SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
____x____ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 May 5,
1997, was 16,096,015.
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Revenues.......................................... $ 43,290 $ 30,895
------- -------
Costs and expenses:
Cost of revenues................................ 34,290 24,330
Selling, general and administrative
expense....................................... 5,027 5,186
Research and development expense................ 1,448 605
------- -------
Total costs and expenses...................... 40,765 30,121
------- -------
Operating profit.................................. 2,525 774
Interest expense.................................. (1,293) (427)
Interest income................................... 7 15
------- -------
Income from continuing operations
before income taxes............................. 1,239 362
Income tax provision.............................. 421 149
------- -------
Income from continuing operations................. 818 213
Loss from discontinued operation, net of taxes... (343) (1,077)
------- -------
Net income (loss)................................. 475 (864)
Dividend requirements on preferred stock.......... 219 174
------- -------
Net income (loss) applicable to common stock...... $ 256 $(1,038)
======= =======
Per weighted average common share:
Income from continuing operations............... $ .04 $ .00
Loss from discontinued operation............... (.02) (.07)
------- -------
Net income (loss)............................... $ .02 $ (.07)
======= =======
Weighted average common shares outstanding........ 16,123 13,969
======= =======
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands, except shares and par values)
<CAPTION>
March 31, December 31,
1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash ........................................... $ 2,344 $ 2,052
Accounts receivable - net....................... 49,076 45,720
Inventories..................................... 13,522 12,419
Net assets of discontinued operation............ 2,319 1,304
Prepaid expenses and other...................... 1,276 1,708
Deferred income taxes........................... 5,943 6,037
------ ------
Total current assets.......................... 74,480 69,240
Property and equipment - net...................... 19,670 19,984
Goodwill - net.................................... 20,864 21,348
Other assets...................................... 8,528 8,438
Net assets of discontinued operation.............. 8,036 7,264
------ ------
Total assets $131,578 $126,274
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable................................ $ 11,800 $ 8,018
Lines of credit................................. 6,963 ---
Note payable to related party................... --- 1,000
Current portion of long-term debt............... 1,027 1,010
Accrued compensation and benefits............... 5,850 8,061
Other accrued liabilities....................... 7,575 10,036
------ ------
Total current liabilities..................... 33,215 28,125
------ ------
Long-term debt.................................... 39,850 40,071
Other non-current liabilities..................... 8,414 8,433
Series B cumulative convertible redeemable
preferred stock, $3,000 liquidation preference,
6% cumulative annual dividend, 500,000 shares
issued and outstanding.......................... 3,000 3,000
Stockholders' equity:
Preferred stock: $1 par value, authorized
2,500,000 shares:
Cumulative convertible, $13,897 liquidation
preference: 694,872 shares issued and
outstanding................................. 695 695
Series A junior participating, authorized
250,000 shares: none issued.................. --- ---
Common stock: $.01 par value, authorized
30,000,000 shares, issued and outstanding:
17,141,271 and 17,133,680...................... 171 171
Capital in excess of par value................... 42,783 42,751
Retained earnings................................ 6,244 5,988
Treasury stock (1,048,038 and 1,106,114 shares),
at cost........................................ (2,794) (2,960)
------ ------
Total stockholders' equity..................... 47,099 46,645
------ ------
Total liabilities and stockholders' equity .... $131,578 $126,274
======= =======
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
------ ------
<S> <C> <C>
Cash Flows From Operating Activities:
Income from continuing operations.............. $ 818 $ 213
Adjustments to reconcile income from continuing
operations to net cash used for continuing
operations:
Depreciation and amortization.................. 1,456 1,026
Deferred income taxes and other................ 296 (349)
Changes in operating assets and liabilities net
of business sold:
Accounts receivable........................ (3,356) (3,039)
Inventories................................ (1,203) 330
Prepaid expenses and other assets.......... 151 (591)
Accounts payable........................... 3,782 (1,850)
Accrued compensation and benefits.......... (2,211) (3,586)
Restructuring activities................... (815) (575)
Other liabilities.......................... (1,569) (841)
------ ------
Net cash used for continuing operations............ (2,651) (9,262)
------ ------
Loss from discontinued operation................... (343) (1,077)
Changes in net assets of discontinued operation.... (1,787) 145
------ ------
Net cash used for discontinued operation........... (2,130) (932)
------ ------
Net cash used for operating activities............. (4,781) (10,194)
----- ------
Cash Flows From Investing Activities:
Capital expenditures............................... (675) (1,247)
Other.............................................. 176 49
--- ---
Net cash used for investing activities............. (499) (1,198)
----- ------
Cash Flows From Financing Activities:
Additions to debt.................................. 6,963 7,700
Retirements of debt................................ (1,204) (848)
Dividends paid..................................... (219) (174)
Proceeds from stock issuances..................... 32 261
--- ---
Net cash provided by financing activities.......... 5,572 6,939
----- ------
Net increase (decrease) in cash..................... 292 (4,453)
Cash at beginning of period........................ 2,052 5,833
----- ------
Cash at end of period.............................. $ 2,344 $ 1,380
======= ======
<FN>
The accompanying notes are an integral part of these
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<CAPTION>
Cumulative Capital
Convertible in Excess
Preferred Common of Par Retained Treasury
Stock Stock Value Earnings Stock Total
----------- ------- ---------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Three months ended March 31, 1997
Balances at December 31, 1996 $ 695 $ 171 $ 42,751 $ 5,988 $ (2,960) $ 46,645
Exercise of stock options and other 32 32
Shares contributed to employee
benefit plans 166 166
Dividends on preferred stock -
Cumulative convertible, $.25 per share (174) (174)
Series B, 6% annual (45) (45)
Net income 475 475
----- ----- ----- ------ ------ -------
Balances at March 31, 1997 $ 695 $ 171 $ 42,783 $ 6,244 $ (2,794) $ 47,099
===== ===== ===== ====== ====== =======
Three months ended March 31, 1996
Balances at December 31, 1995 $ 695 $ 151 $ 31,148 $ 10,169 $ (3,524) $ 38,639
Exercise of stock options 1 322 (62) 261
Shares contributed to employee
benefit plans 143 113 256
Dividends on preferred stock -
Cumulative convertible, $.25 per share (174) (174)
Net loss (864) (864)
----- ----- ----- ------ ------ -------
Balances at March 31, 1996 $ 695 $ 152 $ 31,613 $ 9,131 $ (3,473) $ 38,118
===== ===== ===== ====== ====== =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(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,
1996. 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. The prior year financial
statements have been restated to reflect the discontinuance of an
operation in 1997 (see Note 2). Also, certain prior year amounts have
been reclassified to conform to the 1997 presentation.
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.
Note (2) DISCONTINUED OPERATIONS
On April 11, 1997, the Company's Board of Directors adopted a plan to
divest the Company's broadband communications business, a part of its
Communications Systems segment, in order to focus on the Company's
businesses that are better aligned with its available resources and
offer a greater opportunity for Titan to create value for its
shareholders. The results of the broadband communications business
have been accounted for as a discontinued operation in accordance with
Accounting Principles Board Opinion No. 30, which among other
provisions, requires the plan of disposal to be carried out within one
year. Management anticipates that the business will be sold by March
31, 1998.
Revenues for the broadband communications business were $524 and $277
for the three months ended March 31, 1997 and 1996, respectively.
Included in the loss from discontinued operation is a tax benefit of
$177 and $555 for the three months ended March 31, 1997 and 1996,
respectively. Net current assets of discontinued operation consist
primarily of accounts receivable and inventory, net of accounts
payable, accrued compensation and other current liabilities. Net
noncurrent assets of discontinued operation consist of property and
equipment and intangible assets, primarily capitalized software costs.
Prior year consolidated financial statements have been restated to
present the broadband communications business as a discontinued
operation.
Note (3) ACQUISITION
On May 24, 1996, the Company completed the acquisition of Eldyne,
Unidyne and DCS. The acquisition was accounted for as a purchase, and,
accordingly, the Company's consolidated financial statements include
the operating results of the three acquired companies since May 24,
1996. Unaudited pro forma data giving effect to the purchase of
Eldyne, Unidyne and DCS as if they had been acquired at the beginning
of 1996 are as follows:
Three Months Ended
March 31, 1996
------------------
Revenues $ 47,031
Net loss (1,773)
Net loss per share (0.13)
The pro forma net loss includes certain unanticipated operating
adjustments made to the Eldyne, Unidyne and DCS historical financial
statements including, but not limited to, long-term contract earnings
revisions, and changes to the carrying value of certain assets,
primarily receivables.
Note (4) DEBT
At March 31, 1997, the Company had $5,000 in borrowings outstanding
under a $14,000 bank line of credit. The Company had commitments under
letters of credit at March 31, 1997, of $1,349, which reduced
availability under the line of credit to $7,651. In March 1997, the
line of credit agreement was amended to extend the maturity date from
May 1997 to May 1998. Certain financial covenants were also revised.
Subsequent to March 31, 1997, the Company received a commitment from
the bank and another financial institution for a new $24,000 credit
facility which will be available to the Company and all its operating
entities, with an expiration date of May 31, 1998. At March 31, 1997,
there was $1,963 in borrowings outstanding under the separate Eldyne
and Unidyne subsidiaries' line of credit. Commitments under letters of
credit of $85, in addition to borrowing base limitations based on
certain receivables, reduced availability under this line of credit to
$2,740. The Company intends that when finalized, the $24,000 credit
facility discussed above will replace this line of credit. At March
31, 1997, the Company was in compliance with all financial covenants
under its various debt agreements.
Note (5) RESTRUCTURING
At December 31, 1996, the Company had $815 remaining in Other current
liabilities related to a formal plan of restructuring adopted in 1995.
Charges against these restructuring reserves were $815 and $326 in the
first quarters of 1997 and 1996, respectively. The charges to these
reserves in the first quarter of 1997 were primarily related to costs
associated with the exiting of businesses, as well as the termination
of certain agreements.
Note (6) OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- --------
<S> <C> <C>
Inventories:
Materials $ 1,934 $ 1,998
Work-in-process 9,313 9,201
Finished goods 2,275 1,220
----- -----
$ 13,522 $ 12,419
======= ======
</TABLE>
Supplemental disclosure of cash payments (receipts) is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
----- -----
<S> <C> <C>
Interest $ 279 $ 283
Income taxes (54) (253)
</TABLE>
During the three month periods ended March 31, 1997 and 1996, the
Company utilized treasury stock of $166 and $256, respectively, for
benefit plan funding and contributions.
The following tables summarize revenues and operating profit (loss) by
industry segment for the three months ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
----- -----
<S> <C> <C>
Revenues:
Communications Systems $ 3,519 $ 357
Software Systems 4,039 5,700
Defense Systems 28,393 18,992
Emerging Technologies 7,339 5,846
----- -----
$43,290 $30,895
======= ======
Operating Profit (Loss):
Communications Systems $ (223) $(645)
Software Systems 775 760
Defense Systems 2,675 1,427
Emerging Technologies 437 302
----- -----
Segment operating profit before
Corporate 3,664 1,844
Corporate (1,139) (1,070)
----- -----
$ 2,525 $ 774
======= ======
</TABLE>
Note (7) RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). The statement specifies the computation,
presentation, and disclosure requirements for earnings per share
(EPS). The statement is effective for financial statements for periods
ending after December 15, 1997. Earlier application is not permitted.
However, management believes that the proforma earnings per share
amounts computed using SFAS 128 would not be significantly different
than the earnings per share amounts presented in the accompanying
financial statements.
THE TITAN CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(Amounts in thousands, except per share data)
GENERAL
On April 11, 1997, the Company's Board of Directors adopted a plan to
divest the Company's broadband communications business, a part of the
Communications Systems segment, in order to focus on businesses that
are better aligned with its available resources and offer a greater
opportunity for the Company to create value for its shareholders.
Accordingly, the following discussion on results of operations applies
to continuing operations.
RESULTS OF OPERATIONS
Consolidated results:
Revenues for the first quarter of 1997 increased 40% to $43,290 from
$30,895 in the first quarter of 1996, reflecting increased revenues in
the Communications Systems, Defense Systems and Emerging Technologies
segments. The Company reported net income of $475 for the first
quarter of 1997 compared to a net loss of $864 for the first quarter
of 1996. Included in the first quarter of 1997 is a loss from
discontinued operation of $343 compared to a loss from discontinued
operation of $1,077 for the first quarter of 1996. Income from
continuing operations in the first quarter of 1997 was $818, compared
to $213 in the first quarter of 1996. This difference was primarily
due to the impact of the increased revenues noted above.
Selling, general and administrative expense as a percentage of revenue
decreased from 17% in the first quarter of 1996 to 12% in the same
period in 1997, primarily due to the impact of cost reduction measures
taken across all business segments. Research and development costs
(R&D) increased overall from $605 in the first quarter of 1996 to
$1,448 in 1997, primarily as a result of R&D efforts in the Defense
Systems segment related to the development of certain compact
terminals and miniaturized satellite modems, as well as increased
research and development efforts in the Communications Systems
segment.
Net interest expense increased from $412 in the first quarter of 1996
to $1,286 in 1997, primarily from interest related to the convertible
subordinated debentures that the Company issued in November 1996.
The income tax provision is a 34% effective rate in the first quarter
of 1997 versus a 41% effective rate in the first quarter of 1996. Both
of these effective rates approximate the expected combined federal and
state statutory rates, less expected credits, primarily R&D credits.
Business Segments:
Revenues in the Communications Systems segment increased $3,162
quarter to quarter, from $357 to $3,519, due to shipments made on the
Company's rural telephony contract in Indonesia. Operating results
improved by $422, from an operating loss of $645 in the first quarter
of 1996, to an operating loss of $223 in the first quarter of 1997.
The improvement primarily reflects the impact of the increased
revenues.
Software Systems segment revenues declined $1,661, from $5,700 in the
first quarter of 1996 to $4,039 in the first quarter of 1997,
primarily due to reduced demand from a major telecommunications
customer which was, however, partially offset by growth in other
custom software business. Despite the decline in revenues, operating
income increased slightly from $760 in the first quarter of 1996 to
$775 in the first quarter of 1997, primarily reflecting the impact of
reductions of overhead costs.
In the Defense Systems segment, revenues grew 49% or $9,401, from
$18,992 to $28,393. Increased revenues generated from the acquired
businesses of Eldyne, Unidyne and DCS of approximately $14,970, and
increased revenues related to the Mini-DAMA satellite terminal
production contract were partially offset by a decline in revenues
resulting from the near completion of the work subcontracted to the
buyer of the Applications Group (sold in April 1994), as well as the
impact of the sale of the Electronics division in July 1996. Operating
income in the segment increased $1,248, from $1,427 in the first
quarter of 1996 to $2,675 in the first quarter of 1997. This increase
is primarily due to the increased revenues, as well as the impact of
certain cost reductions.
In the Emerging Technologies segment, revenues increased $1,493 from
$5,846 in the first quarter of 1996 to $7,339 in the first quarter of
1997, primarily due to revenues on a contract to build pulse generator
systems, as well as, to a lesser degree, revenues on the Company's
contract to provide an in-line medical device sterilization system.
Operating profit grew $135 quarter to quarter, primarily due to growth
in revenue.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1997, Titan used $2,651 for
operating requirements for continuing operations. Significant cash
uses included increases of $3,356 and $1,203 in accounts receivable
and inventory balances, respectively, primarily related to government
satellite communications and commercial rural telephony products, and
the funding requirements for certain accrued compensation obligations
of $2,211. Cash was provided primarily by the Company's lines of
credit, which provided $6,963, and by the timing of vendor payments,
which provided $3,782.
As of March 31, 1997, there was $5,000 in borrowings outstanding under
the Company's $14,000 bank line of credit, and the Company had
available cash of $2,344. The Company had commitments under letters of
credit at March 31, 1997 of $ 1,349, which reduced availability under
the line of credit to $7,651. The maturity date of the line of credit
is May 31, 1998. Subsequent to March 31, 1997, the Company received a
commitment from the bank and another financial institution for a new
$24,000 credit facility which will be available to the Company and all
its operating entities, with an expiration date of May 31, 1998. At
March 31, 1997, there was $1,963 in borrowings outstanding under the
separate Eldyne and Unidyne subsidiaries' line of credit. Commitments
under letters of credit of $85, in addition to borrowing base
limitations based on certain receivables, reduced availability under
this line of credit to $2,740. The maturity date of this line of
credit is May 31, 1997. The Company intends that when finalized, the
$24,000 credit facility discussed above will replace this line of
credit.
Cash requirements for the remainder of 1997 are expected to continue
to be significant. Investments in product development within the
satellite communications business were substantially complete in 1996,
however, the Company plans to continue aggressive sales and marketing
efforts. To date, the Company has been unsuccessful in identifying an
appropriate strategic investor to assist the Company in providing the
significant additional funding required to develop the broadband
communications business to realize its full potential value. As such,
the Company has decided to divest the broadband communications
business due to the limited availability of funding sources, both
internal and external. In the first quarter of 1997, the Company took
certain actions to significantly reduce operating costs in the
broadband communications business.
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Management's Discussion and
Analysis of Results of Operations and Financial Condition that are not
related to historical results are forward looking statements. Actual
results may differ materially from those stated or implied in the
forward looking statements. Further, certain forward looking
statements are based upon assumptions of future events which may not
prove to be accurate. These forward looking statements involve risks
and uncertainties including but not limited to those referred to in
the Company's Annual Report on Form 10-K for the year ended December
31, 1996, regarding entry into commercial business, reliance on major
software customer, and dependence on defense spending.
<PAGE>
THE TITAN CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a)(10) Sixth Amendment to Commercial Loan Agreement
dated March 26, 1997, by and between the Company
and Sumitomo Bank of California.
(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: May 13, 1997
THE TITAN CORPORATION
/s/ Eric M. DeMarco
-------------------------
By: Eric M. DeMarco
Senior Vice President,
Chief Financial Officer
/s/ Deanna H. Petersen
-------------------------
By: Deanna H. Petersen
Corporate Controller
(Principal Accounting Officer)
<PAGE>
Exhibit Index
10 Sixth Amendment to Commerical Loan Agreement dated
March 26, 1997, by and between the Company and Sumitomo
Bank of California.
27 Financial Data Schedule.
SIXTH AMENDMENT TO
COMMERCIAL LOAN AGREEMENT
This Sixth Amendment to the Commercial Loan Agreement
("Agreement") is entered into as of March 26, 1997 by and between
SUMITOMO BANK OF CALIFORNIA ("Bank") and THE TITAN CORPORATION, a
Delaware Corporation ("Borrower"), with reference to the following:
RECITALS
I. Borrower and Bank entered into that certain Commercial Loan
Agreement dated August 8, 1994 and subsequently amended pursuant to
Amendments dated May 25, 1995, December 29, 1995, May 9, 1996,
September 6, 1996 and October 18, 1996 (collectively, the
"Agreement").
II. Borrower and Bank desire to amend the Agreement on the terms and
conditions set forth herein.
AMENDMENT
NOW THEREFORE, in consideration of the foregoing, and for other
good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Borrower and Bank agree as follows:
1. Defined Terms. Capitalized terms in this Amendment and
not otherwise defined herein shall have the meanings given such terms
in the Agreement.
2. Amendments. This Agreement is hereby amended as follows:
A. 1.2 Availability Period. Section 1.2 is hereby
amended and replaced with the following:
"1.2 Availability Period. The Period under which
Borrower may draw on the Revolving Line of Credit ("Availability
Period") is between the date of this Agreement and May 31, 1998 (the
"Maturity Date") unless Borrower is in default, in which event Bank
need not make any advances."
B. 6.2 Financial Information. Section (a),(b),(d) and
(f)have been amended and replaced with the following:
"(a) Within 100 days after Borrower's fiscal year end,
a copy of Borrower's annual audited financial report and Securities
and Exchange Commission Form 10K Report, all opined to without
emphasis, along with a compliance certificate in a form satisfactory
to Bank".
"(b) Within 55 days of each fiscal quarter end, a copy
of Borrower's Securities and Exchange Commission Form 10Q Report,
along with a compliance certificate in a form satisfactory to Bank".
"(d) Borrower will submit annual projections, prepared
by quarter, for the new fiscal year within 30 days of the end of the
old fiscal year. Such plan will detail management's best estimate of
revenue, expenses and balance sheet categories and will be presented
in the customary form of Balance Sheet, Income Statement and Cash Flow
Statement."
"(f) This paragraph is hereby deleted in its
entirety."
C. 6.3 Quick Ratio. Section 6.3 is hereby amended and
replaced with the following:
"6.3 Quick Ratio. To maintain on a consolidated basis
as of the last day of each quarter, a ratio of quick assets to current
liabilities of at least 1.15:1.00."
"Quick assets" means cash, short-term cash
investments, net trade receivables and marketable securities not
classified as long-term investments.
D. 6.5 Net Worth. Section 6.5 is hereby amended and
replaced with the following:
"6.5 Net Worth. To maintain on a consolidated basis
as of the last day of each calendar quarter, Net Worth in an amount at
least equal to Seventy Nine Million Dollars ($79,000,000)."
"Net Worth" means the gross book value of Borrower's
assets plus debt subordinated to Bank in a manner acceptable to Bank
less total liabilities, including, without limitation, accrued and
deferred income taxes, and any reserves against assets.
E. 6.6 Total Liabilities to Tangible Net Worth. Section
6.6 is hereby amended and replaced by the following:
"6.6 Total Liabilities to Tangible Net Worth. To
maintain on a consolidated basis as of the last day of each quarter, a
ratio of Total Liabilities to Tangible Net Worth not exceeding
1.15:1.00."
"Total Liabilities" means the sum of current
liabilities plus long term liabilities, excluding debt subordinated to
Borrower's obligations to Bank in a manner acceptable to Bank, using
Bank's standard form."
"Tangible Net Worth" means book net worth minus
intangible assets (such a goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt discount and
expense, deferred research and development costs, capitalized software
costs, license fees, deferred marketing expenses, and other like
intangibles, and monies due from affiliates, officers, directors or
shareholders of Borrower) plus liabilities subordinated to Bank in a
manner acceptable to Bank. Deferred income taxes shall not be deemed
intangible assets.
F. 6.7 Profitability. Section 6.7 of the Agreement is
amended and replaced with the following:
"6.7 Profitability. To maintain on a consolidated
basis a positive net income before taxes and extraordinary items and a
positive net income after taxes and extraordinary items on an annual
basis and not to experience two consecutive quarters of losses, in
aggregate of greater than Five Hundred Thousand Dollars ($5000,000),
beginning with fiscal quarter ending March 31, 1997. The maximum pre-
tax loss permitted for fiscal year ended December 31, 1996 is Five
Million Five Hundred Thousand Dollars ($5,500,000)."
G. 6.10 Capital Expenditures. Section 6.10 of the
Agreement is hereby amended and replaced with the following:
"6.10 Capital Expenditures. Borrower to limit capital
expenditures to Seven Million Dollars ($7,000,000) during each fiscal
year."
H. Section 6.22 Additional Negative Covenants. Section
(h) of the Agreement if hereby amended and replaced with the
following:
"(h) purchase shares of its capital stock in exchange
for cash if such purchase exceeds (in the aggregate when combined with
all such other purchases made during that fiscal year) $2,000,000."
I. 6.24 Interest Coverage Ratio. Section 6.24 of the
Agreement is amended and replaced with the following:
"6.24 Interest Coverage Ratio. To maintain on a
consolidated basis for the two quarters ending March 31, 1997 minimum
Interest Coverage Ratio of 1.00:1.00, for three quarters ending June
30, 1997 minimum Interest Coverage Ratio of 1.15:1.00, and for four
quarters ending September 30, 1997 minimum Interest Coverage Ratio of
1.25:1.00."
"Interest Coverage Ratio" means for any period, the
ratio of EBIT to interest expense. "EBIT" is defined as the sum of
net income (or net loss) plus income tax provision plus gross interest
expense minus extraordinary income/gains plus extraordinary non-cash
expenses/losses minus gains (or plus losses) on sales/dispositions of
fixed assets.
J. 6.25 Fixed Charge Coverage Ratio. Section 6.25 is
added to the Agreement as follows:
"6.25 Fixed Charge Coverage Ratio. To maintain on a
rolling four-quarter basis starting with fiscal year end December 31,
1997, a Fixed Charge Ratio of at least 1.15:1.00."
"Fixed Charge Coverage Ratio" for any period means the
sum of EBITDA, less capital expenditures (net of purchase money
financing), less cash taxes payable, less cash dividends payable, less
cash stock repurchases divided by the sum of interest expense for that
period plus scheduled payments under all indebtedness including
capital leases for that period."
"EBITDA" is defined as the sum of net income (or net
loss) plus income tax provision plus gross interest expense plus
depreciation plus non-cash amortization minus extraordinary
income/gains plus extraordinary non-cash expenses/losses minus gains
(or plus losses) on sales/dispositions of fixed assets.
K. Closing Fee. Borrower shall pay to Bank concurrently
with the execution of this Amendment, a closing fee in the amount of
Seventeen Thousand Five Hundred Dollars ($17,500.00).
L. Expenses. Borrower agrees to immediately repay Bank
for its reasonable costs and expenses incurred in connection with this
Amendment, including, without limitation, attorneys fees and expenses.
M. Agreement in Full Force and Effect. Except as
specifically amended or modified by this Amendment (and any prior
amendments thereto), the Agreement shall remain unmodified and in full
force and effect.
N. Ratification. The Borrower hereby restates, ratifies
and reaffirms each and every term and condition set forth in the
Commercial Loan Agreement, as amended from time to time.
"BORROWER" "BANK"
THE TITAN CORPORATION SUMITOMO BANK OF CALIFORNIA
BY /s/ Eric M. DeMarco BY/s/ Sajeda Sijmee
----------------------- -----------------
Eric M. DeMarco Sajeda Sijmee
Senior Vice President, Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,344
<SECURITIES> 0
<RECEIVABLES> 49,076
<ALLOWANCES> 0<F1>
<INVENTORY> 13,522
<CURRENT-ASSETS> 74,480
<PP&E> 42,487
<DEPRECIATION> 22,817
<TOTAL-ASSETS> 131,578
<CURRENT-LIABILITIES> 33,215
<BONDS> 39,850
0
3,695
<COMMON> 171
<OTHER-SE> 46,233
<TOTAL-LIABILITY-AND-EQUITY> 132,481
<SALES> 43,227
<TOTAL-REVENUES> 43,290
<CGS> 34,290
<TOTAL-COSTS> 34,290
<OTHER-EXPENSES> 6,475
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 1,293
<INCOME-PRETAX> 1,239
<INCOME-TAX> 421
<INCOME-CONTINUING> 818
<DISCONTINUED> (343)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 475
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
<FN>
<F1>Due to the use of condensed financial statements for interim reporting, this
information is not compiled on a quarterly basis.
</FN>
</TABLE>
