<PAGE>
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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, 1996 Commission File Number: 1-7777
LOGICON, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2126773
- ------------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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.
$352,784,362 on June 4, 1996
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 - 13,998,313 shares on June 4, 1996
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's Annual Report to Stockholders for the fiscal year ended
March 31, 1996 are incorporated by reference in Part II of this report. Portions
of the registrant's definitive proxy statement dated June 25, 1996 are
incorporated by reference in Part III of this report.
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<PAGE>
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 March 28, 1996, the company acquired Geodynamics Corporation (Geodynamics)
for a purchase price of $31.7 million. Geodynamics specializes in remote
sensing, geographic information systems, modeling and simulation, software
development, and systems engineering and integration for the Department of
Defense and other government agencies. The acquisition is being accounted for
as a purchase and the excess of the purchase price over net assets acquired was
approximately $9.3 million. The Consolidated Balance Sheet includes the assets
and liabilities of Geodynamics. The company's consolidated results of
operations will include the operations of Geodynamics beginning in fiscal year
1997.
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 $45.3 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 $21.9 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 contract revenues for fiscal
years 1994 through 1996. The current backlog value is composed of 39 percent
fixed-price type contracts, 46 percent cost type contracts, and 15 percent time
and material type contracts. The company is performing on a variety of
contracts in the following defense markets:
Command, Control, Communications & Intelligence
Logicon's Command, Control, Communications & Intelligence (C/3/I) business
accounts for 32 percent of the company's fiscal year 1996 revenues. Logicon's
work in this area includes supplying products and services that ensure the
interoperability of the Defense Information Infrastructure; systems engineering
of C/3/I systems for warfighters; project support for the government's Process
Reengineering initiatives; networking of computer systems of federal, state and
local law enforcement agencies so they can more successfully gather intelligence
on criminal activity; integration, evaluation and testing of prefielded versions
of advanced C/3 /systems; lifecycle engineering support services for digital
computer-based shipboard combat systems; and software development for
communication systems used for Naval undersea surveillance programs.
Logicon's $32 million counter drug network project for the four southwestern
border states links the computer systems of federal, state and local law
enforcement agencies so they can share information on drug trafficking and other
criminal activity. The network, which has been fielded and meets initial
operational requirements, is currently being tested and evaluated and will have
full operational capability by this summer.
Logicon is using Functional Process Improvement techniques to help military
experts, the Office of the Secretary of Defense and the Joint Staff analyze and
improve the way the U.S. military conducts joint air operations. The overall
goals of the Process Reengineering initiative are to eliminate redundancy and
improve interoperability of information systems within and among the services.
At the Defense Information Systems Agency's Joint Interoperability Test Center
at Ft. Huachuca, Arizona, Logicon staff test and evaluate various types of
communications equipment. The work is aimed at determining whether this
equipment is operational, interoperable with other specified elements and in
compliance with military specifications.
Logicon helps the U.S. Army test and evaluate advanced command and control
systems before they are fielded for operational use. Logicon's most recent
project, the Integrated Meterological System is a U.S. Army Program for use by
the U.S. Air Force Staff Weather Officer in each U.S. Army Corps, Division,
Special Forces Group and selected brigades. Logicon integrated commercial and
government off-the-shelf hardware and software and combined it with Logicon-
develolped software and shelter prototypes to create a workstation which will be
used to forecast weather and analyze how weather impacts the Army organizations.
Block II software development will be completed in 1996.
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Logicon became an important player in the U.S. Navy's Battle Group Passive
Horizon Extension System (BGPHES) in late 1994. BGPHES is the first of its kind
reconnaissance system that has the demonstrated capability to link U-2 aircraft
to a Battle Group Commander embarked on a carrier. This year Logicon was
awarded a five-year contract to continue development support for this critical
tactical surveillance and reconnaissance system.
Weapon Systems
Logicon's Weapon Systems business accounts for 24 percent of the company's
fiscal year 1996 revenues. Logicon specializes in mission planning system
development and integration, verification and validation of software,
development and operation of simulations for weapon systems, lifecycle
engineering support services for combat systems, modification and maintenance of
software for missile systems and laboratory support for research into new
submarine combat systems.
As the B-2 mission planning contractor, Logicon is developing the Strategic
Mission Data Preparation System which prepares data cartridges and mission
materials used by flight crews and aircraft avionics to fly their missions, and
the Aircraft/Cruise Missile Force Application System which generates routes for
the aircraft that minimize the probability of detection. The software currently
supports the first block of operational aircraft with software for the second
block of aircraft scheduled for delivery in the summer of 1996.
As an outgrowth of the B-2 mission planning work, Logicon developed the Unit
Level Advanced Planning system, a specialized software product that provides an
air squadron with the capabilities needed to create, edit and analyze combat or
training missions, and produces the supporting combat mission folder materials
for executing these missions.
The Logicon-developed and maintained Conventional Mating and Ranging Planning
System helps planners coordinate the aerial refueling of aircraft by producing
flight plans and resource summaries for both the mission aircraft and the
tankers that refuel them.
Logicon is currently rehosting legacy software to new modern processors on both
the B-1B bomber and the C-17 transport. Logicon's approach uses an integrated
set of processes, tools and staff which may be tailored to any system.
Logicon personnel support all aspects of the AEGIS program---from analysis of
new missions and capabilities such as Littoral Warfare and Theater Ballistic
Missile Defense---to weapon system and radar improvement recommendations, risk
management, simulator development, software development and testing, system
integration, shipboard installation, fleet introduction and training, system
test and evaluation and interoperability assessment with joint services and
allies.
Logicon continues to provide program management support to the Navy's Standard
Missile Program including program planning, management information systems,
systems engineering and foreign military sales.
Logicon staff provide systems analysis, engineering and logistics support to the
Navy's Combat Systems Technology Laboratory in Newport, Rhode Island, where
research into new submarine combat systems is conducted.
Information Systems
Logicon's Information Systems business accounts for 19 percent of the company's
fiscal year 1996 revenues. Company capabilities include network architecture
design for customized management information systems, enterprise integration,
migration strategies for transitioning from legacy systems to distributed
systems, systems integration and software development, automated office
environments and software engineering environments for small-to large-scale
software development projects.
Toward the end of December 1995, the Air Force modified Logicon's I-CASE
contract so that it would better fit the current Information Technology needs of
government organizations. Government agencies can now order an expanded number
of hardware and software tools and applications or customized software
engineering environments (SEEs) to suit their particular situations. Logicon's
Logicase SEEs continue to be available under the contract, as are training and
other support services.
Under a contract awarded this year, Logicon is supporting the Internal Revenue
Service (IRS) in their ongoing Tax Systems Modernization effort. Logicon is
helping the IRS undertake a complete redesign and modernization of its computer-
based information processing system by supplying a broad spectrum of system
integration/engineering support services.
Under several contracts awarded this year, Logicon is supporting the development
of client/server systems for large information technology programs for the state
of California. Services provided include project management, independent
verification and validation (IV&V) and systems engineering. State agencies and
departments supported include the Department of Welfare and the Department of
Corrections.
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A new version of the Logicon Message Dissemination System (LMDS), a powerful
message retrieval and distribution software product, became available this year
for use with the Commerce Business Daily. An enhanced version of LMDS operates
with Lotus Notes and on a World Wide Web server. During the year, Logicon
initiated a marketing campaign that targets Internet users. By year end, three
Internet content providers were using LMDS to disseminate their products to
their customers in real time. America Online has introduced a new service that
uses LMDS to allow their six million users to create individual interest
profiles that select newswire stories for their review.
On the DoD's Defense Enterprise Integration Services program, Logicon is
supporting the integration and migration of legacy information systems to
distributed, networked systems. This involves assessing integration strategies,
performing Functional Economic Analyses, standardizing data and developing
automated migrational support tools and prototypes.
At the National Archives and Records Administration (NARA), the Integrated
Communications and Administration Support System, a Logicon-developed network
provides the infrastructure for managing the huge volumes of archival material
from the Federal Record Centers, the Regional Archives and the Presidential
Libraries. Logicon is playing a key role in NARA's ongoing efforts to make
archival information available to the public via the Internet.
Logicon also helps the Department of Justice's (DOJ) Criminal and Civil
Divisions operate their offices' automated environments by managing their
networks and developing application software for information systems. On
another DOJ program, the Justice Consolidated Office Network, Logicon provides
office automation support to the attorney General's office, other senior
management and policy offices and the 93 U.S. Attorney offices.
Training & Simulation
Logicon's Training & Simulation business accounts for 14 percent of the
company's fiscal year 1996 revenues. Logicon's expertise in the Training &
Simulation area includes conducting hands-on wargaming exercises using an
interactive computer model of military field operations, managing the operations
of battle simulation centers across the country, developing a real-time multi-
warfare Naval training system, operating and managing the world's largest
vertical motion simulator for training of flight crews and developing multimedia
interactive courseware.
Under the U.S. Army's Battle Command Training Program (BCTP), the Army's
premiere battle preparedness training program, Logicon staff operate the
computer-based simulation-driven training exercises that are used to train units
at minimum cost and with maximum flexibility.
A key activity of these warfighting exercises is the After Action Review (AAR),
a post-exercise analysis session presented to commanders and their staffs. As
part of the AAR, Logicon developed the After Action Review System, an automated
support system that collects a wealth of data on key battle decisions and
provides training feedback.
Logicon also supplies battle simulation center support to the U.S. Army's XVIII
Airborne Corps and instructs U.S. Reserve Component training personnel in how to
train their own staffs at four Army Reserve Battle Projection Centers.
At the NASA-Ames Simulation Laboratory, Logicon experts operate and develop
usage plans for the world's largest vertical motion simulator, used to train
space shuttle astronauts and pilots of fighter aircraft, helicopters and
transport planes. The simulator features four interchangeable cabs which
simulate different classes of aircraft. New and different simulations are
conducted each year, with each simulation requiring four months of planning.
Logicon's Tactical Advanced Simulated Warfare Integrated Trainer, or TASWIT,
developed in 1987, is used to train Naval Surface Tactical Teams. Today it is
the Navy's shore-based Surface Warfare Trainer and ashore adjunct to the Battle
Force Tactical Trainer Program. Logicon's TASWIT team is currently involved in
modeling and simulation activities related to the DoD's Distributed Interactive
Simulation initiative. The TASWIT software has also become the key component
for integrating the Naval Undersea Warfare Center's undersea warfare simulation
capabilities with the Naval Surface Warfare Center's above-water warfare
simulations for the Advanced Research Projects Agency's Ship Systems Automation
program.
At the Navy's AEGIS Training Center, Logicon personnel design, maintain and
operate computer-based training tools used to train AEGIS crews. This effort
includes the development of computer-based training modules and team training
scenarios designed to stimulate the AEGIS Combat System with a multi-threat
battle environment.
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<PAGE>
Science & Technology
Logicon's Science and Technology business accounts for 11 percent of the
company's fiscal year 1996 revenues. Work in this area includes research and
experimentation in high energy laser applications and advanced imaging
technology, nuclear and conventional weapons effects and anti-proliferation
strategies, application of ocean physics to expand our capabilities in ocean
surveillance, neural network artificial intelligence techniques for automated
machine recognition of image features, and human factors engineering used in the
development of the next generation of aircraft and weaponry.
At the U.S. Air Force's Phillips Laboratory in Albuquerque, New Mexico, Logicon
scientists and engineers model all aspects of high energy lasers, including
photon generation, aiming and propagation through the atmosphere, and their
effects on targets. In the imaging field we design, analyze and support
experiments to further exploit advanced imaging concepts for space
identification in space control applications.
The Logicon-developed Virtual Interactive Target (VIT) is a computer simulation
which provides the Defense Nuclear Agency with a model for studying the effects
of conventional weapons used in attacks on hardened structures, such as an
airplane hanger. VIT is used for training of warfighting forces, planning and
rehearsal of operational missions, test and evaluation of new weapon systems and
development of new tactics and concepts of operation.
Logicon is helping manage the development of a capability for evaluation of
hazardous material releases in the atmosphere. The effort, called Hazard
Prediction and Assessment Capability, was given a real-world test when the
Chemical Officer for the European Command requested it for use in Bosnia.
Logicon and DNA staff worked together under tight deadline constraints to
prepare the hardware, software, weather data, hazard source term data and a
training plan for shipment to Europe.
At the Armstrong Laboratory at Wright-Patterson AFB, Logicon research scientists
help develop and conduct experiments aimed at exploring the limits of human
capability in complex flight systems. Logicon personnel were largely
responsible for developing the most recent addition to the Armstrong Laboratory,
the Synthesized Immersion Research Environment (SIRE) laboratory. SIRE is a
state-of-the-art virtual reality facility used for development and evaluation of
crew station technologies that may have value to the pilot of the 21st century.
Backlog
The dollar amount of backlog, including contract options and untasked indefinite
quantity contract values at March 31, 1996, was $2.0 billion, compared to $1.7
billion at March 31, 1995. Backlog from firm contracts at March 31, 1996, was
$547 million, compared to $518 million at March 31, 1995. The funded portion of
the March 31, 1996 and 1995 backlog was $226 million and $222 million,
respectively. It is estimated that approximately 60 percent of backlog from firm
contracts will be expended by March 31, 1997.
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. In December 1995 the Air Force issued a
contract change order for the I-CASE contract which essentially restructured and
modified the contract by reducing program management and software update
requirements and related costs. The program management function was changed from
a firm-fixed price task to a cost plus fixed-fee task. The untasked, indefinite
quantity value, over the remaining eight-year period, of this indefinite
delivery/indefinite quantity (ID/IQ) contract was $637 million at March 31,
1996.
Also, included in the untasked indefinite quantity value is a five-year, $200
million ID/IQ contract from the Internal Revenue Service (IRS) for software and
systems engineering services in support of the IRS's Tax Systems Modernization
effort that was awarded during fiscal 1996.
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.
-4-
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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.
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, 1996, 1995 and 1994 were, respectively, $3,952,000, $2,692,000 and
$2,751,000.
Employee Relations
The company's success is dependent upon its ability to attract and retain highly
trained professional and technical employees. At March 31, 1996, the company
had 4,986 employees, of whom 3,510 were on the technical staff. Of those on the
technical staff, 86 percent held degrees, with 42 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 1,200,000 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 1996 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 3 and pages 25 through 40 of the 1996 Annual Report to Stockholders and is
incorporated by reference in this Annual Report on Form 10-K. 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 25, 1996. Such information is incorporated by reference in this Annual
Report on Form 10-K.
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, 1996,
appearing on pages 28 through 39 of the accompanying 1996
Annual Report to Stockholders are incorporated by reference in
this Annual Report on Form 10-K . With the exception of the
aforementioned information and the information incorporated in
Items 5, 6, 7 and 8, the 1996 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 April 11, 1996, pursuant to
Item 2 "Acquisition or Disposition of Assets" for the
acquisition of Geodynamics Corporation by Logicon. The
financial statements of Geodynamics Corporation for the period
ended June 2, 1995, were part of that filing along with pro
forma financial information for Logicon and Geodynamics
Corporation.
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<PAGE>
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
Signatures Title Date
---------- ----- ----
(1) Principal Executive Officer:
J.R. WOODHULL
-----------------------------
J.R. Woodhull President and June 24, 1996
Chief Executive Officer
(2) Principal Financial and Accounting Officer:
RALPH L. WEBSTER
------------------------------
Ralph L. Webster Vice President - June 24, 1996
Chief Financial Officer
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(3) Directors:
------------------------------
James L. Hesburgh Director June , 1996
CHARLES T. HORNGREN
------------------------------
Charles T. Horngren Director June 24 , 1996
W. EDGAR JESSUP, JR.
------------------------------
W. Edgar Jessup, Jr. Director June 24 , 1996
CHARLES F. SMITH
------------------------------
Charles F. Smith Director June 24, 1996
ROLAND R. SPEERS
------------------------------
Roland R. Speers Director June 24 , 1996
ROBERT G. WALDEN
------------------------------
Robert G. Walden Director June 24 , 1996
J.R. WOODHULL
------------------------------
J.R. Woodhull Director June 24, 1996
-8-
<PAGE>
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, 1996,
appearing on page 39 of the 1996 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 24, 1996
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<PAGE>
LOGICON, INC.
INDEX OF EXHIBITS
Exhibit
No. Description
--- -----------
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
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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 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
-----------------------------------
1996 1995* 1994*
---- ----- -----
<S> <C> <C> <C>
Average number of shares
outstanding during the year 13,763,000 13,672,000 14,356,000
Net additional shares issuable
in connection with dilutive
stock options based upon use
of the treasury stock method
based on average market prices 446,000 532,000 648,000
---------- ---------- ----------
Average number of common shares,
including common stock equivalents 14,209,000 14,204,000 15,004,000
========== ========== ==========
</TABLE>
* Earnings per share have been restated to reflect a 100% stock split effective
on September 13, 1995.
Fully diluted earnings per share of common stock are omitted because there is
less than 3 percent dilution in any year.
<PAGE>
EXHIBIT 13
SELECTED CONSOLIDATED FINANCIAL DATA Logicon, Inc.
<TABLE>
<CAPTION>
For the year ended March 31
(dollars in millions, -------------------------------------------------
except per share data) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 476.1 $ 345.2 $320.2 $325.1 $299.1
Net income 25.3 19.5 21.0 15.5 13.5
Per share amounts
--------------------------------------------------
Earnings $ 1.78 $ 1.37 $ 1.40 $ 1.02 $ 0.87
Dividends 0.19 0.16 0.14 0.12 .098
Equity 9.72 7.96 7.05 6.20 5.43
March 31
--------------------------------------------------
Backlog $2,037.8 $1,686.3 $727.4 $630.6 $657.6
Total assets 193.4 152.5 129.3 119.8 113.8
Working capital 87.2 70.8 85.5 76.2 67.3
Stockholders' equity 135.9 107.5 97.7 89.1 81.0
</TABLE>
Per share data reflects a two-for-one stock split in fiscal year 1996.
<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 approximately 99 percent of
total contract revenues for fiscal years 1994 through 1996. 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 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) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Contract revenues:
Cost plus fixed fee $ 124,058 $ 80,064 $ 93,795
Cost plus award and incentive fee 149,275 125,668 128,501
Fixed-price 72,839 51,317 33,339
Time and material 127,550 84,798 62,581
--------------------------------
$ 473,722 $ 341,847 $318,216
================================
March 31
--------------------------------
(dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Backlog:
Firm contracts:
Cost plus fixed fee $ 155,130 $ 155,283 $139,118
Cost plus award and incentive fee 159,836 163,044 102,952
Fixed-price 42,705 34,166 17,919
Time and material 188,958 165,385 87,078
--------------------------------
546,629 517,878 347,067
--------------------------------
Contract options and untasked indefinite
quantity contract values:
Cost type 620,261 367,904 259,882
Fixed-price 749,411 743,261 98,521
Time and material 121,498 57,285 21,941
--------------------------------
1,491,170 1,168,450 380,344
--------------------------------
Total backlog $2,037,799 $1,686,328 $727,411
================================
</TABLE>
Backlog, including priced options, has increased to $2.0 billion at March 31,
1996, from $1.7 billion 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
contractual renewals or the award of major new contracts. The company's
contracts with the government are subject to redirection or termination for
convenience, or may not result in future revenues due to events and actions
taken by the customer outside of the company's control.
25
<PAGE>
Contract awards that authorize the company to provide services and products are
included in firm backlog. When such authorizations have become inactive and the
company reasonably anticipates no future revenue from such awards, they are
removed from firm backlog. Firm backlog may be funded or unfunded. The funded
backlog at March 31, 1996, 1995 and 1994 was $225.5 million, $221.8 million and
$180.9 million, respectively.
Contract awards that allow the customer to contract for services and products at
specified values upon the issuance of contract modifications, normally referred
to as options or delivery orders, are recorded in backlog at the value stated in
the contract. These amounts are not included in firm backlog until such future
contract modifications are issued. Accordingly, total backlog reflected above
may not result in future revenues. In recent years the company's customers have
increasingly entered into this form of contract.
In December 1995 the Air Force issued a contract change order for the I-CASE
contract which essentially restructured and modified the contract by reducing
program management and software update requirements and related costs. The
program management function was changed from a firm-fixed price task to a cost
plus fixed-fee task. The untasked, indefinite quantity value, over the remaining
eight-year period, of this indefinite delivery/indefinite quantity (ID/IQ)
contract was $637 million at March 31, 1996. Also, included in the untasked
indefinite quantity value is a five-year, $200 million ID/IQ contract from the
Internal Revenue Service (IRS) for software and systems engineering services in
support of the IRS's Tax Systems Modernization effort that was awarded during
fiscal 1996.
Profit Margins
Profit margins from operations for the three years ended March 31, 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
For the year ended March 31
--------------------------------
(dollars in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on revenue before tax 8.9% 9.5% 10.8%
Return on revenue after tax 5.3% 5.7% 6.6%
Effective income tax rate 40.5% 40.5% 40.9%
Before-tax return on short-term portfolio 5.4% 4.8% 3.2%
</TABLE>
The increase in revenues and net income for fiscal year 1996 from fiscal year
1995 is primarily the result of the acquisition of Syscon Corporation (Syscon)
on February 16, 1995. The profit margin for fiscal year 1996 decreased from the
margin reported in fiscal year 1995 due to lower profit margins on the Syscon
revenues and to a decrease in interest income earned on a smaller cash and
marketable securities portfolio.
The fiscal 1994 results included net income of $3.9 million or 26 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 four 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.
During fiscal year 1993 the company relocated three operating unit headquarters
and consolidated administrative support functions to achieve business and
management efficiencies. These changes, combined with the company's ability to
control costs while revenues increased, have contributed to the reduction in
selling and administrative expenses to 8.3%, 8.8%, and 8.6% of revenues for
fiscal years 1996, 1995 and 1994, respectively.
On March 28, 1996, the company acquired Geodynamics Corporation (Geodynamics)
for a purchase price of $31.7 million. Geodynamics specializes in remote
sensing, geographic information systems, modeling and simulation, software
development, and systems engineering and integration for the Department of
Defense and other government agencies. The acquisition is being accounted for as
a purchase and the excess of the purchase price over net assets acquired was
approximately $9.3 million. The Consolidated Balance Sheet includes the assets
and liabilities of Geodynamics. The company's consolidated results of operations
will include the operations of Geodynamics beginning in fiscal year 1997.
26
<PAGE>
On February 16, 1995, the company acquired Syscon, which operated as an
indirectly wholly owned subsidiary of Harnischfeger Industries, Inc., for a cash
purchase price of $45.3 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 $21.9 million. The company's consolidated results of operations include the
operations of Syscon from the acquisition date.
Days sales in receivables decreased slightly to 67 days at March 31, 1996,
compared with 69 days at March 31, 1995, and increased from 45 days at March 31,
1994. The fiscal year 1996 days sales measurement would have been approximately
60 days if the fiscal year 1996 unaudited pro forma revenues, which includes the
unaudited pro forma revenue of Geodynamics, would have been used for the
calculation. 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 $32.5 million, $26.5 million and $38.3
million in fiscal years 1996, 1995 and 1994, respectively, and is the company's
primary source of liquidity. The company's working capital increased to $87.2
million at the end of fiscal year 1996, from $70.8 million at the end of fiscal
year 1995 and from $85.5 million at the end of fiscal year 1994. The company's
working capital position is reflected in the current ratio of 2.5 to 1, 2.6 to 1
and 3.7 to 1 for fiscal years 1996, 1995 and 1994, 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 October 13, 1995, the board of directors granted the authority to spend up to
$10 million to repurchase shares of the company's common stock in open market
transactions. The company did not repurchase any shares during fiscal 1996. Over
the last three fiscal years, the company has purchased 1,587,800 shares for an
aggregate cost of $22.4 million under prior authorizations.
Two-for-One Stock Split
The board of directors declared a two-for-one stock split on August 7, 1995. New
shares were issued on September 13, 1995, and the split is reflected in the
financial statements contained in this report. All per share data in this report
for prior periods have been restated.
Forward-looking Statements
To the extent the information contained in this discussion and analysis of
consolidated financial condition and results of operations and the information
included elsewhere in the 1996 Annual Report to Stockholders are viewed as
forward-looking statements, the reader is cautioned that various risks and
uncertainties exist that could cause the actual future results to differ
materially from that inferred by the forward-looking statements. Since the
company's primary customer is the U.S. government, future results could be
impacted by: the right of the government to redirect, modify, terminate or
otherwise cause work to be stopped on contracts issued by it; government
customers' budgetary constraints; and the contracting practices of the company's
current and prospective customers. Some additional factors, among others, that
also need to be considered are: the likelihood that actual future revenues that
are realized may differ from those inferred from existing total backlog; the
ability of the company to attract and retain highly trained professional
employees; the availability of capital and/or financing; and changes in the
utilization of the company's leased facilities that could result in higher
costs. The reader is further cautioned that risks and uncertainties exist that
have not been mentioned herein due to their unforeseeable nature, but which,
nevertheless, may impact the company's future operations.
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) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Contract revenues $473,722 $341,847 $318,216
Interest 2,381 3,344 1,976
----------------------------
476,103 345,191 320,192
- -------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of contract revenues 394,224 282,074 258,165
Selling and administrative expenses 39,343 30,302 27,511
----------------------------
433,567 312,376 285,676
- -------------------------------------------------------------------------------------------------
Income before taxes on income 42,536 32,815 34,516
Provision for taxes on income (Note 9) 17,228 13,306 14,109
----------------------------
Income before cumulative effect of a change in
accounting principle 25,308 19,509 20,407
Cumulative effect, on prior years, of change in
accounting for taxes on income (Note 1) 635
----------------------------
Net income $ 25,308 $ 19,509 $ 21,042
============================
Earnings per share of common stock: (Note 2)
Before cumulative effect of a change in
accounting principle $ 1.78 $ 1.37 $ 1.36
Cumulative effect, on prior years, of change in
accounting for taxes on income (Note 1) .04
----------------------------
Net income $ 1.78 $ 1.37 $ 1.40
============================
Average number of common shares including common
stock equivalents (Note 2) 14,209 14,204 15,004
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CONSOLIDATED BALANCE SHEET Logicon, Inc.
<TABLE>
<CAPTION>
March 31
-------------------
(dollars in thousands) 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 37,802 $ 31,564
Marketable securities (Note 4) 8,244 9,210
Accounts receivable (Note 5) 87,725 64,233
Prepaid expenses 2,447 2,418
Deferred income tax benefits (Note 9) 8,551 8,308
-------------------
Total current assets 144,769 115,733
Property, plant and equipment (Note 5) 11,521 9,090
Other assets 1,085
Excess of purchase price over net assets of businesses
acquired, net of accumulated amortization of $4,164
and $2,490 36,063 27,654
-------------------
$193,438 $152,477
===================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and other accrued liabilities $ 17,995 $ 12,549
Accrued salaries, wages and employee benefits (Note 5) 38,522 30,831
Estimated taxes on income (Note 9) 1,023 1,583
-------------------
Total current liabilities 57,540 44,963
-------------------
Commitments and contingent liabilities (Note 10)
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 13,975,000 and 6,753,000 shares
(Note 2) 1,397 675
Other paid-in capital 18,853 14,416
Retained earnings 118,569 95,889
Unrealized loss on available for sale securities (Note 4) (13) (159)
Unearned compensation and notes receivable under
Restricted Stock Purchase Plan (Note 8) (2,908) (3,307)
-------------------
Total stockholders' equity 135,898 107,514
-------------------
$193,438 $152,477
===================
</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, 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
Transactions of stock plans 364 36 5,123
Two-for-one stock split (Note 2) 6,858 686 (686)
Cash dividends (2,628)
Net income for year 25,308
- --------------------------------------------------------------------------------------------
Balance at March 31, 1996 13,975 $1,397 $18,853 $118,569
====================================================
</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 8) and by unrealized loss on available for sale
securities (Note 4).
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) 1996 1995 1994
- -------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 25,308 $ 19,509 $ 21,042
Income charges (credits) not affecting cash -
Depreciation and amortization 7,113 4,388 3,471
Provision for the collectibility of accounts
receivable (2,000)
Provision for (benefit from) deferred taxes
(Note 9) 1,472 (2,529) (3,014)
Amortization of deferred compensation 520 587 415
Effect of a change in accounting for income
taxes (Note 1) (635)
Changes in assets and liabilities, net of
acquisitions -
Decrease (increase) in accounts receivable (10,953) 1,304 18,820
Decrease in prepaid expenses 446 731 171
Increase (decrease) in accounts payable and
other accrued liabilities 4,733 2,123 (3,227)
Increase in accrued salaries, wages and
employee benefits 4,423 2,892 285
Increase (decrease) in income taxes payable (538) (2,462) 2,956
------------------------------
Net cash provided from operating activities 32,524 26,543 38,284
- -------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant and equipment, net
of sales (5,563) (2,397) (2,747)
Maturity of available for sale securities 1,112 61,519
Purchase of available for sale securities (43,402) (27,486)
Payment for acquisitions, net of cash acquired
(Note 3) (23,339) (43,854)
------------------------------
Net cash used in investing activities (27,790) (28,134) (30,233)
- -------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends (2,628) (2,186) (2,005)
Transactions of stock plans 4,132 1,610 2,035
Purchase and retirement of treasury shares (9,658) (12,781)
------------------------------
Net cash provided from (used in) financing
activities 1,504 (10,234) (12,751)
------------------------------
Net increase (decrease) in cash and cash
equivalents 6,238 (11,825) (4,700)
Cash and cash equivalents at beginning of year 31,564 43,389 48,089
- -------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $37,802 $31,564 $43,389
=============================
Cash paid for income taxes $14,523 $18,215 $12,975
=============================
</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.
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 respective reporting
periods. Actual results could differ from those estimates.
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 10 years for office furniture and equipment, three to eight
years for computer and related equipment and 15 to 30 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 periods not exceeding 20 years. The
company regularly reviews the individual components of the balances and
recognizes, on a current basis, any decline in value.
Impairment of Long-Lived Assets
The company has adopted the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 establishes accounting
standards for the impairment of long-lived assets to be reviewed whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Under the provisions of SFAS 121, the company reviews the
recoverability of long-lived assets and intangible assets by comparing cash
flows on an undiscounted basis to the net book value of the assets. In the event
the projected undiscounted cash flows are less than the net book value of the
32
<PAGE>
assets, the carrying values of the assets are written down to their fair value,
less cost to sell. In addition, SFAS 121 requires that assets to be disposed of
be measured at the lower of cost or fair value, less cost to sell. Adopting SFAS
121 had no effect on the company's financial statements.
Research and Development
The company charges all research and development expenditures to costs and
expenses as incurred. Research and development expenditures for fiscal years
1996, 1995 and 1994 were, respectively, $3,952,000, $2,692,000, and $2,751,000.
Income Taxes
Effective April 1, 1993, the company prospectively adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which changed 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 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.
Accounting for Stock-Based Compensation
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation"
(SFAS 123) which establishes financial accounting and reporting standards for
stock-based employee compensation. Under SFAS 123, companies are encouraged, but
not required, to adopt a method of accounting for stock compensation awards
based upon the estimated fair value at the date the options/awards are granted
as determined through the use of a pricing model (the "Fair Value Method").
Companies continuing to account for such awards in accordance with the existing
guidance of Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB 25) will have to disclose, in the Notes to Financial
Statements, the pro forma impact on net income and net income per share had the
company utilized the Fair Value Method. The company anticipates accounting for
future stock compensation awards in accordance with APB 25 with the appropriate
footnote disclosure required under SFAS 123.
- --------------------------------------------------------------------------------
NOTE 2. COMMON STOCK
On September 13, 1995, approximately 6,858,000 common shares were distributed to
stockholders to effect a 100 percent stock distribution required by a two-for-
one stock split declared by the board of directors, and $686,000 was transferred
from other paid-in capital to common stock. Earnings per share, equity per share
and dividends per share, common stock prices and all amounts in the notes to the
Consolidated Financial Statements have been restated to reflect the stock split.
- --------------------------------------------------------------------------------
NOTE 3. ACQUISITIONS
On March 28, 1996, the company acquired Geodynamics Corporation (Geodynamics)
for a purchase price of $31.7 million. Geodynamics specializes in remote
sensing, geographic information systems, modeling and simulation, software
development, and systems engineering and integration for the Department of
Defense and other government agencies. The acquisition was accounted for as a
purchase and the excess of the purchase price over net assets acquired was
approximately $9.3 million. The Consolidated Balance Sheet includes the assets
and liabilities of Geodynamics. The company's consolidated results of operations
will include the operations of Geodynamics beginning in fiscal year 1997.
33
<PAGE>
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 $45.3 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 $21.9 million. The company's consolidated results
of operations include the operations of Syscon from the acquisition date.
Unaudited pro forma fiscal year 1994 revenues, income before cumulative effect
of a change in accounting principle and net income, assuming Syscon was acquired
at the beginning of fiscal year 1994, were $458.4 million, $23.6 million, and
$24.2 million, respectively. Unaudited pro forma fiscal year 1994 earnings per
share of common stock were $1.61.
The following table summarizes the unaudited consolidated pro forma results of
operations, assuming the acquisitions of Geodynamics and Syscon had occurred at
the beginning of fiscal year 1995. However, these pro forma results are not
necessarily indicative of the actual results of operations that would have
occurred.
For the year ended March 31
(unaudited)
<TABLE>
<CAPTION>
For the year ended March 31
(unaudited)
---------------------------
(dollars in thousands, except per share data) 1996 1995
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $529,163 $510,307
Income before taxes on income $ 42,968 $ 32,637
Net income $ 25,376 $ 18,841
===========================
Earnings per share of common stock $ 1.78 $ 1.33
===========================
Average number of common shares including common stock
equivalents 14,230 14,208
===========================
</TABLE>
NOTE 4. MARKETABLE SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Marketable securities are
as follows:
Amortized cost Fair value Gross
(dollars in thousands) basis (plus interest) (plus interest) unrealized loss
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
March 31, 1996
Available for sale securities (mature within one year)
U. S. government and government agencies $8,269 $8,244 $ 25
===========================================================
March 31, 1995
Available for sale securities (mature within two years)
U. S. government and government agencies $9,477 $9,210 $267
===========================================================
</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 1996 or 1995. The net unrealized holding loss
on available for sale securities which is included in stockholders' equity at
March 31, 1996, and 1995, was $13,000 and $159,000, respectively.
34
<PAGE>
- --------------------------------------------------------------------------------
NOTE 5. DETAILS OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS
<TABLE>
<CAPTION>
March 31
------------------
(dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable:
U.S. government, including unbillable of
$18,271 and $13,259 $83,756 $60,929
Other 3,969 3,304
------------------
$87,725 $64,233
==================
Property, plant and equipment:
Office furniture and equipment $ 6,168 $ 5,747
Computer and related equipment 29,471 24,172
Land, buildings and leasehold improvements 4,917 5,041
------------------
40,556 34,960
Less accumulated depreciation and amortization (29,035) (25,870)
------------------
$11,521 $ 9,090
==================
Accrued salaries, wages and employee benefits:
Salaries and related expenses $13,024 $14,592
Personal leave 18,665 11,499
Benefit plans 6,833 4,740
------------------
$38,522 $30,831
==================
</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 6. SHORT-TERM BORROWINGS
The company has a $25 million unsecured line of credit with a bank that is
renewable annually, subject to review of the company's financial condition.
Borrowings under the line bear interest at the bank's prime rate minus 25 basis
points. The company is expected to maintain an average collected demand deposit
balance equal to three 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 7. 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 1996, 1995 and 1994 were, respectively, $9,071,000,
$7,333,000, and $7,350,000.
35
<PAGE>
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, 1996, the Plan is authorized to purchase an
aggregate of 459,657 additional shares of the company's common stock either on
the open market or from the company. All shares purchased under the Plan have
been open market purchases and it is management's current intent to continue
this practice. The Plan held 382,856 shares of the company's common stock at
March 31, 1996. Charges to costs and expenses with respect to the Plan for
fiscal years 1996, 1995 and 1994 were, respectively, $1,507,000, $932,000, and
$385,000.
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 1996, 1995 and 1994 were, respectively, $3,467,000, $2,619,000, and
$2,909,000.
- --------------------------------------------------------------------------------
NOTE 8. 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 10 years from the
date of the grant of the option. No significant charges are made to earnings in
connection with this Plan. The Plan authorizes issuance of 2,000,000 shares.
Grants for 122,100 shares at a price of $23.38 per share were made during fiscal
year 1996.
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 significant charges are made to earnings in connection
with this Plan. A total of 160,000 shares of common stock are reserved for
future issuance under the Non-Employee Directors' Plan. Grants for 6,500 shares
at a price of $24.50 per share and for 4,500 shares at a price of $28.13 per
share were made during fiscal year 1996.
On March 28, 1996, the company acquired all of the outstanding stock of
Geodynamics Corporation (Geodynamics) for a purchase price of $31.7 million. In
connection with this transaction, the company agreed to honor the terms of all
outstanding and unexercised Geodynamics stock options as of that date using a
conversion factor based on the price paid per share of Geodynamics stock divided
by the average trading price per share of Logicon stock over a 20-day period
ending March 25, 1996. This resulted in the company issuing options for 89,683
shares at prices ranging from $8.63 to $34.52 per share. The estimated fair
value of these options has been included in the price of Geodynamics with the
resulting credit to other paid-in capital.
36
<PAGE>
A summary of stock option transactions follows:
<TABLE>
<CAPTION>
Options outstanding
--------------------------------------------------
(in thousands)
Shares Per share Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1993 (472,312 shares
exercisable) 1,178,372 $ 3.75-$ 7.25 $ 5,752
Granted 182,000 10.63- 13.38 2,012
Exercised (329,978) 3.75- 7.25 (1,331)
Canceled and expired (10,400) 6.00- 10.94 (75)
--------------------------------------------------
March 31, 1994 (456,794 shares
exercisable) 1,019,994 3.75- 13.38 6,358
Granted 182,000 14.19- 16.00 2,654
Exercised (222,960) 3.75- 13.38 (1,119)
Canceled and expired (7,400) 7.25- 14.19 (72)
--------------------------------------------------
March 31, 1995 (482,134 shares
exercisable) 971,634 3.75- 16.00 7,821
Granted 222,783 8.63- 34.52 5,036
Exercised (466,612) 3.75- 16.00 (2,361)
Canceled and expired (15,320) 3.75- 15.94 (126)
--------------------------------------------------
March 31, 1996 (239,190 shares
exercisable) 712,485 $ 6.00-$34.52 $10,370
==================================================
</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 1996,
awards for 16,130 shares were granted. Charges to costs and expenses with
respect to the Plan for fiscal years 1996, 1995 and 1994 were, respectively,
$520,000, $587,000 and $415,000. At March 31, 1996, and 1995, unearned
compensation of $311,000 and $682,000 and notes receivable of $2,597,000 and
$2,625,000, respectively, related to the issuance of the stock are deducted from
stockholders' equity in the accompanying Consolidated Balance Sheet.
At March 31, 1996, 2,775,390 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 16, 1990, may be redeemed by an action of the board of
directors at a price of $.01 per right within 10 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.
37
<PAGE>
- --------------------------------------------------------------------------------
NOTE 9. TAXES ON INCOME
The provision for taxes on income includes the following:
<TABLE>
<CAPTION>
For the year ended March 31
---------------------------
(dollars in thousands) 1996 1995 1994
- -------------------------------------------------------------------
Current payable:
<S> <C> <C> <C>
Federal $13,002 $12,831 $13,845
State 2,754 3,004 3,278
---------------------------
15,756 15,835 17,123
---------------------------
Tax effect of temporary differences:
Federal 1,248 (2,167) (2,515)
State 224 (362) (499)
---------------------------
1,472 (2,529) (3,014)
---------------------------
$17,228 $13,306 $14,109
===========================
</TABLE>
The reasons for variance from the statutory federal income tax rates are as
follows:
<TABLE>
<CAPTION>
For the year ended March 31
---------------------------
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State taxes, net of federal income tax benefit 4.6 5.2 5.2
Other .9 .3 .7
---------------------------
Effective tax rate 40.5% 40.5% 40.9%
===========================
</TABLE>
Deferred income tax benefits consist of the following:
<TABLE>
<CAPTION>
March 31
-----------------
1996 1995
- ---------------------------------------------------------
<S> <C> <C>
Deferred employee benefits $ 7,097 $5,570
Non-deductible accrued costs 4,263 2,993
Contractually unbillable receivables (3,610) (831)
R&D credit carryforward 55 701
State taxes 452 431
Depreciation 1,415 284
Loss limitation carryforwards 99 158
Other (1,220) (691)
-----------------
8,551 8,615
Valuation allowance (307)
-----------------
$ 8,551 $8,308
=================
</TABLE>
The fiscal year 1995 valuation allowance relates primarily to loss limitation
carryforwards and depreciation. Management believes that all fiscal year 1996
deferred amounts will be realized. The R&D credit carryforward expires during
fiscal years 2005 to 2009.
38
<PAGE>
- --------------------------------------------------------------------------------
NOTE 10. 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,
facilities operating expense, property tax and price index increases over base-
period amounts. The majority of the leases are for one to 15 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 1996, 1995 and 1994
were, respectively, $17,010,000, $15,438,000, and $16,957,000. The amounts due
in future fiscal years for the fixed terms of the leases total $113,045,000.
Commitments for the five fiscal years 1997 through 2001 are, respectively,
$18,300,000, $15,315,000, $12,605,000, $10,868,000, and $10,334,000.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
[LOGO OF PRICE WATERHOUSE LLP 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, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, 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, 1996
39
<PAGE>
SELECTED UNAUDITED CONSOLIDATED FINANCIAL AND STOCK MARKET DATA
<TABLE>
<CAPTION>
For the quarter ended
--------------------------------------------------
(dollars in thousands, except per share data) June 30 Sept. 30 Dec. 31 March 31
- ------------------------------------------------------------------------------------------------------------------
Fiscal Year 1996
<S> <C> <C> <C> <C>
Revenues $ 112,207 $ 114,622 $ 121,264 $ 128,010
Gross profit 16,989 18,063 21,073 23,373
Income before taxes on income 9,047 9,668 11,588 12,233
Net income 5,368 5,758 6,878 7,304
Earnings per common share .38 .41 .48 .51
Dividends per common share .04 .05 .05 .05
Common stock price:
High 231/\\8\\ 321/\\8\\ 291/\\4\\ 333/\\4\\
Low 167/\\8\\ 2111/\\16\\ 211/\\2\\ 251/\\4\\
- ------------------------------------------------------------------------------------------------------------------
Fiscal Year 1995
Revenues $ 075,957 $ 079,712 $ 080,900 $ 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 .28 .31 .33 .45
Dividends per common share .04 .04 .04 .04
Common stock price:
High 155/\\8\\ 169/\\16\\ 155/\\8\\ 173/\\16\\
Low 125/\\8\\ 139/\\16\\ 141/\\8\\ 1415/\\16\\
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1996. Common stock prices for the five quarters ended June
30, 1995, have been restated to reflect the two-for-one stock split distribution
effected September 13, 1995.
40
<PAGE>
Exhibit 21
LOGICON, INC.
SUBSIDIARIES OF THE REGISTRANT
Country or State
Subsidiary (name under which subsidiary does business): of Incorporation
- ------------------------------------------------------- ----------------
Geodynamics Services Corporation Colorado
Logicon Eagle Technology, Inc. Delaware
Logicon Geodynamics, Inc. California
Logicon R & D Associates California
Logicon Syscon. Inc. District of Columbia
Logicon Syscon Services, Inc. District of Columbia
Logicon Technical Services, Inc. California
Logicon Ultrasystems, Inc. Delaware
Syscon BVI, LTD British Virgin Islands
Syscon Saudi Arabia, LTD Kingdom of Saudi Arabia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K,
FY 1996 FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000311946
<NAME> LOGICON, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 37,802
<SECURITIES> 8,244
<RECEIVABLES> 87,725
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 144,769
<PP&E> 40,556
<DEPRECIATION> 29,035
<TOTAL-ASSETS> 193,438
<CURRENT-LIABILITIES> 57,540
<BONDS> 0
0
0
<COMMON> 1,397
<OTHER-SE> 134,501
<TOTAL-LIABILITY-AND-EQUITY> 193,438
<SALES> 473,722
<TOTAL-REVENUES> 476,103
<CGS> 394,224
<TOTAL-COSTS> 433,567
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 42,536
<INCOME-TAX> 17,228
<INCOME-CONTINUING> 25,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,308
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
</TABLE>
