FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-6035
The Titan Corporation
(Exact name of registrant as specified in its charter)
Delaware 95-2588754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3033 Science Park Road, San Diego, California 92121
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (619) 552-9500
_____________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
The number of shares of registrant's common stock outstanding at
August 4, 1995, was 13,414,456.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE TITAN CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share data)
Three months ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Revenues.................................$34,307 $28,804 $64,472 $68,493
Cost of revenues......................... 25,085 21,404 46,786 52,844
Gross profit............................. 9,222 7,400 17,686 15,649
Selling, general and administrative
expense............................... 6,365 4,682 11,821 10,573
Research and development expense......... 1,501 879 3,475 1,589
Other income............................. - (1,200) - (1,200)
Operating profit......................... 1,356 3,039 2,390 4,687
Interest expense......................... (264) (168) (469) (615)
Interest income.......................... 9 84 43 135
Income before income taxes............... 1,101 2,955 1,964 4,207
Income tax provision..................... 382 1,182 710 1,683
Net income............................... 719 1,773 1,254 2,524
Dividend requirement on preferred stock.. 173 173 347 347
Net income applicable to common stock....$ 546 $ 1,600 $ 907 $ 2,177
Average common shares outstanding........ 13,852 13,405 13,836 13,024
Net income per average common share......$ .04 $ .12 $ .07 $ .17
The accompanying notes are an integral part of these
consolidated financial statements.<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
June 30, December 31,
1995 1994
Assets
Current assets:
Cash and cash equivalents......................$ 2,248 $ 5,129
Accounts receivable - net...................... 36,129 36,164
Inventories.................................... 8,463 7,155
Prepaid expenses and other current assets...... 1,095 2,430
Deferred income taxes.......................... 4,521 4,769
Total current assets........................ 52,456 55,647
Property and equipment - net...................... 14,999 12,932
Goodwill - net.................................... 3,960 4,103
Other assets...................................... 8,953 9,221
Total assets $ 80,368 $ 81,903
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable...............................$ 5,473 $ 7,402
Line of credit................................. 7,550 --
Current portion of long-term debt.............. 580 556
Accrued compensation and benefits.............. 8,747 11,000
Other accrued liabilities...................... 8,400 15,250
Total current liabilities................... 30,750 34,208
Long-term debt.................................... 469 765
Other non-current liabilities..................... 8,692 8,162
Stockholders' equity:
Preferred stock; $1 par value; $13,897
liquidation preference; authorized
2,500,000 shares; issued and outstanding
694,872...................................... 695 695
Common stock; $.01 par value; authorized
30,000,000 shares; issued 14,917,066 and
14,632,458................................... 149 146
Capital in excess of par value................. 28,666 27,860
Retained earnings.............................. 15,578 14,671
Treasury stock (1,525,064 and 1,521,534 shares),
at cost...................................... (4,631) (4,604)
Total stockholders' equity.............. 40,457 38,768
Total liabilities and stockholders' equity $ 80,368 $ 81,903
The accompanying notes are an integral part of these
consolidated financial statements.<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
Six months ended
June 30,
1995 1994
Cash Flows From Operating Activities:
Net income........................................$ 1,254 $ 2,524
Adjustments to reconcile net income to net cash
provided by (used for) operations:
Restructuring activities..................... -- (1,200)
Depreciation and amortization................ 2,057 1,711
Deferred income taxes and other.............. 362 (879)
Changes in assets and liabilities (net of
effects of sale of business):
Accounts receivable..................... 35 8,982
Prepaid expenses and other assets....... 1,479 1,532
Inventories............................. (1,308) (1,172)
Accounts payable........................ (1,929) (2,926)
Accrued compensation and benefits....... (2,253) (76)
Other liabilities....................... (6,105) (6,947)
Net cash provided by (used for) operating
activities..................................... (6,408) 1,549
Cash Flows From Investing Activities:
Proceeds, net of transaction costs, from sale of
business....................................... -- 16,666
Capital expenditures.............................. (3,832) (1,699)
Other............................................. -- 47
Net cash provided by (used for) investing
activities..................................... (3,832) 15,014
Cash Flows From Financing Activities:
Reductions of debt................................ (272) (16,611)
Additions to debt................................. 7,550 --
Dividends paid.................................... (347) (347)
Proceeds from stock issuances..................... 428 1,959
Net cash provided by (used for) financing
activities..................................... 7,359 (14,999)
Net increase (decrease) in cash and cash
equivalents.................................... (2,881) 1,564
Cash and cash equivalents at beginning of period.. 5,129 5,374
Cash and cash equivalents at end of period........$ 2,248 $ 6,938
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands of dollars, except per share data)
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital
in Excess
Preferred Common of Par Retained Treasury
Stock Stock Value Earnings Stock Total
Six months ended June 30, 1995
Balances at December 31, 1994 $ 695 $ 146 $ 27,860 $ 14,671 $ (4,604) $ 38,768
Exercise of stock options and other 3 806 (388) 421
Shares contributed to employee
benefit plans 361 361
Dividends on preferred stock -
$.50 per share (347) (347)
Net income 1,254 1,254
Balances at June 30, 1995 $ 695 $ 149 $ 28,666 $ 15,578 $ (4,631) $ 40,457
Six months ended June 30, 1994
Balances at December 31, 1993 $ 695 $ 138 $ 24,974 $ 9,413 $ (5,899) $ 29,321
Exercise of stock options 7 1,952 1,959
Shares contributed to employee
benefit plans 1,171 1,171
Dividends on preferred stock -
$.50 per share (347) (347)
Net income 2,524 2,524
Balances at June 30, 1994 $ 695 $ 145 $ 26,926 $ 11,590 $ (4,728) $ 34,628
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(Dollar amounts in thousands, except per share data)
Note (1) BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying consolidated financial information of The Titan
Corporation and its subsidiaries ("the Company" or "Titan") should be read
in conjunction with the Notes to Consolidated Financial Statements
contained in the Company's Annual Report on Form 10-K to the Securities and
Exchange Commission for the year ended December 31, 1994. The accompanying
financial information includes all subsidiaries on a consolidated basis and
all normal recurring adjustments which are considered necessary by the
Company's management for a fair presentation of the financial position and
results of operations for the periods presented. However, these results
are not necessarily indicative of results for a full year. Also, certain
prior year amounts have been reclassified to conform to the 1995
presentation.
Note (2) DEBT
In May 1995, the Company's bank line of credit agreement was amended to
increase available credit from $10,000 to $17,000 and to extend the
maturity date to May 31, 1997. Borrowings under this agreement were $7,550
at June 30, 1995.
Note (3) SALE OF APPLICATIONS GROUP
In April 1994, the Company sold its Applications Group (the Company's Army
training and simulation service business) as part of the Company's formal
plan of restructure adopted in early 1994. Through the date of sale in
1994, the Applications Group had revenues and operating profit of $11,913
and $919, respectively.
Note (4) OTHER FINANCIAL DATA
June 30, December 31,
1995 1994
Inventories:
Materials $ 3,846 $ 2,921
Work-in-process 1,644 1,287
Finished goods 2,973 2,947
$ 8,463 $ 7,155
Supplemental disclosure of cash payments (receipts) is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Interest $ 199 $ 198 $ 207 $ 599
Income taxes 173 (76) (804) (32)
During the six month periods ended June 30, 1995 and 1994, the Company
utilized treasury stock of $361 and $1,171, respectively, for benefit plan
contributions.<PAGE>
THE TITAN CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Dollar amounts in thousands,
except per share data)
RESULTS OF OPERATIONS
Revenues for the second quarter of 1995 were $34,307, up 19% from
revenues of $28,804 in the second quarter of 1994. Revenues in the
commercial business areas increased approximately 39%, primarily due to
strong demand for the Company's business process re-engineering projects
using client/server technology, as well as significant percentage increases
in the secure television, commercial satellite communications systems, and
medical device sterilization businesses. Revenues in the government
business area increased approximately 8%, resulting from an increase in
subcontract service revenues which more than offset a decline in the
government satellite communications business. The decrease in government
satellite communications revenue at this time is primarily due to the
completion of several large contracts in 1994 and the wind-down of the
Mini-DAMA development contract. However, this development contract
resulted in a follow-on order worth $12 million for low rate initial
production. Initial revenues from these production units partially offset
the decline from contract completions.
Gross margins increased from 26% of revenues in the second quarter of
1994 to 27% of revenues in the second quarter of 1995. Despite a favorable
revenue mix, margins remained stable due to lower contributions in certain
government service business areas.
Selling, general and administrative ("S,G&A") expense was $6,365 in the
second quarter of 1995, up from $4,682 in the second quarter of 1994. The
increase reflects additional expenses to build infrastructure for the
Company's growth businesses, including the recruitment of experienced
management in key business areas. Selling expense increased due to
expanded selling efforts in the commercial business areas, including the
addition of sales personnel in Europe, Central America and the Pacific Rim.
Research and development ("R&D") expense increased 71% from $879 in the
second quarter of 1994 to $1,501 in the second quarter of 1995. This
planned increase reflects the Company's continuing focus on expanding
commercial applications of its technologies and developing certain defense
communication technologies.
Other income in the second quarter of 1994, a result of the Company's
restructuring activities, included the gain on the sale of the Applications
Group substantially offset by provisions made for estimated costs of
planned consolidations and exiting of certain operations no longer
compatible with the Company's long range strategy.
Net interest expense increased from $84 in the second quarter of 1994 to
$255 in the second quarter of 1995. During 1994, the Company was
substantially debt-free after the sale of its Applications Group in early
April 1994. Since December 31, 1994, the Company has borrowed under its
line of credit and, accordingly, net interest expense has increased.
<PAGE>
The income tax provisions for the second quarter and six months of 1995
are effective rates for the year of 35% and 36%, respectively, compared to
an effective rate of 40% for the quarter and six months in 1994. The
effective rates in both years reflect the combined federal and state
statutory rates less expected credits, primarily R&D credits.
Revenues for the first six months of 1995 were $64,472 compared to
$68,493 for the first six months of 1994. The change reflects the effects
of businesses sold, primarily the Applications Group, and lower revenues in
certain government business areas, substantially offset by significant
increases in commercial business revenues. Excluding the impact of the
sale of the Applications Group, revenues increased 14%.
Gross margins for the first six months of 1995 were 27% versus 23% in
the first six months of 1994, reflecting improved margins in the government
satellite communications business and a more profitable revenue mix as
commercial business increased.
S,G&A increased from $10,573 in the first six months of 1994 to $11,821
in the same period in 1995. The increase was due to expanded selling
efforts in the commercial business areas, including the addition of sales
and marketing personnel in Europe, Central America and the Pacific Rim.
R&D increased from $1,589 in the first six months of 1994 to $3,475 in
the first six months of 1995, reflecting the Company's commitment to
developing and expanding new and existing technologies for its businesses.
Net interest expense for the first six months decreased slightly in 1995
from the same period in 1994, reflecting lower average debt outstanding,
offset somewhat by lower average investments.
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 1995, the Company utilized its line of credit
to provide cash needed for operating activities, including business
expansion in commercial areas. Operating cash requirements increased
approximately $6,400 in the first six months of 1995, primarily reflecting
a reduction in accounts payable, an increase in inventory requirements, the
timing of certain compensation payments, and funding of restructuring
activities. In the first six months of 1995, the Company spent
approximately $3,800 on capital expenditures, with the majority spent in
the commercial business areas. Management believes that its cash flow from
operations combined with its line of credit, amended in May 1995 to
increase available credit from $10,000 to $17,000, will be sufficient to
fund planned investments and working capital requirements through 1995.
The Company continues to evaluate its capital requirements and sources for
providing additional funds for growth in its key business areas.
<PAGE>
THE TITAN CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
(a) In April 1995, Donald P. Shaw, a former Company employee, filed an
action against the Company in the Circuit Court of Fairfax County,
Virginia, alleging monetary damages due to wrongful termination and
intentional infliction of emotional distress arising out of the
termination of Shaw's employment in March 1994. Discovery has
commenced and is continuing, and the case remains in an early stage.
The Company believes that the plaintiff's claims are without merit and
intends to defend the case vigorously.
(b) In July 1995, the Company was served with four separate complaints
filed by four former Company employees, Celindah J. Grier, Audrey S.
Amato, Joyce A. Sexton and Kimberly Ann Ambrose, in the United States
District Court for the Eastern District of Virginia, Alexandria
Division. Each action arises from the course of the plaintiff's
employment with and termination from the Company, and seeks monetary
damages due to alleged gender discrimination, constructive discharge
and/or wrongful termination and related claims. Discovery has
commenced and is continuing, and each case remains in an early stage.
The Company believes that each plaintiff's claims are without merit
and intends to defend the cases vigorously.
Item 4. (a) and (c) Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on May 18, 1995, the
following matters were submitted and approved by shareholders:
1. Ratification of Selection of Arthur Andersen LLP as the Company's
Auditors.
Affirmative Votes 12,210,598
Negative Votes 65,911
Abstaining 107,928
2. Election of Directors. The holders of proxies solicited by the Board
cast the following votes (no other votes were cast):
Affirmative Negative/Abstaining
Charles R. Allen 12,205,885 178,552
Joseph F. Caliguiri 12,211,735 172,702
Daniel J. Fink 12,183,411 201,026
John E. Koehler 12,199,837 184,600
Thomas G. Pownall 12,205,822 178,615
Dr. Gene W. Ray 12,184,530 199,907
J. Sidney Webb 12,171,100 213,337
Item 6. Exhibits and Reports on Form 8-K
(a)(27) Financial Data Schedule
(b) None.
<PAGE>
THE TITAN CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 11, 1995
THE TITAN CORPORATION
/S/ ROGER HAY
By: Roger Hay
Senior Vice President,
Chief Financial Officer
/s/ JANE E. JUDD
By: Jane E. Judd
Vice President and
Corporate Controller
(Principal Accounting Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Titan
Corporation Consolidated Balance Sheet as of June 30, 1995, and the related
Consolidated Statement of Income and Consolidated Statement of Cash Flows for the
three months ended June 30, 1995, and the accompanying notes, and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,248
<SECURITIES> 0
<RECEIVABLES> 36,129
<ALLOWANCES> 0
<INVENTORY> 8,463
<CURRENT-ASSETS> 52,456
<PP&E> 32,542
<DEPRECIATION> 17,543
<TOTAL-ASSETS> 80,368
<CURRENT-LIABILITIES> 30,750
<BONDS> 469
<COMMON> 149
0
695
<OTHER-SE> 39,613
<TOTAL-LIABILITY-AND-EQUITY> 80,368
<SALES> 64,404
<TOTAL-REVENUES> 64,472
<CGS> 46,786
<TOTAL-COSTS> 46,786
<OTHER-EXPENSES> 15,296
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 469
<INCOME-PRETAX> 1,964
<INCOME-TAX> 710
<INCOME-CONTINUING> 1,254
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,254
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
<FN>
<F1>Due to use of condensed financial statements for interim reporting, this
information is not compiled on a quarterly basis.
</FN>
</TABLE>
