenue | ||||
|
Product
sales |
$62,650 |
$80,744 |
||
|
Professional and support services |
40,114 |
36,983 |
||
|
Interest and
other |
447
|
658
|
||
|
Total
revenue |
103,211
|
118,385
|
||
|
Expenses |
||||
|
Cost of sales and
services |
90,013 |
105,346 |
||
|
Selling,
general and administrative |
11,404 |
11,192 |
||
|
Goodwill and
intangibles |
2,796 |
1,734 |
||
|
Interest |
3,866
|
3,923
|
||
|
Total
expenses |
108,079
|
122,195
|
||
|
Loss before income tax
benefit |
(4,868 |
) |
(3,810 |
) |
| Income tax benefit |
(1,270
|
) |
(1,127
|
) |
| Net loss |
($3,598
|
) |
($2,683
|
) |
See notes to consolidated financial
statements
Federal Data Corporation
Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
|
Three Months Ended
March 31, |
||||
|
1999
|
2000
|
|||
| Cash flows from operating activities: | ||||
|
Net
loss
|
($3,598
|
)
|
($2,683
|
)
|
|
Adjustments to reconcile
net loss to
|
||||
|
net
cash flows from operating activities:
|
||||
|
Depreciation and amortization
|
3,324
|
2,399
|
||
|
Amortization of deferred
financing cost
|
237
|
237
|
||
|
Non-cash compensation
related
to stock options
|
1,142
|
51
|
||
|
Gain on sale of
assets
|
(125
|
)
|
-
|
|
|
Income recorded on
sales-type
leases
|
(237
|
)
|
(85
|
)
|
|
Collections from sales-type
leases
|
2,546
|
1,348
|
||
|
(Increase) decrease in
inventory
|
(3,667
|
)
|
112
|
|
|
Decrease in accounts receivable
|
21,229
|
11,346
|
||
|
Decrease in accounts payable
and accrued expenses
|
(25,752
|
)
|
(27,273
|
)
|
|
Net change in other assets
and liabilities
|
2,671
|
(4,718
|
)
|
|
|
Net cash flows from
operating activities
|
(2,230
|
)
|
(19,266
|
)
|
|
Cash flows from investing activities:
|
||||
| Net proceeds from sale of property and equipment |
488
|
-
|
||
|
Purchase of equipment for
sales-type leases
|
(1,318
|
)
|
-
|
|
|
Purchase of property and
equipment
|
(366
|
)
|
(597
|
)
|
|
Net cash flows from
investing activities
|
(1,196
|
)
|
(597
|
)
|
| Cash flows from financing activities: | ||||
|
Net
borrowings under line of credit
|
3,000
|
19,500
|
||
| Repayments of borrowings |
-
|
(2,000
|
) | |
|
Repayments of capital lease
obligations
|
(506
|
)
|
(506
|
)
|
|
Net
cash flows from financing activities
|
2,494
|
16,994
|
||
| Net change in cash and cash equivalents |
(932
|
)
|
(2,869
|
)
|
|
Cash and cash equivalents, beginning of period
|
3,942
|
4,095
|
||
| Cash and cash equivalents, end of period |
$3,010
|
$1,226
|
||
See notes to consolidated financial statements
Federal Data Corporation
Notes to
Consolidated Financial Statements
(In thousands, except share
data)
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of Federal Data Corporation and its wholly-owned subsidiaries (collectively, the Company) and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in the annual financial statements, prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading.
In the opinion of management, the accompanying unaudited consolidated financial statements reflect all necessary adjustments and reclassifications (all of which are of a normal, recurring nature) that are necessary for fair presentation for the periods presented. It is suggested that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's latest annual report to the Securities and Exchange Commission on Form 10-K 405 for the year ended December 31, 1999.
The results of operations for the three months ended March 31, 2000, are not necessarily indicative of the results to be expected for the full fiscal year ending December 31, 2000.
All of the Company's direct and indirect wholly-owned subsidiaries have fully and unconditionally guaranteed, on a joint and several basis, the Company's obligations under its Senior Subordinated Notes. The Company is a holding company with no assets or operations other than its investments in its subsidiaries. The separate financial statements of the subsidiary guarantors are not presented because the Company's management believes that such financial statements are not material to investors.
Note 2 - Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101 (SAB 101), "Revenue Recognition in Financial Statements" which summarizes certain of the staff's views on revenue recognition. The Company's revenue recognition policies have been and continue to be in accordance with SAB 101.
Note 3- Reclassification
Certain amounts have been reclassified in the prior period to conform to the current period presentations. These reclassifications had no effect on net loss or retained earnings as previously reported.
Note 4- Stockholders' Equity
In December 1995, FDC Holdings, Inc. merged with and into the Company with the Company continuing as the surviving corporation. In accordance with the merger agreement, the Company was to replace options previously outstanding at the merger date with options in the surviving corporation that provide substantially the same economic benefit to the option holder as the benefits provided prior to the merger. To fulfill this obligation, in March 1999, the Company issued fully vested options to purchase 40,425 shares of the Company's common stock at an exercise price of $2.00 per share. These options expire ten years from the date of grant. Accordingly, the Company recorded non-cash compensation of $1,011 and a related increase in capital in excess of par value based on the difference between the exercise price of the stock options and the then current fair market value.
During the three months ended March 31, 2000, the Company issued options to purchase 43,000 shares of the Company's common stock at an exercise price of $27.00 per share.
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31, 1999
The following table sets forth, for the periods indicated, selected consolidated statements of operations data as a percentage of total revenue:
|
Three Months Ended
March 31, | |||||
|
1999
|
2000
| ||||
| Revenue |
|
||||
|
Product
sales |
60.7 |
% |
68.2 |
% | |
|
Professional and support
services |
38.9 |
|
31.2 |
| |
|
Interest and
other |
0.4 |
|
0.6 |
| |
|
|
| ||||
|
Total
revenue |
100.0 |
|
100.0 |
| |
|
|
| ||||
|
Expenses |
|
|
|
| |
|
Cost of
sales and services |
87.2 |
|
89.0 |
| |
|
Selling,
general and administrative |
11.0 |
|
9.5 |
| |
|
Goodwill
and intangibles |
2.7 |
|
1.5 |
| |
|
Interest |
3.7 |
|
3.3 |
| |
|
|
| ||||
|
Total
expenses |
104.7 |
|
103.2 |
| |
|
|
| ||||
|
Loss
before income tax benefit |
-4.7 |
% |
-3.2 |
% | |
|
|
| ||||
REVENUE
Revenue for the three months ended March 31, 2000 was $118.4 million, up $15.2 million or 15% over the comparable period of 1999. Revenue from product sales was $80.7 million, up $18.1 million or 29% over the comparable period of 1999. 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 $37.0 million, down $3.1 million or 8% from the comparable period of 1999. The decrease in professional and support services revenue is primarily due to the expiration of existing contracts which were originally awarded to acquired companies under small business set-aside programs or contracts which became set-aside programs after their expiration.
GROSS MARGIN
Gross margin is revenue from product sales and professional and support services less cost of sales and services, which includes product purchase costs and personnel and other professional and support services costs. The Company's gross margin for the three months ended March 31, 2000 was $12.4 million, down $0.4 million or 3% from the comparable period of 1999. The Company's gross margin percentages vary over time and change depending on the product sold, the contract vehicle used and the portion of the work performed by Company personnel versus subcontractors. Gross margin as a percentage of product sales and professional and support services revenue was 10.5% for the three months ended March 31, 2000, down from 12.4% in the comparable period of 1999. This decrease in gross margin was primarily the result of specific sales and marketing initiatives in the value-added product marketplace.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense for the three months ended March 31, 2000 was $11.2 million, down $0.2 million or 2% from the comparable period of 1999. During the three months ended March 31, 1999, the Company issued stock options in accordance with the Company's merger with FDC Holdings, Inc. in 1995. Accordingly, the Company recorded non-cash compensation of $1.0 million during the three months ended March 31, 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 then current fair market value. Excluding the effect of the non-cash compensation, selling, general and administrative expense for the three months ended March 31, 2000 was 9% of revenue compared with 10% of revenue for the comparable period of 1999.
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. 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 three months ended March 31, 2000 was $1.7 million, down $1.1 million, or 38% from the comparable period of 1999, primarily due to the reduction in the amortization of the present value of contract profits acquired through the acquisitions.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2000 was $3.9 million, up $0.1 million, or 1% over the comparable period of 1999.
INCOME TAX BENEFIT
The income tax benefit for the three months ended March 31, 2000 is based on an estimated annual effective rate, excluding expenses not deductible for income tax purposes. Before giving effect to the non-deductibility of the amortization of goodwill and the value assigned to other identified intangibles associated with certain acquisitions and the non-cash compensation related to stock options, the effective tax provision rate for the year ending December 31, 2000 is estimated to be 40%, approximately the same rate recorded during the three months ended March 31, 1999.
NET LOSS
Net loss for the three months ended March 31, 2000 was $2.7 million, a $0.9 million reduction from the net loss of $3.6 million recorded in the comparable period of 1999 based on the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary source of liquidity has been cash provided by operations and financing activities. In general, the Company's liquidity requirements vary seasonally with revenue, which are historically higher in the third and fourth quarters of each fiscal year. Cash flow from the collection of accounts receivable from the U.S. Government (the Government) has generally been predictable and dependable. Cash and cash equivalents were $1.2 million at March 31, 2000, down $2.9 million from December 31, 1999 primarily as a result of net cash used in operating activities of $19.3 million and net cash used in investing activities of $0.6 million being partially offset by cash generated from financing activities of $17.0 million. Net cash used from operating activities was primarily a result of the decrease in accounts payable and accrued expenses of $27.3 million, which was partially offset by decreases in accounts receivable of $11.3 million. Net cash used in investing activities amounted to $0.6 million for the three months ended March 31, 2000, primarily as a result of purchases of property and equipment. Net cash flow from financing activities was $17.0 million for the three months ended March 31, 2000 primarily as a result of net borrowings under the Company's working capital line of credit of $19.5 million. In March 2000, certain financial covenants within the Company's Senior Credit Facility were amended.
EBITDA, as calculated below, represents the sum of loss before income tax benefit, net recourse interest expense, depreciation and amortization and one-time non-cash charges. EBITDA is not a measure of performance or financial condition under generally accepted accounting principles, but is presented to provide additional information related to debt service capability. EBITDA should not be considered in isolation or as a substitute for other measures of financial performance or liquidity under generally accepted accounting principles. While EBITDA is frequently used as a measure of operations and the ability to meet debt service requirements, it is not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.
The following presentation represents the Company's computation of EBITDA (in thousands):
|
Three Months Ended
March 31, |
||||
|
1999
|
2000
|
|||
|
Loss before income tax
benefit |
($4,868 |
) |
($3,810 |
) |
|
Net
recourse interest expense |
3,768 |
3,864 |
||
|
Non-cash compensation
related to stock options |
1,142 |
51 |
||
|
Depreciation and
amortization |
3,324
|
2,399
|
||
| EBITDA |
$3,366
|
$2,504
|
||
YEAR 2000 COMPLIANCE
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 quarterly report on Form 10-Q contains statements which, to the extent that they are not recitations of historical fact, constitute "forward-looking statements" that are based on management's expectations, estimates, projections and assumptions. Words such as "expects," "anticipates," "plans," "believes," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements that include, but are not limited to, projections of future performance, assessment of contingent liabilities and expectations concerning liquidity, cash flow and contract awards. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Therefore, actual future results and trends may differ materially from what is forecast in forward-looking statements due to a variety of factors, including the Company's successful execution of internal performance plans; performance issues with key suppliers and subcontractors; developments with respect to contingencies such as legal proceedings or administrative proceedings challenging any contract award; labor negotiations; changing priorities or reductions in the budgets of Government agencies who purchase products or services from the Company; termination of Government contracts due to unilateral Government action; and the impact of the "Year 2000" issue on the Company and its customers and suppliers. For additional information, see "Risk Factors" in the Company's Registration Statement on Form S-4, SEC File Number 333-36447.
The previous discussion and analysis should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this report.
###
Item 3. Quantitative and Qualitative
Disclosure about Market Risk
The Company is exposed to market risk from changes in interest rates due to investments in instruments made for non-trading purposes. The interest rate risk relates primarily to the Company's portfolio of short-term investment grade securities. The Company is also subject to risk relating to fluctuating interest rates under its Senior Credit Facility. The Company believes that interest rate risk is immaterial to the Company.
4.16 Amendment to the Senior Credit Facility.
21.1 Subsidiaries of Federal Data Corporation.
27 Financial
Data Schedule.
Item 6 (b). Reports on Form 8-K.
None.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
FEDERAL DATA CORPORATION | |
|
By:
|
/ s/ James M.
Dean
|
|
James M.
Dean Vice President and Chief Financial Officer | |
|
Date: May 12,
2000 |
QUICKLINKS
Part I
Item 1.Consolidated Financial Statements
Consolidated Balance Sheets as
of December 31, 1999 and March 31, 2000 (Unaudited)
Consolidated Statements of
Operations (Unaudited) for the Three Months Ended March 31, 1999 and 2000
Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended March 31, 1999 and
2000
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
Note 2 - Recent Accounting Pronouncements
Note 3 - Reclassifications
Note 4 - Stockholders'
Equity
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure about Market
Risk
Part II
Item 6. Exhibits and Reports on Form 8-K
Signature
|
|