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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
---------------------------
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended: MARCH 31, 1995 Commission File Number: 1-7777
LOGICON, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2126773
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3701 Skypark Drive, Torrance, California 90505-4794
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(310) 373-0220
-----------------------------
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 par value New York Stock Exchange, Inc.
- ------------------------------- ------------------------------------
(Title of each class) (Name of each exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act:
None
------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock as of a specified date within 60 days prior to the date of filing.
$231,527,154 on June 1, 1995.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
$.10 par value common - 6,784,153 shares on June 1, 1995
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
March 31, 1995 are incorporated by reference in Part II of this report. Portions
of the registrant's definitive proxy statement dated June 26, 1995 are
incorporated by reference in Part III of this report.
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PART I
ITEM 1. BUSINESS
General
Logicon, Inc., the Registrant (hereinafter referred to as Logicon or the
Company), was incorporated in California on April 10,1961, and reincorporated in
Delaware on July 28, 1978. The Company provides advanced technology systems and
services to support national security, civil and industrial needs.
On February 16, 1995, the Company acquired Syscon Corporation (Syscon), which
operated as an indirectly wholly-owned subsidiary of Harnischfeger Industries,
Inc., for a cash purchase price of $45 million. Syscon is engaged principally
in the business of providing systems development, systems integration and
systems services to the U.S. government and commercial enterprises. The
acquisition was accounted for as a purchase and the excess of the purchase price
over net assets acquired was $21.7 million. The Company's consolidated results
of operations include the operations of Syscon from the acquisition date.
Contracts with the U.S. government are the Company's primary revenue source.
These revenues accounted for 99 percent of total revenues from services and
systems for fiscal years 1993 through 1995. The current backlog value is
composed of 46 percent fixed-price contracts, 41 percent cost type contracts,
and 13 percent time and material type contracts. The Company is performing on a
variety of contracts in the following defense markets:
Command, Control, Communications & Intelligence
Command, Control, Communications & Intelligence, commonly referred to as C/3/I,
continues to be one of the Company's most important defense markets. Logicon has
enjoyed longstanding relationships with both the U.S. Navy and the Marine Corps
as a prime interoperability services provider. Logicon is also a main supplier
of tactical data link diagnostic equipment for the Navy. In 1991, Logicon began
to apply its interoperability expertise at the Joint Service level when it began
supporting the Joint Interoperability Engineering Organization (JIEO).
The Company continued work under the JIEO contract during fiscal 1995. This
broad-based contract has given the Company the opportunity to apply its
technical expertise in a variety of areas including development of joint
interoperability standards, business process re-engineering and the engineering
and prototype testing of advanced communications technologies.
The Company's role in the development of a $32 million counter drug network for
the four Southwestern states - California, Arizona, New Mexico and Texas - was
highlighted in March, when an initial capability demonstration of the anti-drug
network was conducted. Deployment of the system is scheduled for mid-1995.
In another interoperability activity, Logicon supports the Joint
Interoperability Test Center at Ft. Huachuca, Arizona. Logicon staff test and
evaluate digital and analog switches, radio equipment, and tactical and
strategic satellite equipment and information systems to determine whether they
are operational, interoperable with other specified elements and in compliance
with military specifications.
At the U.S. Army's Experimentation Site at Ft. Lewis, Washington, Logicon
experts help the Army evaluate and test prefielded versions of advanced C/3/
systems. Logicon-supported experiments and exercises are geared towards
providing a realistic operational environment in which to evaluate the systems.
In another C/3/I project, Logicon engineers provide combat systems engineering
services for digital computer-based shipboard combat systems. The Company's
work involves integrating combat systems into ships and submarines at all phases
of a ship's life - from new construction to complete overhauls of existing
vessels. Logicon engineers provide the whole spectrum of engineering services,
including: design and performance specifications, system integration and
introduction, and test and evaluation.
Logicon also supports two Naval undersea surveillance programs. Logicon
engineers have developed over 300,000 lines of Ada software code for a
communications system that is used to transmit information in support of
antisubmarine warfare activity. A specially equipped ship tows an array of
acoustic sensors at low speeds in order to pick up submarine activity. The
system processes the data on board the ship and communicates the information via
satellite.
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Weapon Systems
Logicon's work in the Weapon Systems arena includes: the development and
operational integration of mission planning systems, development and operation
of weapon system simulations, software verification and validation, and life
cycle engineering support services for combat systems. The Company has had a
long history of involvement with the nation's ballistic and cruise missile
programs, and continues to be active in the test and evaluation as well as the
modification and maintenance of software for several missile systems including
the Minuteman III and the Tomahawk. The Company also provides program office
support to the Navy's Standard Missile Program.
The scope of the Company's work as the developer of the B-2 aircraft's mission
planning system over the past few years has been expanded to include support for
unit level mission planning and precision guided conventional weapons. The
initial version of the B-2 mission planning software is currently installed at
Whiteman AFB and is supporting operational B-2 aircraft. An updated version of
the software has undergone the required government qualification tests and is
currently supporting the flight test program at Edwards AFB. Operational test
and evaluation of the final version of this software is scheduled to begin in
March 1996, and the software will be installed for operational use at Whiteman
AFB in July 1996.
Logicon develops and maintains planning, scheduling and analysis software for
both aircraft and ballistic missile systems used by military leaders for
planning responses in times of conflict. An example is Logicon's Combined
Mating and Ranging Planning System (CMARPS), which is used to help orchestrate
the aerial refueling of aircraft by producing flight plans and resource
summaries for both the mission aircraft and the fleet of tankers involved in the
refueling missions. CMARPS supports deployment missions in which assets are
deployed to a theater of operations and employment missions in which aircraft
are used to carry out in-theater warfare operations.
Logicon is a preeminent supplier of services to the Navy's Aegis Program under
several different contracts. In addition to providing testing, logistics, fleet
introduction, system engineering and management support to the program office,
Logicon engineers also provide a variety of life cycle support engineering
services for the Aegis Combat System, which is installed in all Aegis class
cruisers and destroyers. Life cycle support services include software IV&V,
simulation system development and maintenance, analysis of proposed engineering
modifications to the system, and support Aegis Combat System level testing and
government acceptance for each current Aegis baseline.
Logicon also provides technical and analytical support to the Navy's Standard
Missile Program in the areas of program planning, foreign military sales,
Management Information Systems (MIS), security planning and systems engineering.
Science & Technology
Logicon's capabilities in the Science and Technology area include management and
engineering services, experimentation and research in the fields of nuclear and
conventional weapons effects, high-energy lasers and sophisticated man-machine
relationships. The Company has continuously supported research efforts at the
Defense Nuclear Agency (DNA) since 1971 and at the U.S. Air Force's Phillips
Laboratory at Kirtland AFB in Albuquerque, New Mexico, since 1977. In addition,
Logicon researchers and experimental psychologists help design experiments and
conduct research at the Armstrong Laboratory's Human Engineering Division at
Wright-Patterson AFB in Dayton, Ohio. Other customers include the Navy Combat
Systems Laboratory in Newport, Rhode Island, and NASA's Jet Propulsion
Laboratory.
Under the Company's most recent contract with DNA, awarded last year, research
is continuing into conventional and nuclear weapons effects, ballistic missile
defense system lethality and operability in environments disturbed by weapons
employment, and countering the proliferation of weapons of mass destruction.
The Logicon-developed Distributed Interactive Simulation provides the DNA with a
model for studying the effects of conventional weapons used in an attack on a
hardened structure.
The Company's work in support of the Phillips Laboratory encompasses high-energy
lasers and imaging system development, atmospheric propagation and
lethality/effects. Company scientists and engineers are experts in
communications, airborne and space electro-optical sensors, and imaging and
control systems. Since 1990, the Company has operated and maintained the high-
energy laser laboratories at Phillips. The Company has also developed a
premiere comprehensive precision electro-optical-mechanical design and
fabrication capability.
At Armstrong Laboratory's Human Engineering Division, Logicon researchers
support experiments aimed at determining human capabilities and limitations in
operating modern complex flight systems. Experimental psychologists, engineers
and technicians currently help design and conduct experiments in 20 labs. The
information gleaned is used in designing the systems of the future.
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At the Navy's Combat Systems Technology Laboratory in Newport, Rhode Island,
Logicon personnel provide technical and management support on a number of
laboratory activities. The focus of the work is on the development of new
combat systems for submarines. Logicon provides computer operations, systems
analysis, engineering and logistics support.
The Company also supplies engineering services to the Jet Propulsion Laboratory
on a variety of JPL unmanned space programs. Activities include research into
the effects of radiation in space; identifying requirements for vibration,
acoustic, shock, and thermal/climatic environments; and monitoring dynamics and
thermal/climatic tests.
Information Systems
Revenues for Logicon's Information Systems business have grown at an average
annual rate of 22 percent since 1991, the first year the Company began reporting
on it separately. The Company's expertise in this area includes migration
strategies for transitioning from mainframe-based legacy information systems to
client/server networks, enterprise integration, systems engineering, software
development, systems development and integration, and next generation software
engineering environments, using CASE tools.
The DoD's award of the I-CASE contract to Logicon in April 1994, was a
milestone. It is the Company's largest single contract award to date. Under
the contract, Logicon is providing the DoD with a single software engineering
environment (SEE) called LOGICORE/TM/, which includes Sun Microsystems servers
and workstations and over 50 software tools, including tools for management;
software design and development; configuration management and testing; and
services to assist in the implementation and use of the system. LOGICORE, a
next generation software development environment, will reduce the risk and cost
of software development and deployment of software applications within the
government. Just after the close of the fiscal year, the I-CASE contract was
opened to other government organizations as well, enabling them to order
hardware, software and services under the contract.
The Logicon-developed Case Management Control System (CMCS), used for the U.S.
Air Force's Foreign Military Sales Program, is a large financial management
information system that tracks, from start to finish, the sale of military
equipment to foreign governments. Logicon software experts are currently
developing new upgrades to the software and maintaining the system.
The Company's Logicon Message Dissemination System (LMDS), a sophisticated
message retrieval and dissemination software product, is constantly being
enhanced to include new features, interfaces and capabilities that allow it to
have broader application. Recently it was enhanced to operate with Lotus Notes
and on a World Wide Web server. LMDS is currently used by various government
agencies; Burrelle's, a financial information services organization; the Dow
Jones News Service; and is the basis for an expanded future service planned by
America Online.
At the U.S. Patent and Trademark Office, Logicon staff are responsible for
maintaining and processing all patent and trademark files in the United States.
In the course of a typical week, nearly 8,000 new patents are processed.
In another effort, Logicon provides a number of technical support services to
the U.S. Department of Justice's Criminal and Civil Divisions. Services include
network management, improving the department's automated office environments,
operating the department's help desk, and developing application software for
information systems.
The Logicon-developed Integrated Communications and Administrative Support
System (ICASS) is the backbone for communications at the National Archives and
Records Administration (NARA). Logicon staff designed, developed, integrated,
installed and tested the ICASS computer network. ICASS provides the networking
infrastructure for all future NARA systems.
Training & Simulation
Logicon's activities in the Training & Simulation area include conducting hands-
on training exercises as well as providing overall engineering and software
support for the U.S. Army's Battle Command Training Program (BCTP), the Army's
premiere training program for commanders and their staffs. The Company also
provides similar support to the U.S. Army's I Corps and XVIII Corps Battle
Simulation Centers, and the Army's Reserve Component Battle Projection Centers.
Logicon also develops multimedia, interactive courseware for Army schools and
other civilian government agencies under a contract with the U.S. Army's
Training and Doctrine Command. As the managers of the NASA-Ames Simulation
Laboratory, the Company is responsible for the operation of the largest vertical
motion simulator in the world. Logicon experts developed a multi-warfare
training system for the U.S. Navy that can be used in a variety of modes. In
addition, the Company designs and maintains computer based training tools used
to train Aegis crews.
The genesis of Logicon's involvement with BCTP can be traced to its earlier
support role in the development of the Corps Battle Simulation (CBS) system at
the Jet Propulsion Laboratory. CBS, an interactive computer model of military
field operations, is used by the Army to conduct the wargaming exercises that
are at the heart of BCTP.
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The Company's extensive experience with BCTP has spawned other work in this
area. Logicon now supports combat training simulations for the U.S. Army's
XVIII Airborne Corps at five U.S. sites and is helping the U.S. Army Reserves
train their personnel for real-world conflicts by instructing battalion-,
brigade- and division-level trainers on how to train their own staffs at four
Army Reserve Battle Projection Centers. Logicon is also involved in training
students at the Dragon Warfighter Center at the U.S. Army's Chemical School.
Under a large omnibus contract with the U.S. Army's Training and Doctrine
Command, Logicon is helping the Army stay current with the latest technology
available for education and training. Logicon software experts are developing
multimedia, interactive courseware and other training materials for the Army's
distributed training program. Other government agencies, including those in the
civilian sector, can also obtain training materials under this contract.
Logicon staff oversee the operation of the NASA-Ames Simulation Laboratory
(SimLab). The largest component of the SimLab is the vertical motion simulator,
the largest of its kind in the world, which is used to train space shuttle
astronauts scheduled for missions, as well as pilots of fighter aircraft,
helicopters and transport planes. The simulator features four interchangeable
cabs that simulate the different classes of aircraft. Logicon engineers operate
the simulations and provide all related services including analysis,
programming, systems integration, operations, data gathering and post simulation
documentation.
Logicon also provides a number of training support services to the Navy's Aegis
Training Center. Logicon experts design, maintain and operate training tools
used to train Aegis crews to operate equipment or perform various tasks. Much
of the computer-based training uses interactive courseware and scenarios that
have been developed by Logicon's staff.
In another effort, the Company provides the Navy's fastest growing, most widely
accepted medium fidelity multi-warfare trainer. This training system is used in
many modes including tactical team training for communications, battle planning,
tactical decision making and wargaming as well as for training surface warfare
officers in basic Combat Information Center functions. Fifteen trainers have
been installed nationwide with an additional ten planned during 1995-1996. The
trainer has been selected as the shore-based training component for the Navy's
Battle Force Tactical Training System.
Backlog
The dollar amount of backlog, including contract options and untasked indefinite
quantity contract values at March 31, 1995, was approximately $1.7 billion,
compared to approximately $727 million at March 31, 1994. Backlog from firm
contracts at March 31, 1995, was approximately $518 million, compared to
approximately $347 million at March 31, 1994. The funded portion of the March
31, 1995 and 1994 backlog was approximately $222 million and $181 million,
respectively. It is estimated that approximately 72 percent of backlog from
firm contracts will be expended by March 31, 1996.
On April 12, 1994, the Company was awarded a U.S. Air Force contract to provide
Integrated Computer-Aided Software Engineering (I-CASE) systems and related
services to the Department of Defense. The estimated value of this fixed-price
and fixed-price indefinite delivery/indefinite quantity contract for hardware
and software products and labor hours is $670 million over a 10-year period.
Revenues from this contract were $25 million for fiscal year 1995. Firm backlog
related to the I-CASE contract was $14 million at March 31, 1995.
The Company's backlog is not subject to any significant seasonal fluctuations
but is likely to vary substantially as contracts near completion and in
conjunction with the execution of major contract renewals or the award of major
new contracts.
Contract Terminations
All of the Company's government contracts are subject to redirection or
termination for convenience. Such action could occur as a result of reductions
in government expenditures, changes in the allocations of spending or for other
reasons and could have a material adverse effect on the Company's business. In
the event of such actions, the Company is entitled to reimbursement of costs
incurred plus a reasonable fee. Historically, there have been very few
government contract terminations and those that have occurred have had a
negligible impact.
Competition
Strong competition is encountered from numerous firms, many of which are larger
and have greater financial resources than the Company. Direct competition comes
from companies that market systems and services substantially the same as those
provided by the Company. Additionally, indirect competition is encountered from
many major industrial organizations and agencies of the government that perform
services for themselves similar to those marketed by the Company. It is
believed that the Company obtains only a small part of the available business in
the markets served.
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Research Activities
Many of the Company's government contracts involve development of new systems or
improvement of existing ones and, therefore, may be considered customer-
sponsored research activities.
Costs of Company-sponsored research activities during the fiscal years ended
March 31, 1995, 1994 and 1993 were, respectively, $2,692,000, $2,751,000 and
$2,338,000.
Employee Relations
The Company's success is dependent upon its ability to attract and retain highly
trained professional and technical employees. At March 31, 1995, the Company
had 4,514 employees, of whom 3,215 were on the technical staff. Of those on the
technical staff, 83 percent held degrees, with 34 percent holding advanced
degrees.
The Company has had no work stoppages of any kind as a result of labor
difficulties and believes it enjoys excellent relations with its employees.
None of the Company's employees is represented by a labor union.
Raw Materials, Energy and Environmental Matters
Raw materials, energy shortages, and environmental protection and energy
conservation laws have not had a material adverse effect on the Company's
operations to date. It is impossible to predict what effect, if any, future raw
materials and energy shortages or environmental and energy-related legislation
would have on the Company's operations.
ITEM 2. PROPERTIES
Logicon's principal facilities, aggregating approximately 976,000 square feet,
are occupied under leases expiring prior to April 2008. The principal facilities
are located in the metropolitan areas of Los Angeles and San Diego, California,
and Washington, D.C., and are suitable for offices, laboratories, or light
manufacturing.
ITEM 3. LEGAL PROCEEDINGS
There are no pending or existing legal proceedings which, in the opinion of
Company management, if decided against the Company, would have any material
adverse effect on its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of fiscal year 1995 to a
vote of security holders through the solicitation of proxies or otherwise.
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PART II
The information required by Items 5 through 8 of this report is set forth on
page 1 and pages 25 through 39 of the 1995 Annual Report to Stockholders and is
incorporated by reference in this Form 10-K Annual Report. Item 9 is not
applicable.
PART III
The information required by Items 10 through 13 of this report is set forth in
the sections entitled "Election of Directors", "Executive Compensation Committee
Report", "Stock Options", "Other Remuneration Plans", "Long-Term Incentive Plan
Awards Table", "Certain Transactions", "Shares Owned by Directors and Named
Executive Officers", "Ownership of Certain Beneficial Owners", "Compliance With
The Securities Exchange Act", "All Executive Officers of the Company" and
"Common Stock Performance" in the Company's definitive proxy statement, dated
June 26, 1995. Such information is incorporated by reference in this Form 10-K
Annual Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 & 2. Financial Statements and Financial Statement Schedules:
The Consolidated Financial Statements, together with the report
thereon of Independent Accountants dated May 24, 1995, appearing on
pages 28 through 38 of the accompanying 1995 Annual Report to
Stockholders are incorporated by reference in this Form 10-K Annual
Report. With the exception of the aforementioned information and the
information incorporated in Items 5, 6, 7 and 8, the 1995 Annual
Report to Stockholders is not to be deemed filed as part of this
report.
No financial statement schedules are required to be filed as part of
this report. The Consent of Independent Accountants to Incorporation
by Reference of Reports in Continuous Offerings on Form S-8 is located
on page 9 of this report.
3. Exhibits:
See index of exhibits on pages 10 and 11.
(b) Reports on Form 8-K:
A report on Form 8-K was filed on March 3, 1995, pursuant to Item 2
"Acquisition or Disposition of Assets" for the acquisition of Syscon
Corporation by Logicon. The financial statements of Syscon Corporation
for the period ended October 31, 1994, were part of that filing along
with pro forma financial information for Logicon and Syscon
Corporation.
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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.
LOGICON, INC.
by
J.R. WOODHULL
---------------------------------
J.R. Woodhull, President and
Chief Executive Officer
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Signatures Title Date
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<S> <C> <C>
(1) Principal Executive Officer:
J.R. WOODHULL
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J.R. Woodhull President and June 26, 1995
Chief Executive Officer
(2) Principal Financial and Accounting Officer:
RALPH L. WEBSTER
---------------------------
Ralph L. Webster Vice President - June 26, 1995
Chief Financial Officer
</TABLE>
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<TABLE>
<S> <C> <C>
(3) Directors:
CHARLES T. HORNGREN
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Charles T. Horngren Director June 17, 1995
W. EDGAR JESSUP, JR.
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W. Edgar Jessup, Jr. Director June 26, 1995
J.R. JOHNSON
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J.R. Johnson Director June 26, 1995
CHARLES F. SMITH
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Charles F. Smith Director June 26, 1995
ROLAND R. SPEERS
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Roland R. Speers Director June 26, 1995
ROBERT G. WALDEN
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Robert G. Walden Director June 26, 1995
J.R. WOODHULL
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J.R. Woodhull Director June 26, 1995
</TABLE>
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statement on Forms S-8 (Nos. 2-82905,
2-82906, 2-82907, 33-45813 and 33-45815) of our report dated May 24, 1995,
appearing on page 38 of the 1995 Annual Report to Stockholders of Logicon, Inc.,
which is incorporated in this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
Costa Mesa, California
June 26, 1995
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LOGICON, INC.
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
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<S> <C>
3 Articles of Incorporation and Bylaws:
(a) Certificate of Incorporation (2)
(b) First amendment to the Certificate of Incorporation (5)
(c) Second amendment to the Certificate of Incorporation (6)
(d) Third amendment to the Certificate of Incorporation (7)
(e) By-laws with Amendment (3)
(f) Second amendment to the By-laws (5)
(g) Third amendment to the By-laws (6)
(h) Fourth amendment to the By-laws (7)
(i) Fifth amendment to the By-laws (7)
(j) Sixth amendment to the By-laws (9)
(k) Seventh amendment to the By-laws (9)
(l) Eighth amendment to the By-laws (12)
(m) Ninth amendment to the By-laws (13)
(n) Tenth and Eleventh amendment to the By-laws (14)
4 Instruments defining rights of security holders:
(a) Common Stock Certificate (6)
(b) Stockholder Rights Plan (8)
9 Voting trust agreement:
(a) Trust agreement for Employee Stock Purchase
Plan of Logicon, Inc. together with designation
of Sanwa Bank California as trustee (3)
10 Material Contracts:
(a) 1979 Restricted Stock Purchase Plan (1)
(b) 1979 Performance Units Plan (2)
(c) 1982 Incentive Stock Option Plan (4)
(d) 1991 Stock Option Plan for Non-Employee Directors (10)
(e) 1992 Employee Incentive Stock Option Plan (11)
11 Statement regarding computation of earnings per share
13 Annual Report to security holders
21 Subsidiaries of the registrant
23 Consents of experts and counsel:
(a) Consent of Independent Accountants to incorporation by
reference of reports in continuous offerings on
Forms S-8 is located on page 9 of this report.
27 Financial Data Schedule
</TABLE>
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Notes:
(1) Filed with the Securities and Exchange Commission in Form S-8 on April
25, 1983, registration No. 2-82905.
(2) Filed with the Securities and Exchange Commission in Form 10-K on June
26, 1981, registration No. 2-33461.
(3) Filed with the Securities and Exchange Commission in Form 10-K on June
29, 1982, registration No. 2-33461.
(4) Filed with the Securities and Exchange Commission in Form S-8 on April
25, 1983, registration No. 2-82906.
(5) Filed with the Securities and Exchange Commission in Form 10-K on June
28, 1983, registration No. 2-33461.
(6) Filed with the Securities and Exchange Commission in Form 8-A on December
14, 1984, registration No. 1-7777.
(7) Filed with the Securities and Exchange Commission in Form 10-K on June
27, 1988, registration No. 2-33461.
(8) Filed with the Securities and Exchange Commission in Form 8-A on May 7,
1990, registration No. 1-7777.
(9) Filed with the Securities and Exchange Commission in Form 10-K on June
27, 1990, registration No. 1-7777.
(10) Filed with the Securities and Exchange Commission in Form S-8 on February
19, 1992, registration No. 33-45815.
(11) Filed with the Securities and Exchange Commission in Form S-8 on February
19, 1992, registration No. 33-45813.
(12) Filed with the Securities and Exchange Commission in Form 10-K on June
21, 1993, registration No. 1-7777.
(13) Filed with the Securities and Exchange Commission in Form 10-K on June
24, 1994, registration No. 1-7777
(14) Filed with the Securities and Exchange Commission in Form 10-K on June
26, 1995, registration No. 1-7777
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EXHIBIT 3
TENTH AMENDMENT TO THE BY-LAWS
THIS AMENDMENT is adopted and approved this 10th day of June, 1994, to be
effective as of August 1, 1994, by Logicon, Inc., a Delaware corporation, with
reference to the following facts:
A. The By-Laws of Logicon, Inc. (the "By-Laws") were adopted by the
incorporator of this Corporation by written action dated July 31, 1978.
B. By Article Five of the Certificate of Incorporation of this Corporation
and Article VIII of the By-Laws, the Board of Directors of Logicon, Inc. has the
power (subject to certain limitations expressed in the Certificate of
Incorporation and the By-Laws) to amend the By-Laws.
NOW THEREFORE, the following By-Laws are hereby amended:
1. Section 2.2 of Article II of the By-Laws is hereby amended to read as
follows:
"Section 2.2 Number of Directors. The authorized number of
-------------------
directors of the Corporation shall be eight (8) and the Board may
from time to time increase or decrease the number of directors from
this number by an amendment to these By-Laws. However, the number
of directors shall not be increased or decreased by more than two
(2) within any period of twelve months, whether by action of the
Board or the stockholders, except upon the affirmative vote or
written consent of the holders of not less than seventy-five
percent (75%) of the outstanding voting stock. No reduction in the
authorized number of directors shall remove any director prior to
the expiration of his term of office."
2. Section 2.3 of Article II of the By-Laws is hereby amended to read as
follows:
"Section 2.3 Election and Term of Office of Directors. The Board
----------------------------------------
shall be divided into three classes as follows: Class I, two
directors; Class II, three directors; Class III, three directors.
The first term of office of the directors shall expire as follows:
(1) for Class I, at the first annual meeting of stockholders
following the first election of Class I; (2) for Class II, at the
second annual meeting following such first election; and (3) for
Class III, at the third annual meeting following such first
election. After the first
<PAGE>
term of office of each Class, directors shall be chosen at each
annual meeting of stockholders for a term of three (3) years to
succeed those whose terms then expire and shall hold office until
the third annual meeting of stockholders thereafter and until the
election of their respective successors. At any annual meeting of
stockholders, the persons receiving the greatest number of votes,
up to the number then to be elected, shall be the directors
elected."
3. In all other respects the By-Laws are reaffirmed and declared to be in
full force and effect.
IN WITNESS WHEREOF, this document has been executed this 10th day of June,
1994.
LOGICON, INC.
By: JOHN R. WOODHULL
----------------------------
John R. Woodhull, President
ATTEST:
By: E. BENJAMIN MITCHELL, JR.
- ----------------------------------------
E. Benjamin Mitchell, Jr.,
Vice President-General Counsel/Secretary
<PAGE>
EXHIBIT 3
ELEVENTH AMENDMENT TO THE BY-LAWS
---------------------------------
THIS AMENDMENT is made this 1st day of June, 1995 by Logicon, Inc., a
Delaware corporation, with reference to the following facts:
A. The By-Laws of Logicon, Inc. (the "By-Laws") were adopted by the
incorporator of this Corporation by written action dated July 31, 1978.
B. By Article Five of the Certificate of Incorporation of this Corporation
and Article VIII of the By-Laws, the Board of Directors of Logicon, Inc. has the
power (subject to certain limitations expressed in the Certificate of
Incorporation and the By-Laws) to amend the By-Laws.
NOW THEREFORE, the following By-Laws are hereby amended:
1. Section 2.2 of Article II of the By-Laws is hereby amended to read as
follows:
"Section 2.2 Number of Directors. The authorized number of
--------------------
directors of the Corporation shall be seven (7) and the Board may
from time to time increase or decrease the number of directors
from this number by an amendment to these By-Laws. However, the
number of directors shall not be increased or decreased by more
than two (2) within any period of twelve months, whether by
action of the Board or the stockholders, except upon the
affirmative vote or written consent of the holders of not less
than seventy-five percent (75%) of the outstanding voting stock.
No reduction in the authorized number of directors shall remove
any director prior to the expiration of his term of office."
<PAGE>
2. Section 2.3 of Article II of the By-Laws is hereby amended to read as
follows:
"Section 2.3 Election and Term of Office of Directors. The
-----------------------------------------
Board shall be divided into three classes as follows: Class I,
two directors; Class II, two directors; Class III, three
directors. The first term of office of the directors shall expire
as follows: (1) for Class I, at the first annual meeting of
stockholders following the first election of Class I; (2) for
Class II, at the second annual meeting following such first
election; and (3) for Class III, at the third annual meeting
following such first election. After the first term of office of
each Class, directors shall be chosen at each annual meeting of
stockholders for a term of three (3) years to succeed those whose
terms then expire and shall hold office until the third annual
meeting of stockholders thereafter and until the election of
their respective successors. At any annual meeting of
stockholders, the persons receiving the greatest number of votes,
up to the number then to be elected, shall be the directors
elected."
3. In all other respects the By-Laws are reaffirmed and declared to be in
full force and effect.
<PAGE>
IN WITNESS WHEREOF, this document has been executed this 1st day of June,
1995.
LOGICON, INC.
By:
J.R. WOODHULL
--------------------------
J.R. Woodhull, President
ATTEST:
By:
E. BENJAMIN MITCHELL, JR
-----------------------------------------
E. Benjamin Mitchell, Jr.
Vice President-General Counsel/Secretary
<PAGE>
Exhibit 11
LOGICON, INC.
COMPUTATION OF EARNINGS PER SHARE
Earnings per share of common stock including common stock equivalents, have been
computed based on the following weighted average number of shares:
<TABLE>
<CAPTION>
For the Year Ended March 31
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Average number of shares
outstanding during the year 6,836,000 7,178,000 7,260,000
Net additional shares issuable
in connection with dilutive
stock options based upon use
of the treasury stock method
based on average market prices 266,000 324,000 306,000
--------- --------- ---------
Average number of common shares,
including common stock equivalents 7,102,000 7,502,000 7,566,000
========= ========= =========
</TABLE>
Earnings per share of common stock fully diluted are omitted because there is
less than 3 percent dilution in any year.
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
-----------------------------------------------------------
For the Year Ended March 31
-----------------------------------------------------------
(dollars in millions) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $345.2 $320.2 $325.1 $299.1 $260.0
Net Income 19.5 21.0 15.5 13.5 8.6
-----------------------------------------------------------
<CAPTION>
-----------------------------------------------------------
Per Share Amounts
-----------------------------------------------------------
(dollars) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings $2.75 $2.80 $2.04 $1.74 $1.07
Dividends 0.32 0.28 0.24 0.195 0.18
Equity 15.92 14.11 12.39 10.86 9.29
-----------------------------------------------------------
<CAPTION>
-----------------------------------------------------------
March 31
-----------------------------------------------------------
(dollars in millions) 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Backlog $1,686.3 $727.4 $630.6 $657.6 $523.1
Total Assets 152.5 129.3 119.8 113.8 98.4
Working Capital 70.8 85.5 76.2 67.3 53.4
Stockholders' Equity 107.5 97.7 89.1 81.0 69.0
-----------------------------------------------------------
</TABLE>
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Revenues and Backlog
Logicon provides advanced technology systems and services to support national
security, civil and industrial needs in the following areas: Command, Control,
Communications & Intelligence; Weapon Systems; Information Systems; Science &
Technology; and Training & Simulation. Contracts with the U.S. government are
the Company's primary revenue source, accounting for 99 percent of total
revenues from services and systems for fiscal years 1993 through 1995. The
Company performs its work under a variety of contractual types which are
summarized in the table below. The Company's contractual revenue mix has shifted
in recent years with a greater percentage of revenue being derived from "Time
and Material" and "Fixed-Price" contracts.
The Company's backlog is not subject to any significant seasonal fluctuations
but is likely to vary substantially as contracts near completion and in
conjunction with the execution of major contractual renewals or the award of
major new contracts. All of the Company's contracts with the government are
subject to redirection or termination for convenience. Backlog, including priced
options, has more than doubled to $1.7 billion at March 31, 1995, from $727
million at March 31, 1994. This increase is principally from the award on April
13, 1994, by the U.S. Air Force of a contract to provide Integrated Computer-
Aided Software Engineering (I-CASE) systems and related services. The U.S. Air
Force estimated the value of this fixed-price and fixed-price labor hour
contract at $670 million over a 10-year period. Revenues from this contract were
$25 million for fiscal year 1995. Firm backlog related to the I-CASE contract
was $14 million at March 31, 1995. In recent years, the Company's customers have
awarded contracts for longer periods of performance, with options to extend the
period of performance or with options to add or expand the contract tasks, based
upon prices agreed to at the time of the contractual award. Management expects
this practice to continue in fiscal year 1996.
The following tables present an analysis of the Company's revenues and backlog
by contract type for the past three years:
<TABLE>
<CAPTION>
--------------------------------------
For the Year Ended March 31
--------------------------------------
(dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract revenues:
Cost plus fixed fee $ 80,064 $ 93,795 $103,045
Cost plus award and incentive fee 125,668 128,501 142,644
Fixed-price 51,317 33,339 31,121
Time and material 84,798 62,581 46,815
--------------------------------------
$341,847 $318,216 $323,625
======================================
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------
March 31
----------------------------------------
(dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Backlog:
Firm contracts:
Cost plus fixed fee $ 155,283 $139,118 $114,266
Cost plus award and incentive fee 163,044 102,952 120,733
Fixed-price 34,166 17,919 15,917
Time and material 165,385 87,078 50,333
----------------------------------------
517,878 347,067 301,249
----------------------------------------
Contract options and untasked indefinite quantity contract values:
Cost type 367,904 259,882 280,386
Fixed-price 743,261 98,521 19,749
Time and material 57,285 21,941 29,197
----------------------------------------
1,168,450 380,344 329,332
----------------------------------------
Total backlog $1,686,328 $727,411 $630,581
========================================
</TABLE>
Profit Margins
Profit margins from operations for the three years ended March 31, 1995, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
--------------------------------
For the Year Ended March 31
--------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on revenue before tax 9.5% 10.8% 7.8%
Return on revenue after tax 5.7% 6.6% 4.8%
Effective income tax rate 40.5% 40.9% 38.6%
Before-tax return on short-term portfolio 4.8% 3.2% 3.4%
--------------------------------
</TABLE>
The fiscal 1994 results include net income of $3.9 million or 51 cents per share
and revenues of $4 million resulting from the settlement of two claims the
Company had filed with the United States Court of Federal Claims. The claims
were for increased costs relating to changes in contract requirements for two
fixed-price development contracts with the U.S. Navy to provide air traffic
controller training systems, which were delivered and accepted by the U.S. Navy
in prior periods. Net income during fiscal 1994 was also increased by $635,000,
or eight cents per share, as a result of the Company's adoption of Financial
Accounting Standard No. 109 "Accounting for Income Taxes." This amount is the
total cumulative effect on income for this change in accounting for income
taxes.
Excluding the non-recurring items mentioned above, after tax results improved
for fiscal year 1995 by .5% over results for fiscal year 1994 due to an increase
in interest income received on a larger average cash and marketable securities
portfolio earning interest at higher short-term rates and to improved margins on
award fees and time and material contracts.
Prior to fiscal year 1993, selling and administrative expenses expressed as a
percentage of revenues were typically in the 11% to 12% range. During fiscal
year 1993, the Company relocated three operating unit headquarters and
consolidated administrative support functions to achieve business and management
efficiencies. These changes have contributed to the reduction in selling and
administrative expenses to 8.8%, 8.6% and 9.1% of revenues for fiscal years
1995, 1994 and 1993, respectively.
On February 16, 1995, the Company acquired Syscon Corporation (Syscon), which
operated as an indirectly wholly-owned subsidiary of Harnischfeger Industries,
Inc., for a cash purchase price of $45 million. Syscon is engaged principally in
the business of providing systems development, systems integration and systems
services to the U.S. government and commercial enterprises. The acquisition was
accounted for as a purchase and the excess of the purchase price over net assets
acquired was $21.7 million. The Company's consolidated results of operations
include the operations of Syscon from the acquisition date.
26
<PAGE>
Days sales in receivables increased to 69 days at March 31, 1995, compared to 45
days at March 31, 1994, and 63 days at March 31, 1993. The increase for fiscal
year 1995 is due primarily to the acquisition of Syscon Corporation on February
16, 1995. The Company has adequate cash and credit lines available to fund such
fluctuations.
Inflation
Inflation has had little impact on the Company's results of operations. The
majority of revenues result from contracts in which the expected impact of
inflation, including increased labor rates, is provided for in the contract
pricing. The impact of inflation on replacement costs of plant and equipment has
not been of great significance, because the investment is low and accelerated
depreciation methods are used for both tax and cost recovery purposes.
Liquidity and Capital Resources
Cash provided by operating activities was $26.5 million, $38.3 million and $21.7
million in fiscal years 1995, 1994 and 1993, respectively, and is the Company's
primary source of liquidity. The Company's working capital decreased to $70.8
million at the end of fiscal year 1995, from $85.5 million at the end of fiscal
year 1994 and from $76.2 million at the end of fiscal year 1993. The decrease in
working capital was primarily due to the acquisition of Syscon Corporation for
$45 million, in cash. The Company's working capital position is reflected in the
current ratio of 2.6 to 1, 3.7 to 1 and 3.5 to 1 for fiscal years 1995, 1994 and
1993, respectively.
The Company's Consolidated Balance Sheet is exceptionally strong, with no debt.
Management believes that the Company's existing capital resources are sufficient
to provide for its operating needs and continued growth. A $25 million unsecured
line of credit has been arranged with a bank to provide working capital for
temporary requirements. There were no borrowings under the line during the last
three fiscal years.
Purchase of Treasury Stock
On August 1, 1994, the Board of Directors granted the authority to spend up to
$20 million to repurchase shares of the Company's common stock in open market
transactions. The Company purchased 331,300 shares for an aggregate cost of $9.7
million during fiscal 1995. Over the last three fiscal years, the Company has
purchased 1,255,400 shares for an aggregate cost of $29.6 million under this and
prior authorizations.
27
<PAGE>
CONSOLIDATED STATEMENT OF INCOME Logicon, Inc.
<TABLE>
<CAPTION>
----------------------------------------
For the Year Ended March 31
----------------------------------------
(shares and dollars in thousands except per share data) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Contract revenues $341,847 $318,216 $323,625
Interest 3,344 1,976 1,447
----------------------------------------
345,191 320,192 325,072
- -------------------------------------------------------------------------------------------------------------------------
Costs and Expenses:
Cost of contract revenues 282,074 258,165 270,451
Selling and administrative expenses 30,302 27,511 29,425
----------------------------------------
312,376 285,676 299,876
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes on income 32,815 34,516 25,196
Provision for taxes on income (Note 8) 13,306 14,109 9,731
----------------------------------------
Income before cumulative effect of a change in accounting principle 19,509 20,407 15,465
Cumulative effect, on prior years, of change in accounting for
taxes on income (Note 8) 635
----------------------------------------
Net income $ 19,509 $ 21,042 $ 15,465
========================================
Earnings per share of common stock:
Before cumulative effect of a change in accounting principle $2.75 $2.72 $2.04
Cumulative effect, on prior years, of change in accounting for
taxes on income (Note 8) 0.08
----------------------------------------
Net income $2.75 $2.80 $2.04
========================================
Average number of common shares including common stock equivalents 7,102 7,502 7,566
----------------------------------------
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED BALANCE SHEET Logicon, Inc.
<TABLE>
<CAPTION>
----------------------------
March 31
----------------------------
(dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 31,564 $ 43,389
Marketable securities (Note 3) 9,210 27,350
Accounts receivable (Note 4) 64,233 38,865
Prepaid expenses 2,418 1,129
Deferred income tax benefits (Note 8) 8,308 6,387
----------------------------
Total current assets 115,733 117,120
Property, plant and equipment (Note 4) 9,090 5,698
Excess of purchase price over net assets of businesses acquired, net of accumulated
amortization of $2,490 and $1,925 27,654 6,511
----------------------------
$152,477 $129,329
============================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 12,549 $ 6,537
Accrued salaries, wages and employee benefits (Note 4) 30,831 20,990
Estimated taxes on income (Note 8) 1,583 4,127
----------------------------
Total current liabilities 44,963 31,654
----------------------------
Commitments and contingent liabilities (Note 9)
Stockholders' equity, per accompanying statement:
Preferred stock, $.10 par value - Authorized 2,000,000 shares, none outstanding
Common stock, $.10 par value - Authorized 40,000,000 shares,
outstanding 6,753,000 and 6,922,000 shares 675 692
Other paid-in capital 14,416 11,976
Retained earnings 95,889 87,742
Unrealized loss on available for sale securities (Note 3) (159) (136)
Unearned compensation and notes receivable under
Restricted Stock Purchase Plan (Note 7) (3,307) (2,599)
----------------------------
Total stockholders' equity 107,514 97,675
----------------------------
$152,477 $129,329
============================
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Logicon, Inc.
<TABLE>
<CAPTION>
--------------------------------------------------------
Common Stock
--------------------- Other Paid- Retained
(shares and dollars in thousands) Shares Amount in Capital Earnings
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at March 31, 1992 7,457 $746 $8,621 $73,478
Retirement of treasury shares (461) (46) (794) (6,300)
Transactions of stock plans 194 19 2,030
Cash dividends (1,740)
Net income for year 15,465
- -----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1993 7,190 719 9,857 80,903
Retirement of treasury shares (463) (46) (537) (12,198)
Transactions of stock plans 195 19 2,656
Cash dividends (2,005)
Net income for year 21,042
- -----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1994 6,922 692 11,976 87,742
Retirement of treasury shares (331) (33) (449) (9,176)
Transactions of stock plans 162 16 2,889
Cash dividends (2,186)
Net income for year 19,509
- -----------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 6,753 $675 $14,416 $95,889
========================================================
</TABLE>
Stockholders' equity in the accompanying Consolidated Balance Sheet has been
reduced by unearned compensation and notes receivable under the Restricted Stock
Purchase Plan (Note 7) and by unrealized loss on available for sale securities
(Note 3).
See notes to consolidated financial statements.
30
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS Logicon, Inc.
<TABLE>
<CAPTION>
----------------------------------------
For the Year Ended March 31
----------------------------------------
(dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $19,509 $21,042 $15,465
Income charges (credits) not affecting cash -
Depreciation and amortization 4,388 3,471 3,654
Provision for the collectibility of accounts receivable (2,000)
Provision for (benefit from) deferred taxes (Note 8) (2,529) (3,014) 447
Amortization of deferred compensation 587 415 304
Effect of a change in accounting for income taxes (Note 8) (635)
Changes in assets and liabilities, net of acquisition -
Decrease in accounts receivable 1,304 18,820 4,146
Decrease (increase) in prepaid expenses 731 171 (35)
Increase (decrease) in accounts payable and other accrued liabilities 2,123 (3,227) (1,264)
Increase in accrued salaries, wages and employee benefits 2,892 285 1,348
Increase (decrease) in income taxes payable (2,462) 2,956 (2,391)
----------------------------------------
Net cash provided from operating activities 26,543 38,284 21,674
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment, net of sales (2,397) (2,747) (3,385)
Maturity of available for sale securities 61,519
Purchase of available for sale securities (43,402) (27,486)
Payment for acquisition, net of cash acquired (Note 2) (43,854)
Refund of escrow securing contingent purchase price 417
----------------------------------------
Net cash used in investing activities (28,134) (30,233) (2,968)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends (2,186) (2,005) (1,740)
Transactions of stock plans 1,610 2,035 1,252
Purchase and retirement of treasury shares (9,658) (12,781) (7,140)
----------------------------------------
Net cash used in financing activities (10,234) (12,751) (7,628)
----------------------------------------
Net increase (decrease) in cash and cash equivalents (11,825) (4,700) 11,078
Cash and cash equivalents at beginning of year 43,389 48,089 37,011
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $31,564 $43,389 $48,089
========================================
Cash paid for income taxes $18,215 $12,975 $11,097
========================================
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Logicon, Inc.
- --------------------------------------------------------------------------------
Note 1. Summary of Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions are
eliminated.
Contract Revenues
The Company's business is to provide advanced technology systems and services to
support national security, civil and industrial needs. Revenues result from a
variety of cost-reimbursement and fixed-price contracts, principally with the
U.S. government. Contract revenues are recorded using the percentage of
completion method, primarily based on contract costs incurred to date compared
with total estimated costs at completion. Amounts in excess of contract price
for customer changes and increases in contract requirements, errors in
specification and design, customer-caused delays and disruptions or other causes
of unanticipated additional costs are recognized as revenue if it is probable
that the requests for equitable adjustment to the contract will result in
additional revenue and the amount can be reasonably estimated. To the extent
estimated costs at completion exceed estimated contract price, charges are made
to current earnings in the period in which this is first determined, with a
related reduction of unbilled amounts to estimated realizable value.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided
using the declining-balance and straight-line methods over estimated useful
lives of three to ten years for office furniture and equipment, three to eight
years for computer and related equipment and fifteen to thirty years for
buildings. Leasehold improvements are amortized over the shorter of their
service lives or the remaining terms of the leases.
Excess of Purchase Price Over Net Assets of Businesses Acquired
The excess of purchase price over net assets of businesses acquired is amortized
on a straight-line basis, generally over twenty years. The Company regularly
reviews the individual components of the balances and recognizes, on a current
basis, any decline in value.
Research and Development
The Company charges all research and development expenditures to costs and
expenses as incurred. Research and development expenditures for fiscal years
1995, 1994 and 1993 were, respectively, $2,692,000, $2,751,000, and $2,338,000.
Income Taxes
Effective April 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which changes the method of accounting for income taxes from the deferred
method to an asset and liability method. Previously, the Company deferred the
past tax effects of timing differences between financial reporting and taxable
income. The asset and liability method requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of temporary
differences between tax bases and financial reporting bases of other assets and
liabilities.
Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, the Company considers
cash equivalents to be short-term, highly liquid investments that mature within
90 days from the date of acquisition.
32
<PAGE>
- --------------------------------------------------------------------------------
Note 2. Acquisition
On February 16, 1995, the Company acquired Syscon Corporation (Syscon), which
operated as an indirectly wholly-owned subsidiary of Harnischfeger Industries,
Inc., for a cash purchase price of $45 million. Syscon is engaged principally in
the business of providing systems development, systems integration and systems
services to the U. S. government and commercial enterprises. The acquisition was
accounted for as a purchase and the excess of the purchase price over net assets
acquired was $21.7 million. The Company's consolidated results of operations
include the operations of Syscon from the acquisition date.
The following table summarizes the unaudited consolidated pro forma results of
operations, assuming the acquisition had occurred at the beginning of each of
the following periods and is not necessarily indicative of the actual results of
operations that would have occurred:
<TABLE>
<CAPTION>
---------------------------
For the Year Ended March 31
(unaudited)
---------------------------
(dollars in thousands, except per share data) 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $455,842 $458,411
Income before cumulative effect of a change in accounting principle $ 18,151 $ 23,586
Cumulative effect, on prior years, of change in accounting for taxes on income 635
---------------------------
Net income $ 18,151 $ 24,221
===========================
Earnings per share of common stock:
Before cumulative effect of a change in accounting principle $ 2.56 $ 3.15
Cumulative effect, on prior years, of change in accounting for taxes on income 0.08
---------------------------
Net income $ 2.56 $ 3.23
===========================
Average number of common shares including common stock equivalents 7,102 7,502
===========================
</TABLE>
The fiscal 1995 results of operations of Syscon, prior to acquisition, include
$3.1 million of certain pre-tax non-recurring items. Had these items not been
included in the combined pro forma results of operation, pro forma earnings per
share for fiscal 1995 would have been $2.82.
- --------------------------------------------------------------------------------
Note 3. Marketable Securities
The details of the marketable securities caption are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Amortized Cost Fair Value Gross Unrealized
(dollars in thousands) Basis (plus interest) (plus interest) Loss
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1995
Available for Sale Securities (Mature within two years)
U. S. government and government agencies $ 9,477 $ 9,210 $267
===============================================================
March 31, 1994
Available for Sale Securities (Mature within three years)
U. S. government and government agencies $10,705 $10,477 $228
Commercial paper 16,873 16,873 -
---------------------------------------------------------------
$27,578 $27,350 $228
===============================================================
</TABLE>
The specific identification method has been used to determine cost for each
security. There have been no realized gains or losses from the sale of available
for sale securities during fiscal 1995 or 1994. The net unrealized holding loss
on available for sale securities which was included in stockholders' equity at
March 31, 1995, and 1994, was $159,000 and $136,000, respectively.
33
<PAGE>
- --------------------------------------------------------------------------------
Note 4. Details of Certain Consolidated Balance Sheet Captions
<TABLE>
<CAPTION>
-----------------------
March 31
-----------------------
(dollars in thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable:
U.S. government, including unbillable of $13,259 and $10,431 $60,929 $37,844
Other 3,304 1,021
-----------------------
$64,233 $38,865
=======================
Property, plant and equipment:
Office furniture and equipment $ 5,747 $ 5,699
Computer and related equipment 24,172 20,810
Land, buildings and leasehold improvements 5,041 3,183
-----------------------
34,960 29,692
Less accumulated depreciation and amortization (25,870) (23,994)
-----------------------
$ 9,090 $ 5,698
=======================
Accrued salaries, wages and employee benefits:
Salaries and related expenses $14,592 $6,110
Personal leave 11,499 9,867
Benefit plans 4,740 5,013
-----------------------
$30,831 $20,990
=======================
</TABLE>
Unbillable receivables under fixed-price contracts are normally billable upon
acceptance of deliverables by the customer. Unbillable receivables under cost-
type contracts are normally billable upon contract completion and acceptance of
costs incurred. Unbilled amounts are classified as current assets, since
substantially all of these amounts will be realized within one year.
Costs related to certain contracts, including applicable indirect costs, are
subject to audit and adjustment from negotiations between the Company and
representatives of the U.S. government. Revenues for such contracts have been
recorded in amounts that are expected to be realized on final settlement.
- --------------------------------------------------------------------------------
Note 5. Short-Term Borrowings
The Company has a $25 million unsecured line of credit with a bank that is
renewable annually in July, subject to review of the Company's financial
condition. Borrowings under the line bear interest at the bank's prime rate. The
Company is expected to maintain an average collected demand deposit balance
equal to 3.5 percent of the line. The compensating balances are not restricted
and generally are composed of normal float and minimum operating balances. There
were no borrowings under the unsecured line during the last three fiscal years.
- --------------------------------------------------------------------------------
Note 6. Employee Benefit Plans
The Company and its subsidiaries have various tax qualified employee benefit
plans which provide retirement benefits to substantially all employees. Annual
contributions to the various plans are discretionary and are determined by the
Board of Directors. Charges to costs and expenses with respect to the various
plans for fiscal years 1995, 1994 and 1993 were, respectively, $7,333,000,
$7,350,000, and $7,956,000.
Employees, except those of certain subsidiaries, are eligible to participate in
the Company's Stock Purchase Plan by contributing up to six percent of their
salary. The Company contributes an amount equal to one-half of each employee's
contribution, less forfeitures. Company contributions vest and the purchased
stock is distributed after the end of the second calendar year following the
year of purchase. As of March 31, 1995, the Plan is authorized to purchase an
aggregate of 322,672 additional shares of the
34
<PAGE>
Company's common stock either on the open market or from the Company. The Plan
held 172,404 shares of the Company's common stock at March 31, 1995. Charges to
costs and expenses with respect to the Plan for fiscal years 1995, 1994 and 1993
were, respectively, $932,000, $385,000, and $374,000.
The Company has incentive compensation plans for key employees that provide for
current bonuses and deferred compensation based on the Company's current and
future earnings. Charges to costs and expenses with respect to the plans for the
fiscal years 1995, 1994 and 1993 were, respectively, $2,619,000, $2,909,000, and
$2,733,000.
- --------------------------------------------------------------------------------
Note 7. Stockholders' Equity
The 1992 Employee Incentive Stock Option Plan provides for issuance of options
to key employees to purchase shares of the Company's common stock at prices not
less than market value at date of grant. These options become exercisable as
determined in each case by the Executive Compensation Committee of the Board of
Directors, but in no event shall any exercise period exceed ten years from the
date of the grant of the option. No charges are made to earnings in connection
with this Plan. The Plan authorizes issuance of 1,000,000 shares. Grants for
86,500 shares at prices ranging from $28.38 to $31.88 per share were made during
fiscal year 1995.
The 1991 Stock Option Plan for Non-Employee Directors provides the Company the
ability to grant Non-Employee Directors options to purchase common stock of the
Company. Options are granted according to a formula contained in the Plan at
prices not less than the fair market value at date of grant, are exercisable on
or after the second anniversary of the date of grant and expire five years from
the date of grant. No charges are made to earnings in connection with this Plan.
A total of 85,500 shares of common stock are reserved for future issuance under
the Non-Employee Directors' Plan. Grants for 4,500 shares at a price of $32.00
per share were made during fiscal year 1995.
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
--------------------------------------------------
Options Outstanding
--------------------------------------------------
(in thousands)
Shares Per Share Amount
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1992 (1,400 shares exercisable) 684,652 $ 7.50-$12.00 $6,014
Granted 76,350 14.50 1,107
Exercised (148,796) 7.50-12.00 (1,153)
Canceled and expired (23,020) 7.50-12.00 (216)
--------------------------------------------------
March 31, 1993 (236,156 shares exercisable) 589,186 7.50-14.50 5,752
Granted 91,000 21.25-26.75 2,012
Exercised (164,989) 7.50-14.50 (1,331)
Canceled and expired (5,200) 12.00-21.88 (75)
--------------------------------------------------
March 31, 1994 (228,397 shares exercisable) 509,997 7.50-26.75 6,358
Granted 91,000 28.38-32.00 2,654
Exercised (111,480) 7.50-26.75 (1,119)
Canceled and expired (3,700) 14.50-28.38 (72)
--------------------------------------------------
March 31, 1995 (241,067 shares exercisable) 485,817 $ 7.50-$32.00 $7,821
==================================================
</TABLE>
Under a Restricted Stock Purchase Plan, the Executive Compensation Committee of
the Board of Directors selects eligible employees and determines the number of
shares available for purchase by each participant. Eligible employees are
entitled to purchase "restricted" shares of the Company's common stock at a
discount from market value. Following the date of purchase, restrictions on the
transfer of the stock may be removed from a discretionary amount of the shares
by the Executive Compensation Committee. Legends prohibiting transfers remain on
the certificates and are not removed until any loans which have been made in
connection with the purchase have been satisfied. During fiscal year 1995,
awards for 55,900 shares were granted. Charges to costs and expenses with
respect to the Plan for fiscal years 1995, 1994 and 1993 were, respectively
35
<PAGE>
$587,000, $415,000 and $304,000. At March 31, 1995, and 1994, unearned
compensation of $682,000 and $877,000 and notes receivable of $2,625,000 and
$1,722,000, respectively, related to the issuance of the stock are deducted from
stockholders' equity in the accompanying Consolidated Balance Sheet.
At March 31, 1995, 1,454,650 shares of authorized but unissued common stock were
available for future grants under these plans.
In April 1990, the Company established a Stockholder Rights Plan and declared a
dividend of one right for each share of common stock. When the Board of
Directors determines that an acquiring person, as defined, has acquired or
intends to acquire 20 percent or more or, in certain circumstances, 15 percent
or more of the Company's common stock, each right may be exercised to purchase
stock in the Company equal to the result obtained by multiplying the then
current per share purchase price, as defined by the Plan, by the number of
shares currently held and dividing that product by 50 percent of the current per
share market price or to acquire stock in an acquiring company by the same
formula but where the current per share market price is of the acquiring
company. An acquiring person is not entitled to any of the benefits of the Plan.
The rights, which do not have voting privileges and automatically trade with the
common stock after May 15, 1990, may be redeemed by an action of the Board of
Directors at a price of $.01 per right within ten days after the announcement
that a person has acquired 20 percent or more of the outstanding common stock of
the Company. The Plan will expire on May 15, 2000, unless otherwise amended.
- --------------------------------------------------------------------------------
Note 8. Taxes on Income
Effective April 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect of this adoption was an increase in net
income of $635,000, or eight cents per share. Financial Statements for prior
years have not been restated.
The provision for taxes on income includes the following:
<TABLE>
<CAPTION>
------------------------------------
For the Year Ended March 31
------------------------------------
(dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current payable:
Federal $12,831 $13,845 $7,350
State 3,004 3,278 1,934
------------------------------------
15,835 17,123 9,284
------------------------------------
Tax effect of temporary differences:
Federal (2,167) (2,515) 353
State (362) (499) 94
------------------------------------
(2,529) (3,014) 447
------------------------------------
$13,306 $14,109 $9,731
====================================
</TABLE>
The reasons for variance from the statutory federal income tax rates are as
follows:
<TABLE>
<CAPTION>
------------------------------------
For the Year Ended March 31
------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 34.0%
State taxes, net of federal income tax benefit 5.2 5.2 5.3
Other 0.3 0.7 (0.7)
------------------------------------
Effective tax rate 40.5% 40.9% 38.6%
====================================
</TABLE>
36
<PAGE>
Deferred income tax benefits consist of the following:
<TABLE>
<CAPTION>
----------------------
March 31
----------------------
(dollars in thousands) 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Deferred employee benefits $5,570 $3,718
Non-deductible accrued costs 2,993 1,836
Contractually unbillable receivables (831) (436)
R&D credit carryforward 701
State taxes 431 607
Depreciation 284 702
Loss limitation carryforwards 158 323
Other (691) 83
----------------------
8,615 6,833
Valuation allowance (307) (446)
----------------------
$8,308 $6,387
======================
</TABLE>
The valuation allowance relates primarily to loss limitation carryforwards and
depreciation. Management believes that all other amounts will be realized. The
R&D credit carryforward expires during fiscal years 2005 to 2009.
- --------------------------------------------------------------------------------
Note 9. Commitments and Contingent Liabilities
The Company leases certain facilities and computer-related equipment under
operating leases providing for payment of fixed rentals and, in certain cases,
property tax and price index increases over base-period amounts. The majority of
the leases are for one to fifteen years, with options to extend the terms for up
to five years beyond the original lease period. Facility and equipment rental
expenses for fiscal years 1995, 1994 and 1993 were, respectively $15,438,000,
$16,957,000 and $18,833,000. The amounts due in future fiscal years for the
fixed terms of the leases total $119,849,000. Commitments for the five fiscal
years 1996 through 2000 are, respectively, $15,947,000, $14,158,000,
$12,364,000, $9,947,000 and $9,405,000.
37
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP [LOGO APPEARS HERE]
- --------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS
AND STOCKHOLDERS OF LOGICON, INC.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of cash flows and of stockholders' equity
present fairly, in all material respects, the financial position of Logicon,
Inc. and its subsidiaries at March 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes during fiscal year 1994.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Costa Mesa, California
May 24, 1995
38
<PAGE>
SELECTED UNAUDITED CONSOLIDATED
QUARTERLY FINANCIAL AND STOCK MARKET DATA
<TABLE>
<CAPTION>
-----------------------------------------------------------
For the Quarter Ended
(unaudited)
-----------------------------------------------------------
(dollars in thousands except per share data) June 30 Sept. 30 Dec. 31 March 31
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal Year 1995
Revenues $75,957 $79,712 $80,900 $108,622
Gross profit 13,868 13,136 13,504 19,265
Income before taxes on income 6,774 7,532 7,817 10,692
Net income 4,005 4,454 4,726 6,324
Earnings per common share 0.56 0.62 0.67 0.90
Dividends per common share 0.08 0.08 0.08 0.08
Common stock price:
High 31-1/4 33-1/8 31-1/4 34-3/8
Low 25-1/4 27-1/8 28-1/4 29-7/8
- -------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1994
Revenues $79,187 $83,186 $77,505 $80,314
Gross profit 14,258 19,687 11,450 14,656
Income before taxes on income 6,235 13,500 6,705 8,076
Net income 4,384/(1)/ 7,978/(2)/ 3,940 4,740
Earnings per common share 0.58 1.05 0.52 0.65
Dividends per common share 0.07 0.07 0.07 0.07
Common stock price:
High 26 30-1/8 29-7/8 28-3/4
Low 19 21-5/8 27-1/8 25-1/8
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Net income for the quarter ended June 30, 1993, includes $635,000 or $.08
per share for the cumulative effect of the change in accounting for income taxes
to SFAS 109.
(2) Net income for the quarter ended September 30, 1993, includes $3.9 million
or $.51 per share and revenues of $4 million from the settlement of two claims
the Company had filed with the United States Court of Federal Claims.
The common stock of Logicon, Inc. is listed on the New York Stock Exchange with
the ticker symbol LGN. There were approximately 1,500 stockholder accounts of
record at March 31, 1995.
39
<PAGE>
Exhibit 21
LOGICON, INC.
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Country or State
Subsidiary (name under which subsidiary does business): of Incorporation
- ------------------------------------------------------- ----------------
<S> <C>
Logicon Eagle Technology, Inc. Delaware
Logicon Fourth Generation Technology, Inc. California
Logicon Technical Services, Inc. California
Logicon R&D Associates California
Logicon Ultrasystems, Inc. Delaware
Syscon Corporation District of Columbia
Syscon Services, Inc. District of Columbia
Syscon BVI, LTD British Virgin Islands
Syscon Saudi Arabia, LTD Kingdom of Saudi Arabia
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K,
FY 1995 FOR THE PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 31,564
<SECURITIES> 9,210
<RECEIVABLES> 64,233
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 115,733
<PP&E> 34,960
<DEPRECIATION> 25,870
<TOTAL-ASSETS> 152,477
<CURRENT-LIABILITIES> 44,963
<BONDS> 0
<COMMON> 675
0
0
<OTHER-SE> 106,839
<TOTAL-LIABILITY-AND-EQUITY> 152,477
<SALES> 341,847
<TOTAL-REVENUES> 345,191
<CGS> 282,074
<TOTAL-COSTS> 312,376
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 32,815
<INCOME-TAX> 13,306
<INCOME-CONTINUING> 19,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,509
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 2.75
</TABLE>
