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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-OR-
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to
____________________
Commission file number 1-6035
THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-2588754
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3033 Science Park Road
San Diego, CA 92121-1199
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (619) 552-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
$1.00 Cumulative Convertible Preferred Stock, $1.00 par value
New York Stock Exchange
Common Stock, $.01 par value
Preferred Stock Purchase Rights
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 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
Aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 17, 1997: $ 58,476,049.
Number of shares of Common Stock outstanding at March 17, 1997:
16,035,157
Document Incorporated By Reference
Proxy Statement for the 1997 Annual Meeting of Stockholders on May
15, 1997. (The Company has or will have filed a definitive proxy statement
with the Commission within 120 days after the close of the fiscal year
pursuant to Regulation 14A.) With the exception of those portions which are
incorporated by reference in this Form 10-K Annual Report, the Proxy
Statement for the 1997 Annual Meeting of Stockholders is not deemed to be
filed as part of this Report, Part III.
PART I
Item 1. Business
General Development and Description of Business
The Titan Corporation ("Titan" or the "Company") is an innovative high
technology company which groups its businesses in four industry segments:
Communications Systems, Software Systems, Defense Systems, and Emerging
Technologies. The Communications Systems segment contains two start-up
business units, both targeting rapidly growing commercial markets. The
first business unit is satellite communications, which develops and sells
satellite earth station networks and related systems. The second business
unit, broadband communications, specializes in providing complete turnkey
security for television delivery systems. The Software Systems segment
provides custom software products and services to assist customers in
moving from older mainframe systems to distributed computing systems
utilizing client/server software. The Defense Systems segment, serving
primarily the U.S. Government, includes satellite communications products,
systems analysis and design, object-oriented software development services,
and systems integration services for customers with large data management
needs. The Emerging Technologies segment contains environmental consulting
and medical product sterilization, together with established businesses
generally involved in Department of Defense (DoD) funded research and
development contracts and the manufacture of pulsed power electron systems
and linear accelerators for both government and industrial customers.
For the past several years, the Company has pursued a strategy to use the
technology and experience gained in its defense business to build
commercial business. At the same time, the Company has continued to focus
on growing its defense business in key market areas. As part of this
strategy to strengthen its core defense operations, the Company acquired
three information technology companies, Eldyne, Inc., Unidyne Corporation,
and Diversified Control Systems, Inc. in May 1996.
COMMUNICATIONS SYSTEMS SEGMENT
The Communications Systems segment contains two start-up business units,
both targeting rapidly growing commercial markets. The first business is
satellite communications, which develops and sells bandwidth-efficient,
cost-effective satellite earth station networks and related systems which
address the demand for telephony services. Some of these products include
high-efficiency network management systems and voice processing and
redundant control circuitry for reliable transmissions. A key feature of
the Company's products is its defense-derived DAMALink(TM) network management
software system, which allows for multiple simultaneous users to access
efficiently the same satellite channel, resulting in cost savings and
improved operational flexibility for the customer. To address the need for
telecommunications infrastructure in developing countries, the Company has
designed and developed its Xpress Connection system as a cost-effective
means to link remote locations into the public switched network in
developing countries. These systems are being marketed in Asia and Latin
America.
In the third quarter of 1995, the Company received a $9.6 million fixed
price contract to develop a rural telephony system in Indonesia. In
September 1996, the contract was amended to add a Singapore company as a
second party. The revised contract provides the two parties the option to
purchase additional terminals and other equipment. In addition, the two
parties have the exclusive right to market and sell the Xpress Connection
for use in Indonesia and jointly with the Company in the remainder of the
Asian Palapa C1 and C2 satellites' coverage area. Delivery of certain
components of the telephony system commenced in 1996. In addition, in the
third quarter of 1996, the Company received a $4 million contract to
provide a communications network for a bank in Thailand.
The second business unit, broadband communications, specializes in
providing complete turnkey security for television delivery systems, with
applications for delivery of television programming via wireless,
satellite, coaxial cable, and fiber optics. In January 1995, the Company
signed its first equipment purchase agreement to provide analog equipment
and software to control access to a wireless television service in New York
City. During 1996, the Company received a $12.75 million purchase order
from this customer for delivery of additional conditional access system
equipment and set-top box decoders. In addition, the Company was awarded a
$2.7 million contract with this customer for a system in Thailand.
During 1996, the Company continued to make significant investments adapting
its analog system for use in digital video transmission systems in order to
address the digital and wireless direct-to-home satellite and private
business television markets. The Company is actively marketing its systems
in domestic and international markets. The Company has been pursuing a
process to identify potential strategic investors for the broadband
communications business. To date, an appropriate strategic investor has not
been identified. Furthermore, the Company is assessing other strategic
alternatives related to the broadband communications business. The Company
has taken certain actions early in 1997 to significantly reduce the
broadband unit's operating costs.
SOFTWARE SYSTEMS SEGMENT
The Software Systems segment provides custom software products and services
to clients desiring to upgrade their information systems. These services
assist customers in moving from older mainframe systems to distributed
computing systems utilizing client/server object-oriented software. The
Company provides the services and resources necessary to design, develop
and implement these projects, including systems consulting, project
management, work-flow analysis, industry and application knowledge,
implementation, training and program maintenance.
To date, the Company's software systems work has focused on the
telecommunications industry, the FAA, and financial institutions. The
Company's work has included development and support for access carrier
client/server applications, system-to-system communications for the
real-time exchange of maintenance information between an access customer
and long-distance providers, real time customer support applications, new
client/server data management architectures and improved trouble shooting
and reporting for telecommunications systems.
The Software Systems segment has been, and for at least the near future is
anticipated to be, substantially dependent on business from a major
telecommunications customer. Revenues in 1996 from this customer were
approximately $8.3 million. The Company continues to do a significant
amount of work for this customer, and has been actively seeking to build on
its work for this customer to obtain additional clients in the
telecommunications and other industries. The Company is also developing and
implementing enterprise-wide information networks for a federal agency and
is providing information services activities, which include process
re-engineering and development for network management, for a major
financial institution.
DEFENSE SYSTEMS SEGMENT
The Defense Systems segment includes two business units, information and
communications systems. These units provide their information and
communications systems solutions primarily to the U.S. Department of
Defense (DoD) and intelligence agencies, focusing on key areas of secure
satellite communications and information process re-engineering using
distributed computing and client/server software.
The Company provides information systems solutions to government customers
with large data management and control requirements. The Company's services
include systems analysis and design, object-oriented software development
services and systems integration. The Company focuses on marketing its
services to intelligence agencies, NATO and other government agencies where
the Company has extensive knowledge of the enterprise's operations and
information systems needs. This knowledge assists the Company in providing
a comprehensive solution to a customer's problem which is compatible with
the customer's overall information systems architecture and strategy, as
opposed to developing merely a technical solution to a specific problem.
The Company's initial work generally involves a thorough analysis of the
customer's enterprise structure and processes and information system needs.
Once this strategic analysis is completed, the Company designs the
technology solution to meet the customer's needs. This process typically
involves software development by the Company, coupled with integration of
commercial "off-the-shelf" software and hardware as available. On many
procurements, the Company will team with other industry participants in
order to offer a multi-company solution to the customer.
In May 1996, the Company acquired Eldyne, Unidyne and DCS, which provide
the Department of Defense and other government customers with systems
research, development and prototyping, and integration and life cycle
support of electronic, information and control systems. In particular,
Eldyne provides engineering, assembly and installation services for
communications, sonar and navigation systems. These services include
designing digital communications hardware and software, planning and
managing U.S. Navy programs, designing high-speed data acquisition and
process control software, researching electromagnetic interference and
control, performing communciations hardware integration, testing and
evaluating prototype shipboard electronic systems, and performing complex
computer simulations of magnetic and electrical fields. Unidyne provides
its customers with a variety of technical support services, including
electronics and mechanical design, computer-aided drafting and
computer-aided manufacturing services, technical documentation,
prototyping, electronics and mechanical fabrication and various industrial
activities such as equipment installation, overhaul/refurbishment and
providing skilled trades personnel. Subsequent to year-end, the Company
received a $50 million task order contract to provide communications
systems integration support for the U.S. government. In addition, Titan
received new awards from the U.S. Navy, with an initial value of $5 million
in 1997 and a total potential value of $25.3 million over the next five
years for electronic systems, support and equipment for submarine undersea
warfare.
The defense communications business develops and produces advanced
satellite terminals and associated voice/data processing modems using DAMA
(Demand Assigned Multiple Access) technologies. These products are
specifically tailored to meet defense requirements, provide highly secure
communications and are produced in relatively small quantities. Until
recently, the government generally obtained new products that were designed
and developed under fixed price development contracts which require the
products to meet very rigorous military specifications. The government has
now shifted to a nondevelopment procurement approach under which companies
are encouraged to perform their own research and development programs to
have products readily available for purchase and to incorporate commercial
"off-the-shelf" components where feasible in order to reduce costs. To
address this trend, the Company has combined expertise gained under
government-sponsored development projects and its own internal development
efforts to enable it to provide advanced technology solutions based on
commercial components. The Company was contracted by the U.S. Air Force in
1987 to develop a satellite communications technique called DAMA, and has
subsequently been awarded more than $100 million in government funded
development projects related to this technology. The Company has enhanced
this position by investing significant resources in internal development
projects to create a variety of DAMA-based products which utilize
commercial components. These efforts have resulted in the Mini-DAMA
terminal used by the U.S. Navy, as well as other satellite communications
products based on DAMA technology. In early 1997, the Company was awarded a
$4.5 million contract to provide Mini-DAMA terminals for installation on
patrol aircraft for the Royal Australian Air Force.
Marketing for the Defense Systems segment involves identifying the
requirements of the U.S. Government and other potential customers for the
types of products and services provided by the Company. The information is
then evaluated to determine if the Company can prepare a responsive
proposal to the customer. This business is highly dependent upon continued
funding of certain U.S. Government contracts.
EMERGING TECHNOLOGIES SEGMENT
The Emerging Technologies segment contains a group of mature businesses
generally involved in Department of Defense funded research and development
contracts, the design and manufacture of pulsed power systems, and various
early stage commercial businesses, involved in medical product
sterilization services and systems and environmental consulting services.
The Company's strategy is to cultivate the research and development
activities as a source of additional DoD and commercial products, systems
or services.
The Emerging Technologies segment performs various government-sponsored
research and development projects, primarily comprised of cost-reimbursable
contracts. These research and development activities involve a number of
technologies including those necessary to develop and manufacture
high-powered microwave tubes. The Company also designs and manufactures
custom particle accelerators and pulsed power systems. These systems
include linear electron accelerators for applications including medical
products sterilization and food pasteurization.
The Company's medical product sterilization business is based upon advanced
linear accelerator technology developed from the Company's research and
development activities. This business provides sterilization services and
systems to the medical device marketplace in two ways; (i) its
owner-operated facilities; and (ii) sales and installations of turnkey
sterilization systems. The Company owns and operates two medical
sterilization facilities -- one in Denver, Colorado and one in San Diego,
California. These facilities provide electron beam sterilization services
using Titan's SureBeam(R) process to producers of disposable medical products.
The facility in Denver, now operating at near full capacity, has been
operational since July 1993, and the facility in San Diego became
operational in January 1996. In 1996, the Company secured a five-year
contract with a customer in San Diego as its anchor customer. In December
1996, the Company sold its second turnkey electron beam sterilization
system.
The environmental consulting and services business provides a range of
professional environmental consulting and engineering services to
commercial customers. These services include remediation strategy
development, site assessment, risk assessment, remediation technology
selection, contract management and oversight of regulatory agency
approvals.
Government Contracts
Sales to the United States Government, including both defense and
non-defense agencies, and sales as a subcontractor as well as direct sales,
aggregated $102,925,000 in 1996, $81,632,000 in 1995 and $93,107,000 in
1994. These amounts represent 75%, 61% and 68% of total revenues in 1996,
1995, and 1994, respectively.
Titan's Government customers include the Navy, the Army, the Air Force, and
other Government agencies, including the Federal Aviation Administration,
the Federal Emergency Management Agency, the Department of Commerce, the
National Aeronautics and Space Administration, the Defense Nuclear Agency
and others. The Company's business is dependent to a large extent upon
continued funding from these and other government agencies.
The Company's contracts with the Government and subcontracts to prime
contractors are subject to termination for the convenience of the
Government; termination, reduction, or modification in the event of change
in the Government's requirements or budgetary constraints; and, when the
Company participates as a subcontractor, the failure or inability of the
prime contractor to perform its prime contract. In addition, the Company's
contract costs and fees, including allocated indirect costs, are subject to
audits and adjustments by negotiation between the Company and the
Government.
In addition to the right to terminate, Government contracts are conditioned
upon the continuing availability of Congressional appropriations. Congress
usually appropriates funds on a fiscal year basis even though contract
performance may take several years. Consequently, at the outset of a major
program, the contract is usually incrementally funded and additional funds
are normally committed to the contract by the procuring agency as
appropriations are made by Congress for future fiscal years.
The Company's business with the Government and prime contractors is
generally performed under cost reimbursement, fixed price or time and
materials contracts. Cost reimbursement contracts for the Government
provide for reimbursement of costs plus the payment of a fee. Under fixed
price contracts, the Company agrees to perform certain work for a fixed
price. Under time and materials contracts, the Company is reimbursed for
labor hours at negotiated hourly billing rates and is reimbursed for travel
and other direct expenses at actual costs plus applied general and
administrative expense.
The following table gives the percentage of revenues realized by the
Company from the three primary types of Government contracts during the
years indicated.
Contract Type 1996 1995 1994
Cost Reimbursement.............. 52.9% 54.7% 59.9%
Fixed Price..................... 40.9 40.2 36.8
Time and Materials.............. 6.2 5.1 3.3
100.0% 100.0% 100.0%
Industry Segments, Significant Customers and Export Revenues
Reference is made to Note 5 to the accompanying consolidated financial
statements.
Raw Materials
The Company operates both fabrication and assembly facilities and also
purchases certain components and assemblies from other suppliers. No one
supplier accounts for a significant portion of total purchases.
Patents, Trademarks and Trade Secrets
The policy of the Company is to apply for patents and other appropriate
statutory protection when it develops new or improved technology. The
Company presently holds over 40 U.S. patents, as well as a number of
trademarks and copyrights. However, it does not rely solely on such
statutory protection to protect its technology and intellectual property.
In addition to seeking patent protection for its inventions, the Company
relies on the laws of unfair competition and trade secrets to protect its
unpatented proprietary rights. The Company attempts to protect its trade
secrets and other unpatented proprietary information through agreements
with customers, vendors, employees and consultants. In addition, various
names used by the Company for its products and services have been
registered with the U.S. Patent and Trademark Office.
Backlog
Contracts undertaken by the Company may extend beyond one year, and
accordingly, portions are carried forward from one year to the next as part
of backlog. Because many factors affect the scheduling of projects, no
assurance can be given as to when revenue will be realized on projects
included in the Company's backlog. Although backlog represents only
business which is considered to be firm, there can be no assurance that
cancellations or scope adjustments will not occur. The majority of backlog
represents contracts under the terms of which cancellation by the customer
would entitle the Company to all or a portion of its costs incurred and
potential fees.
The Company's commercial backlog represents contracts primarily for
services. By segment, the commercial backlog is approximately $26.3
million, $12.5 million, $5.2 million and $3.1 million for Communications
Systems, Emerging Technologies, Software Systems and Defense Systems,
respectively.
Many of the Company's contracts with the U.S. Government are funded by the
procuring agency from year to year, primarily based on its fiscal
requirements. This results in two different categories of U.S. Government
backlog: funded and unfunded backlog. "Funded backlog" consists of the
aggregate contract revenues remaining to be earned by the Company at a
given time, but only to the extent such amounts have been appropriated by
Congress and allocated to the contract by the procuring Government agency.
"Unfunded backlog" consists of (i) the aggregate contract revenues which
are expected to be earned as the Company's customers incrementally allot
funding to existing contracts, whether the Company is acting as a prime
contractor or subcontractor, and (ii) the aggregate contract revenues which
remain to be funded on contracts which have been newly awarded to the
Company. "Backlog" is the total of the commercial and government funded and
unfunded backlog.
The Company's backlog consists of the following approximate amounts as of
December 31:
Backlog 1996 1995
Commercial backlog................... $ 47,113,000 $ 25,949,000
U.S. Government funded backlog....... 49,256,000 32,903,000
U.S. Government unfunded backlog..... 98,881,000 19,883,000
$195,250,000 $ 78,735,000
Backlog at December 31, 1996 includes $97.7 million from Eldyne, Unidyne
and DCS, which were acquired by the Company in May 1996 and excludes
backlog of the Company's Electronics division which was sold in July 1996.
In addition to the backlog described above, at December 31, 1996, the
Company had remaining priced options of over $60 million from the U.S. Navy
for full-scale production of its Mini-DAMA satellite communications
terminal. The Company expects that a substantial number of these options
will be exercised in the future, although there is no assurance that any
options will be exercised.
Management believes that year-to-year comparisons of backlog are difficult
and not necessarily indicative of future revenues. The Company's backlog is
typically subject to large variations from quarter to quarter as existing
contracts are renewed or new contracts are awarded. Additionally, all U.S.
Government contracts included in backlog, whether or not funded, may be
terminated at the convenience of the U.S. Government.
The Company expects to realize approximately 75% of its 1996 backlog by the
end of 1997.
Research and Development
The Company maintains a staff of engineers, other scientific professionals
and support personnel engaged in development of new applications of
technology and improvement of existing products. These programs' costs are
expensed as incurred. Total expenditures for research and development were
$9,295,000, $16,667,000, and $12,699,000 in 1996, 1995, and 1994,
respectively. These expenditures included company funded research and
development of $4,789,000, $5,904,000, and $5,339,000, and customer
sponsored research and development of $4,506,000, $10,763,000, and
$7,360,000, in 1996, 1995, and 1994, respectively. The majority of the
Company's customer sponsored research and development activity is funded
under contract to the U.S. Government.
Competitive Conditions
Communications Systems. The Company is one of many companies providing
satellite earth station networks and related subsystems in commercial
markets. The products compete based primarily on quality, reliability,
service and price. Competition is intense, and many competitors have
greater financial and personnel resources than does the Company.
The Company is one of a few companies in the secure distribution of
television business. These products compete based primarily on quality,
reliability, service and price. The Company's major competitors include
General Instrument Corporation and Scientific Atlanta, Inc., both of whom
have significantly greater resources than the Company.
Software Systems. The Company is one of many developers producing custom
software for high technology clients. The custom software industry is
rapidly changing and is subject to technological obsolescence. Many of the
Company's customers in this business have their own in-house capabilities
to perform certain types of services that might otherwise be performed by
the Company. The primary factors of competition in the business in which
the Company is engaged include technical skills, knowledge of specific
industry operations for which the software is being developed, management
and marketing expertise and price.
Defense Systems. The Company designs, manufactures and sells earth stations
and related subsystems for use in military satellite communications
systems. Although the Company has significant market share in certain
segments of the military satellite communications systems market, some
competitors have greater financial and personnel resources than the
Company.
The Company is one of many involved in providing sophisticated systems
engineering for a variety of programs for agencies of the United States
Government and prime contractors for these agencies. Most activities in
which the Company engages are very competitive and require highly skilled
and experienced technical personnel. Numerous companies compete in the
service areas in which the Company is engaged, many of which have
significantly greater financial and personnel resources than does the
Company. As is customary in the business, the Company expends time and
effort in preparing competitive proposals, only a portion of which may
result in the award of contracts.
Emerging Technologies. The Company is one of a few companies involved in
the sterilization of disposable medical products prior to their use. This
service competes primarily on quality, reliability, service, safety,
environmental acceptability and price. The Company's major competitors are
Isomedix, Inc. and Sterigenics International, Inc.
The Company competes against a wide variety of companies to perform funded
research and development contracts for the Government. Many of these
companies have substantially greater financial and technical resources than
the Company.
The Government's own in-house capabilities and federally-funded
(non-profit) research and development centers are also, in effect,
competitors of the Company in that they perform certain types of services
that might otherwise be performed by the Company. The primary factors of
competition in the business in which the Company is engaged include
technical skills, management and marketing expertise and price.
Employees
At the end of fiscal 1996, the Company employed approximately 1,449
employees, predominantly located in the United States.
Item 2. Properties
The Company's operations occupy approximately 680,650 square feet of space
located throughout the United States. The large majority of the space is
office space. Substantially all of the Company's facilities are leased. For
lease commitment information, reference is made to Note 8 to the
accompanying financial statements.
It is management's policy to maintain the Company's facilities and
equipment in good condition and at a high level of efficiency. Existing
facilities are considered to be generally suitable and adequate for the
Company's present needs. Substantially all of the machinery and equipment
employed by Titan in its business is owned by the Company.
The locations of the principal operating facilities of the Company and its
consolidated subsidiaries at the end of 1996 were as follows:
Communications Systems Software Systems
San Diego, California San Diego, California
Reston, Virginia
Washington, D.C.
Colorado Springs, Colorado
Defense Systems Tampa, Florida
San Diego, California Dallas, Texas
Reston, Virginia
Norfolk, Virginia
Richmond, Virginia
Hanover, Maryland
Vallejo, California Emerging Technologies
Heathrow, Florida San Diego, California
Denver, Colorado San Leandro, California
Boston, Massachusetts Dublin, California
Dayton, Ohio Chatsworth, California
Huntsville, Alabama Albuquerque, New Mexico
Niantic, Connecticut Denver, Colorado
Bozeman, Montana
Princeton, New Jersey
Tempe, Arizona
Item 3. Legal Proceedings
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further,
the Company and its subsidiaries are subject to claims and from
time-to-time are named as defendants in legal proceedings. In the opinion
of management, the amount of ultimate liability with respect to these
actions will not materially affect the financial position or results of
operations of the Company.
The Company is involved in appeals of the judgments resulting from the
trials of two separate lawsuits filed by former employees claiming, among
other things, wrongful termination and discrimination. The Company intends
to vigourously pursue and defend against the appeals of these cases. While
it is not feasible to predict the outcome of these cases, management
believes that their ultimate disposition will not have a material adverse
effect on the financial position or results of operations of the Company.
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 and cumulative convertible preferred stock are
traded on the New York Stock Exchange ("NYSE"). As of March 3, 1997, there
were approximately 3,400 holders of record of the Company's common stock
and 740 holders of record of the Company's preferred stock, excluding
beneficial owners of shares held in the names of brokers or other nominees.
The closing prices for the common and preferred stock on the New York Stock
Exchange as of March 3, 1997, were $3.50 and $10.75, respectively. The
quarterly market price ranges for the Company's common and preferred stock
on the New York Stock Exchange in 1996 and 1995 were as follows:
Common Stock 1996 1995
Fiscal Quarter High Low High Low
First $7.38 $6.00 $7.13 $5.63
Second 7.13 5.50 9.38 6.25
Third 5.63 3.63 10.38 8.50
Fourth 4.38 2.50 9.63 6.63
Cumulative Convertible
Preferred Stock 1996 1995
Fiscal Quarter High Low High Low
First $12.63 $12.00 $11.88 $10.88
Second 12.13 11.38 12.25 11.63
Third 11.50 10.88 13.25 11.75
Fourth 10.88 10.00 12.88 11.88
No dividends were paid on the Company's common stock in 1996 or 1995.
Regular quarterly dividends of $.25 per share were paid on the cumulative
convertible preferred stock in both years.
Item 6. Selected Financial Data
(in thousands of dollars,
except per share data) 1996 1995 1994 1993 1992
Operating Results:
Revenues $137,722 $133,967 $136,206 $149,414 $148,762
Net income (loss) (3,378) (3,807) 5,953 (7,906) 3,631
Net income (loss) per common
share (.27) (.33) .40 (.73) .26
Financial Position:
Cash and cash equivalents 2,052 5,833 5,129 5,374 4,344
Total assets 127,848 95,170 81,903 93,214 90,679
Long-term debt 40,071 4,281 765 -- 9,500
Redeemable preferred stock 3,000 -- -- -- --
Stockholders' equity 46,645 38,639 38,768 29,321 36,016
Preferred dividends 803 695 695 695 695
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition (The following should be read in conjunction
with the consolidated financial statements and related notes. Dollar
amounts are expressed in thousands.)
COMPANY OVERVIEW
Throughout 1996, Titan continued to pursue its strategy of strengthening
its core defense businesses and investing in its early stage commercial
businesses. Investment dollars were provided from the issuance of $34.5
million of convertible subordinated debentures, proceeds of which were used
to repay borrowings under its bank credit facilities and to fund working
capital requirements.
Significant accomplishments achieved by Titan's emerging commercial
businesses this year included the award of a $12.75 million purchase
agreement for delivery of additional conditional access system equipment
and set-top box decoders to a U.S. company and a $2.7 million award for a
similar system in Thailand, the initial shipments on the Company's rural
telephony development contract in Indonesia, the award of a $4 million
contract to provide a communications network in Bangkok, and the opening of
the San Diego medical sterilization facility. These accomplishments marked
significant progress for Titan. However, the need to complete product
development and realize positive profit contributions from the
commercialization process has heightened the challenge of internally
funding these start-up activities. Titan's strategic plan focuses on the
pursuit of various financing alternatives including, but not limited to,
public and private offerings of minority interests in certain of its
subsidiaries and the sale of non-core businesses, in order to provide
additional funding for the development and commercialization of new
products and services.
The Company is currently involved in a number of early stage businesses,
most notably commercial satellite communications, broadband communications,
and medical device sterilization. Certain investments made in these early
stage businesses have been capitalized and are included in the balance
sheet, primarily within the captions of Inventories, Property and
Equipment, and Other Assets, which includes capitalized software costs. At
December 31, 1996, these capitalized investments aggregate approximately
$18.8 million. These early stage businesses are in various growth stages
and have not yet generated sufficient revenues to achieve profitability.
The capitalized investments in these businesses are substantially complete.
However, significant sales and marketing efforts related to the
commercialization process are expected to continue. Management intends to
carefully monitor its return on investment from all of its early stage
businesses. The Company has been pursuing a process to identify potential
strategic investors for the broadband communications business. To date, an
appropriate strategic investor has not been identified. The Company intends
to reduce its investment in this area in 1997, and has taken actions to
significantly reduce the broadband communications business operating costs.
An essential element of the Company's long-term strategy is the growth
associated with its core Defense Systems segment. As part of this strategy,
Titan acquired Eldyne, Unidyne, and Diversified Control Systems ("the
Acquired Companies") in May 1996. The Acquired Companies provide the
Department of Defense and other government customers with systems research,
development and prototyping, and integration and life cycle support of
electronic, information and control systems. The services and systems
provided by the Acquired Companies are complementary to those provided by
the existing Defense Systems businesses. During 1996, achievements in this
segment included the exercise of an additional $8.3 million production
option and additional orders aggregating $6 million for Mini-DAMA satellite
communications terminals, and a $2.9 million contract with NATO to provide
hardware and software products, as well as systems integration. Subsequent
to year-end, the Company received a $50 million task order contract to
provide communications systems integration support for the U.S. government.
In addition, Titan received new awards from the U.S. Navy, with an initial
value of $5 million in 1997 and a total potential value of $25.3 million
over the next five years for electronic systems, support and equipment for
submarine undersea warfare.
OPERATING RESULTS
The table below sets forth Titan's consolidated revenues, operating profit
(loss), net interest expense, income tax provision (benefit) and net
income (loss) for each of the three years ended December 31, 1996:
1996 1995 1994
Revenues $ 137,722 $ 133,967 $ 136,206
Operating profit (loss) (2,157) (3,955) 9,635
Interest expense, net 2,961 1,059 632
Income tax provision (benefit) (1,740) (1,207) 3,050
Net income (loss) (3,378) (3,807) 5,953
Titan's consolidated revenues were $137,722, $133,967 and $136,206 in 1996,
1995 and 1994, respectively. The revenue growth in 1996 was attributable to
the Defense Systems segment, primarily reflecting the revenues generated by
Eldyne, Unidyne and DCS from the date of acquisition, offset by revenue
declines in the Communications Systems, Software Systems and Emerging
Technologies segments. Excluding revenues from Titan's Applications Group,
which was sold in April 1994, Titan's pro forma 1994 revenues were
$124,293. Increased revenues in 1995 over pro forma 1994 were generated in
all segments.
Titan's consolidated operating profit (loss) has been significantly
impacted by a number of factors in each of the three years shown above.
Combined selling, marketing, and research and development expenses were
$11,121, $12,008 and $9,686 in 1996, 1995 and 1994, respectively,
reflecting Titan's efforts to expand commercial applications of its
technologies and to continue developing certain defense communication
technologies. General and administrative expenses have remained relatively
constant over the 3 year period, with savings from cost-cutting actions
offset by increased investment in the Company's emerging commercial
businesses, primarily the Communications Systems segment. Restructuring
charges were recorded in both 1995 and 1994 reflecting management's efforts
to adapt to both internal and external forces impacting Titan's long-term
operating strategy. The 1994 charge was offset by a $12,700 pre-tax gain
resulting from the sale of Titan's Applications Group.
Net interest expense has fluctuated significantly over the three year
period ended December 31, 1996. Generally, the principal component of
interest expense is the Company's borrowings under its bank lines of
credit. In addition, the 1996 interest expense includes the interest
related to the convertible subordinated debentures issued by the Company in
November 1996. Borrowings from the Company's bank lines of credit averaged
$12,315, $6,400, and $4,180 at weighted average interest rates of 8.2%,
8.8% and 7.6% during 1996, 1995 and 1994, respectively. Also affecting
interest expense is interest on the Company's deferred compensation and
retiree medical obligations. Interest expense related to these items was
$801, $726 and $529 for 1996, 1995 and 1994, respectively. Interest on the
deferred compensation obligation will continue to increase as the total
obligation increases, while interest on the retiree medical obligation is
expected to decrease.
Income taxes reflect effective rates of 34%, 24% and 34% in 1996, 1995 and
1994, respectively. The difference between the actual provision and the
effective provision (based on the United States statutory tax rate) in 1995
was due to the alternative minimum tax and to permanent differences between
financial statement income and taxable income.
Business Segments
Communications Systems: The Communications Systems segment contains two
business units, both targeting rapidly growing commercial markets. The
first business unit is satellite communications, which develops and sells
satellite earth station networks and related systems which address the
demand for telephony services. The second business unit, broadband
communications, specializes in providing complete turnkey security for
television delivery systems, with applications for delivery of television
programming via wireless, satellite, coaxial cable and fiber optics.
Revenues in this segment were $5,885, $7,490 and $6,319 in 1996, 1995 and
1994, respectively. The composition of the revenues was significantly
different over the three year period. Revenues in the satellite
communications business unit were approximately $3,600 in 1996, $5,100 in
1995, and $6,000 in 1994. However, in early 1995, Titan sold its
transceiver manufacturing division which was part of this business unit. On
a pro forma basis, excluding the sold division, the satellite
communications revenues were approximately $4,600 and $2,200 in 1995 and
1994, respectively. The decrease in pro forma revenues to $3,600 in 1996
from $4,600 in 1995 was principally due to delays in shipments on the
Company's rural telephony contract. The increase in pro forma revenues from
1994 to 1995 resulted primarily from obtaining and performing on a contract
to develop and integrate a satellite communications network in Thailand.
Revenues in 1996 included approximately $2,200 of broadband communications
revenues from the completion of the Company's first contract in this
business area and revenues from a follow-on order with this same customer.
The decrease in revenues from 1995 to 1996 was due to delays in receiving
the follow-on order mentioned above. The 1995 segment revenues included
approximately $2,400 of broadband communications revenues from the
Company's first contract in this business area. There were no broadband
communications revenues in 1994.
The segment's operating loss was $7,841 in 1996 compared to $4,488 in 1995
and $7,927 in 1994. The losses in 1996 and 1995 reflect the start-up nature
of this segment's businesses which requires significant selling, marketing
and research and development activities disproportionate to the level of
revenues generated. The Company has been pursuing a process to identify
potential strategic investors for the broadband communications business. To
date, an appropriate strategic investor has not been identified. The
Company intends to reduce its investment in this area in 1997, and has
taken certain actions to significantly reduce the broadband communications
business operating costs. The loss in 1994 includes approximately $5,400 of
losses and restructuring charges associated with Titan exiting its
transceiver manufacturing business.
Software Systems: The Software Systems segment provides custom software
products and services to assist customers in moving from older mainframe
systems to distributed computing systems utilizing client/server,
object-oriented software.
Revenues in this segment were $18,505 for 1996, $33,175 in 1995, and
$28,868 in 1994. One customer accounted for approximately $8,000 of this
segment's revenue in 1996 and $24,000 of this segment's revenue in both
1995 and 1994. In the second half of 1995, this segment experienced reduced
demand from this customer and this trend continued in 1996. Excluding the
revenues from this customer, there was moderate growth in other custom
software business.
Segment operating loss was $137 in 1996, compared to operating income of
$3,803 in 1995 and $6,237 in 1994. The 1996 results were due primarily to
reduced sales from the previously mentioned customer, the timing of
corresponding decreases in selling, general and administrative expense, and
additional costs associated with a negotiated conclusion of certain
programs with this customer. The 1995 decrease was principally due to the
effect of restructuring charges for severance and other reorganization
costs and the impact of reduced sales volume mentioned previously.
Defense Systems: The Defense Systems segment includes two business units,
information and communications systems, which provide systems solutions
primarily to U.S. and allied government and defense customers. The defense
information systems business supports high priority government programs by
providing information systems engineering services, development and
integration of systems and specialized products, as well as systems
research, development and prototyping. The defense communications business
develops and produces advanced satellite terminals and associated
voice/data processing modems. These products are specifically tailored to
meet defense requirements, provide highly secure communications and are
produced in relatively small quantities.
Revenues in this segment were $90,902, $67,948, and $78,780 for 1996, 1995
and 1994, respectively. However, excluding revenues attributable to the
Company's Applications Group, which was sold in 1994, pro forma segment
revenues were $66,867 in 1994. Revenues increased in 1996 principally due
to $33,600 revenues generated from the acquired companies Eldyne, Unidyne
and DCS. Revenue growth from the Mini-DAMA production contract also
contributed to the revenue increase in this segment. Revenues in 1996, 1995
and 1994 included approximately $6,100, $18,300 and $9,700, respectively,
for work subcontracted to the buyer of the Applications Group. There was no
operating profit associated with these revenues. This contract was
substantially completed in 1996. Revenues and operating profit for 1995
included approximately $1,400 recovered from a termination for convenience
claim with the U.S. Government for work performed in prior years.
Segment operating income in 1996 was $10,018, compared with $4,456 in 1995,
and $4,725 in 1994. The operating income increase in 1996 is attributable
to the revenue growth discussed previously, and certain non-recurring
credits resulting from the reevaluation of estimates of certain allowable
contract costs based upon favorable developments with certain government
audit agencies, as well as changes in the carrying value of assets being
disposed of. Operating results for 1994 include $2,500 of profit resulting
from a favorable settlement and from improved contract performance on the
Company's Mini-DAMA fixed price development contract. This profit was
offset by a charge of approximately $3,200 for restructuring costs related
to the Electronics division.
Emerging Technologies: Emerging Technologies contains a group of mature
businesses generally involved in Department of Defense (DoD) funded
research and development contracts and various early stage commercial
businesses, involved in medical product sterilization services and systems
and environmental consulting services. The Company's strategy is to use the
research and development activities as a source for developing additional
DoD and commercial products, systems and services.
Revenues in this segment were $22,430, $25,354 and $22,239 in 1996, 1995
and 1994, respectively. Approximately $7,600 of 1996 and $7,400 of 1995
revenue was generated by the segment's early stage businesses.
Substantially all remaining revenue for all periods presented was derived
from the various established business lines. The decline in 1996 revenue is
primarily attributable to the sale of the Company's shaped-charged
munitions business in September 1995 and the completion of certain pulsed
power systems contracts with the French government. This segment's
operating profit (loss) has not been material in relation to the Company's
consolidated operating results. Generally losses experienced by the
start-up operations have offset profits contributed by the segment's other
lines of business.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, Titan used $12,684 cash for operating requirements. In
addition to funding the net loss, other significant cash uses included an
increase in inventories of $5,461 principally related to commercial rural
telephony products and to government satellite communications, funding
requirements for certain accrued compensation obligations of $2,427 and
funding of $4,099 of restructuring activities. Cash was provided primarily
by collection of receivables in the Defense Systems segment of $3,633, the
proceeds from the issuance of the convertible subordinated debentures, net
of issuance costs and the repayments of borrowings under the Company's
revolving lines of credit, of $9,739, the refinancing of the Company's
Denver Scan facility for $1,773, and proceeds from the sale of the
Company's Electronics division of $2,492.
In November 1996, the Company issued $34,500 of 8.25% convertible
subordinated debentures due 2003. The net proceeds of approximately $32,400
were used to repay the borrowings under the Company's revolving lines of
credit. The remaining funds were used to fund working capital requirements
and other general purposes.
As of December 31, 1996, there were no borrowings outstanding under the
Company's $14,000 bank line of credit, and the Company had available cash
of $2,052. The Company had commitments under letters of credit at December
31, 1996 of $1,104, which reduced availability under the line of credit to
$12,896. The maturity date of the line of credit is May 31, 1997.
Subsequent to December 31, 1996, the Company received a commitment from the
bank to renew the facility through May 31, 1998.
In connection with the Company's acquisition of Eldyne, Unidyne and DCS in
May 1996, the Company's Eldyne and Unidyne subsidiaries assumed and
renegotiated a separate credit agreement with a lender which provides,
among other things, for a working capital line of credit facility of up to
$7,000 for Eldyne and Unidyne. The actual borrowing base is limited for
each of Eldyne and Unidyne to the sum of various percentages of billed and
certain unbilled government and commercial receivables. At December 31,
1996, there were no borrowings outstanding under this line of credit. The
Company had commitments under letters of credit at December 31, 1996 of
$85, which, in addition to borrowing base limitations, reduced availability
under the line of credit to $4,663. The Company has guaranteed up to $2,500
of indebtedness under this line of credit. The maturity date of the line of
credit is May 31, 1997. The Company intends to renegotiate this line of
credit with the lender and/or other banks.
Cash requirements for 1997 are expected to continue to be significant.
Investments in product development within the Communications Systems
segment were substantially complete in 1996, however, the Company plans to
continue aggressive sales and marketing efforts. The Company has been
pursuing a process to identify potential strategic investors for the
broadband communications business. To date, an appropriate strategic
investor has not been identified. Because there can be no assurance that
the Company will be successful in obtaining outside funding, the Company
will continue to reassess its investment in all its early stage businesses,
in relation to the availability of funding sources, both internal and
external. As part of this assessment, the Company has taken certain actions
in early 1997 to reduce operating costs in the broadband communications
business.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Management's Discussion and Analysis
of Results of Operations and Financial Condition that are not related to
historical results are forward looking statements. Actual results may
differ materially from those stated or implied in the forward looking
statements. Further, certain forward looking statements are based upon
assumptions of future events which may not prove to be accurate. These
forward looking statements involve risks and uncertainties including but
not limited to those referred to below.
Entry Into Commercial Business. Prior to 1992, the Company's revenues had
been derived principally from business with the Department of Defense and
other government agencies. Since that time, the Company has pursued a
strategy of using the technology from its defense business to build
commercial businesses. This strategy presents certain significant risks for
the Company. Many of the Company's commercial businesses, such as satellite
communications, broadband communications, and medical sterilization, remain
in an early stage. As such, the Company is subject to all the risks
inherent in the operation of a start-up venture, including the need to
develop and maintain marketing, sales and customer support capabilities, to
secure appropriate third party manufacturing arrangements, to respond to
the rapid technological advances inherent in these markets, to secure the
necessary financing to support these activities and, ultimately, to design
and manufacture products or provide services acceptable to buyers in its
target markets. Certain of the Company's new products, including products
for which the Company has contracts for delivery, are still in the testing
stage. There can be no assurance that such tests will be completed
satisfactorily or that the Company will be able to satisfy all of the
requirements for delivery of and payment for these products. In addition,
many of the opportunities in the satellite communications and broadband
communications businesses are large, international projects which involve
lengthy sales cycles. The Company's efforts to address these risks have
required, and will continue to require, significant expenditures and
dedicated management time and other resources. There can be no assurance
that the Company will be successful in addressing these risks or in
developing these commercial businesses.
Reliance on Major Software Customer. The Company's Software Systems
business is substantially dependent on business from a major
telecommunications company to develop and support access carrier
client/server software applications. Revenues from this customer totaled
approximately $8.3 million, $24.5 million, and $24.3 million or 6%, 18%,
and 18% of total Company revenues in 1996, 1995, and 1994, respectively. In
the second half of 1995, the Company experienced reduced demand from this
customer and this trend continued in 1996. The loss of this customer, or a
substantial delay or continued decrease in the amount of its business,
could have a material adverse effect on the Software Systems segment's
results of operations and financial condition.
Dependence on Defense Spending. The Company's Defense Systems segment is
dependent upon continued funding of U.S. Department of Defense programs.
Titan, like other companies doing business with the U.S. Department of
Defense, has been affected by declining defense budgets and has experienced
increased competition in certain of its defense business areas. The size
and scope of any reductions in future defense budgets is uncertain, and
management anticipates that competition in most defense-related areas will
continue to be intense.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement
Schedules
Page
Report of Independent Public Accountants............................ 15
Financial Statements
Consolidated Statements of Operations............................ 16
Consolidated Balance Sheets...................................... 17
Consolidated Statements of Cash Flows............................ 18
Consolidated Statements of Stockholders' Equity.................. 19
Notes to Consolidated Financial Statements....................... 20-31
Supporting Financial Statement Schedule Covered by the Foregoing Report of
Independent Accountants:
Schedule II - Valuation and Qualifying Accounts..................... 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Titan Corporation:
We have audited the accompanying consolidated balance sheets of The Titan
Corporation (a Delaware corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Titan Corporation
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
/S/
ARTHUR ANDERSEN LLP
San Diego, California
February 20, 1997
The Titan Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
For the years ended December 31,
1996 1995 1994
Revenues $137,722 $133,967 $136,206
Costs and expenses:
Cost of revenues 110,589 102,231 99,921
Selling, general and
administrative expense 24,501 23,538 22,511
Research and development expense 4,789 5,904 5,339
Restructuring and other (income)
expense, net -- 6,249 (1,200)
Total costs and expenses 139,879 137,922 126,571
Operating profit (loss) (2,157) (3,955) 9,635
Interest expense (3,026) (1,154) (923)
Interest income 65 95 291
Income (loss) before income taxes (5,118) (5,014) 9,003
Income tax provision (benefit) (1,740) (1,207) 3,050
Net income (loss) (3,378) (3,807) 5,953
Dividend requirements on preferred stock (803) (695) (695)
Net income (loss) applicable
to common stock $(4,181) $ (4,502) $ 5,258
Net income (loss) per weighted
average common share $ (.27) $ (.33) $ .40
Weighted average common shares outstanding 15,278 13,445 13,288
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Balance Sheets
(in thousands of dollars, except shares and per share values)
As of December 31,
1996 1995
Assets
Current Assets:
Cash and cash equivalents $ 2,052 $ 5,833
Accounts receivable - net 47,509 39,360
Inventories 13,157 10,399
Prepaid expenses and other 2,059 2,872
Deferred income taxes 6,037 4,809
Total current assets 70,814 63,273
Property and equipment - net 21,005 18,295
Goodwill - net of accumulated amortization
of $4,723 and $3,842 21,348 3,550
Other assets - net 14,681 10,052
Total assets $127,848 $95,170
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,394 $10,184
Line of credit -- 9,200
Note payable to related party 1,000 --
Current portion of long-term debt 1,010 1,019
Accrued compensation and benefits 8,680 9,192
Other accrued liabilities 10,615 13,803
Total current liabilities 29,699 43,398
Long-term debt 40,071 4,281
Other non-current liabilities 8,433 8,852
Commitments and contingencies
Series B cumulative convertible
redeemable preferred stock,
$3,000 liquidation preference,
6% cumulative annual dividend,
500,000 shares issued and outstanding 3,000 --
Stockholders' Equity:
Preferred stock: $1 par value, authorized
2,500,000 shares:
Cumulative convertible, $13,897
liquidation preference:
694,872 shares issued and outstanding 695 695
Series A junior participating,
authorized 250,000 shares: none issued -- --
Common stock: $.01 par value, authorized 30,000,000
shares, issued and outstanding: 17,133,680 and
15,087,087 shares 171 151
Capital in excess of par value 42,751 31,148
Retained earnings 5,988 10,169
Treasury stock
(1,106,114 and 1,161,147 shares), at cost (2,960) (3,524)
Total stockholders'equity 46,645 38,639
Total liabilities and stockholders' equity $127,848 $95,170
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Statements of Cash Flows
(in thousands of dollars)
For the years ended December 31,
1996 1995 1994
Cash Flows from Operating Activities:
Net income (loss) $(3,378) $(3,807) $ 5,953
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization 5,793 4,117 3,424
Deferred income taxes and other (1,909) 178 681
Change in operating assets
and liabilities, net of effects
from businesses sold and acquired:
Accounts receivable 3,453 (3,196) 8,091
Inventories (5,461) (3,287) (494)
Prepaid expenses and
other assets 344 811 160
Accounts payable (3,496) 2,782 (44)
Income taxes payable (653) -- --
Accrued compensation
and benefits (2,427) (1,808) 1,559
Restructuring activities (4,099) (486) (1,200)
Other liabilities (851) (1,249) (12,218)
Net cash provided by (used for) operating
activities (12,684) (5,945) 5,912
Cash Flows from Investing Activities:
Proceeds, net of transaction costs, from sale
of businesses 2,492 1,835 16,766
Capital expenditures (6,179) (8,988) (6,244)
Capitalized software costs (3,570) (1,957) (1,345)
Payment for purchase of businesses,
net of cash acquired (2,679) -- --
Other 170 117 33
Net cash provided by (used for)
investing activities (9,766) (8,993) 9,210
Cash Flows from Financing Activities:
Additions to debt 37,000 13,800 --
Retirements of debt (15,841) (621) (16,871)
Deferred debt issuance costs (2,035) -- --
Proceeds from stock issuances 348 3,158 2,199
Dividends paid (803) (695) (695)
Net cash provided by (used for)
financing activities 18,669 15,642 (15,367)
Net increase (decrease) in cash
and cash equivalents (3,781) 704 (245)
Cash and cash equivalents at
beginning of year 5,833 5,129 5,374
Cash and cash equivalents at end of year $ 2,052 $ 5,833 $ 5,129
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994
(in thousands of dollars, except per share data)
Cumulative
Convertible Capital
Preferred Common in Excess of Retained Treasury
Stock Stock Par Value Earnings Stock Total
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1993 $ 695 $ 138 $ 24,974 $ 9,413 $ (5,899) $ 29,321
Exercise of stock options -- 8 2,191 -- -- 2,199
Shares contributed to employee
benefit plans and other -- -- -- -- 1,295 1,295
Income tax benefit from
employee stock transactions -- -- 695 -- -- 695
Dividends on preferred stock -
$1 per share -- -- -- (695) -- (695)
Net income -- -- -- 5,953 -- 5,953
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1994 695 146 27,860 14,671 (4,604) 38,768
Stock issuance -- -- 1,413 -- 912 2,325
Exercise of stock options -- 5 1,209 -- (381) 833
Shares contributed to employee
benefit plans -- -- 322 -- 549 871
Income tax benefit from employee
stock transactions -- -- 344 -- -- 344
Dividends on preferred stock -
$1 per share -- -- -- (695) -- (695)
Net loss -- -- -- (3,807) -- (3,807)
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995 695 151 31,148 10,169 (3,524) 38,639
Stock issuance for acquisition -- 18 10,659 -- -- 10,677
Exercise of stock options and other -- 2 408 -- (62) 348
Shares contributed to
employee benefit plans -- -- 466 -- 626 1,092
Income tax benefit from employee stock
transactions -- -- 70 -- -- 70
Dividends on preferred stock --
Cumulative Convertible, $1.00 per share -- -- -- (695) -- (695)
Series B, 6% annual -- -- -- (108) -- (108)
Net loss -- -- -- (3,378) -- (3,378)
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1996 $ 695 $ 171 $ 42,751 $ 5,988 $ (2,960) $ 46,645
========== ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
The Titan Corporation
Notes to Consolidated Financial Statements
(in thousands of dollars, except per share data)
Note 1. Summary of Significant Accounting Policies
Nature of Operations. The Titan Corporation provides engineering,
technical, management and consulting services in the areas of national
security, software systems, communication systems, information systems,
electronic control systems, advanced research and development,
sterilization and the environment. The Company also develops, designs,
manufactures and markets satellite communications subsystems, broadband
communications systems, and pulsed power products including linear
accelerators.
Principles of Consolidation. The consolidated financial statements include
the accounts of The Titan Corporation ("Titan" or "the Company") and its
subsidiaries. All significant intercompany transactions and balances have
been eliminated. Also, certain prior year amounts have been reclassified to
conform to the 1996 presentation.
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 revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Start-up Activities. The Company is involved in a number of start-up
ventures, most notably commercial satellite communications, broadband
communications, and medical device sterilization. Certain investments made
in these start-up ventures are reflected in the balance sheet, primarily
within the captions of Inventories, Property and Equipment, and Other
Assets, which includes capitalized software costs. These capitalized
investments aggregate approximately $18,810 at December 31, 1996. The
capitalized investments in these businesses were substantially complete in
1996. These start-up ventures are in various early growth stages and have
not yet generated sufficient revenues to achieve profitability. At this
time, management plans to continue to invest in these ventures, though the
level of such investment may change based on the business' operating
performance and cash flows. Furthermore, management will continue to review
and evaluate all alternatives related to these investments, including
strategic partnering, joint venturing, or sale. The realizability of the
related assets is routinely assessed by management from both an operating
perspective, as well as through giving consideration to strategic
alternatives believed to be available.
Revenue Recognition. A majority of the Company's revenue, both commercial
and government, is derived from products manufactured and services
performed under cost-reimbursement and fixed-price contracts wherein
revenues are generally recognized using the percentage-of-completion
method. Certain other revenues are recognized as units are delivered.
Estimated contract losses are fully charged to operations when identified.
Cash Equivalents. All highly liquid investments purchased with an original
maturity of three months or less are classified as cash equivalents.
Inventories. Inventories include the cost of material, labor and overhead,
and are stated at the lower of cost, determined on the first-in, first-out
(FIFO) and weighted average methods, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method, with estimated
useful lives of 32 years for buildings, 2 to 15 years for leasehold
improvements and 3 to 7 years for machinery and equipment and furniture and
fixtures. Certain machinery and equipment in the Company's medical
sterilization business is depreciated based on units of production.
Goodwill. The excess of the cost over the fair value of net assets of
purchased businesses ("goodwill") is amortized on a straight-line basis
over varying lives ranging from 5 to 30 years. The Company periodically
re-evaluates the original assumptions and rationale utilized in the
establishment of the carrying value and estimated lives of these assets.
The criteria used for these evaluations include management's estimate of
the asset's continuing ability to generate positive income from operations
and positive cash flow in future periods as well as the strategic
significance of the intangible asset to the Company's business objectives.
Capitalized Software Costs. The Company's policy is to amortize capitalized
software costs over the greater of (a) the ratio that current gross
revenues for a product bears to the total of current and amortized future
gross revenues for that product, or (b) the straight-line method over the
remaining estimated economic life of the product, including the period
being reported on. Notwithstanding the above, the maximum amortization
period is four years. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic life of
the product, or both, could be reduced in the future which could
significantly impact the carrying amount of the capitalized software costs.
Impairment of Long-Lived Assets. Effective January 1, 1996, the Company
adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS 121). The statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be
reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
fully recoverable. The adoption of this statement had no material effect on
the Company's financial statements.
Stock Based Compensation. The Company has elected to adopt the disclosure
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, the
Company will continue to account for its stock based compensation plans
under the provisions of APB No. 25. Therefore, the adoption of SFAS 123 by
the Company had no effect on the Company's financial position and results
of operations.
Income Taxes. The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires the use of the liability method of accounting for
deferred income taxes. Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of differences
between the tax bases of assets and liabilities and their financial
reporting amounts at each year-end. If it is more likely than not that some
portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Per Share Information. Per share information is based on the weighted
average number of common shares and all dilutive common share equivalents
outstanding. Common stock equivalents consist primarily of shares issuable
upon the exercise of stock options. Conversion of the Series A Preferred
Stock has not been assumed as the effect of the conversion would not be
dilutive in any of the periods presented. Neither the Series B Preferred
Stock nor the Company's convertible subordinated debentures are considered
common stock equivalents for the purpose of earnings per share
calculations. Common stock equivalents were not considered in the
calculation of net loss per share in 1996 and 1995, as the impact would be
antidilutive.
Note 2. Acquisition
On May 24, 1996, the Company completed the acquisition of three
privately-held affiliated businesses -- Eldyne, Inc. ("Eldyne"), Unidyne
Corporation ("Unidyne") and Diversified Control Systems, LLC ("DCS").
Eldyne, Unidyne, and DCS are information technology businesses that provide
the Department of Defense and other government customers with systems
research, development and prototyping, and integration and life cycle
support of electronic, information, and control systems. The overall
transaction consideration, excluding associated transaction costs and
expenses, consisted of $1 million cash, 1,921,534 shares of Titan common
stock with an assigned value of $6.00 per share, the issuance of 500,000
shares of a new class of cumulative convertible redeemable preferred stock
(see Note 9), assumption of indebtedness (see Note 7), and a promissory
note for $1 million issued to the principal stockholder of the acquired
companies. The $1 million note is due on March 15, 1997, and interest of
10% per annum is due quarterly and at maturity. The Company also entered
into a retainer agreement for the services of the principal stockholder,
providing for an annual retainer of $.3 million, payable monthly, for 6
years beginning May 24, 1996. The net present value of the remaining
balance of the retainer agreement ($1.5 million) was paid to the principal
stockholder on January 2, 1997. Estimated other direct costs of the
acquisition were approximately $3 million.
The acquisition has been accounted for as a purchase, and, accordingly, the
Company's consolidated financial statements include the operating results
of the three acquired companies since May 24, 1996. The purchase agreements
provided for a post-closing adjustment to the purchase price based on the
final valuation of the acquired assets and assumed liabilities, pursuant to
which 142,036 shares of the Company's common stock were returned to the
Company by the seller in December 1996. This transaction was recorded as a
reduction of $852 to the purchase price in the fourth quarter of 1996. The
excess of the purchase price over the estimated fair value of net assets
acquired of $18,200 at December 31, 1996 is being amortized using a
straight-line method over 30 years.
Unaudited pro forma data giving effect to the purchase of Eldyne, Unidyne
and DCS as if they had been acquired at the beginning of 1995 are shown
below:
1996 1995
Revenues $162,058 $185,052
Net loss (5,068) (3,356)
Net loss per share (.37) (.28)
The pro forma net loss for 1996 includes certain unanticipated operating
adjustments made to the Eldyne, Unidyne and DCS historical financial
statements including, but not limited to, long-term contract earnings
revisions, and changes to the carrying value of certain assets, primarily
receivables.
Note 3. Restructuring
In 1995, the Board of Directors adopted a formal plan of restructuring that
redefined Titan's businesses into four business segments: Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies. The
plan was an integral part of management's strategy to position the Company
for access to capital markets as a significant source of continued
development funding. The plan resulted in charges of approximately $5,431
that provided for disposition of businesses not central to the Company's
long-term strategy, as well as significant reorganization of the Software
Systems and sterilization businesses, reductions of personnel, and other
actions associated with reorganizing the structure of the Company. As of
December 31, 1996, the planned restructure activities have been
substantially accomplished. Management currently anticipates that the
remaining reserves will be applied to costs estimated to be incurred in the
first half of 1997. During 1996, charges against restructuring reserves for
severance were $1,125, related to 85 employees terminated throughout the
Company, and other charges to the reserves, primarily related to the
exiting of businesses, were $2,974. These other charges reflect the sale on
July 26, 1996 of the Company's Electronics division, which was part of the
Defense Systems segment. At December 31, 1996, approximately $815 of the
initial restructuring accrual remained in other accrued liabilities for
costs associated with the exiting of businesses and the termination of
certain agreements. The group of businesses planned to be exited in the
restructuring plan had revenues of $14,160 and $19,384 and operating income
(loss) of $2,802 and $(298) for 1996 and 1995, respectively.
In early 1994, Titan sold its Applications Group (its Army training and
simulation service business) as part of a formal plan of restructuring
adopted at that time. The sale resulted in a pre-tax gain of approximately
$12,700 and generated net cash proceeds of approximately $17,000. The gain
on sale was substantially offset by provisions made for the estimated costs
of planned disposals and/or consolidations of certain operations deemed not
compatible with the Company's long range strategy at that time. Such
strategy was primarily reliant upon Titan internally funding the product
development efforts and commercialization activities relating to its
start-up ventures.
Note 4. Other Financial Data
Following are details concerning certain balance sheet accounts:
1996 1995
Accounts Receivable:
U.S. Government - billed $ 17,768 $ 14,449
U.S. Government - unbilled 19,885 10,758
Trade 10,093 14,447
Less allowance for doubtful accounts (237) (294)
$ 47,509 $ 39,360
Unbilled receivables include approximately $11,200 and $5,000 at December
31, 1996 and 1995 representing work-in-process which will be billed in
accordance with contract terms and delivery schedules. Also included in
unbilled receivables are amounts billable upon final execution of
contracts, contract completion, milestones or completion of rate
negotiations. Generally, unbilled receivables are expected to be collected
within one year. Payments to the Company for performance on certain U.S.
Government contracts are subject to audit by the Defense Contract Audit
Agency. Revenues have been recorded at amounts expected to be realized upon
final settlement.
1996 1995
Inventories:
Materials $ 2,051 $ 3,152
Work-in-process 9,840 4,159
Finished goods 1,266 3,088
$ 13,157 $ 10,399
Property and Equipment:
Machinery and equipment $ 29,986 $ 23,429
Furniture and fixtures 5,351 3,207
Land, buildings and leasehold improvements 7,584 3,503
Construction in progress 996 6,041
$ 43,917 $ 36,180
Less accumulated depreciation and amortization (22,912) (17,885)
$ 21,005 $ 18,295
Deferred income taxes of $4,094 and $5,904 and capitalized software costs
of $6,413 and $3,088 are included in Other Assets at December 31, 1996 and
1995, respectively. At December 31, 1996 and 1995, respectively, other
liabilities, current and non-current, include $1,352 and $958 related to
estimated losses on contracts. In addition, these captions include
liabilities for post-retirement benefits for employees of previously
discontinued operations of $2,923 and $3,016 at December 31, 1996 and 1995,
respectively. Also included in other accrued liabilities are customer
advance payments of approximately $2,414 and $1,653 at December 31, 1996
and 1995, respectively, and $815 and $4,914 related to restructuring
activities at December 31, 1996 and 1995, respectively.
Note 5. Segment Information
Titan classifies its businesses in four industry segments, Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies. The
Communications Systems segment contains two start-up business units, both
targeting rapidly growing commercial markets. The first business unit is
satellite communications, which develops, manufactures and sells satellite
earth station networks and related subsystems. The second business unit,
broadband communications, specializes in providing complete turnkey
security for television delivery systems. The Software Systems segment
provides custom and semi-custom software development services to assist
customers in moving from older mainframe systems to distributed computing
systems utilizing client/server software. The Defense Systems segment,
serving primarily the U.S. Government, includes satellite communications
products; test and evaluation of complex systems; management and technical
consulting; training and simulation support; and other consulting and
engineering services. The Emerging Technologies segment contains a group of
businesses including the start-up medical product sterilization services
and systems and environmental consulting services businesses as well as
several established businesses generally involved in broad-based technology
development primarily for the U.S. Government. Substantially all operations
are located in the United States. Export revenues amounted to approximately
$10,713, $14,240, and $8,498 in 1996, 1995 and 1994, respectively,
primarily to countries in Western Europe and the Far East.
The following tables summarize industry segment data for 1996, 1995 and 1994.
1996 1995 1994
Revenues:
Communications Systems $ 5,885 $ 7,490 $ 6,319
Software Systems 18,505 33,175 28,868
Defense Systems 90,902 67,948 78,780
Emerging Technologies 22,430 25,354 22,239
$137,722 $133,967 $136,206
Sales to the United States Government, including both defense and
non-defense agencies, and sales as a subcontractor as well as direct sales,
aggregated approximately $102,925 in 1996, $81,632 in 1995, and $93,107 in
1994. In the Defense Systems segment, revenues in 1996, 1995 and 1994
included approximately $6,100, $18,300, and $9,700, respectively, for work
subcontracted to the buyer of the Applications Group which was sold in
April 1994. There was no operating profit associated with these revenues.
This contract was substantially completed in 1996. Defense Systems 1995
revenues and operating profit included approximately $1,400 recovered from
a termination for convenience claim with the U.S. Government for work
performed in prior years. Within the Software Systems segment, sales to one
customer, a telephone company, totaled $8,325, $24,451, and $24,323, in
1996, 1995 and 1994, respectively. No other single customer accounted for
10% or more of the consolidated revenues for these years. Intersegment
sales were not significant in any year.
1996 1995 1994
Operating Profit (Loss):
Communications Systems $ (7,841) $ (4,488) $ (7,927)
Software Systems (137) 3,803 6,237
Defense Systems 10,018 4,456 4,725
Emerging Technologies 355 14 (305)
Corporate (4,552) (7,740) 6,905
$(2,157) $ (3,955) $ 9,635
The Defense Systems segment includes Applications Group revenue of $11,913
and operating profit of $919 in 1994 through the date of sale.
Corporate includes corporate general and administrative expenses, certain
Corporate restructuring charges, and gains or losses from the sale of
businesses. Corporate general and administrative expenses are generally
recoverable from contract revenues by allocation to operations.
1996 1995 1994
Identifiable Assets:
Communications Systems $ 19,035 $ 8,287 $ 4,813
Software Systems 6,139 8,945 6,084
Defense Systems 66,204 39,587 38,859
Emerging Technologies 20,014 19,191 12,165
General corporate assets 16,456 19,160 19,982
$127,848 $95,170 $81,903
General corporate assets are principally cash, prepaid expenses, deferred
income taxes, and other assets.
1996 1995 1994
Depreciation and Amortization
of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems $ 1,072 $ 366 $ 387
Software Systems 1,152 1,044 533
Defense Systems 2,346 1,744 1,838
Emerging Technologies 1,094 712 630
Corporate 129 251 36
$ 5,793 $ 4,117 $3,424
Capital Expenditures:
Communications Systems $ 1,837 $ 697 $ 397
Software Systems 261 1,709 1,784
Defense Systems 2,266 1,431 2,003
Emerging Technologies 1,726 5,007 1,963
Corporate 89 144 97
$ 6,179 $ 8,988 $ 6,244
Note 6. Income Taxes
The components of the income tax provision (benefit) are as follows:
1996 1995 1994
Current:
Federal $ -- $(2,232) $1,377
State -- (220) 203
-- (2,452) 1,580
Deferred (1,740) 1,245 1,470
$(1,740) $(1,207) $3,050
Following is a reconciliation of the income tax provision (benefit)
expected (based on the United States federal income tax rate applicable in
each year) to the actual tax provision (benefit) on income (loss):
1996 1995 1994
Expected Federal tax provision
(benefit) $(1,740) $(1,705) $3,061
State income taxes, net
of Federal income tax benefits (256) (44) 450
Loss carryforwards/carrybacks -- -- (216)
Research credit -- -- (338)
Goodwill amortization 88 160 149
Alternative minimum tax -- 100 --
Keyman life insurance 36 75 83
Other 132 207 (139)
Actual tax provision (benefit) $(1,740) $(1,207) $ 3,050
The deferred tax assets as of December 31, 1996 and 1995, result from the
following temporary differences:
1996 1995
Inventory and contract loss reserves $ 1,678 $ 3,005
Employee benefits 4,507 4,289
Restructuring 361 2,786
Tax credit carryforwards 1,383 815
Depreciation (3,051) (1,875)
Loss carryforward 6,932 1,680
Other (479) 1,213
11,331 11,913
Valuation allowance (1,200) (1,200)
Net deferred tax assets $10,131 $10,713
Realization of certain components of the net deferred tax asset is
dependent upon Titan generating sufficient taxable income prior to
expiration of loss and credit carryforwards. Although realization is not
assured, management believes it is more likely than not that the net
deferred tax asset will be realized. The amount of the net deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are
changed. Also, under Federal tax law, certain potential changes in
ownership of the Company which may not be within the Company's control may
limit annual future utilization of these carryforwards.
Net tax refunds in 1996 and 1995 were $322 and $828, respectively. Cash
paid for income taxes was $1,252 in 1994.
Note 7. Debt
In November 1996, the Company issued $34,500 of 8.25% convertible
subordinated debentures due 2003. The debentures are convertible into
common stock of the Company at a conversion price of $3.50 per share,
subject to adjustment upon the occurrence of certain events. The debentures
are redeemable, on or after November 2, 1999, initially at 104.125% of
principal amount and at decreasing prices thereafter to 100% of principal
amount through maturity, in each case together with accrued interest. The
debentures also may be repaid at the option of the holder upon a change in
control, as defined in the indenture governing the debentures, at 100% of
principal amount plus accrued interest. The net proceeds of the offering
were used to repay borrowings under the Company's bank lines of credit and
for working capital and general corporate purposes. At December 31, 1996,
other assets include $1,987 in capitalized costs related to the issuance,
which are being amortized to interest expense ratably over the life of the
debt.
At December 31, 1996, the Company had no borrowings outstanding under a
$14,000 bank line of credit with a maturity date of May 31, 1997. The
Company had commitments under letters of credit at December 31, 1996 of
$1,104, which reduced availability under the line of credit. The Company
currently has the option to borrow at prime plus 0.5 percent or at LIBOR
plus 2.5 percent, decreasing to prime or to LIBOR plus 2% after two
consecutive quarters of positive net income. Subsequent to December 31,
1996, the Company received a commitment from the bank to renew the facility
through May 31, 1998. At December 31, 1995, borrowings outstanding under
this agreement were $9,200 at a weighted average interest rate of 8.13%.
Borrowings under the Company's lines of credit, including the line with a
lender discussed below, averaged $12,315, $6,400, and $4,180 at weighted
average interest rates of 8.2%, 8.8% and 7.6% during 1996, 1995 and 1994,
respectively.
In September 1996, the Company entered into an amendment to the line of
credit under which the Company and its wholly owned subsidiary, Titan
Information Systems Corporation ("TIS"), granted the bank a security
interest in substantially all of their non-real property assets, including
accounts receivable, inventory, equipment and patents, and the Company
pledged the stock of TIS, Eldyne and Unidyne to the bank. The amendment
also eliminated or revised certain financial covenants. The amended line of
credit does, however, contain financial covenants which require the Company
to maintain stipulated levels of net worth, a specified ratio of total
liabilities to tangible net worth and a specified quick ratio. The Company
was in compliance with these covenants as of December 31, 1996.
In connection with the acquisition of Eldyne, Unidyne, and DCS, the
Company's Eldyne and Unidyne subsidiaries assumed and renegotiated a
separate credit agreement with a lender which provides for a working
capital line of credit facility, a mortgage note and an equipment note. The
agreement allows borrowings on the line through May 31, 1997, at an
interest rate of LIBOR plus 2.75% and up to an aggregate of $7,000, limited
by the sum of various percentages of billed and certain unbilled government
and commercial receivables. At December 31, 1996, there were no borrowings
outstanding under the line of credit facility. The Company had commitments
of $85 under letters of credit, which, in addition to limitations based on
receivables, reduced availability under the line of credit to $4,663. The
line of credit is collateralized by substantially all of the assets of the
acquired companies, and borrowings up to $2,500 under the line have been
guaranteed by the Company. The line of credit also requires that borrowings
be used only for Eldyne and Unidyne, and prohibits these entities and DCS
from transferring funds to the Company. The mortgage note of $1,244 and the
equipment note of $122 at December 31, 1996, are collateralized by real
estate and equipment, bear interest at LIBOR plus 2.5% and require monthly
payments through February 15, 2000 and December 15, 1998, respectively.
This credit agreement contains, among other financial covenants, provisions
which require Eldyne and Unidyne to maintain stipulated levels of tangible
net worth and working capital. Eldyne and Unidyne were in compliance with
these covenants as of December 31, 1996.
At December 31, 1996 and 1995, the Company had $5,215 and $5,300,
respectively, outstanding under two promissory notes, secured by certain
machinery and equipment, at interest rates of 8.5% and 7.42%, and 8.5% and
8.56%, respectively.
Cash paid for interest, primarily on these borrowings, was $2,000, $572,
and $578, in 1996, 1995, and 1994, respectively.
Note 8. Commitments and Contingencies
Titan is obligated for aggregate rentals of $37,502 under operating lease
agreements, principally for facilities. These leases generally include
renewal options and require minimum payments of $5,460 in 1997, $4,861 in
1998, $4,152 in 1999, $3,536 in 2000, $3,522 in 2001, and $15,971 for the
years thereafter. Rental expense under these leases was $7,975 in 1996,
$7,496 in 1995 and $7,367 in 1994. The Company has entered into a long-term
lease agreement for facilities which are owned by an entity in which the
Company has a minority ownership interest. Rental expense in 1996, 1995 and
1994 includes $884, $868, and $838, respectively, paid under this
agreement.
The Company is involved in appeals of the judgments resulting from the
trials of two separate lawsuits filed by former employees claiming, among
other things, wrongful termination and discrimination. The Company intends
to vigourously pursue and defend against the appeals of these cases. While
it is not feasible to predict the outcome of these cases, management
believes that their ultimate disposition will not have a material adverse
effect on the financial position or results of operations of the Company.
In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government agencies. Further,
the Company and its subsidiaries are subject to claims and from time to
time are named as defendants in legal proceedings. In the opinion of
management, the amount of ultimate liability with respect to these actions
will not materially affect the financial position or results of operations
of the Company.
Note 9. Series B Cumulative Convertible Redeemable Preferred Stock
In connection with the acquisition of Eldyne, Unidyne and DCS, the Company
issued 500,000 shares of Series B Cumulative Convertible Redeemable
Preferred Stock (the "Series B Preferred Stock"). The Series B Preferred
Stock accrues dividends at a rate of 6% per annum payable quarterly in
arrears cumulatively, has a liquidation preference of $6.00 per share plus
accrued and unpaid dividends (the "Series B Liquidation Preference") and
entitles the holder thereof to one vote per outstanding share, voting
together as a class with the holders of shares of outstanding Common Stock
(and any other series or classes entitled to vote therewith) on all matters
submitted for a shareholder vote. The Series B Preferred Stock is
convertible at the holder's option into shares of the Company's common
stock at a conversion price of $9.00 per share (subject to customary anti-
dilution adjustments) on or after November 24, 1996 until November 24,
1997. The Series B Preferred Stock also is redeemable at the Series B
Liquidation Preference (i) at the holder's option, after May 24, 1998 until
May 24, 2001, and (ii) at the Company's option, after May 24, 2001 until
May 24, 2006. The Series B Preferred Stock is not considered a common stock
equivalent for the purpose of earnings per share calculations.
Note 10. Cumulative Convertible Preferred Stock
Each share of $1.00 cumulative convertible preferred stock is entitled to
1/3 vote, annual dividends of $1 per share and is convertible at any time
into 2/3 share of the Company's common stock. Common stock of 463,248
shares has been reserved for this purpose. Upon liquidation, the $1.00
cumulative convertible preferred stockholders are entitled to receive $20
per share, plus cumulative dividends in arrears, before any distribution is
made to the common stockholders.
Note 11. Common Stock
At December 31, 1996, 12,800,181 aggregate common shares were reserved for
future issuance for conversion of convertible subordinated debentures,
preferred stock, all stock incentive plans and warrants.
On August 17, 1995, the Board of Directors adopted a Shareholder Rights
Agreement and subsequently distributed one preferred stock purchase right
("Right") for each outstanding share of the Company's common stock. Each
Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of Series A Junior Participating Preferred Stock,
par value $1.00 per share (the "Preferred Shares") at a price of $42.00 per
one one-hundredth of a Preferred Share, subject to adjustment. The Rights
become exercisable if a person or group acquires, in a transaction not
approved by the Company's Board of Directors ("Board"), 15% or more of the
Company's common stock or announces a tender offer for 15% or more of the
stock.
If a person or group acquires 15% or more of the Company's common stock,
each Right (other than Rights held by the acquiring person or group which
become void) will entitle the holder to receive upon exercise a number of
shares of Company common stock having a market value of twice the Right's
exercise price. If the Company is acquired in a transaction not approved by
the Board, each Right may be exercised for common shares of the acquiring
company having a market value of twice the Right's exercise price. The
Company may redeem the Rights at $.01 per Right, subject to certain
conditions. The Rights expire on August 17, 2005.
In September 1995, the Company completed a private placement of 300,000
shares of its common stock, receiving net proceeds of $2,325. Treasury
shares were used for the issuance. The Company's shares were placed with
offshore institutional investors pursuant to Regulation S under the
Securities Act of 1933, as amended.
Note 12. Stock-Based Compensation Plans
The Company provides stock-based compensation to officers, directors and
key employees through various fixed stock option plans and to all
non-executive employees through an employee stock purchase plan. The
Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for
the fixed stock option or stock purchase plans. Had compensation cost for
the Company's stock-based compensation plans been determined based on the
fair value at the grant dates for awards under those plans consistent with
the method of SFAS 123, the Company's results of operations would have been
reduced to the pro forma amounts indicated below:
1996 1995
Net loss As reported $(3,378) $(3,807)
Pro forma (3,795) (3,981)
Net loss per share As reported $ (.27) $ (.33)
Pro forma (.30) (.35)
The Company currently has options available for grant under the Stock
Option Plans of 1990 and 1994, The 1992 Directors' Stock Option Plan and
The 1996 Directors' Stock Option and Equity Participation Plan (the "1996
Directors' Plan"). Options authorized for grant under the employee plans
and under the directors' plans are 2,000,000 and 230,000, respectively.
Under the 1996 Directors' Plan, a director may elect to receive stock in
lieu of fees, such stock to have a fair market value equal to the fees.
Under all plans, the exercise price of each option equals the market price
of the Company's stock on the date of grant. Under the employee plans, an
option's maximum term is ten years. Under the directors' plans, options
expire 90 days after the option holder ceases to be a director. Employee
options may be granted throughout the year; directors' options are granted
annually during the first two or three years as a director. All options
vest in 25% increments beginning one year after the grant date.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995: zero dividend yield; expected
volatility of 87%; a risk-free interest rate of 6.57%; and an expected
life of 5 years.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the years ending on those
dates is presented below:
1996 1995
Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price
Fixed Options
Outstanding at beginning of year 1,219 $ 5.05 1,429 $3.41
Granted 723 4.42 429 8.02
Exercised (125) 3.28 (454) 2.71
Cancelled (305) 6.20 (185) 5.16
Outstanding at end of year 1,512 4.66 1,219 5.05
Options exercisable at year-end 480 452
Weighted-average fair value of
options granted during the year $3.18 $5.76
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
Range of Number Weighted-Average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted Average
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
$2.63-3.50 470,400 6.67 years $3.23 331,300 $ 3.24
4.00-5.88 792,500 9.07 4.33 105,500 4.86
6.25-9.50 249,500 8.84 8.41 43,400 9.03
1,512,400 8.28 4.66 480,200 4.12
Under the 1995 Employee Stock Purchase Plan, the Company is authorized to
issue up to 500,000 shares of common stock to its full-time employees.
Elected officers are not eligible to participate. Under the terms of the
plan, employees may elect to have between 1 and 10 percent of their regular
earnings, as defined in the plan, withheld to purchase the Company's common
stock. The purchase price of the stock is 85 percent of the lower of its
market price at the beginning or at the end of each subscription period. A
subscription period is six months, beginning January 1 and July 1 of each
year. The first subscription period under the plan began January 1, 1996.
Approximately 11% of eligible employees participated in the Plan and
purchased 89,865 shares of Company stock in 1996. Pro forma compensation
cost is recognized for the fair value of the employees' purchase rights,
which was estimated using the Black-Scholes model with the following
assumptions: zero dividend yield; a life of 1 year; expected volatility of
87%; and a risk-free interest rate of 6.57%. The weighted-average fair
value of the purchase rights granted in 1996 was $1.71.
Three of the Company's emerging business subsidiaries have issued stock
options for subsidiary stock, which is not publicly traded.
Note 13. Benefit Plans
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $2,269, $2,514,
and $2,291 in 1996, 1995 and 1994, respectively. The Company's
discretionary contribution to its Employee Stock Ownership Plan was $339 in
1994. There were no discretionary contributions for 1996 or 1995. During
1996, 1995 and 1994, the Company utilized treasury stock of $1,092, $871,
and $1,267, respectively, for benefit plan contributions.
The Company has a non-qualified executive deferred compensation plan for
certain officers and key employees. The Company's expense for this plan was
$901, $970, and $668 in 1996, 1995, and 1994, respectively. At December 31,
1996 and 1995, respectively, Other non-current liabilities include $3,492
and $2,975 for obligations under this plan. Interest expense for the years
ended December 31, 1996, 1995, and 1994 includes $561, $486, and $229,
respectively, related to the plan. The Company also has performance bonus
plans for certain of its employees. Related expense amounted to
approximately $1,169, $2,679, and $5,220 in 1996, 1995 and 1994,
respectively.
The Company has previously provided for post-retirement benefit obligations
of operations discontinued in prior years. The Company has no
post-retirement benefit obligations for any of its continuing operations.
Note 14. Quarterly Financial Data (Unaudited)
First Second Third Fourth Total
1996 Quarter Quarter Quarter Quarter Year
Revenues $ 31,172 $ 29,162 $ 34,854 $ 42,534 $ 137,722
Gross profit 6,317 7,051 5,889 7,876 27,133
Net income (loss) (864) (747) (1,969) 202 (3,378)
Net income (loss) per
common share (.07) (.06) (.14) .00 (.27)
First Second Third Fourth Total
1995 Quarter Quarter Quarter Quarter(a) Year
Revenues $ 30,165 $ 34,307 $ 34,983 $ 34,512 $ 133,967
Gross profit 8,464 9,222 7,346 6,704 31,736
Net income (loss) 535 719 470 (5,531) (3,807)
Net income (loss) per
common share .03 .04 .02 (.41) (.33)
(a) Net loss in the fourth quarter of 1995 includes a net restructuring
charge (see Note 3 of Notes to Consolidated Financial Statements).
The above financial information for each quarter reflects all normal and
recurring adjustments.
Item 9. Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to the directors and the
executive officers of the Company is incorporated herein by this reference
to such information in the definitive proxy statement for the 1997 Annual
Meeting of Stockholders.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by this
reference to such information in the definitive proxy statement for the
1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 12 is incorporated herein by this
reference to such information in the definitive proxy statement for the
1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by this
reference to such information in the definitive proxy statement for the
1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1 and 2. Financial statements being filed as part of this report are
listed in the index in Item 8 on page 14.
.
(b) The Company filed a current report on Form 8-K dated October 22, 1996
to report preliminary unaudited results for the three months and nine
months ended September 30, 1996.
(c) Exhibits
3.1 Titan's Restated Certificate of Incorporation dated as of November 6,
1986, which was Exhibit 3.1 to Registrant's 1987 Annual Report on Form
10-K is incorporated herein by this reference. Titan's Certificate of
Amendment of Restated Certificate of Incorporation dated as of June
30, 1987, which was Exhibit 3.2 to Registrant's 1987 Annual Report on
Form 10-K is incorporated herein by this reference.
3.2 Titan's by-laws, as amended, which was Exhibit 6(a)(3) to Registrant's
Quarterly Report on Form 10-Q dated November 13, 1995, is incorporated
herein by this reference.
4.1 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 9, L.P., a Delaware limited partnership, which
was Exhibit 4.1 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.2 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 9, L.P.
4.3 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 10 Incorporated, a Maryland corporation, which
was Exhibit 4.2 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.4 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 10, Incorporated.
4.5 Rights Amendment, dated as of August 21, 1995, between The Titan
Corporation and American Stock Transfer and Trust Company, which was
Exhibit 1 to Registrant's Form 8-A dated September 5, 1995, is
incorporated herein by this reference.
4.6 Certificate of Designations of Series B Cumulative Convertible
Redeemable Preferred Stock which was Exhibit 4.1 to Registrant's
Registration Statement on Form S-3 (No. 333-10919) is incorporated
herein by this reference.
4.7 Registration Rights Agreement, dated May 24, 1996, which was Exhibit 2
to Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996,
is incorporated herein by this reference.
4.8 Stockholders Agreement, dated May 24, 1996, which was Exhibit 1 to
Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996, is
incorporated herein by this reference.
4.9 Form of Indenture relating to the Registrant's 8 1/4% Convertible
Subordinated Debentures due November 1, 2003, which was Exhibit 4.1
to Amendment No. 1 to Registrant's Registration Statement on Form S-3
(No. 333-10695) is incorporated herein by this reference.
10.1 Stock Option Plan of 1983, as amended though January 1, 1987, which
was Exhibit 10.2 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.2 Stock Option Plan of 1986, as amended through January 1, 1987, which
was Exhibit 10.3 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.3 Stock Option Plan of 1990, which was filed in the 1990 definitive
proxy statement and was Exhibit 10.11 to Registrant's 1989 Annual
Report on Form 10-K is incorporated herein by this reference.
10.4 Stock Option Plan of 1994, which was filed in the 1994 definitive
proxy statement and was Exhibit 10.17 to Registrant's 1993 Annual
Report on Form 10-K is incorporated herein by this reference.
10.5 1989 Directors' Stock Option Plan which was filed in the 1990
definitive proxy statement and was Exhibit 10.12 to Registrant's 1989
Annual Report on Form 10-K is incorporated herein by this reference.
10.6 1992 Directors' Stock Option Plan which was filed in the 1993
definitive proxy statement and was Exhibit 10.14 to Registrant's 1992
Annual Report on Form 10-K is incorporated herein by this reference.
10.7 1996 Directors' Stock Option and Equity Participation Plan which was
filed in the 1996 definitive proxy statement and was Exhibit 10.7 to
Registrant's 1995 Annual Report on Form 10-K is incorporated herein
by this reference.
10.8 Supplemental Retirement Plan for Key Executives which was filed in the
1990 definitive proxy statement and was Exhibit 10.13 to Registrant's
1989 Annual Report on Form 10-K is incorporated herein by this
reference.
10.9 1995 Employee Stock Purchase Plan, which was Exhibit 4 to Registrant's
Form S-8 dated December 18, 1995, is incorporated herein by this
reference.
10.10 Lease Agreement dated as of July 9, 1991, by and between Torrey Pines
Limited Partnership, a California limited partnership, as landlord,
and Registrant, as tenant, which was Exhibit 10.1 to Registrant's Form
8-K dated July 11, 1991 is incorporated herein by this reference.
10.11 Agreement and Plan of Reorganization of Eldyne, Inc. dated as of
April 19, 1996, by and among Eldyne, Inc., Jack Witt, ELD Acquisition
Sub, Inc. and Registrant, which was Exhibit 2.1 to Registrant's Form
8-K dated May 24, 1996, is incorporated herein by this reference.
10.12 Agreement and Plan of Reorganization of Unidyne Corporation dated as
of April 19, 1996, by and among Unidyne Corporation, Jack Witt, UNI
Acquisition Sub, Inc. and Registrant, which was Exhibit 2.2 to
Registrant's Form 8-K dated May 24, 1996, is incorporated herein by
this reference.
10.13 Asset Purchase Agreement as of March 5, 1994, by and between
Registrant and Cubic Corporation which was Exhibit 2 to Registrant's
Form 8-K dated March 5, 1994, is incorporated herein by this
reference.
10.14 Line of Credit Agreement dated as of August 8, 1994, by and between
Sumitomo Bank of California and Registrant, which was Exhibit 10.16
to Registrant's 1994 Annual Report on Form 10-K, is incorporated herein
by this reference.
10.15 Executive Severance Plan entered into by the Company with Gene W.
Ray, Eric M. DeMarco, Philip J. Englund, Ronald B. Gorda, Cornelius
L. Hensel, and Frederick L. Judge, which was Exhibit 6(a)(10) to
Registrant's Quarterly Report on Form 10-Q dated November 13, 1995,
is incorporated herein by this reference.
10.16 First Amendment to Commercial Loan Agreement dated May 25, 1995, by
and between Registrant and Sumitomo Bank of California, which was
Exhibit 10.15 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.17 Second Amendment to Commercial Loan Agreement dated December 29,
1995, by and between Registrant and Sumitomo Bank of California, which
was Exhibit 10.16 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.18 Third Amendment to Commercial Loan Agreement dated May 9, 1996, by
and between Registrant and Sumitomo Bank of California.
10.19 Fourth Amendment to Commercial Loan Agreement dated September 6,
1996, by and between Registrant and The Sumitomo Bank of California,
which was Exhibit 10.1 to the Company's Registration Statement on Form
S-3/A No. 333-10919, is incorporated herein by this reference.
10.20 Security Agreement dated September 6, 1996, made by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.19 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.21 Pledge Agreement executed as of September 6, 1996, by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.3 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.22 Patent Collateral Assignment made and entered into as of September 6,
1996, by Registrant in favor of The Sumitomo Bank of California, which
was Exhibit 10.4 to the Company's Registration Statement on Form S-3/A
No. 333-10919, is incorporated herein by this reference.
10.23 Security Agreement dated as of September 6, 1996, made by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.5 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.24 Patent Collateral Assignment made and entered into as of September 6,
1996, by Titan Information Systems Corporation in favor of The Sumitomo
Bank of California, which was Exhibit 10.6 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is incorporated
herein by this reference.
10.25 Continuing Guaranty executed as of September 6, 1996, by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.7 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.26 Fifth Amendment to Commercial Loan Agreement dated October 18, 1996,
by and between Registrant and Sumitomo Bank of California.
10.27 Loan and Security Agreement, dated December 29, 1995, by and between
Registrant and Capital Associates International, Inc., which was
Exhibit 10.17 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.28 Rider dated August 13, 1996, to Loan and Security Agreement dated
December 29, 1995 by and between Registrant and Capital Associates
International, Inc.
10.29 Loan and Security Agreement dated January 31, 1996, by and between
Registrant and Sanwa General Equipment Leasing, a division of Sanwa
Business Credit Corporation, which was Exhibit 10.18 to Registrant's
1995 Annual Report on Form 10-K, is incorporated herein by this
reference.
10.30 Amended and Restated Loan and Security Agreement dated May 24, 1996,
by and between Crestar Bank and Eldyne, Inc., Unidyne Corporation and
DCS Acquisition Sub, Inc.
10.31 Formal modification dated December 23, 1996, of the Amended and
Restated Loan and Security Agreement dated May 24, 1996, by and between
Crestar Bank and Eldyne, Inc., Unidyne Corporation and DCS Acquisition
Sub, Inc.
21. Titan Subsidiaries as of December 31, 1996.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of 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.
THE TITAN CORPORATION
By: /S/ Gene W. Ray
Gene W. Ray
President and Chief Executive Officer
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ J.S. Webb Chairman of the March 26, 1997
J.S. Webb Board of Directors
/s/ Gene W. Ray President, Chief March 26, 1997
Gene W. Ray Executive Officer and
Director
/s/ Eric M. DeMarco Senior Vice President and March 26, 1997
Eric M. DeMarco Chief Financial Officer
(Principal Financial Officer)
/s/ Deanna H. Petersen March 26, 1997
Deanna H. Petersen Corporate Controller
(Principal Accounting Officer)
/s/ Charles R. Allen Director March 26, 1997
Charles R. Allen
Director March __, 1997
Joseph F. Caligiuri
/s/ Daniel J. Fink Director March 26, 1997
Daniel J. Fink
Director March __, 1997
Robert E. La Blanc
/s/ Thomas G. Pownall Director March 25, 1997
Thomas G. Pownall
THE TITAN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
(in thousands of dollars)
Balance Balance
at at
beginning end
of year Additions Deductions of year
1996:
Allowance for doubtful accounts $ 294 $ -- $ 57 $ 237
1995:
Allowance for doubtful accounts 412 193 311 294
1994:
Allowance for doubtful accounts 764 1 353 412
EXHIBIT INDEX
The following exhibits are filed as part of this Form 10-K or are
incorporated herein by reference.
Exhibit
3.1 Titan's Restated Certificate of Incorporation dated as of November 6,
1986, which was Exhibit 3.1 to Registrant's 1987 Annual Report on Form
10-K is incorporated herein by this reference. Titan's Certificate of
Amendment of Restated Certificate of Incorporation dated as of June
30, 1987, which was Exhibit 3.2 to Registrant's 1987 Annual Report on
Form 10-K is incorporated herein by this reference.
3.2 Titan's by-laws, as amended, which was Exhibit 6(a)(3) to Registrant's
Quarterly Report on Form 10-Q dated November 13, 1995, is incorporated
herein by this reference.
4.1 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 9, L.P., a Delaware limited partnership, which
was Exhibit 4.1 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.2 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 9, L.P.
4.3 Warrant to Purchase Common Stock of Registrant issued to Corporate
Property Associates 10 Incorporated, a Maryland corporation, which
was Exhibit 4.2 to Registrant's Form 8-K dated July 11, 1991, is
incorporated herein by this reference.
4.4 Amendment to Warrant dated December 3, 1996, between the Registrant and
Corporate Property Associates 10, Incorporated.
4.5 Rights Amendment, dated as of August 21, 1995, between The Titan
Corporation and American Stock Transfer and Trust Company, which was
Exhibit 1 to Registrant's Form 8-A dated September 5, 1995, is
incorporated herein by this reference.
4.6 Certificate of Designations of Series B Cumulative Convertible
Redeemable Preferred Stock which was Exhibit 4.1 to Registrant's
Registration Statement on Form S-3 (No. 333-10919) is incorporated
herein by this reference.
4.7 Registration Rights Agreement, dated May 24, 1996, which was Exhibit 2
to Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996,
is incorporated herein by this reference.
4.8 Stockholders Agreement, dated May 24, 1996, which was Exhibit 1 to
Schedule 13D filed on behalf of Mr. Jack D. Witt on June 5, 1996, is
incorporated herein by this reference.
4.9 Form of Indenture relating to the Registrant's 8 1/4% Convertible
Subordinated Debentures due November 1, 2003, which was Exhibit 4.1
to Amendment No. 1 to Registrant's Registration Statement on Form S-3
(No. 333-10695) is incorporated herein by this reference.
10.1 Stock Option Plan of 1983, as amended though January 1, 1987, which
was Exhibit 10.2 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.2 Stock Option Plan of 1986, as amended through January 1, 1987, which
was Exhibit 10.3 to Registrant's 1987 Annual Report on Form 10-K is
incorporated herein by this reference.
10.3 Stock Option Plan of 1990, which was filed in the 1990 definitive
proxy statement and was Exhibit 10.11 to Registrant's 1989 Annual
Report on Form 10-K is incorporated herein by this reference.
10.4 Stock Option Plan of 1994, which was filed in the 1994 definitive
proxy statement and was Exhibit 10.17 to Registrant's 1993 Annual
Report on Form 10-K is incorporated herein by this reference.
10.5 1989 Directors' Stock Option Plan which was filed in the 1990
definitive proxy statement and was Exhibit 10.12 to Registrant's 1989
Annual Report on Form 10-K is incorporated herein by this reference.
10.6 1992 Directors' Stock Option Plan which was filed in the 1993
definitive proxy statement and was Exhibit 10.14 to Registrant's 1992
Annual Report on Form 10-K is incorporated herein by this reference.
10.7 1996 Directors' Stock Option and Equity Participation Plan which was
filed in the 1996 definitive proxy statement and was Exhibit 10.7 to
Registrant's 1995 Annual Report on Form 10-K is incorporated herein
by this reference.
10.8 Supplemental Retirement Plan for Key Executives which was filed in the
1990 definitive proxy statement and was Exhibit 10.13 to Registrant's
1989 Annual Report on Form 10-K is incorporated herein by this
reference.
10.9 1995 Employee Stock Purchase Plan, which was Exhibit 4 to Registrant's
Form S-8 dated December 18, 1995, is incorporated herein by this
reference.
10.10 Lease Agreement dated as of July 9, 1991, by and between Torrey Pines
Limited Partnership, a California limited partnership, as landlord,
and Registrant, as tenant, which was Exhibit 10.1 to Registrant's Form
8-K dated July 11, 1991 is incorporated herein by this reference.
10.11 Agreement and Plan of Reorganization of Eldyne, Inc. dated as of
April 19, 1996, by and among Eldyne, Inc., Jack Witt, ELD Acquisition
Sub, Inc. and Registrant, which was Exhibit 2.1 to Registrant's Form
8-K dated May 24, 1996, is incorporated herein by this reference.
10.12 Agreement and Plan of Reorganization of Unidyne Corporation dated as
of April 19, 1996, by and among Unidyne Corporation, Jack Witt, UNI
Acquisition Sub, Inc. and Registrant, which was Exhibit 2.2 to
Registrant's Form 8-K dated May 24, 1996, is incorporated herein by
this reference.
10.13 Asset Purchase Agreement as of March 5, 1994, by and between
Registrant and Cubic Corporation which was Exhibit 2 to Registrant's
Form 8-K dated March 5, 1994, is incorporated herein by this
reference.
10.14 Line of Credit Agreement dated as of August 8, 1994, by and between
Sumitomo Bank of California and Registrant, which was Exhibit 10.16
to Registrant's 1994 Annual Report on Form 10-K, is incorporated herein
by this reference.
10.15 Executive Severance Plan entered into by the Company with Gene W.
Ray, Eric M. DeMarco, Philip J. Englund, Ronald B. Gorda, Cornelius
L. Hensel, and Frederick L. Judge, which was Exhibit 6(a)(10) to
Registrant's Quarterly Report on Form 10-Q dated November 13, 1995,
is incorporated herein by this reference.
10.16 First Amendment to Commercial Loan Agreement dated May 25, 1995, by
and between Registrant and Sumitomo Bank of California, which was
Exhibit 10.15 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.17 Second Amendment to Commercial Loan Agreement dated December 29,
1995, by and between Registrant and Sumitomo Bank of California, which
was Exhibit 10.16 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.18 Third Amendment to Commercial Loan Agreement dated May 9, 1996, by
and between Registrant and Sumitomo Bank of California.
10.19 Fourth Amendment to Commercial Loan Agreement dated September 6,
1996, by and between Registrant and The Sumitomo Bank of California,
which was Exhibit 10.1 to the Company's Registration Statement on Form
S-3/A No. 333-10919, is incorporated herein by this reference.
10.20 Security Agreement dated September 6, 1996, made by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.19 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.21 Pledge Agreement executed as of September 6, 1996, by Registrant in
favor of The Sumitomo Bank of California, which was Exhibit 10.3 to
the Company's Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.22 Patent Collateral Assignment made and entered into as of September 6,
1996, by Registrant in favor of The Sumitomo Bank of California, which
was Exhibit 10.4 to the Company's Registration Statement on Form S-3/A
No. 333-10919, is incorporated herein by this reference.
10.23 Security Agreement dated as of September 6, 1996, made by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.5 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.24 Patent Collateral Assignment made and entered into as of September 6,
1996, by Titan Information Systems Corporation in favor of The Sumitomo
Bank of California, which was Exhibit 10.6 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is incorporated
herein by this reference.
10.25 Continuing Guaranty executed as of September 6, 1996, by Titan
Information Systems Corporation in favor of The Sumitomo Bank of
California, which was Exhibit 10.7 to the Company's Registration
Statement on Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.26 Fifth Amendment to Commercial Loan Agreement dated October 18, 1996,
by and between Registrant and Sumitomo Bank of California.
10.27 Loan and Security Agreement, dated December 29, 1995, by and between
Registrant and Capital Associates International, Inc., which was
Exhibit 10.17 to Registrant's 1995 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.28 Rider dated August 13, 1996, to Loan and Security Agreement dated
December 29, 1995 by and between Registrant and Capital Associates
International, Inc.
10.29 Loan and Security Agreement dated January 31, 1996, by and between
Registrant and Sanwa General Equipment Leasing, a division of Sanwa
Business Credit Corporation, which was Exhibit 10.18 to Registrant's
1995 Annual Report on Form 10-K, is incorporated herein by this
reference.
10.30 Amended and Restated Loan and Security Agreement dated May 24, 1996,
by and between Crestar Bank and Eldyne, Inc., Unidyne Corporation and
DCS Acquisition Sub, Inc.
10.31 Formal modification dated December 23, 1996, of the Amended and
Restated Loan and Security Agreement dated May 24, 1996, by and between
Crestar Bank and Eldyne, Inc., Unidyne Corporation and DCS Acquisition
Sub, Inc.
21. Titan Subsidiaries as of December 31, 1996.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule