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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, 1995
-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 New York and Chicago Stock Exchanges
Preferred Stock, $1.00 par value
Common Stock, $.01 par value
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 21, 1996: $88,470,044.
Number of shares of Common Stock outstanding at March 21, 1996:
14,046,238.
Document Incorporated By Reference
Proxy Statement for the 1996 Annual Meeting of Stockholders on May 16,
1996. (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
1996 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, secure television, specializes in providing complete turnkey
security for television delivery systems. The second business unit is
satellite communications, which develops, manufactures, and sells satellite
earth station networks and related components. 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 Defense Systems segment also provides militarized
computers. The Emerging Technologies segment contains a group of diverse
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 and pulse power products.
The Company has significantly changed its customer mix over the last five
years. In 1991 a minimal amount of the Company's revenues was generated from
commercial business with the bulk of revenues generated by business with the
Department of Defense (DoD) and other Government agencies. For 1995, 1994,
and 1993, the Company's revenues generated by business other than DoD or other
U.S. Government agencies represented 39%, 32% and 25% of total Company
revenues, respectively. 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.
COMMUNICATIONS SYSTEMS SEGMENT
The Communications Systems segment contains two start-up business units, both
targeting rapidly growing commercial markets. The first business, secure
television, specializes in providing complete turnkey security for television
delivery systems, with applications for delivery of television programming via
satellite, coaxial cable, fiber optics and wireless distribution. In January
1995, the Company signed an equipment purchase agreement to provide analog
equipment and software for use in a wireless television service in New York
City. It is currently making significant investments in developing a digital
conditional access system in order to address the direct-to-home satellite and
wireless television markets. The Company is making enhancements to its
existing analog system. The Company is actively marketing its system in
domestic and international markets.
The second business unit is satellite communications, which develops,
manufactures and sells bandwidth-efficient, cost-effective satellite earth
station networks and related subsystems. The Company believes that these
systems are particularly suited for commercial applications in developing
nations for rural communications. These systems are being marketed in Asia
and Latin America. In the third quarter of 1995, the Company received a $10
million fixed price contract to develop a rural telephony system in Indonesia.
SOFTWARE SYSTEMS SEGMENT
The Software Systems segment provides custom and semi-custom software
development 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 software so that they
can respond to market changes, meet competitive demands and improve their
responsiveness to customer needs. Applications include enhancement of
customer service centers for telecommunications companies and improved trouble
reporting for telecommunications systems. The Company provides its products
and services using its detailed knowledge of the telecommunications and other
customers' operations and business needs, expert and responsive project teams,
senior management experience, and a protocycling approach to software
development. The Software Systems segment is substantially dependent on
business from a major telecommunications customer. Revenues in 1995 from this
customer were approximately $24.5 million. The Company has been actively
working to diversify its software customer base.
DEFENSE SYSTEMS SEGMENT
The Defense Systems segment includes two business units, communications and
information systems. These units provide their products and information
systems solutions primarily to U.S. and allied government and defense
customers. 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 amounts.
Generally, the Company is initially involved in a product development stage
which is subsequently followed by production orders. In some situations, the
government is shifting to a nondevelopment approach to procurement wherein
companies are encouraged to perform their own research and development for
products identified for procurement. During 1995, the Company completed major
portions of research and development on four new technology applications in
the defense communications area. By the end of 1995, all four developments had
been converted into deliverable products and were under contract.
The defense information systems business supports high priority government
programs by providing information systems engineering services as well as
development and integration of systems and specialized products. The systems
engineering services business applies key technologies to the large-scale and
complex problems of major government programs. The systems development and
integration business provides systems and related software design and
development, as well as the integration of complex government information
systems.
The segment also includes the Company's Electronics division, which designs
and manufactures processing and control electronics for use in severe
environmental conditions.
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 (DoD) funded research and
development contracts and start-up commercial businesses, including 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 of additional DoD and commercial products, systems or
services.
The research and development activity is primarily composed of defense cost
reimbursable contracts. These research and development activities involve a
number of technologies including those necessary to develop and manufacture
particle accelerators and high powered microwave tubes.
The Company's medical product sterilization business is based upon advanced
linear accelerator technology developed from the Company's research and
development activities. 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 SureBeamR process to producers of disposable medical products.
The facility in Denver has been operational since July 1993 and the facility
in San Diego became operational in January 1996. In 1995, the Company also
sold a turnkey electron beam sterilization system to a customer in Austria.
The environmental consulting and services business provides a range of
professional environmental consulting and engineering services to commercial
customers.
SEGMENT PRO FORMA DATA
The following unaudited pro forma data should be read in conjunction with the
audited historical financial statements and related management discussion and
analysis beginning on page 9. Such financial statements reflect the actual
historical operating performance of Titan for the period 1993 through 1995.
The following additional information is provided to assist the reader in
understanding the segment data contained in this document taking into account
all those businesses divested during 1993 through 1995 which are not a part of
ongoing business. Revenues and operating profit are reflected as if all
divested businesses as of December 31, 1995 had been divested as of January 1,
1993. Also excluded from the pro forma data is the effect of restructuring.
The pro forma data does not purport to represent results of operations for any
future date or period.
Revenues:
(Unaudited)
.
1995 1994
1993
Communications Systems $ 6,978 $ 2,524 $
1,348
Software Systems 33,175 27,875
12,922
Defense Systems 67,948 66,867
71,371
Emerging Technologies 23,851 20,344
24,708
$131,952 $117,610
$110,349
Operating Profit (Loss):
Communications Systems $ (4,138) $ (2,519) $
(2,886)
Software Systems 4,964 6,168
1,550
Defense Systems 4,159 4,999
(6,104)
Emerging Technologies 215 (308)
1,231
$ 5,200 $ 8,340 $
(6,209)
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
$81,632 in 1995, $93,107 in 1994 and $112,001 in 1993. These amounts
represent 61%, 68% and 75% of total revenues in 1995, 1994, and 1993,
respectively.
Titan's Government customers include the Army, the Air Force, the Navy and
other Government agencies, including the Federal Emergency Management Agency,
the Department of Commerce, the National Aeronautics and Space Administration,
the Federal Aviation 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, time and materials or fixed price
contracts. Cost reimbursement contracts for the Government provide for
reimbursement of costs plus the payment of a fee. 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. Under fixed price
contracts, the Company agrees to perform certain work for a fixed price.
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 1995 1994 1993
Cost Reimbursement.............. 54.7% 59.9% 35.5%
Time and Materials.............. 5.1 3.3 1.8
Fixed Price..................... 40.2 36.8 62.7
100.0% 100.0% 100.0%
Industry Segments, Significant Customers and Export Revenues
Reference is made to Note 4 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 50 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
assurances 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 $11 million, $5 million,
and $9 million for Communications Systems, Software Systems and Emerging
Technologies, 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 1995
1994
Commercial backlog.......................... $25,949,000 $
11,005,000
U.S. Government funded backlog.............. 32,903,000
43,032,000
U.S. Government unfunded backlog............ 19,883,000
14,203,000
$78,735,000 $
68,240,000
In addition to the backlog described above, at December 31, 1995 the Company
had priced options of approximately $70 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.
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 92% of its 1995 backlog by the
end of 1996.
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 $16,667,000,
$12,699,000, and $8,935,000 in 1995, 1994, and 1993, respectively. These
expenditures included company funded research and development of $5,904,000,
$5,339,000, and $2,257,000 and customer sponsored research and development of
$10,763,000, $7,360,000, and $6,678,000 in 1995, 1994, and 1993, respectively.
The majority of the Company's customer sponsored research and development
activity is funded under contract to the U.S. Government.
Competitive Conditions
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 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.
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 are General Instruments
Corporation and Scientific Atlanta, Inc., both of whom have significantly
greater resources than the Company.
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 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 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.
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.
The Company is also one of many manufacturers offering computer-related
products and systems in the United States. These products are part of the
even larger data processing industry, in which the Company is not a
significant factor. Digital systems and microcomputers are subject to
technological obsolescence that could result from improvements in technology
or from the development of more advanced products.
Employees
At the end of fiscal 1995, the Company employed approximately 895 employees,
predominantly located in the United States.
Item 2. Properties
The Company's operations occupy approximately 636,120 square feet of space
located throughout the United States. The large majority of the space is
office space. All of the Company's facilities are leased. For lease
commitment information, reference is made to Note 7 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 1995 were as follows:
Communications Systems Software Systems
San Diego, California San Diego, California
Reston, Virginia
Colorado Springs,
Colorado
Tampa, Florida
Dallas, Texas
Boston, Massachusetts
Defense Systems Emerging Technologies
San Diego, California San Diego, California
Reston, Virginia San Leandro, California
Orlando, Florida Dublin, California
Denver, Colorado Chatsworth, California
Colorado Springs, Colorado Albuquerque, New Mexico
Boston, Massachusetts Denver, Colorado
Dayton, Ohio Bozeman, Montana
Huntsville, Alabama Princeton, New Jersey
Item 3. Legal Proceedings
In the ordinary course of business, the Company's defense business is 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 pending
actions will not materially affect the financial position or results of
operations of the Company.
The Company is a party to three separate lawsuits in the United States
District Court for the Eastern District of Virginia, Alexandria Division filed
by three female former Company employees. Each action arises from the course
of the plaintiff's employment with and termination from the Company, and seeks
monetary damages due to alleged gender discrimination, constructive discharge
and/or wrongful termination and related claims. The cases are scheduled for
trial in March and April of 1996. The Company intends to continue to defend
the cases vigorously. 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. A fourth lawsuit was settled in March 1996 through an offer of
judgment and did not have a material effect on the financial position or
results of the operation of the Company.
The Company is also a party to a lawsuit filed by a male former Company
employee seeking monetary damages due to alleged wrongful termination and
intentional infliction of emotional distress arising out of his termination of
employment in March 1994. The case was originally filed in the Circuit Court
of Fairfax County Virginia and in March 1996 was removed to the United States
District Court of the Eastern District of Virginia, Alexandria Division. The
case is scheduled for trial in June 1996. The Company intends to defend the
case vigorously. While it is not feasible to predict the outcome of this
case, management believes that its 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 preferred stock are traded on the New York
Stock Exchange ("NYSE") and the Chicago Stock Exchange. As of March 1, 1996,
there were approximately 3,475 holders of record of the Company's common stock
and 959 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 1, 1996, were $7.00 and $12.38, respectively. The
quarterly market price ranges for the Company's common and preferred stock on
the New York Stock Exchange in 1995 and 1994 were as follows:
Common Stock 1995 1994
Fiscal Quarter High Low High Low
First $ 7.13 $5.63 $8.00 $2.88
Second 9.38 6.25 6.88 4.75
Third 10.38 8.50 5.88 4.50
Fourth 9.63 6.63 6.38 4.50
Preferred Stock 1995 1994
Fiscal Quarter High Low High Low
First $11.88 $10.88 $13.00
$11.00
Second 12.25 11.63 12.13
11.50
Third 13.25 11.75 11.63
10.88
Fourth 12.88 11.88 11.13
10.50
No dividends were paid on the Company's common stock in 1995 or 1994. Regular
quarterly dividends of $.25 per share were paid on preferred stock in both
years.
Item 6. Selected Financial Data
(in thousands of dollars,
except per share data) 1995 1994 1993 1992
1991
Operating Results:
Revenues $133,967 $136,206 $149,414 $148,762
$146,484
Net income (loss) (3,807) 5,953 (7,906) 3,631
3,359
Net income (loss) per common
share (.33) .40 (.73) .26
.25
Financial Position:
Cash and cash equivalents 5,833 5,129 5,374 4,344
188
Total assets 95,170 81,903 93,214 90,679
75,644
Long-term debt 4,281 765 -- 9,500
10,500
Stockholders' equity 38,639 38,768 29,321 36,016
30,650
Preferred dividends 695 695 695 695
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 1995, Titan pursued its strategy of investing in its emerging
commercial businesses. Investment dollars were provided primarily by drawing
upon the Company's bank line of credit and through internally generated funds.
The investments included, among other things, the construction of the Titan
Scan medical device sterilization facility in San Diego, California, hardware
and software development related to the secure television business and
increased selling, marketing and research and development expenditures.
Significant accomplishments achieved by Titan's emerging commercial businesses
this year included the award of a $10 million fixed price rural telephony
development contract in Indonesia, the completion of a $2 million contract in
Thailand to integrate a satellite network, delivery of the first products in
the secure television business and the sale of a turnkey medical device
sterilization system in Austria. These accomplishments marked significant
progress for Titan. However, the need to speed up product development and the
commercialization process heightened the challenge of internally funding these
start-up activities. As such, management continued the process of critically
examining Titan's long-term operating and financing strategy.
In response, the Board of Directors adopted a strategy to reshape the Company
in order to make it more attractive to external funding sources within the
capital marketplace. A formal plan of restructuring was adopted which
redefined Titan's businesses into four business segments: Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies. As
part of this strategy, management has determined that the restructuring would
require dispositions of certain of Titan's businesses as well as significant
reorganizations of its Software Systems segment and sterilization business,
reductions of personnel, and other actions associated with reorganizing the
structure of the Company. A charge of approximately $5.4 million was recorded
in 1995 to reflect these restructuring activities. Titan's strategic plan now
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 start-up ventures, most
notably secure television, commercial satellite communications, and medical
device sterilization. Certain investments made in these start-up ventures
have been capitalized and are included in the balance sheet, primarily within
the captions of Property and Equipment and Other Assets which includes
capitalized software costs. At December 31, 1995, these capitalized
investments aggregate approximately $12.5 million. These start-up ventures
are in various growth stages and have not yet generated sufficient revenues to
achieve profitability. Management plans to continue to invest, primarily in
the Communications Systems segment, while at the same time carefully
monitoring its return on investment from all of its start-up ventures.
An essential element of the Company's long-term operating plan is the growth
associated with its well established Defense Systems segment. This segment
offers a variety of opportunities for Titan. Management intends to grow this
segment's businesses relying on Titan's proven technological capabilities and
reputation for performance. During 1995, achievements in this segment
included a $12 million award for low rate initial production for Mini-DAMA
satellite communications terminals, a $5.2 million contract with the U.S. Navy
for engineering services in the C3I area, and a $2.8 million production order
for satellite communication modems to be installed in Motorola's LST-5
tactical radios.
OPERATING RESULTS
The table below sets forth Titan's consolidated revenues, operating profit
(loss), net interest expense, provision for income taxes (benefit) and net
income (loss) for each of the three years ended December 31, 1995:
1995 1994 1993
Revenues $ 133,967 $ 136,206 $ 149,414
Operating profit (loss) (3,955) 9,635 (14,647)
Interest expense, net 1,059 632 1,506
Income tax provision (benefit) (1,207) 3,050 (6,547)
Net income (loss) (3,807) 5,953 (7,906)
Titan's consolidated revenues were $133,967, $136,206 and $149,414 in 1995,
1994 and 1993, respectively. Excluding revenues from Titan's Applications
Group, which was sold in April 1994, Titan's pro forma 1995-1993 revenues were
$133,967, $124,293 and $117,714 reflecting a compound annual growth rate of
6.6%. This revenue growth was achieved primarily in the Communications
Systems and Software Systems segments, while the Defense Systems segment,
excluding the Applications Group, and Emerging Technologies segment revenues
were relatively stable over the three year period.
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 $12,008, $9,686
and $7,557 in 1995, 1994 and 1993, respectively, reflecting Titan's efforts to
expand commercial applications of its technologies and to continue developing
certain defense communication technologies. General and administrative
expenses decreased from $18,164 in 1994 to $17,434 in 1995 after having been
reduced significantly from the 1993 level of $21,930. The decrease in 1994
resulted from specific actions taken to reduce headcount as well as more
selective bid and proposal activity primarily in Titan's Defense 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. Lastly,
in 1993, operating profit was significantly impacted by the recording of an
increase in estimated cost at completion of approximately $9,950 on the
Company's Mini-DAMA fixed price development contract with the U.S. Navy.
Net interest expense has fluctuated significantly over the three year period
ended December 31, 1995. Generally, the principal component of interest
expense is the Company's borrowings under its bank line of credit. Borrowings
from this source averaged $6,400, $4,180 and $14,200 at weighted average
interest rates of 8.8%, 7.6% and 5.5% during 1995, 1994 and 1993,
respectively. Also affecting interest expense is interest on the Company's
deferred compensation and retiree medical obligations. Interest expense
related to these items was $726, $529 and $441 for 1995, 1994 and 1993,
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 a benefit of $1,207 in 1995 or a 24% effective tax rate.
The difference between the actual provision and the expected provision (based
on the United States statutory tax rates applicable each year) is due to the
alternative minimum tax and to permanent differences between financial
statement income and taxable income. The provision for taxes in 1994 was
$3,050, or a 34% effective tax rate, while the benefit for taxes in 1993 was
$6,547 or a 41% effective rate. The differences between the actual effective
rate and the expected rate in both these years was largely due to the effects
of research credits and operating loss carryforwards. Also with respect to
taxes, in 1993 Titan recorded a $1,700 benefit representing the cumulative
effect of a change in accounting principal as a result of the Company's
adoption of SFAS No. 109 "Accounting for Income Taxes".
Business Segments
Communications Systems: The Communications Systems segment contains two
business units, both targeting rapidly growing commercial markets. The first
business unit, secure television, specializes in providing complete turnkey
security for television delivery systems. The second business unit is
satellite communications, which develops, manufactures and sells satellite
earth station networks and related subsystems.
Revenues in this segment were $7,490, $6,319 and $6,492 in 1995, 1994 and
1993, respectively. The composition of the revenues was significantly
different over the three year period. Revenues in 1995 included approximately
$2,400 of secure television revenues from the Company's first contract in this
business area. There were no secure television revenues in 1994 or 1993.
Revenues in the satellite communications business unit were approximately
$5,100 in 1995, $6,000 in 1994 and $6,400 in 1993. 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, this
segment's revenues were approximately $7,000, $2,500 and $1,300 in 1995, 1994
and 1993, respectively. The increase in pro forma revenues from 1994 to 1995
resulted from obtaining and performing on a contract to develop and integrate
a satellite communications network in Thailand as well as from the addition of
secure television revenues previously mentioned. The change from 1993 to 1994
was primarily due to increased sales of voice digitizing cards.
The segment's operating loss was $4,488 in 1995 compared to $7,927 in 1994 and
$7,413 in 1993. The loss in 1995 reflects the start-up nature of this
segment's businesses which require significant selling, marketing and research
and development activities disproportionate to the level of revenues generated
to date. Management intends to continue investing in these businesses and, as
a result, expects that significant losses will also be experienced in 1996.
The loss in 1994 includes approximately $5,400 of losses and restructuring
charges associated with Titan exiting its transceiver manufacturing business
which was primarily responsible for this segment's 1993 operating loss.
Software 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.
Revenues in this segment were $33,175 for 1995, $28,868 in 1994 and $13,713 in
1993. One customer accounted for approximately $24,000 of this segment's
revenue in both 1995 and 1994, and $9,700 in 1993. In the second half of
1995, this segment experienced reduced demand from this customer and
management expects this trend to continue in 1996. The 1995 revenue increase
was generated from new customers. As shown above, the increase from 1993 to
1994 resulted from increased business with the one significant customer.
Segment income margin (segment operating income as a percentage of segment
revenues) was 11.5% in 1995 and 21.6% in 1994. 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 from the one
previously mentioned customer. Segment income margin was 6.7% in 1993. The
results for 1993 included losses on certain now completed fixed price
contracts which significantly lowered overall segment profitability.
Defense Systems: The Defense Systems segment includes two business units,
communications and information systems, which provide information systems
solutions primarily to U.S. and allied government and defense customers. 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 amounts. The defense
information systems business supports high priority government programs by
providing information systems engineering services as well as development and
integration of systems and specialized products.
Revenues in this segment were $67,948, $78,780 and $103,071 for 1995, 1994 and
1993, respectively. However, excluding revenues attributable to the Company's
Applications Group, pro forma segment revenues were $67,948, $66,867 and
$71,371 for 1995, 1994 and 1993, respectively. The decrease from 1993 to 1994
was due to reduced shipments in the Electronics division. Revenues in 1995
and 1994 included approximately $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 is expected to conclude
in mid-1996. Furthermore, 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.
Segment income margin for 1995 was 6.6%, compared with 6.0% in 1994. In 1993
there was an operating loss of $2,804. 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 this segment's Electronics division. The loss in 1993 was
primarily the result of recording an increase in estimated costs to complete
the Company's Mini-DAMA fixed price development contract which was the subject
of a contract dispute with the customer, the U.S. Navy.
Emerging Technologies: Emerging Technologies contains a group of mature
businesses generally involved in Department of Defense (DoD) funded research
and development contracts and start-up commercial businesses, including
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 of additional DoD and commercial products,
systems and services.
Revenues in this segment were $25,354, $22,239 and $26,138 in 1995, 1994 and
1993, respectively. Approximately $7,400 of 1995 revenue was generated by the
segment's start-up businesses. Substantially all remaining revenue for all
periods presented was derived from the various established business lines.
This segment's operating profit (loss) has not been material in relation to
Titan'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 1995, the Company used cash for increased operating requirements,
investing in its emerging businesses which included significant capital
expenditures as well as investments in capitalized software costs, and payment
of dividends. The operating cash requirements resulted primarily from an
increase in accounts receivable and inventories along with payment of certain
compensation obligations and funding of restructuring activities. Cash was
provided from a variety of sources. The Company utilized $9,200 of its bank
line of credit, obtained $4,600 as a result of secured debt financing for the
San Diego Scan facility, received $2,325 through a private placement of common
stock and $1,835 from the sale of businesses. In January 1996, the Company
obtained $1,784 in cash as a result of the replacement of a maturing secured
obligation with a new secured financing transaction.
Cash requirements in 1996 are expected to continue to be significant. Cash
generation varies from quarter to quarter and in most years the Company has
experienced higher cash requirements in the first quarter than in other
quarters. Management expects this pattern to continue in the first quarter of
1996. During 1996, the Company expects to invest up to $11 million primarily
in the further development of business ventures within the Communications
Systems segment. Funding is planned to be from operations, the bank line of
credit, and the sale of non-core businesses. Titan's line of credit agreement
requires the Company to have annual net income, as defined, prohibits two
consecutive quarterly losses and contains other financial covenants which
require the Company to maintain stipulated levels of tangible net worth, a
minimum debt service coverage ratio and a specified quick ratio. The Company
has obtained a waiver from the bank for the 1995 net loss. In order to
provide additional funding for further and/or accelerated growth, the Company
continues to explore various other financing alternatives. Should the Company
be unable to successfully obtain outside financing, the investment in these
start-up ventures could change.
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 both significant opportunities and
significant risks for the Company. Many of the Company's commercial
businesses, such as secure television, satellite 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 and to
secure the necessary financing to support these activities. In addition, many
of the opportunities in the secure television and satellite communications
businesses are large, international projects which require long lead times in
the contract process. 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.
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 totalled approximately $24.5 million, $24.3
million and $9.7 million, or 18%, 18% and 7% of total Company revenues in
1995, 1994 and 1993, respectively. In the second half of 1995, the Company
experienced reduced demand from this customer and management expects this
trend to continue in 1996. The loss of this customer, or a substantial delay
or decrease in the amount of its business, could have a material adverse
effect on the Company'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.................................. 20-30
Supporting Financial Statement Schedule Covered by the Foregoing Report of
Independent Accountants:
Schedule II - Valuation and Qualifying
Accounts................................. 35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of The Titan Corporation:
We have audited the accompanying consolidated balance sheets of The Titan
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1995,
and 1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995. 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As explained in Note 5 to the consolidated financial statements, effective
January 1, 1993, the Company changed its method of accounting for income
taxes.
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.
ARTHUR ANDERSEN LLP
San Diego, California
February 28, 1996
The Titan Corporation
Consolidated Statements of Operations
(in thousands of dollars, except per share data)
For the years ended
December 31,
1995 1994
1993
Revenues $133,967 $136,206
$149,414
Costs and expenses:
Cost of revenues 102,231 99,921
134,574
Selling, general and administrative expense 23,538 22,511
27,230
Research and development expense 5,904 5,339
2,257
Restructuring and other (income) expense, net 6,249
(1,200) --
Total costs and expenses 137,922 126,571
164,061
Operating profit (loss) (3,955) 9,635
(14,647)
Interest expense (1,154)
(923) (1,590)
Interest income 95 291
84
Income (loss) before income taxes and cumulative
effect of change in accounting (5,014) 9,003
(16,153)
Income tax provision (benefit) (1,207) 3,050
(6,547)
Net income (loss) before cumulative effect of
change in accounting (3,807) 5,953
(9,606)
Cumulative effect as of January 1, 1993,
of change in accounting for income taxes -- --
1,700
Net income (loss) (3,807) 5,953
(7,906)
Dividend requirement on preferred stock (695)
(695) (695)
Net income (loss) applicable to common stock $ (4,502) $ 5,258
$ (8,601)
Per Average Common Share:
Income (loss) before cumulative effect of
change in accounting $ (.33) $ .40
$ (.87)
Cumulative effect of change in accounting for
income taxes -- --
.14
Net income (loss) $ (.33) $ .40
$ (.73)
The accompanying notes are an integral part of these consolidated financial
statements.
The Titan Corporation
Consolidated Balance Sheets
(in thousands of dollars, except par values)
As of
December 31,
1995
1994
Assets
Current Assets:
Cash and cash equivalents $ 5,833
$ 5,129
Accounts receivable - net 39,360
36,164
Inventories 10,399
7,155
Prepaid expenses and other current assets 2,872
2,430
Deferred income taxes 4,809
4,769
Total current assets 63,273
55,647
Property and equipment - net 18,295
12,932
Goodwill - net of accumulated amortization of $3,842 and $3,289 3,550
4,103
Other assets 10,052
9,221
Total assets $95,170
$81,903
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $10,184
$ 7,402
Line of credit 9,200
- --
Current portion of long-term debt 1,019
556
Accrued compensation and benefits 9,192
11,000
Other accrued liabilities 13,803
15,250
Total current liabilities 43,398
34,208
Long-term debt 4,281
765
Other non-current liabilities 8,852
8,162
Commitments and contingencies
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: none issued --
- --
Common stock: $.01 par value; authorized 30,000,000
shares; issued and outstanding: 15,087,087 and
14,632,458 shares 151
146
Capital in excess of par value 31,148
27,860
Retained earnings 10,169
14,671
Treasury stock (1,161,147 and 1,521,534 shares), at cost (3,524)
(4,604)
Total stockholders' equity 38,639
38,768
Total liabilities and stockholders' equity $95,170 $
81,903
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,
1995 1994
1993
Cash Flows from Operating Activities:
Net income (loss) $(3,807) $ 5,953
$(7,906)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Restructuring activities (486) (1,200)
- --
Cumulative effect of accounting change -- --
(1,700)
Depreciation and amortization 4,117 3,424
4,495
Deferred income taxes and other 178 681
(3,354)
Change in operating assets and liabilities
(net of effects of sale of businesses):
Accounts receivable (3,196) 8,091
1,850
Inventories (3,287) (494)
3,332
Prepaid expenses and other assets 811 160
(406)
Accounts payable 2,782 (44)
2,347
Income taxes payable -- --
(1,688)
Accrued compensation and benefits (1,808) 1,559
892
Other liabilities (1,249) (12,218)
8,150
Net cash provided by (used for) operating
activities (5,945) 5,912
6,012
Cash Flows from Investing Activities:
Proceeds, net of transaction costs, from sale
of businesses 1,835 16,766
- --
Capital expenditures (8,988) (6,244)
(6,301)
Capitalized software costs (1,957) (1,345)
(22)
Other 117 33
139
Net cash provided by (used for) investing activities (8,993) 9,210
(6,184)
Cash Flows from Financing Activities:
Additions to debt 13,800 --
2,500
Retirements of debt (621) (16,871)
(958)
Proceeds from stock issuances 3,158 2,199
355
Dividends paid (695) (695)
(695)
Net cash provided by (used for) financing activities 15,642 (15,367)
1,202
Net increase (decrease) in cash and cash equivalents 704 (245)
1,030
Cash and cash equivalents at beginning of year 5,129 5,374
4,344
Cash and cash equivalents at end of year $ 5,833 $ 5,129
$ 5,374
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, 1995, 1994 and 1993
(in thousands of dollars, except per share data)
Capital
Preferred Common in Excess of Retained
Treasury
Stock Stock Par Value Earnings Stock
Total
Balances at December 31, 1992 $ 695 $ 136 $24,618 $18,014
$ (7,447)
$36,016
Exercise of stock options
and other -- 2 356 -- (3)
355
Shares contributed to
employee benefit plans -- -- -- -- 1,551
1,551
Dividends on preferred
stock - $1 per share -- -- -- (695) --
(695)
Net loss -- -- -- (7,906) --
(7,906)
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
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, advanced research and development,
sterilization and the environment. The Company also develops, designs,
manufactures and markets satellite communications subsystems, secure
television security systems, pulse power products including linear
accelerators, and hardened electronic subsystems.
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 1995 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 secure television, commercial satellite communications
and medical device sterilization. Certain investments made in these start-up
ventures are reflected in the balance sheet, primarily within the captions of
Property and Equipment and Other Assets, which includes capitalized software
costs. These capitalized investments aggregate approximately $12,500 at
December 31, 1995. 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 and will
review and evaluate the realizability of the related assets.
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 a 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 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 20 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.
Income Taxes. Effective January 1, 1993, the Company adopted 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
(13,445,000 in 1995, 13,288,000 in 1994, and 11,739,000 in 1993). Common
stock equivalents consist primarily of shares issuable upon the exercise of
stock options. Conversion of preferred stock has not been assumed as the
effect of the conversion would not be dilutive in any of the periods
presented.
Recent Accounting Pronouncements. The Financial Accounting Standards Board
("FASB") has issued Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". This statement establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
goodwill related to those assets to be held and used, and for long-lived
assets and certain identifiable intangibles to be disposed of. The FASB has
also issued SFAS No. 123 "Accounting for Stock-Based Compensation". This
Statement (No. 123) provides companies the option to account for employee
stock compensation awards based on their estimated fair value at the date of
grant, resulting in a charge to income in the period the awards are granted,
or to present pro forma footnote disclosure describing the effect to the
Company's net income and net income per share data as if the Company had
adopted SFAS 123. SFAS 121 and SFAS 123 are effective for companies with
fiscal years beginning after December 15, 1995. The Company has not yet
determined what impact, if any, the adoption of SFAS 121 or SFAS 123 will have
on the Company's financial statements or related disclosures thereto.
Note 2. Restructuring
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.
The Board of Directors adopted a new formal plan of restructuring for 1995
that redefined Titan's businesses into four business segments: Communications
Systems, Software Systems, Defense Systems, and Emerging Technologies.
Implementation of this restructuring plan provides for further disposition of
businesses not central to the Company's long-term strategy as currently
defined. Management believes these actions will better position the Company
for growth and strategic transactions designed to increase shareholder value.
The restructuring charge of $5,431 also provides for significant
reorganization of the Software Systems segment and the sterilization business,
reductions of personnel, and other actions associated with reorganizing the
structure of the Company.
As explained above, Titan has historically funded growth for new business
areas with internally generated funds, its bank line of credit and certain
secured long-term debt. Presently, the Company intends to pursue various
financing alternatives in order to provide additional funding for the
development and commercialization of its emerging business areas. In
management's opinion, the need for and the timing of these further
restructuring activities were largely driven by management's plan to gain
access to capital markets as a significant source of continued development
funding. Should the Company be unable to successfully obtain outside funding,
the level of investment in these emerging businesses could change.
The restructuring charge of $5,431 includes approximately $2,000 for severance
which provides for the termination of a total of 84 employees throughout the
Company. As of December 31, 1995, 12 employees had been terminated and a
total of $318 had been charged against the accrual. The restructuring charge
also includes approximately $3,400 for the exiting of businesses, which is net
of a $1,450 pre-tax gain on the sale in September 1995 of the Company's
shaped-charge munitions business. The charge includes estimates for direct
costs of the planned disposals, termination of certain agreements, and other
costs associated with selling or closing certain businesses. A total of $461
had been charged against the accrual as of December 31, 1995. This group of
businesses had revenues of $19,384 and an operating loss of $298 in 1995.
Note 3. Other Financial Data
Following are details concerning certain balance sheet accounts:
1995 1994
Accounts Receivable:
U.S. Government - billed $ 14,449 $ 20,176
U.S. Government - unbilled 10,758 9,224
Trade 14,447 7,176
Less allowance for doubtful accounts (294)
(412)
$ 39,360 $ 36,164
Unbilled receivables include approximately $5,000 at December 31, 1995 and
1994 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.
1995 1994
Inventories:
Materials $ 3,152 $ 2,921
Work-in-process 4,159 1,287
Finished goods 3,088 2,947
$ 10,399 $ 7,155
Property and Equipment:
Machinery and equipment $ 23,429 $ 21,619
Furniture and fixtures 3,207 3,307
Leasehold improvements 3,503 2,818
Construction in progress 6,041 1,968
36,180 29,712
Less accumulated depreciation and
amortization (17,885) (16,780)
$ 18,295 $ 12,932
Deferred income taxes of $5,904 and $5,501 and capitalized software costs of
$3,088 and $1,345 are included in Other Assets at December 31, 1995 and 1994,
respectively. At December 31, 1995 and 1994, respectively, other liabilities,
current and non-current, include $958 and $2,185 related to estimated losses
on contracts. In addition, these captions include liabilities for post-
retirement benefits for employees of previously discontinued operations of
$3,016 and $3,134 at December 31, 1995 and 1994, respectively. Also included
in other accrued liabilities are customer advance payments of approximately
$1,653 and $1,503 at December 31, 1995 and 1994, respectively, and $4,914 and
$3,814 related to restructuring activities at December 31, 1995 and 1994,
respectively.
Note 4. Segment Information
In 1995, Titan classified its businesses in four industry segments,
Communications Systems, Software Systems, Defense Systems, and Emerging
Technologies. This change from prior years more clearly reflects the nature
of the Company's operations after restructuring. All prior year segment data
have been restated to conform to the 1995 presentation. The Communications
Systems segment contains two start-up business units, both targeting rapidly
growing commercial markets. The first business unit, secure television,
specializes in providing complete turnkey security for television delivery
systems. The second business unit is satellite communications, which
develops, manufactures and sells satellite earth station networks and related
subsystems. 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 Defense Systems segment
also provides militarized computers. 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 $14,240, $8,498, and $16,289 in 1995, 1994 and 1993,
respectively, primarily to countries in Western Europe and the Far East.
The following tables summarize industry segment data for 1995, 1994 and 1993.
1995 1994 1993
Revenues:
Communications Systems $ 7,490 $ 6,319 $ 6,492
Software Systems 33,175 28,868 13,713
Defense Systems 67,948 78,780 103,071
Emerging Technologies 25,354 22,239 26,138
$133,967 $136,206 $149,414
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 $81,632 in 1995, $93,107 in 1994, and $112,001 in 1993. In the
Defense Systems segment, revenues in 1995 and 1994 included approximately
$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 is expected to conclude
in mid-1996. Furthermore, 1995 Defense Systems 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, totalled
$24,451, $24,323, and $9,712, in 1995, 1994 and 1993, 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.
1995 1994 1993
Operating Profit (Loss):
Communications Systems $ (4,488) $ (7,927) $ (7,413)
Software Systems 3,803 6,237 915
Defense Systems 4,456 4,725 (2,804)
Emerging Technologies 14 (305) 947
Corporate (7,740) 6,905 (6,292)
$(3,955) $ 9,635 $(14,647)
The Defense Systems segment includes Applications Group revenue of $11,913 and
$31,700 and operating profit of $919 and $3,300 in 1994 through the date of
sale and in the full year 1993, respectively.
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.
1995 1994 1993
Identifiable Assets:
Communications Systems $ 8,287 $ 4,813 $ 3,649
Software Systems 8,945 6,084 3,458
Defense Systems 39,587 38,859 58,625
Emerging Technologies 19,191 12,165 9,866
General corporate assets 19,160 19,982 17,616
$95,170 $81,903 $93,214
General corporate assets are principally cash, prepaid expenses, deferred
income taxes, and other assets.
1995 1994 1993
Depreciation and Amortization
of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems $ 366 $ 387 $ 177
Software Systems 1,044 533 715
Defense Systems 1,744 1,838 2,813
Emerging Technologies 712 630 756
Corporate 251 36 34
$ 4,117 $ 3,424 $ 4,495
Capital Expenditures:
Communications Systems $ 697 $ 397 $ 56
Software Systems 1,709 1,784 562
Defense Systems 1,431 2,003 1,598
Emerging Technologies 5,007 1,963 4,046
Corporate 144 97 39
$ 8,988 $ 6,244 $ 6,301
Note 5. Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). This
statement changed the criteria for the recognition and measurement of deferred
tax assets and liabilities, including net operating loss carryforwards. Prior
years' financial statements were not restated to apply the provisions of SFAS
109. The cumulative effect of the adoption of the accounting change was an
increase in 1993 net income of $1,700 ($0.14 per share) relating to the
recognition of additional net deferred tax assets.
The components of the income tax provision (benefit) are as follows:
1995 1994 1993
Current:
Federal $(2,232) $1,377 $(2,334)
State (220) 203 --
(2,452) 1,580 (2,334)
Deferred 1,245 1,470 (4,213)
$(1,207) $3,050 $(6,547)
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):
1995 1994 1993
Expected Federal tax provision
(benefit) $(1,705) $3,061 $(5,492)
State income taxes, net
of Federal income tax
benefits (44) 450 (540)
Loss carryforwards/carrybacks -- (216) --
Research credit -- (338) (570)
Goodwill amortization 160 149 15
Alternative minimum tax 100 -- --
Keyman life insurance 75 83 60
Other 207 (139) (20)
Actual tax provision (benefit) $(1,207) $ 3,050 $(6,547)
During 1993, the Revenue Reconciliation Act of 1993 was signed into law which
reinstated research tax credits retroactive to July 1, 1992. The retroactive
application of the law increased the Company's 1992 research credit by $570
which is reflected in the income tax provision for the year ended December 31,
1993.
The deferred tax assets as of December 31, 1995 and 1994, result from the
following temporary differences:
1995 1994
Inventory and contract loss reserves $ 3,005 $ 4,102
Employee benefits 4,289 4,518
Restructuring 2,786 2,534
Tax credit carryforwards 815 1,315
Depreciation (1,875) (1,664)
Loss carryforward 1,680 429
Other 1,213 236
11,913 11,470
Valuation allowance (1,200) (1,200)
Net deferred tax assets $10,713 $10,270
Realization of certain components of the net deferred tax asset is dependent
on 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 1995 were $828. Cash paid for income taxes was $1,252 and
$309 in 1994 and 1993, respectively.
Note 6. Debt
At December 31, 1995, the Company had debt outstanding of $9,200 under an
unsecured bank line of credit at a weighted average interest rate of 8.13%.
The Company also had commitments under letters of credit at December 31, 1995
of $1,070 which reduced availability of the line of credit. In May 1995, this
bank line of credit was increased to $17,000 from $10,000 and the maturity
date was extended from May 1996 to May 1997. The Company has the option to
borrow at prime or at LIBOR plus 2 percent. The line of credit agreement
requires Titan to have annual net income, as defined, prohibits two
consecutive quarterly losses and contains other financial covenants which
require the Company to maintain stipulated levels of tangible net worth, a
minimum debt service coverage ratio and a specified quick ratio. A waiver was
received relating to the 1995 net loss. No borrowings were outstanding under
this agreement at December 31, 1994. Borrowings under the Company's lines of
credit averaged $6,400, $4,180, and $14,200 at weighted average interest rates
of 8.8%, 7.6% and 5.5% during 1995, 1994 and 1993, respectively.
At December 31, 1995 and 1994 the Company had $5,300 and $1,321, respectively,
outstanding under two promissory notes, secured by certain machinery and
equipment. The interest rates of the notes are 8.5% and 8.56%. In January
1996, the Company entered into another loan agreement for $2,500 at an
interest rate of 7.42%, also secured by machinery and equipment. Part of the
proceeds from this agreement were used to repay one of the promissory notes
outstanding at December 31, 1995 with a principal balance of $765.
Cash paid for interest, primarily on these borrowings, was $572, $578, and
$1,274 in 1995, 1994 and 1993, respectively.
Note 7. Commitments and Contingencies
Titan is obligated for aggregate rentals of $41,609 under operating lease
agreements, principally for facilities. These leases generally include
renewal options and require minimum payments of $5,426 in 1996, $4,936 in
1997, $4,452 in 1998, $3,810 in 1999, $3,475 in 2000 and $19,510 for the years
thereafter. Rental expense under these leases was $7,496 in 1995, $7,367 in
1994 and $6,294 in 1993. 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 1995, 1994 and 1993 includes
$868, $838, and $824, respectively, paid under this agreement.
The Company is a party to four separate lawsuits filed by former employees
claiming, among other things, wrongful termination and discrimination. The
cases are scheduled for trial in March, April and June of 1996. The Company
intends to continue to defend the cases vigorously. 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 8. 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 9. Common Stock
At December 31, 1995, aggregate common shares reserved for future issuance for
conversion of preferred stock, all stock incentive plans and warrants were
2,792,568.
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 10. Stock Incentive Plans
At December 31, 1995, 1,218,811 shares of common stock were reserved for
options granted under Titan's stock option plans for officers, directors and
key employees. Options vest ratably over 4 years and expire up to 10 years
from the date granted. The option price must not be less than the fair market
value on the date of grant, and the provisions covering exercise are
established at the date of grant by the option committee.
A summary of changes in the shares under option is shown below:
Shares Issuable
Under Options
Outstanding Price Range
Balance at December 31, 1992 1,837,014 $ 1.63 - 4.25
Options granted 536,500 2.63 - 3.50
Options exercised (129,716) 1.63 - 3.25
Options terminated (223,436) 1.63 - 4.25
Balance at December 31, 1993 2,020,362 1.63 - 4.25
Options granted 369,000 2.63 - 6.63
Options exercised (855,212) 1.63 - 4.25
Options terminated (104,694) 1.63 - 4.25
Balance at December 31, 1994 1,429,456 1.63 - 6.63
Options granted 429,000 5.75 - 9.50
Options exercised (454,629) 1.63 - 7.13
Options terminated (185,016) 1.63 - 6.63
Balance at December 31, 1995 1,218,811 2.13 - 9.50
At December 31, 1995, and 1994, respectively, options for 451,521 and 568,816
shares were exercisable, and 509,944 and 814,706 shares were reserved for the
granting of additional options in the future.
Note 11. Benefit Plans
The Company has various defined contribution benefit plans covering certain
employees. The Company's contributions to these plans were $2,514, $2,291,
and $2,713 in 1995, 1994 and 1993, respectively. The Company's discretionary
contributions to its Employee Stock Ownership Plan were $339 and $487 in 1994
and 1993, respectively. There were no discretionary contributions for 1995.
During 1995, 1994 and 1993, the Company utilized treasury stock of $871,
$1,267, and $1,551, 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
$970, $668, and $680 in 1995, 1994, and 1993, respectively. At December 31,
1995 and 1994, respectively, Other Non-current Liabilities include $2,975 and
$2,466 for obligations under this plan. Interest expense for the years ended
December 31, 1995, 1994, and 1993 includes $486, $229, and $191, respectively,
related to the plan. The Company also has performance bonus plans for certain
of its employees. Related expense amounted to approximately $2,679, $5,220
and $1,708 in 1995, 1994 and 1993, 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 12. Quarterly Financial Data (Unaudited)
First Second Third Fourth
Total
1995 Quarter Quarter Quarter Quarter(b)
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)
First Second Third Fourth
Total
1994 Quarter Quarter(a) Quarter Quarter
Year .
Revenues $ 39,689 $ 28,804 $ 29,541 $ 38,172 $
136,206
Gross profit 8,249 7,400 9,382 11,254
36,285
Net income 751 1,773 1,514 1,915
5,953
Net income per common share .05 .12 .10 .13
.40
(a) Net income in the second quarter of 1994 includes a net restructuring
credit of $1,200.
(b) Net loss in the fourth quarter of 1995 includes a net restructuring
charge (see Note 2 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 1996 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 1996 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 1996 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 1996 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 19, 1995 to
report an amendment to the Company's bylaws.
3. 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 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.
4.3 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.
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.
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 Secured Promissory Note and Security Agreement dated as of April 14,
1993 by and between Fleet Credit Corporation and Registrant, which was
Exhibit 10.16 to Registrant's 1993 Annual Report on Form 10-K, is
incorporated herein by this reference.
10.12 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.
10.13 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.
10.14 Executive Severance Plan entered into by the Company with Gene W. Ray,
John E. Koehler, Ronald B. Gorda, David A. Hahn, Roger Hay, Cornelius L.
Hensel, Frederick L. Judge and Stephen P. Meyer, 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.
10.15 First Amendment to Commercial Loan Agreement dated May 25, 1995 by and
between Registrant and Sumitomo Bank of California.
10.16 Second Amendment to Commercial Loan Agreement dated December 29, 1995 by
and between Registrant and Sumitomo Bank of California.
10.17 Loan and Security Agreement, dated December 29, 1995 by and between
Registrant and Capital Associates International, Inc.
10.18 Loan and Security Agreement dated January 31, 1996 by and between
Registrant and Sanwa General Equipment Leasing, a division of Sanwa
Business Credit Corporation.
21. Titan Subsidiaries as of December 31, 1995.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule
THE TITAN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
Balance
Balance
at
at
beginning
end
of year Additions Deductions
of year
1995:
Allowance for doubtful accounts $ 412 $ 193 $ 311 $
294
1994:
Allowance for doubtful accounts 764 1 353
412
1993:
Allowance for doubtful accounts 555 561 352
76
EXHIBIT 21
SUBSIDIARIES OF THE TITAN CORPORATION
State or
Jurisdiction
Name of
Incorporation
Federal Services, Inc.......................................... California
Pulse Sciences, Inc............................................ California
Titan Environmental Corporation................................ Delaware
Titan Information Systems Corporation.......................... Delaware
Titan Beam International Group................................. Delaware
Tomotherapeutics, Inc.......................................... Delaware
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report, dated February 28, 1996, into the Company's previously filed
Registration Statements (as amended, as applicable) File Numbers 33-4830, 33-
4041, 33-9570, 33-12119, 33-15680, 33-15892, 33-37827, 33-56762, 33-65123, and
33-83402.
ARTHUR ANDERSEN LLP
San Diego, California
March 29, 1996
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
President and Chief Executive
Officer
March 29, 1996
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/ Chairman of the March 29, 1996
J.S. Webb Board of Directors
/s/ President, Chief March 29, 1996
Gene W. Ray Executive Officer and
Director
/s/ Senior Vice President and March 29, 1996
Roger Hay Chief Financial Officer
(Principal Financial Officer)
/s/ Vice President and March 29, 1996
Jane E. Judd Corporate Controller
(Principal Accounting Officer)
/s/ Director March 29, 1996
Charles R. Allen
/s/ Director March 29, 1996
Joseph F. Caligiuri
/s/ Director March 29, 1996
Daniel J. Fink
/s/ Director March 29, 1996
Robert E. La Blanc
/s/ Director March 29, 1996
Thomas G. Pownall
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made as of the 31st
day of January, 1996, by and between SANWA GENERAL EQUIPMENT LEASING, A
DIVISION
OF SANWA BUSINESS CREDIT CORPORATION, its successors and assigns ("Lender"),
and
THE TITAN CORPORATION ("Borrower").
Borrower is desirous of obtaining a loan from Lender and Lender is willing
to make the loan to Borrower upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in
hand
paid and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties do hereby agree as follows:
1. Advance of Loan.
(a) On the terms and conditions hereinafter set forth, the
parties
agree that Lender shall lend to Borrower certain sums (the "Loan") on the terms
specified pursuant to that certain commitment letter dated January 3 , 1996
(the
"Commitment Letter"; which is incorporated herein by reference). Time is of
the
essence.
(b) The obligation to repay the Loan hereunder shall be
evidenced
by one or more promissory notes payable by Borrower to the order of Lender in
substantially the form attached hereto as Exhibit No. 1 (hereinafter
collectively
referred to as the "Promissory Note"). The Promissory Note shall bear
interest,
be payable and mature as set forth in Exhibit No. 1.
(c) The commitment of Lender to make the Loan herein shall
expire
on the date specified in the Commitment Letter, provided, however, that such
commitment shall terminate (at Lender's option) upon the occurrence of any
Default (as such term is hereinafter defined) or of any event which, with the
giving of notice or lapse of time, or both, would become a Default hereunder.
2. Security. As security for the payment as and when due of the
indebtedness of Borrower to Lender hereunder and under Borrower's
Promissory Note
(and any renewals, extensions and modifications thereof) and under any other
agreement or instrument, both now in existence and hereafter created related to
the transaction described in this Agreement (as the same may be renewed,
extended
or modified), and the performance as and when due of all other obligations of
Borrower to Lender, both now in existence and hereafter created related to the
transaction described in this Agreement (as the same may be renewed,
extended or
modified) (the "Obligations"), Borrower hereby grants to Lender a purchase
money
security interest in the items of equipment (the "Equipment") described on the
collateral schedule(s) in substantially the form attached hereto as Exhibit
No. 2
(hereinafter collectively referred to as the "Collateral Schedule") now or
hereafter executed in connection with the Promissory Note, and all
replacements,
substitutions and alternatives therefor and thereof and accessions thereto and
all proceeds (cash and non-cash), including the proceeds of all insurance
policies, thereof (the "Collateral"). Borrower agrees that with respect to the
Collateral Lender shall have all of the rights and remedies of a secured party
under the Maryland Uniform Commercial Code (the "UCC"). Borrower may not
dispose
of any of the Collateral without the prior written consent of Lender,
notwithstanding the fact that proceeds constitute a part of the Collateral.
3. Conditions Precedent to Lender's Obligation. The obligation of
lender to make the Loan as set forth in Section 1 hereof is expressly
conditioned
upon compliance by Borrower, to the reasonable satisfaction of Lender and its
counsel, of the following conditions precedent:
(a) Concurrently with the execution hereof, or on or prior
to the
date on which Lender is to advance the Loan hereunder, Borrower shall
cause to be
provided to Lender the following:
(1) Resolutions of the Board of Directors or validly
authorized Executive Committee of Borrower, certified by the Secretary or an
Assistant Secretary of Borrower, duly authorizing the borrowing of funds
hereunder and the execution, delivery and performance of this Agreement and all
related instruments and docume