<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 12, 13, OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
THE TITAN CORPORATION
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
AMENDMENT NO. ONE
---
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its CURRENT REPORT on Form 8-K (DATED
MAY 24, 1996) as set forth in the pages attached hereto:
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Businesses Acquired.
The Witt Companies combined financial statements as of and for the
years ended July 31, 1995 and 1994.
(b) Pro Forma Financial Information.
Pro forma condensed balance sheet as of March 31, 1996.
Pro forma condensed balance sheet as of December 31, 1995.
Pro forma condensed statement of operations for the three months ended
March 31, 1996.
Pro forma condensed statement of operations for the year ended
December 31, 1995.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Titan Corporation
---------------------
(Registrant)
By /s/ BERNARD HIRL
----------------
Bernard Hirl
Sr. Vice President and Chief Financial
Date August 7, 1996 Officer
--------------
<PAGE>
THE WITT COMPANIES
COMBINED FINANCIAL STATEMENTS
AS OF JULY 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of the
Titan Corporation:
We have audited the accompanying combined balance sheets of the WITT COMPANIES
as of July 31, 1995 and 1994, and the related combined statements of operations,
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined financial statements have been prepared in connection
with the acquisition (see Note 13) by the Titan Corporation of all of the
outstanding shares of Eldyne, Inc., Unidyne Corporation and certain net assets
of Diversified Control Systems LLC from Jack D. Witt. The accompanying combined
financial statements are not intended to be a complete presentation in
accordance with generally accepted accounting principles of all companies owned
or controlled by Jack D. Witt as of July 31, 1995 and 1994.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Witt Companies
as of July 31, 1995 and 1994, and the combined results of their operations and
their cash flows for the years then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Diego, California
July 31, 1996
<PAGE>
THE WITT COMPANIES
COMBINED BALANCE SHEETS
AS OF JULY 31, 1995 AND 1994
ASSETS
1995 1994
------------ ------------
CURRENT ASSETS:
Cash $ 524,000 $ 147,000
Contract receivables 12,089,000 8,586,000
Prepaid expenses and other 1,713,000 2,110,000
Employee advances 369,000 70,000
----------- ------------
Total current assets 14,695,000 10,913,000
RELATED PARTY RECEIVABLES 3,658,000 1,181,000
GOODWILL, NET 2,918,000 -
PROPERTY AND EQUIPMENT, NET 2,026,000 350,000
OTHER ASSETS 337,000 54,000
NOTE RECEIVABLE 150,000 -
----------- -----------
Total assets $23,784,000 $12,498,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,087,000 $ 786,000
Lines of credit 6,038,000 2,658,000
Deferred income taxes 3,568,000 3,507,000
Amounts due to related parties 1,632,000 977,000
Accrued compensation, benefits and other 573,000 504,000
Current portion of long-term debt 262,000 -
Income taxes payable 317,000 172,000
Current portion of capital lease obligation 21,000 -
----------- -----------
Total current liabilities 14,498,000 8,604,000
----------- -----------
LONG-TERM DEBT 1,564,000 -
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATION 141,000 -
MINORITY INTEREST 562,000 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, Eldyne 1,000 1,000
Additional paid in capital 66,000 66,000
Common stock, Unidyne 3,600,000 -
Unrealized holding gain on investment in
marketable securities 8,000 -
Common shares, DCS 1,000 1,000
Accumulated earnings 3,343,000 3,826,000
----------- -----------
Total stockholders' equity 7,019,000 3,894,000
----------- -----------
Total liabilities and stockholders' equity $23,784,000 $12,498,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
THE WITT COMPANIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JULY 31, 1995 AND 1994
1995 1994
----------- -----------
REVENUES $31,500,000 $23,077,000
----------- -----------
COSTS AND EXPENSES:
Cost of revenues 21,911,000 14,064,000
Selling, general and administrative 9,388,000 8,411,000
----------- -----------
31,299,000 22,475,000
----------- -----------
Operating income 201,000 602,000
INTEREST INCOME 209,000 -
INTEREST EXPENSE (355,000) (134,000)
OTHER EXPENSE (51,000) -
----------- -----------
Income before provision for income taxes
and minority interest 4,000 468,000
PROVISION FOR INCOME TAXES 377,000 361,000
----------- -----------
(373,000) 107,000
MINORITY INTEREST (110,000) -
----------- -----------
Net income (loss) $ (483,000) $ 107,000
----------- -----------
----------- -----------
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
THE WITT COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Unrealized Diversified
Holding Control
Eldyne Unidyne Gain on Systems
Common Stock Additional Common Stock Investment Common Shares
------------ Paid-In ------------ in Marketable ------------- Accumulated
Class A Class B Capital Shares Amount Securities Shares Amount Earnings Total
------- ------- ----------- ------ ------ --------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1993 $1,000 $ - $66,000 - $ - $ - - $ - $3,719,000 $3,786,000
Acquisition of Diversified
Control Systems
common shares,
March 2, 1994 - - - - - - 100 1,000 - 1,000
Net income - - - - - - - - 107,000 107,000
------ ------- ------- ----- ---------- ------ --- ------ ---------- ----------
Balances at July 31, 1994 1,000 - 66,000 - - - 100 1,000 3,826,000 3,894,000
Acquisition of Unidyne
common stock,
February 1995 - - - 2,320 3,600,000 - - - - 3,600,000
Unrealized holding gain on
investment in marketable
securities - - - - - 8,000 - - - 8,000
Net (loss) - - - - - - - - (483,000) (483,000)
------ ------- ------- ----- ---------- ------ --- ------ ---------- ----------
Balances at July 31, 1995 $1,000 $ - $66,000 2,320 $3,600,000 $8,000 100 $1,000 $3,343,000 $7,019,000
------ ------- ------- ----- ---------- ------ --- ------ ---------- ----------
------ ------- ------- ----- ---------- ------ --- ------ ---------- ----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
THE WITT COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JULY 31, 1995 AND 1994
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (483,000) $ 107,000
Adjustments to reconcile net earnings to net cash
provided by (used for) operating activities (net
of effects of businesses acquired):
Depreciation and amortization 716,000 187,000
Gain on sale of property and equipment (7,000) -
Deferred income taxes 61,000 220,000
Changes in assets and liabilities:
Contract receivables 268,000 600,000
Prepaid expenses and other 928,000 (1,290,000)
Accounts payable and accrued expenses 63,000 (434,000)
Accrued compensation and benefits (41,000) (128,000)
Income taxes payable 145,000 (290,000)
---------- -----------
Net cash provided by (used for) operating
activities 1,650,000 (1,028,000)
---------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (4,225,000) (350,000)
Issuance of notes receivable (192,000) -
Capital expenditures (187,000) (106,000)
Proceeds from sale of equipment 8,000 -
Collections on notes receivable 20,000 -
---------- -----------
Net cash (used for) investing activities (4,576,000) (456,000)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings, net 2,756,000 1,552,000
Principal payments under capital lease obligations (115,000) -
Borrowings under notes payable to related parties 655,000 -
Other 7,000 1,000
---------- -----------
Net cash provided by financing activities 3,303,000 1,553,000
---------- -----------
Net increase in cash and cash equivalents 377,000 69,000
CASH, beginning of year 147,000 78,000
---------- -----------
CASH, end of year $ 524,000 $ 147,000
---------- -----------
---------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 346,000 $ 47,000
---------- ----------
---------- ----------
Taxes $ 180,000 $ 432,000
---------- ----------
---------- ----------
The accompanying notes are an integral part of these combined financial
statements.
<PAGE>
THE WITT COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
JULY 31, 1995 AND 1994
1. ORGANIZATION, NATURE OF BUSINESS AND BASIS OF PRESENTATION
The accompanying combined financial statements have been prepared in connection
with the acquisition (see Note 13) by the Titan Corporation of certain
affiliated entities either wholly or majority owned and controlled by Jack D.
Witt ("Witt") as of July 31, 1995 and 1994, as explained below. These acquired
entities are referred to herein as the "Witt Companies" or the "Company."
Following is a description of the affiliated entities included in the
accompanying combined financial statements.
ELDYNE, INC. (A CALIFORNIA CORPORATION) ("ELDYNE")
Eldyne, Inc. provides research and development, fabrication, prototyping,
integration, installation, repair, field testing and evaluation services
primarily to military commands and government agencies involved in
electronic and mechanical hardware systems such as communication,
navigation, electronic warfare, sonar and radar. As of July 31, 1995 and
1994, Eldyne was wholly owned by Witt. Eldyne's fiscal year-end is July
31. Accordingly, the combined financial statements include the financial
position and results of operations of Eldyne as of and for the years ended
July 31, 1995 and 1994. Eldyne's primary facilities are located in San
Diego, California, and Crystal City, Virginia.
UNIDYNE CORPORATION (A VIRGINIA "S" CORPORATION) ("UNIDYNE")
Unidyne Corporation provides field engineering, design, repair and
maintenance services on military electronic and mechanical hardware
equipment and systems, primarily under government contracts. In February
1995, Witt acquired approximately 61% of Unidyne from certain individual
Unidyne stockholders (Note 3). Witt continued to own approximately 61% of
Unidyne as of July 31, 1995. Unidyne's fiscal year-end is June 30.
Accordingly, the combined financial statements include the financial
position of Unidyne as of June 30, 1995, and the results of its operations
for the period February 1, 1995 through June 30, 1995. Unidyne's primary
facilities are located in Norfolk, Virginia.
DIVERSIFIED CONTROL SYSTEMS LLC (A NEVADA LIMITED LIABILITY COMPANY)
("DCS")
Diversified Control Systems is involved in contracting services for prison
security and access control systems, primarily for state, municipal, and
local government agencies. These services include research and
development, project management, hardware, software and system design,
system integration, programming and production, on-site installation, site
management, field testing, and support for its customers. DCS's fiscal
year-end is July 31. Witt Holding Company LLC and Witt owned 100% of DCS
at July 31, 1995 and 1994. The combined financial statements include the
financial position of DCS as of July 31, 1995 and 1994 and the results of
<PAGE>
its operations for the fiscal year ended July 31, 1995, and, for the period
March 2, 1994 to July 31, 1994. (See Note 3).
These combined financial statements are not intended to reflect all of the
companies owned and/or controlled by Witt as of July 31, 1995 and 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
All of the intercompany activity and balances by and between Eldyne,
Unidyne, and DCS have been eliminated in the combination. Differences in
intercompany balances that are a result of differing fiscal accounting
periods were not significant.
REVENUE RECOGNITION
The majority of the revenues at Eldyne and Unidyne result from contract
services performed for the U.S. Government or for contractors engaged in
work for the U.S. Government under a variety of contracts. Revenues on
time and material contracts are recorded on the basis of hours delivered
plus other allowable direct costs as incurred. Revenues on cost-type
contracts are recorded on the basis of recoverable costs incurred and fees
earned. Revenues on fixed price contracts are recorded as services are
performed, using the percentage-of-completion method of accounting,
primarily based on contract costs incurred to date compared to total
estimated costs at completion. Estimated contract losses, if any, are
recognized during the period in which losses are first identified.
A substantial portion of Eldyne's and Unidyne's direct and indirect
contract costs are subject to audit by the Defense Contract Audit Agency
("DCAA"). Eldyne's and Unidyne's indirect cost rates have been audited and
approved by the Defense Contract Audit Agency for fiscal 1992 and prior
years. In the opinion of management, the audits of fiscal 1995, 1994, and
1993 indirect cost rates by DCAA will not result in adjustments having a
material adverse effect on the Company's results of operations or financial
position.
The majority of the revenue at DCS is derived from services under fixed
price type contracts. Revenue under such contracts is recognized using the
percentage-of-completion method of accounting. The percent complete is
determined based on contract costs incurred to date compared with total
estimated costs at completion. Estimated contract losses, if any, are
recognized during the period in which the losses are first identified.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost, net of accumulated
depreciation and amortization. Depreciation on all assets except buildings
and leasehold improvements, is provided over the estimated useful lives of
the respective assets, generally three to seven years, using either
straight-line or the double declining balance method. Buildings are
depreciated using the straight-line method over 31.5 years. Leasehold
improvements are depreciated using the straight-line method over the
shorter of the lease term or the estimated useful lives of the
improvements.
<PAGE>
GOODWILL
The excess of acquisition cost over the fair value of net assets of
businesses acquired (goodwill) is being amortized using the straight-line
method, generally over ten years.
RECENT ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of." The statement establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, goodwill related to those assets to be held and used, and for
long-lived assets and certain identifiable assets to be disposed of. The
adoption of SFAS No. 121 could potentially result in a $500,000 valuation
adjustment being reflected in DCS's financial statements in a period
subsequent to July 31, 1995, before considering the impact of the
transaction discussed in Note 13.
INCOME TAXES
As previously explained, the Company consists of a combined group of
affiliated entities. These combined financial statements reflect the tax
consequences of the results of operations of the Company, after
consideration of the individual entities' tax status as described below
(see also Note 9):
ELDYNE
For financial reporting purposes, Eldyne accounts for income taxes in
accordance with Statement of Financial Accounting Standards No. 109,
which requires the liability method of accounting for deferred income
taxes. Under this method, deferred income taxes are recorded to reflect
the tax consequences on future years of differences between the tax bases
of assets and liabilities and their financial reporting amounts at each
year-end. If it is more likely than not that some portion of a deferred
tax asset will not be realized, a valuation allowance is recognized. For
Federal and State income tax reporting purposes, Eldyne uses the cash
basis of accounting to determine taxable income.
UNIDYNE AND DIVERSIFIED CONTROL SYSTEMS LLC
Unidyne (an "S" Corporation) and DCS (a limited liability corporation)
are treated as partnerships rather than as entities taxable as
corporations. Accordingly, no provision/benefit has been made in the
accompanying combined financial statements for Federal or State income
taxes on the results of operations of either Unidyne or DCS. Any
taxes/benefits of Unidyne or DCS are imposed on the individual
stockholders for their respective shares of these companies' income or
loss. The tax returns and amounts of distributable income or loss of
these companies to the stockholders are subject to examination by Federal
and State taxing authorities. If such examination were to result in a
change to either DCS's or Unidyne's taxable status or in changes to
distributable income or losses of these companies, the tax liability of
these companies or of the stockholders could be changed accordingly.
<PAGE>
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of cash, contract receivables and accounts payable
approximate fair value due to the short maturities of such instruments.
Long-term debt, capital lease obligations and the line of credit are
carried at amounts approximating fair values based on current rates offered
to the Company for debt and line of credit arrangements with similar
collateral, guarantees, and maturities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of contract receivables. The Company
believes that the concentration of credit risk with respect to contract
receivables is limited as these receivables are primarily due from the U.S.
Department of Defense. However, the Company has included in its unbilled
accounts receivable certain costs for which a contractual increase in
funding has not yet been received from the respective customer. These
costs have been incurred on existing contracts which have not yet reached
their funding limit. Management believes that adequate reserves have been
provided for adjustments, if any, that may result from the inability to
execute contract funding modifications.
3. BUSINESS COMBINATIONS
DCS was formed on March 2, 1994. Operations from March 2, 1994 to March 31,
1994 were insignificant. On March 31, 1994, DCS acquired substantially all of
the assets and certain liabilities of Diversified Engineering, Inc.'s ("DEI")
prison system services business for approximately $525,000, including $350,000
cash, in a transaction accounted for as a purchase. The acquired net assets,
consisting primarily of contract receivables, were recorded at their estimated
fair values which approximated the purchase price. The purchase price was
subject to adjustment based on achieving specified contract cost estimates
described in the asset purchase agreement. During fiscal 1995, DCS recorded
goodwill, representing costs incurred on contracts acquired from DEI exceeding
those estimated at the acquisition date. The accompanying combined financial
statements reflect the results of operations of DCS for the period from
inception (March 2, 1994) through July 31, 1994, and, for the fiscal year
ended July 31, 1995.
In February 1995, Witt acquired 61 percent of the outstanding capital stock of
Unidyne, for approximately $3,800,000, including all transaction costs and
expenses, from certain Unidyne stockholders. The acquisition was financed
primarily through bank borrowings. The acquisition has been accounted for using
the purchase method. Accordingly, purchase price was allocated based on the
proportional change in ownership to the net assets acquired. The excess of
purchase price over the carrying amount of Unidyne's net assets, after
consideration of minority interest, was allocated to the net assets based on
<PAGE>
management's estimates of fair market value, except for fixed assets, which was
allocated based on independent appraisal. At the time of the acquisition,
assets of Unidyne exceeded liabilities by approximately $1,500,000. The
purchase price allocation resulted in a $374,000 increase in the recorded value
of buildings and equipment, and $2,518,000 in goodwill. The goodwill is being
amortized on a straight-line basis over 10 years. Unidyne's results of
operations have been included in the combined results of operations of the
Company since the date of acquisition.
The following unaudited pro forma information presents a summary of combined
results of operations of the Company as if the acquisition of Unidyne and DCS
had occurred at the beginning of the respective periods, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt, income taxes and certain other adjustments:
Unaudited Pro Forma
1995 1994
----------- -----------
Revenues $45,561,000 $44,714,000
Net income (loss) $ (745,000) $ 46,000
4. CONTRACT RECEIVABLES
Contract receivables reflect billed and unbilled costs inclusive of estimated
profit and contractual retention amounts, net of progress payments.
1995 1994
----------- ----------
Contracts
Billed $9,916,000 $5,740,000
Unbilled 2,173,000 2,846,000
----------- ----------
$12,089,000 $8,586,000
----------- ----------
----------- ----------
Included in unbilled receivables are amounts billable upon final execution of
contracts, contract completion, milestone or completion of rate negotiations.
Substantially all unbilled receivables at July 31, 1995 are expected to be
collected within one year. The Company's business activities are highly
concentrated in the defense industry and the U.S. Department of Defense is the
Company's primary customer. Payments to the Company for performance on certain
U.S. government contracts are subject to audit by the Defense Contract Audit
Agency. Revenues have been recorded at amounts expected to be realized upon
final settlement. In the opinion of management, adequate reserves have been
provided for adjustments, if any, that may result from such governmental audits.
<PAGE>
5. RELATED PARTY ACTIVITY
From time to time, in the normal course of business, the Company has
transactions with related parties. The following is a summary of related party
balances included in the accompanying financial statements as of July 31, 1995
and 1994:
RECEIVABLES 1995 1994
----------- ---------- ----------
Line of credit receivable - Witt Holding Co. $1,793,000 $1,181,000
Note receivable - Witt Holding Company 1,500,000 -
Note receivable - Witt 93,000 -
Note receivable - Officer 80,000 -
Interest receivable 192,000 -
---------- ----------
$3,658,000 $1,181,000
---------- ----------
---------- ----------
The line of credit receivable and the note receivable represent amounts due to
Eldyne and Unidyne from Witt Holding Company ("WHC" - a separate legal entity
not acquired by the Titan Corporation - Note 13). Accordingly, such balances
have not been eliminated in the accompanying combined financial statements. The
line of credit bears interest at 8.625% at July 31, 1995 and is renewable
annually. Interest receivable under these loans is $192,000 and $0 at July 31,
1995 and 1994, respectively. The note is unsecured and bears interest of prime
plus 1% (10.25% at July 31, 1995).
The $93,000 note receivable is due from Witt. The note is unsecured and bears
interest at prime plus 1% (10.25% at July 31, 1995).
The $80,000 note receivable is due from an officer of Unidyne. The note is
unsecured and bears interest at prime plus 1% (10.25% at July 31, 1995).
PAYABLES 1995 1994
-------- ---------- ----------
Line of credit $1,156,000 $ 621,000
Subordinated note payable to WHC 350,000 350,000
Accrued interest 126,000 6,000
---------- ----------
$1,632,000 $ 977,000
---------- ----------
---------- ----------
DCS has an unsecured revolving line of credit agreement with WHC. The agreement
provides for credit to DCS, not to exceed $2,250,000 in the aggregate
outstanding at any one time. The terms of the agreement require quarterly
interest payments at the Crestar Bank floating "Prime Rate" plus 1.5%, (10.25%
at July 31, 1995) and for the payment of principal upon demand.
The subordinated note payable is due upon demand, with all principal to be paid
no later than March 1999. Interest on the note is equal to the Crestar Bank
floating "Prime Rate" plus 1.5%, payable quarterly.
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
1995 1994
----------- ------------
Equipment $ 2,400,000 $ 1,104,000
Furniture and fixtures 698,000 588,000
Building and improvements 571,000 -
Leasehold improvements 88,000 88,000
----------- -----------
3,757,000 1,780,000
Less accumulated depreciation (1,731,000) (1,430,000)
----------- -----------
$ 2,026,000 $ 350,000
----------- -----------
----------- -----------
7. NOTE RECEIVABLE
At July 31, 1995 and 1994, the Company has a $150,000 note receivable due from
DEI. The note accrues interest at $25,000 annually, is unsecured, and is due in
March, 1999. Accrued interest on the note at July 31, 1995 is $20,000, and is
included in other current assets. No interest was accrued on the note at July
31, 1994.
8. BANK CREDIT AGREEMENTS
A. LINE OF CREDIT
Eldyne, Unidyne, and DCS have Credit Agreements (the "Agreements") with
Crestar Bank (the "Bank") covering both revolving lines of credit and term
debt facilities. The Agreements are separate, are collateralized
separately, and function as independent credit facilities. The Agreements
contain certain financial covenants, the most significant of which requires
the maintenance of a stipulated borrowing base, consisting primarily of
contract receivables. All amounts loaned under the Agreements contain
cross default provisions among the Witt Companies and are guaranteed by
Witt. Substantially all of the Company's assets are collateralized under
the Agreements.
The revolving lines provide for credit which cannot exceed the lesser of
85% of eligible billed government receivables (prime contract receivables)
plus 75% of eligible billed commercial receivables (subcontract
receivables) or a fluctuating ceiling amount (aggregating $6,500,000 at
July 31, 1995). The lines bear interest at 2.5% above the LIBOR (London
Interbank Offering Rate), to yield an effective interest rate of 8.625% at
July 31, 1995. The terms of the Agreements require monthly interest
payments with outstanding principal due on December 31, 1995. As of July
31, 1995 and 1994, aggregate amounts outstanding under this, and a prior
agreement, were $6,038,000 and $2,658,000, respectively.
<PAGE>
B. LONG-TERM DEBT
Long-term debt, provided under the aforementioned Bank Credit Agreements,
consists of the following:
1995
----------
Bank term loan for $999,000 payable in monthly
principal installments of $4,163, plus interest
at 8.2875%, due February 10, 2000. There is a
one time balloon payment of $636,258 due at maturity.
The term loan is collateralized by the same assets
and subject to the same restrictions as the revolving
lines of credit. $ 861,000
Bank term loan for $250,000 payable in monthly principal
installments of $5,208, plus interest at 8.2875%, due on
February 10, 2000. The term loan is collateralized by the
same assets and subject to the same restrictions as the
revolving lines of credit. 215,000
Bank term loan for $750,000 payable in quarterly principal
installments of $37,500, plus monthly interest payments at
2.5% above the LIBOR, to yield an effective interest rate
of 8.625% at July 31, 1995, due on February 10, 2000. The
term loan is collateralized by the same assets and subject
to the same restrictions as the revolving lines of credit. 750,000
----------
1,826,000
Less amounts due within one year 262,000
----------
$1,564,000
----------
----------
Aggregate annual principal payments on the long-term debt are scheduled as
follows:
FISCAL YEAR
-----------
1996 $ 262,000
1997 262,000
1998 262,000
1999 228,000
2000 221,000
Thereafter 591,000
----------
$1,826,000
----------
----------
In February 1996, Crestar Bank extended the Company's revolving lines of credit
through December 31, 1996.
<PAGE>
9. INCOME TAXES
The components of the combined income tax provision at July 31, 1995 and 1994
are as follows:
1995 1994
-------- --------
Current:
Federal $269,000 $146,000
State 48,000 26,000
-------- --------
317,000 172,000
-------- --------
Deferred:
Federal 51,000 161,000
State 9,000 28,000
-------- --------
60,000 189,000
-------- --------
Total income provision $377,000 $361,000
-------- --------
-------- --------
The following is a reconciliation of the provision for income taxes for fiscal
1995 and 1994 to the amounts computed by applying the applicable statutory
income tax rates to income before income taxes:
1995 1994
-------- --------
Expected federal income tax $ 1,000 $159,000
Expected state income tax - 43,000
Impact of non "C" Corp net income/losses
not provided for/benefited 306,000 80,000
Other 70,000 79,000
-------- --------
Income tax provision $377,000 $361,000
-------- --------
-------- --------
The primary source of temporary differences and deferred income taxes relates to
the accrual to cash adjustment required to record Eldyne's income and expenses
for income tax purposes on the cash basis.
10. BENEFIT PLANS
EMPLOYEE STOCK BONUS PLAN
Eldyne has an Employee Stock Bonus Plan (the "Plan") which provides for the
issuance of not more than 45,000 shares of Class B non-voting common stock
to key employees at the discretion of the Board of Directors. The value
assigned to these shares is based upon the estimated fair value of the
shares on the date of issuance. All shares vest to the employee on the
date of issuance. The Plan contains certain restrictions on the transfer
of stock that gives Eldyne the right to repurchase the shares, at the
estimated fair value on the date of repurchase, upon the employee's
termination. At July 31, 1995 and 1994, no shares were issued or
outstanding under this Plan.
<PAGE>
401(k) - DEFERRED COMPENSATION PLAN
Eldyne maintains a deferred compensation plan in accordance with the
provisions of the Internal Revenue Code Section 401(k) (the "401(k) Plan").
The 401(k) Plan is for the benefit of all qualifying employees, generally
all employees over 18 years of age and with one year of service. The
401(k) Plan does not require employee contributions.
The 401(k) Plan permits matching of any voluntary employee contributions.
The matching is at the rate of 50% of employee contributions, up to a
maximum of $1,000 per year per employee. Eldyne contributions are vested
at the rate of 25% per year with full vesting after 5 years of service.
The Company made contributions of $133,000 and $75,000 in fiscal 1995 and
1994, respectively.
DEFINED CONTRIBUTION AND EMPLOYEE BENEFIT PLANS
Unidyne maintains a defined contribution savings and retirement plan for
all employees who have completed 1,000 hours of service. Employees may
make voluntary contributions to the plan. Contributions are determined by
the Board of Directors of Unidyne, and amounted to $75,000 and $100,000 for
fiscal 1995 and 1994, respectively.
Unidyne also provides bonuses to employees based on the discretion of
management. Bonuses totaled approximately $227,000 and $200,000 for fiscal
1995 and 1994, respectively.
Unidyne provides health and accident benefits to employees under a self-
insurance program. Claims in any one year exceeding $35,000 per
participant, or exceeding $828,000 for all claims are covered by an
insurance carrier. Accrued expenses include approximately $60,000 and
$80,000, for occurrences prior to July 31, 1995 and 1994, respectively, for
which subsequent payments are anticipated to be made.
11. COMMITMENTS AND CONTINGENCIES
LEASING ARRANGEMENTS
The Company leases certain office facilities and equipment used in its
business. These leases have varying expiration dates and often include
renewal options. Certain leases require the Company to pay escalations in
costs over base amounts for taxes, insurance, or other operating expenses
incurred by the lessor.
Rental expense under operating leases for fiscal 1995 and 1994 amounted to
$991,000 and $716,000, respectively. This total includes amounts paid to a
related party of $42,000 and $100,000 for fiscal years 1995 and 1994,
respectively.
<PAGE>
Following is a schedule of future minimum rental payments as of
June 30, 1995:
FISCAL YEAR ENDING CAPITAL OPERATING
------------------ ------- ---------
1996 $ 36,000 $ 686,000
1997 36,000 212,000
1998 36,000 100,000
1999 36,000 36,000
2000 36,000 -
Thereafter 38,000 -
-------- ----------
Total Minimum lease payments 218,000 $1,034,000
----------
----------
Less amount representing interest 56,000
--------
162,000
Less current portion 21,000
--------
$141,000
--------
--------
Assets under capital leases had a net book value of approximately $156,000
at July 31, 1995.
Eldyne has consulting agreements with three former officers and
stockholders. During fiscal 1995 and 1994, Eldyne made aggregate payments
under the agreements of $210,000 each year. Future payments under the
consulting agreements are approximately $130,000 for each of the fiscal
years ended July 31, 1996 and 1997.
Unidyne has entered into an agreement with its majority stockholder,
whereby a payment of approximately $1,000,000 is to be paid to such
stockholder in the event of a change in control of Unidyne (See Note 13).
LEGAL
The Company is involved in various legal actions in the ordinary course of
its business activities. Management does not expect these actions to have
a significant impact on the Company's financial condition or results of its
operations.
12. INVESTMENT IN MARKETABLE SECURITIES
Marketable securities represent an investment of $36,000 in a publicly
traded company valued at the current market value and are included in
prepaid expenses and other in the July 31, 1995 balance sheet. Unrealized
gains and losses related to this investment have been reflected in
stockholders' equity in the accompanying combined balance sheets.
Subsequent to July 31, 1995, the investment in marketable securities was
sold by the Company.
<PAGE>
-12-
13. SUBSEQUENT EVENT
On May 24, 1996, Titan consummated the purchase from Witt of all of the issued
and outstanding shares of stock of Eldyne and Unidyne, and, substantially all of
the net assets of DCS, for approximately $24 million, subject to certain post-
closing adjustments. No accounting has been effected in the accompanying
combined financial statements for this transaction.
<PAGE>
THE TITAN CORPORATION
Pro Forma Financial Information
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The accompanying pro forma financial statements should be read in
conjunction with the Notes to Consolidated Financial Statements contained in The
Titan Corporation's ("the Company" or "Titan") Annual Report on Form 10-K for
the year ended December 31, 1995, the Notes to Consolidated Financial Statements
contained in the Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 1996 and the Notes to the Witt Companies' combined financial
statements as of and for the years ended July 31, 1995 and 1994.
On May 24, 1996, the Company consummated the acquisition of three
privately-held affiliated businesses--Eldyne, Inc., a California corporation
("Eldyne"), Unidyne Corporation, a Virginia corporation ("Unidyne") and
Diversified Control Systems, LLC, a Nevada limited liability company ("DCS"),
each wholly or majority owned by Jack D. Witt ("Witt"), hereinafter referred to
as the Witt Companies. Eldyne, Unidyne and DCS are information technology
businesses that provide the Department of Defense and other government customers
with systems research, development and prototyping, fleet integration, insertion
of technology into existing systems, control systems and life cycle support.
The businesses acquired by Titan include office facilities owned by Unidyne in
Norfolk, Virginia and East Lyme, Connecticut. The Company intends to continue
use of those facilities. The Witt Companies' leased facilities in Crystal City,
Virginia and San Diego, California, will be combined with the operations of
Titan. Titan's acquisition of the Witt Companies has been accounted for as a
purchase.
The following unaudited pro forma condensed balance sheets and unaudited
pro forma condensed statements of operations (collectively, the "Pro Forma
Statements") have been prepared to illustrate the estimated effects of the
merger and purchase of the businesses, for balance sheet purposes as of March
31, 1996 and December 31, 1995, and, for statement of operations purposes as of
the beginning of each of the periods presented. The unaudited pro forma
condensed statements of operations combine Titan's revenues and expenses for the
year ended December 31, 1995 (Titan's year end) with the Witt Companies'
revenues and expenses for the year ended December 31, 1995; and Titan's revenues
and expenses for the three months ended March 31, 1996 with the Witt Companies'
revenues and expenses for the three months ended March 31, 1996. The unaudited
pro forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable in the circumstances. The
unaudited pro forma statements of operations include the recurring items which
are directly attributable to the merger and acquisition, such as amortization of
additional goodwill, increase in interest expense, increase in preferred
dividends, and the related tax effects thereof. The unaudited pro forma
statements do not purport to represent what the companies' financial position or
results of operations would actually have been if the acquisition in fact had
occurred on the date or at the beginning of the periods indicated, nor do they
purport to project the companies' financial position or results of operations
for any future date or period.
<PAGE>
THE TITAN CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
Pro Forma
Adjust- Pro
The Witt ments Forma
Titan Companies (Note 1) Combined
----- --------- -------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 1,380 $ -- $ (1,000)(a) $ 380
Accounts receivable - net 42,170 11,018 -- 53,188
Inventories 10,078 33 -- 10,111
Prepaid expenses and
other current assets 2,731 907 -- 3,638
Related party receivables -- 3,658 (3,658)(b) --
Deferred income taxes 4,998 -- -- 4,998
------- ------- ------- -------
Total current assets 61,357 15,616 (4,658) 72,315
Property and equipment - net 19,079 1,870 -- 20,949
Goodwill, net 3,410 2,418 16,619 (c) 22,447
Other assets 10,971 437 -- 11,408
------- ------- ------- -------
Total assets $94,817 $20,341 $ 11,961 $127,119
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 8,587 $ 1,504 $ -- $ 10,091
Lines of credit 14,400 2,158 -- 16,558
Related party payables -- 1,985 (1,985)(b) --
Current portion of long-term debt 895 208 1,000 (d) 2,103
Accrued compensation and benefits 5,662 2,111 -- 7,773
Deferred income taxes -- 3,565 (3,565)(e) --
Other accrued liabilities 11,561 1,134 3,706 (f) 16,401
------- ------- ------- -------
Total current liabilities 41,105 12,665 (844) 52,926
------- ------- ------- -------
Long-term debt 6,057 1,244 -- 7,301
Other non-current liabilities 9,537 141 1,597 (g) 11,275
Deferred income taxes -- -- 2,970 (h) 2,970
Minority interest -- 562 (562)(i) --
Commitments and contingencies
Convertible Redeemable Preferred
Stock -- -- 3,000 (j) 3,000
Stockholders' Equity:
Preferred stock 695 -- -- 695
Common stock 152 3,601 (3,582)(k) 171
Capital in excess of par value 31,613 67 11,443 (l) 43,123
Retained earnings 9,131 2,061 (2,061)(m) 9,131
Treasury stock, at cost (3,473) -- -- (3,473)
------- ------- ------- -------
Total stockholders' equity 38,118 5,729 5,800 49,647
Total liabilities and
stockholders' equity $ 94,817 $ 20,341 $ 11,961 $ 127,119
------- ------- ------- -------
------- ------- ------- -------
See Accompanying Note.
<PAGE>
THE TITAN CORPORATION
PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
Pro Forma
Adjust- Pro
The Witt ments Forma
Titan Companies (Note 1) Combined
----- --------- -------- --------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,833 $ -- $ (1,000)(a) $ 4,833
Accounts receivable - net 39,360 13,063 -- 52,423
Inventories 10,399 43 -- 10,442
Prepaid expenses and
other current assets 2,872 1,224 -- 4,096
Related party receivables -- 3,658 (3,658)(b) --
Deferred income taxes 4,809 -- -- 4,809
------- ------- ------- -------
Total current assets 63,273 17,988 (4,658) 76,603
Property and equipment - net 18,295 1,822 -- 20,117
Goodwill, net 3,550 2,918 15,202 (c) 21,670
Other assets 10,052 611 -- 10,663
------- ------- ------- -------
Total assets $ 95,170 $ 23,339 $ 10,544 $ 129,053
------- ------- ------- -------
------- ------- ------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 10,184 $ 2,613 $ -- $ 12,797
Lines of credit 9,200 3,844 -- 13,044
Related party payables -- 1,985 (1,985)(b) --
Current portion of long-term debt 1,019 -- 1,000 (d) 2,019
Accrued compensation and benefits 9,192 1,451 -- 10,643
Deferred income taxes -- 3,565 (3,565)(e) --
Other accrued liabilities 13,803 550 3,706 (f) 18,059
------- ------- ------- -------
Total current liabilities 43,398 14,008 (844) 56,562
------- ------- ------- -------
Long-term debt 4,281 1,481 -- 5,762
Other non-current liabilities 8,852 141 1,597 (g) 10,590
Deferred income taxes -- -- 2,970 (h) 2,970
Minority interest -- 562 (562)(i) --
Commitments and contingencies
Convertible Redeemable Preferred Stock -- -- 3,000 (j) 3,000
Stockholders' Equity:
Preferred stock 695 -- -- 695
Common stock 151 3,601 (3,581)(k) 171
Capital in excess of par value 31,148 67 11,443 (l) 42,658
Retained earnings 10,169 3,479 (3,479)(m) 10,169
Treasury stock, at cost (3,524) -- -- (3,524)
------- ------- ------- -------
Total stockholders' equity 38,639 7,147 4,383 50,169
Total liabilities and
stockholders' equity $ 95,170 $ 23,339 $ 10,544 $ 129,053
------- ------- ------ -------
------- ------- ------- -------
See Accompanying Note.
<PAGE>
THE TITAN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
(UNAUDITED)
Pro Forma
Adjust- Pro
The Witt ments Forma
Titan Companies (Note 1) Combined
-------- ---------- -------- --------
Revenues $ 31,172 $ 15,859 $ -- $ 47,031
-------- ---------- -------- --------
Costs and expenses:
Cost of revenues 24,855 14,956 -- 39,811
Selling, general and administrative
expense 5,951 1,772 150(n) 7,873
Research and development expense 1,224 -- -- 1,224
Restructuring and other (income)
expense, net -- (8) -- (8)
-------- -------- -------- --------
Total costs and expenses 32,030 16,720 150 48,900
-------- -------- -------- --------
Operating profit (loss) (858) (861) (150) (1,869)
Interest expense (427) (46) (25)(o) (498)
Interest income 15 -- -- 15
-------- -------- -------- --------
Income (loss) before taxes (1,270) (907) (175) (2,352)
Income tax (provision) benefit 406 -- 173 (p) 579
-------- -------- -------- --------
Net income (loss) (864) (907) (2) (1,773)
Dividend requirement on preferred
stock (174) -- (45)(q) (219)
-------- -------- -------- --------
Net income (loss) applicable to
common stock $(1,038) $ (907) $ (47) $(1,992)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share of
common stock $ (0.07) $ (7.56) $ 7.50 $ (0.13)
-------- -------- -------- --------
-------- -------- -------- --------
See Accompanying Note.
<PAGE>
THE TITAN CORPORATION
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
Pro Forma
Adjust- Pro
The Witt ments Forma
Titan Companies (Note 1) Combined
------- --------- --------- --------
Revenues $ 133,967 $ 51,090 $ -- $ 185,057
-------- -------- --------- --------
Costs and expenses:
Cost of revenues 102,231 41,459 -- 143,690
Selling, general and
administrative expense 23,538 8,126 600(n) 32,264
Research and development expense 5,904 -- -- 5,904
Restructuring and other (income)
expense, net 6,249 (8) -- 6,241
-------- -------- -------- --------
Total costs and expenses 137,922 49,577 600 188,099
-------- -------- -------- --------
Operating profit (loss) (3,955) 1,513 (600) (3,042)
Interest expense (1,154) (236) (100)(o) (1,490)
Interest income 95 72 -- 167
-------- -------- -------- --------
Income (loss) before taxes (5,014) 1,349 (700) (4,365)
Income tax (provision) benefit 1,207 (362) (138)(p) 707
-------- -------- -------- --------
Net income (loss) (3,807) 987 (838) (3,658)
Dividend requirement on preferred
stock (695) -- (180)(q) (875)
-------- -------- -------- --------
Net income (loss) applicable to
common stock $ (4,502) $ 987 $(1,018) $(4,533)
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) per share of
common stock $ (0.33) $ 8.23 $ (8.20) $ (0.30)
-------- -------- -------- --------
-------- -------- -------- --------
See Accompanying Note.
<PAGE>
THE TITAN CORPORATION
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(Dollar amounts in thousands, except share and per share data)
(UNAUDITED)
NOTE 1. PRO FORMA ADJUSTMENTS
(a) Record cash payment made to Witt on closing of the transaction.
(b) Eliminate certain related party receivables contributed to capital
as part of the merger transaction. Offset other related party
receivables against related party payables.
(c) Eliminate goodwill reflected in Witt Companies' financial
statements and add excess of Titan's purchase price over the fair
value of assets acquired.
(d) Record $1,000 note payable to Witt from Titan, due March, 1997.
Interest at 10% annually.
(e) Eliminate current deferred income taxes of Witt in 481A exchange.
(f) Record other accrued liabilities related to the transaction as
follows:
RECORD SHORT TERM PORTION OF WITT RETAINER $ 320
RECORD OTHER COSTS RELATED TO THE TRANSACTION 2,791
TAX EFFECTS OF SECTION 481A ELECTION 595
------
$ 3,706
------
------
(g) Record long term portion of Witt's $1,917 retainer agreement, of
which $320 is current, and $1,597 is long term.
(h) Record long term deferred income taxes due to the 481A exchange.
(i) Eliminate minority interest in Unidyne.
(j) Record issuance of 500,000 shares of cumulative convertible
redeemable preferred stock at $6 per share.
(k)(l)(m) Issue 1,921,534 shares, subject to certain post-closing
adjustments, of Titan common stock, market value approximately $6
per share, par value $.01 per share, and eliminate Witt Companies'
stockholders' equity.
(n) Record amortization of goodwill over thirty year life.
<PAGE>
(o) Record interest expense on $1,000 note payable to Witt.
(p) Record tax impact of the aforementioned pro forma adjustments.
(q) Record 6% annual dividend on $3,000 cumulative convertible
redeemable preferred stock.
