SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-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 (IRS Employer
incorporation or organization) Identification No.)
3033 Science Park Road
San Diego, CA 92121-1199
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code:
(619) 552-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
=================== ====================================
$1.00 Cumulative Convertible New York Stock Exchange
Preferred Stock, $1.00 par value
Common Stock, $.01 par value
Preferred Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
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
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No_
====== ======
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. X
====
Aggregate market value of the voting stock held by non-
affiliates of the registrant as of March 17, 1997: $ 58,476,049.
Number of shares of Common Stock outstanding at March 17, 1997:
16,035,157
Document Incorporated By Reference
Proxy Statement for the 1997 Annual Meeting of Stockholders on
May 15, 1997. (The Company has or will have filed a definitive
proxy statement with the Commission within 120 days after the close
of the fiscal year pursuant to Regulation 14A.) With the exception
of those portions which are incorporated by reference in this Form
10-K Annual Report, the Proxy Statement for the 1997 Annual Meeting
of Stockholders is not deemed to be filed as part of this Report,
Part III.
PART I
Item 1. Business
General Development and Description of Business
The Titan Corporation ("Titan" or the "Company") is an innovative
high technology company which groups its businesses in four industry
segments: Communications Systems, Software Systems, Defense
Systems, and Emerging Technologies. The Communications Systems
segment contains two start-up business units, both targeting rapidly
growing commercial markets. The first business unit is satellite
communications, which develops and sells satellite earth station
networks and related systems. The second business unit, broadband
communications, specializes in providing complete turnkey security
for television delivery systems. The Software Systems segment
provides custom software products and services to assist customers
in moving from older mainframe systems to distributed computing
systems utilizing client/server software. The Defense Systems
segment, serving primarily the U.S. Government, includes satellite
communications products, systems analysis and design, object-
oriented software development services, and systems integration
services for customers with large data management needs. The
Emerging Technologies segment contains environmental consulting and
medical product sterilization, together with established businesses
generally involved in Department of Defense (DoD) funded research
and development contracts and the manufacture of pulsed power
electron systems and linear accelerators for both government and
industrial customers.
For the past several years, the Company has pursued a strategy to
use the technology and experience gained in its defense business to
build commercial business. At the same time, the Company has
continued to focus on growing its defense business in key market
areas. As part of this strategy to strengthen its core defense
operations, the Company acquired three information technology
companies, Eldyne, Inc., Unidyne Corporation, and Diversified
Control Systems, Inc. in May 1996.
COMMUNICATIONS SYSTEMS SEGMENT
The Communications Systems segment contains two start-up business
units, both targeting rapidly growing commercial markets. The
first business is satellite communications, which develops and
sells bandwidth-efficient, cost-effective satellite earth station
networks and related systems which address the demand for telephony
services. Some of these products include high-efficiency network
management systems and voice processing and redundant control
circuitry for reliable transmissions. A key feature of the
Company's products is its defense-derived DAMALink(TM) network
management software system, which allows for multiple simultaneous
users to access efficiently the same satellite channel, resulting
in cost savings and improved operational flexibility for the
customer. To address the need for telecommunications
infrastructure in developing countries, the Company has designed
and developed its Xpress Connection(TM) system as a cost-effective
means to link remote locations into the public switched network in
developing countries. These systems are being marketed in Asia and
Latin America.
In the third quarter of 1995, the Company received a $9.6 million
fixed price contract to develop a rural telephony system in
Indonesia. In September 1996, the contract was amended to add a
Singapore company as a second party. The revised contract provides
the two parties the option to purchase additional terminals and
other equipment. In addition, the two parties have the exclusive
right to market and sell the Xpress Connection for use in Indonesia
and jointly with the Company in the remainder of the Asian Palapa
C1 and C2 satellites' coverage area. Delivery of certain
components of the telephony system commenced in 1996. In addition,
in the third quarter of 1996, the Company received a $4 million
contract to provide a communications network for a bank in
Thailand.
The second business unit, broadband communications, specializes in
providing complete turnkey security for television delivery
systems, with applications for delivery of television programming
via wireless, satellite, coaxial cable, and fiber optics. In
January 1995, the Company signed its first equipment purchase
agreement to provide analog equipment and software to control
access to a wireless television service in New York City. During
1996, the Company received a $12.75 million purchase order from
this customer for delivery of additional conditional access system
equipment and set-top box decoders. In addition, the Company was
awarded a $2.7 million contract with this customer for a system in
Thailand.
During 1996, the Company continued to make significant investments
adapting its analog system for use in digital video transmission
systems in order to address the digital and wireless direct-to-home
satellite and private business television markets. The Company is
actively marketing its systems in domestic and international
markets. The Company has been pursuing a process to identify
potential strategic investors for the broadband communications
business. To date, an appropriate strategic investor has not been
identified. Furthermore, the Company is assessing other strategic
alternatives related to the broadband communications business. The
Company has taken certain actions early in 1997 to significantly
reduce the broadband unit's operating costs.
SOFTWARE SYSTEMS SEGMENT
The Software Systems segment provides custom software products and
services to clients desiring to upgrade their information systems.
These services assist customers in moving from older mainframe
systems to distributed computing systems utilizing client/server
object-oriented software. The Company provides the services and
resources necessary to design, develop and implement these
projects, including systems consulting, project management, work-
flow analysis, industry and application knowledge, implementation,
training and program maintenance.
To date, the Company's software systems work has focused on the
telecommunications industry, the FAA, and financial institutions.
The Company's work has included development and support for access
carrier client/server applications, system-to-system communications
for the real-time exchange of maintenance information between an
access customer and long-distance providers, real time customer
support applications, new client/server data management
architectures and improved trouble shooting and reporting for
telecommunications systems.
The Software Systems segment has been, and for at least the near
future is anticipated to be, substantially dependent on business
from a major telecommunications customer. Revenues in 1996 from
this customer were approximately $8.3 million. The Company
continues to do a significant amount of work for this customer, and
has been actively seeking to build on its work for this customer to
obtain additional clients in the telecommunications and other
industries. The Company is also developing and implementing
enterprise-wide information networks for a federal agency and is
providing information services activities, which include process
re-engineering and development for network management, for a major
financial institution.
DEFENSE SYSTEMS SEGMENT
The Defense Systems segment includes two business units,
information and communications systems. These units provide their
information and communications systems solutions primarily to the
U.S. Department of Defense (DoD) and intelligence agencies,
focusing on key areas of secure satellite communications and
information process re-engineering using distributed computing and
client/server software.
The Company provides information systems solutions to government
customers with large data management and control requirements. The
Company's services include systems analysis and design, object-
oriented software development services and systems integration.
The Company focuses on marketing its services to intelligence
agencies, NATO and other government agencies where the Company has
extensive knowledge of the enterprise's operations and information
systems needs. This knowledge assists the Company in providing a
comprehensive solution to a customer's problem which is compatible
with the customer's overall information systems architecture and
strategy, as opposed to developing merely a technical solution to a
specific problem. The Company's initial work generally involves a
thorough analysis of the customer's enterprise structure and
processes and information system needs. Once this strategic
analysis is completed, the Company designs the technology solution
to meet the customer's needs. This process typically involves
software development by the Company, coupled with integration of
commercial "off-the-shelf" software and hardware as available. On
many procurements, the Company will team with other industry
participants in order to offer a multi-company solution to the
customer.
In May 1996, the Company acquired Eldyne, Unidyne and DCS, which
provide the Department of Defense and other government customers
with systems research, development and prototyping, and integration
and life cycle support of electronic, information and control
systems. In particular, Eldyne provides engineering, assembly and
installation services for communications, sonar and navigation
systems. These services include designing digital communications
hardware and software, planning and managing U.S. Navy programs,
designing high-speed data acquisition and process control software,
researching electromagnetic interference and control, performing
communciations hardware integration, testing and evaluating
prototype shipboard electronic systems, and performing complex
computer simulations of magnetic and electrical fields. Unidyne
provides its customers with a variety of technical support
services, including electronics and mechanical design, computer-
aided drafting and computer-aided manufacturing services, technical
documentation, prototyping, electronics and mechanical fabrication
and various industrial activities such as equipment installation,
overhaul/refurbishment and providing skilled trades personnel.
Subsequent to year-end, the Company received a $50 million task
order contract to provide communications systems integration
support for the U.S. government. In addition, Titan received new
awards from the U.S. Navy, with an initial value of $5 million in
1997 and a total potential value of $25.3 million over the next
five years for electronic systems, support and equipment for
submarine undersea warfare.
The defense communications business develops and produces advanced
satellite terminals and associated voice/data processing modems
using DAMA (Demand Assigned Multiple Access) technologies. These
products are specifically tailored to meet defense requirements,
provide highly secure communications and are produced in relatively
small quantities. Until recently, the government generally
obtained new products that were designed and developed under fixed
price development contracts which require the products to meet very
rigorous military specifications. The government has now shifted
to a nondevelopment procurement approach under which companies are
encouraged to perform their own research and development programs
to have products readily available for purchase and to incorporate
commercial "off-the-shelf" components where feasible in order to
reduce costs. To address this trend, the Company has combined
expertise gained under government-sponsored development projects
and its own internal development efforts to enable it to provide
advanced technology solutions based on commercial components. The
Company was contracted by the U.S. Air Force in 1987 to develop a
satellite communications technique called DAMA, and has
subsequently been awarded more than $100 million in government
funded development projects related to this technology. The
Company has enhanced this position by investing significant
resources in internal development projects to create a variety of
DAMA-based products which utilize commercial components. These
efforts have resulted in the Mini-DAMA terminal used by the U.S.
Navy, as well as other satellite communications products based on
DAMA technology. In early 1997, the Company was awarded a $4.5
million contract to provide Mini-DAMA terminals for installation on
patrol aircraft for the Royal Australian Air Force.
Marketing for the Defense Systems segment involves identifying the
requirements of the U.S. Government and other potential customers
for the types of products and services provided by the Company.
The information is then evaluated to determine if the Company can
prepare a responsive proposal to the customer. This business is
highly dependent upon continued funding of certain U.S. Government
contracts.
EMERGING TECHNOLOGIES SEGMENT
The Emerging Technologies segment contains a group of mature
businesses generally involved in Department of Defense funded
research and development contracts, the design and manufacture of
pulsed power systems, and various early stage commercial
businesses, involved in medical product sterilization services and
systems and environmental consulting services. The Company's
strategy is to cultivate the research and development activities as
a source of additional DoD and commercial products, systems or
services.
The Emerging Technologies segment performs various government-
sponsored research and development projects, primarily comprised of
cost-reimbursable contracts. These research and development
activities involve a number of technologies including those
necessary to develop and manufacture high-powered microwave tubes.
The Company also designs and manufactures custom particle
accelerators and pulsed power systems. These systems include
linear electron accelerators for applications including medical
products sterilization and food pasteurization.
The Company's medical product sterilization business is based upon
advanced linear accelerator technology developed from the Company's
research and development activities. This business provides
sterilization services and systems to the medical device
marketplace in two ways; (i) its owner-operated facilities; and
(ii) sales and installations of turnkey sterilization systems. The
Company owns and operates two medical sterilization facilities -
one in Denver, Colorado and one in San Diego, California. These
facilities provide electron beam sterilization services using
Titan's SureBeam(R) process to producers of disposable medical
products. The facility in Denver, now operating at near full
capacity, has been operational since July 1993, and the facility in
San Diego became operational in January 1996. In 1996, the Company
secured a five-year contract with a customer in San Diego as its
anchor customer. In December 1996, the Company sold its second
turnkey electron beam sterilization system.
The environmental consulting and services business provides a range
of professional environmental consulting and engineering services
to commercial customers. These services include remediation
strategy development, site assessment, risk assessment, remediation
technology selection, contract management and oversight of
regulatory agency approvals.
Government Contracts
Sales to the United States Government, including both defense and
non-defense agencies, and sales as a subcontractor as well as direct
sales, aggregated $102,925,000 in 1996, $81,632,000 in 1995 and
$93,107,000 in 1994. These amounts represent 75%, 61% and 68% of
total revenues in 1996, 1995, and 1994, respectively.
Titan's Government customers include the Navy, the Army, the Air
Force, and other Government agencies, including the Federal Aviation
Administration, the Federal Emergency Management Agency, the
Department of Commerce, the National Aeronautics and Space
Administration, the Defense Nuclear Agency and others. The
Company's business is dependent to a large extent upon continued
funding from these and other government agencies.
The Company's contracts with the Government and subcontracts to
prime contractors are subject to termination for the convenience of
the Government; termination, reduction, or modification in the
event of change in the Government's requirements or budgetary
constraints; and, when the Company participates as a subcontractor,
the failure or inability of the prime contractor to perform its
prime contract. In addition, the Company's contract costs and fees,
including allocated indirect costs, are subject to audits and
adjustments by negotiation between the Company and the Government.
In addition to the right to terminate, Government contracts are
conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds on a fiscal
year basis even though contract performance may take several years.
Consequently, at the outset of a major program, the contract is
usually incrementally funded and additional funds are normally
committed to the contract by the procuring agency as appropriations
are made by Congress for future fiscal years.
The Company's business with the Government and prime contractors is
generally performed under cost reimbursement, fixed price or time
and materials contracts. Cost reimbursement contracts for the
Government provide for reimbursement of costs plus the payment of a
fee. Under fixed price contracts, the Company agrees to perform
certain work for a fixed price. Under time and materials contracts,
the Company is reimbursed for labor hours at negotiated hourly
billing rates and is reimbursed for travel and other direct expenses
at actual costs plus applied general and administrative expense.
The following table gives the percentage of revenues realized by the
Company from the three primary types of Government contracts during
the years indicated.
Contract Type 1996 1995 1994
============= ==== ==== ====
Cost Reimbursement.............. 52.9% 54.7% 59.9%
Fixed Price..................... 40.9 40.2 36.8
Time and Materials.............. 6.2 5.1 3.3
==== ==== ====
100.0% 100.0% 100.0%
Industry Segments, Significant Customers and Export Revenues
Reference is made to Note 5 to the accompanying consolidated
financial statements.
Raw Materials
The Company operates both fabrication and assembly facilities and
also purchases certain components and assemblies from other
suppliers. No one supplier accounts for a significant portion of
total purchases.
Patents, Trademarks and Trade Secrets
The policy of the Company is to apply for patents and other
appropriate statutory protection when it develops new or improved
technology. The Company presently holds over 40 U.S. patents, as
well as a number of trademarks and copyrights. However, it does not
rely solely on such statutory protection to protect its technology
and intellectual property. In addition to seeking patent protection
for its inventions, the Company relies on the laws of unfair
competition and trade secrets to protect its unpatented proprietary
rights. The Company attempts to protect its trade secrets and other
unpatented proprietary information through agreements with
customers, vendors, employees and consultants. In addition, various
names used by the Company for its products and services have been
registered with the U.S. Patent and Trademark Office.
Backlog
Contracts undertaken by the Company may extend beyond one year, and
accordingly, portions are carried forward from one year to the next
as part of backlog. Because many factors affect the scheduling of
projects, no assurance can be given as to when revenue will be
realized on projects included in the Company's backlog. Although
backlog represents only business which is considered to be firm,
there can be no assurance that cancellations or scope adjustments
will not occur. The majority of backlog represents contracts under
the terms of which cancellation by the customer would entitle the
Company to all or a portion of its costs incurred and potential
fees.
The Company's commercial backlog represents contracts primarily for
services. By segment, the commercial backlog is approximately $26.3
million, $12.5 million, $5.2 million and $3.1 million for
Communications Systems, Emerging Technologies, Software Systems and
Defense Systems, respectively.
Many of the Company's contracts with the U.S. Government are funded
by the procuring agency from year to year, primarily based on its
fiscal requirements. This results in two different categories of
U.S. Government backlog: funded and unfunded backlog. "Funded
backlog" consists of the aggregate contract revenues remaining to be
earned by the Company at a given time, but only to the extent such
amounts have been appropriated by Congress and allocated to the
contract by the procuring Government agency. "Unfunded backlog"
consists of (i) the aggregate contract revenues which are expected
to be earned as the Company's customers incrementally allot funding
to existing contracts, whether the Company is acting as a prime
contractor or subcontractor, and (ii) the aggregate contract
revenues which remain to be funded on contracts which have been
newly awarded to the Company. "Backlog" is the total of the
commercial and government funded and unfunded backlog.
The Company's backlog consists of the following approximate amounts
as of December 31:
Backlog 1996 1995
Commercial ba............... $ 47,113,000 $25,949,000
U.S. Government funded backlog..... 49,256,000 32,903,000
U.S. Government unfunded backlog.. 98,881,000 19,883,000
$195,250,000 $78,735,000
============ ==========
Backlog at December 31, 1996 includes $97.7 million from Eldyne,
Unidyne and DCS, which were acquired by the Company in May 1996 and
excludes backlog of the Company's Electronics division which was
sold in July 1996.
In addition to the backlog described above, at December 31, 1996,
the Company had remaining priced options of over $60 million from
the U.S. Navy for full-scale production of its Mini-DAMA satellite
communications terminal. The Company expects that a substantial
number of these options will be exercised in the future, although
there is no assurance that any options will be exercised.
Management believes that year-to-year comparisons of backlog are
difficult and not necessarily indicative of future revenues. The
Company's backlog is typically subject to large variations from
quarter to quarter as existing contracts are renewed or new
contracts are awarded. Additionally, all U.S. Government contracts
included in backlog, whether or not funded, may be terminated at the
convenience of the U.S. Government.
The Company expects to realize approximately 75% of its 1996 backlog
by the end of 1997.
Research and Development
The Company maintains a staff of engineers, other scientific
professionals and support personnel engaged in development of new
applications of technology and improvement of existing products.
These programs' costs are expensed as incurred. Total expenditures
for research and development were $9,295,000, $16,667,000, and
$12,699,000 in 1996, 1995, and 1994, respectively. These
expenditures included company funded research and development of
$4,789,000, $5,904,000, and $5,339,000, and customer sponsored
research and development of $4,506,000, $10,763,000, and $7,360,000,
in 1996, 1995, and 1994, respectively. The majority of the
Company's customer sponsored research and development activity is
funded under contract to the U.S. Government.
Competitive Conditions
Communications Systems. The Company is one of many companies
providing satellite earth station networks and related subsystems in
commercial markets. The products compete based primarily on
quality, reliability, service and price. Competition is intense,
and many competitors have greater financial and personnel resources
than does the Company.
The Company is one of a few companies in the secure distribution of
television business. These products compete based primarily on
quality, reliability, service and price. The Company's major
competitors include General Instrument Corporation and Scientific
Atlanta, Inc., both of whom have significantly greater resources
than the Company.
Software Systems. The Company is one of many developers producing
custom software for high technology clients. The custom software
industry is rapidly changing and is subject to technological
obsolescence. Many of the Company's customers in this business have
their own in-house capabilities to perform certain types of services
that might otherwise be performed by the Company. The primary
factors of competition in the business in which the Company is
engaged include technical skills, knowledge of specific industry
operations for which the software is being developed, management and
marketing expertise and price.
Defense Systems. The Company designs, manufactures and sells earth
stations and related subsystems for use in military satellite
communications systems. Although the Company has significant market
share in certain segments of the military satellite communications
systems market, some competitors have greater financial and
personnel resources than the Company.
The Company is one of many involved in providing sophisticated
systems engineering for a variety of programs for agencies of the
United States Government and prime contractors for these agencies.
Most activities in which the Company engages are very competitive
and require highly skilled and experienced technical personnel.
Numerous companies compete in the service areas in which the Company
is engaged, many of which have significantly greater financial and
personnel resources than does the Company. As is customary in the
business, the Company expends time and effort in preparing
competitive proposals, only a portion of which may result in the
award of contracts.
Emerging Technologies. The Company is one of a few companies
involved in the sterilization of disposable medical products prior
to their use. This service competes primarily on quality,
reliability, service, safety, environmental acceptability and price.
The Company's major competitors are Isomedix, Inc. and Sterigenics
International, Inc.
The Company competes against a wide variety of companies to perform
funded research and development contracts for the Government. Many
of these companies have substantially greater financial and
technical resources than the Company.
The Government's own in-house capabilities and federally-funded
(non-profit) research and development centers are also, in effect,
competitors of the Company in that they perform certain types of
services that might otherwise be performed by the Company. The
primary factors of competition in the business in which the Company
is engaged include technical skills, management and marketing
expertise and price.
Employees
At the end of fiscal 1996, the Company employed approximately 1,449
employees, predominantly located in the United States.
Item 2. Properties
The Company's operations occupy approximately 680,650 square feet of
space located throughout the United States. The large majority of
the space is office space. Substantially all of the Company's
facilities are leased. For lease commitment information, reference
is made to Note 8 to the accompanying financial statements.
It is management's policy to maintain the Company's facilities and
equipment in good condition and at a high level of efficiency.
Existing facilities are considered to be generally suitable and
adequate for the Company's present needs. Substantially all of the
machinery and equipment employed by Titan in its business is owned
by the Company.
The locations of the principal operating facilities of the Company
and its consolidated subsidiaries at the end of 1996 were as
follows:
Communications Systems Software Systems
San Diego, California San Diego, California
Reston, Virginia
Washington, D.C.
Defense Systems Colorado Springs, Colorado
San Diego, California Tampa, Florida
Reston,Virginia Dallas, Texas
Norfolk, Virginia
Richmond, Virginia Emerging Technologies
Hanover, Maryland San Diego, California
Vallejo, California San Leandro, California
Heathrow, Florida Dublin, California
Denver, Colorado Chatsworth, California
Boston, Massachusetts Albuquerque, New Mexico
Dayton, Ohio Denver, Colorado
Huntsville, Alabama Bozeman, Montana
Niantic, Connecticut Princeton, New Jersey
Tempe, Arizona
Item 3. Legal Proceedings
In the ordinary course of business, defense contractors are subject
to many levels of audit and investigation by various government
agencies. Further, the Company and its subsidiaries are subject to
claims and from time-to-time are named as defendants in legal
proceedings. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect
the financial position or results of operations of the Company.
The Company is involved in appeals of the judgments resulting from
the trials of two separate lawsuits filed by former employees
claiming, among other things, wrongful termination and
discrimination. The Company intends to vigourously pursue and
defend against the appeals of these cases. While it is not
feasible to predict the outcome of these cases, management believes
that their ultimate disposition will not have a material adverse
effect on the financial position or results of operations of the
Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock and cumulative convertible preferred
stock are traded on the New York Stock Exchange ("NYSE"). As of
March 3, 1997, there were approximately 3,400 holders of record of
the Company's common stock and 740 holders of record of the
Company's preferred stock, excluding beneficial owners of shares
held in the names of brokers or other nominees. The closing prices
for the common and preferred stock on the New York Stock Exchange
as of March 3, 1997, were $3.50 and $10.75, respectively. The
quarterly market price ranges for the Company's common and
preferred stock on the New York Stock Exchange in 1996 and 1995
were as follows:
Common Stock 1996 1995
==== ====
Fiscal Quarter High Low High Low
============= === === === ===
First $ 7.38 $6.00 $7.13 $5.63
Second 7.13 5.50 9.38 6.25
Third 5.63 3.63 10.38 8.50
Fourth 4.38 2.50 9.63 6.63
Cumulative Convertible
Preferred Stock 1996 1995
=== ===
Fiscal Quarter High Low High Low
============== ==== === === ===
First $12.63 $12.00 $11.88 $10.88
Second 12.13 11.38 12.25 11.63
Third 11.50 10.88 13.25 11.75
Fourth 10.88 10.00 12.88 11.88
No dividends were paid on the Company's common stock in 1996 or
1995. Regular quarterly dividends of $.25 per share were paid on
the cumulative convertible preferred stock in both years.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
(in thousands of dollars,
except per share data) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operating Results:
Revenues $137,722 $133,967 $136,206 $149,414 $148,762
Net income (loss) (3,378) (3,807) 5,953 (7,906) 3,631
Net income (loss) per common
share (.27) (.33) .40 (.73) .26
Financial Position:
Cash and cash equivalents 2,052 5,833 5,129 5,374 4,344
Total assets 127,848 95,170 81,903 93,214 90,679
Long-term debt 40,071 4,281 765 -- 9,500
Redeemable preferred stock 3,000 -- -- -- --
Stockholders' equity 46,645 38,639 38,768 29,321 36,016
Preferred dividends 803 695 695 695 695
</TABLE>
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition (The following should
be read in conjunction with the consolidated financial
statements and related notes. Dollar amounts are expressed
in thousands.)
COMPANY OVERVIEW
Throughout 1996, Titan continued to pursue its strategy of
strengthening its core defense businesses and investing in its
early stage commercial businesses. Investment dollars were
provided from the issuance of $34.5 million of convertible
subordinated debentures, proceeds of which were used to repay
borrowings under its bank credit facilities and to fund working
capital requirements.
Significant accomplishments achieved by Titan's emerging commercial
businesses this year included the award of a $12.75 million
purchase agreement for delivery of additional conditional access
system equipment and set-top box decoders to a U.S. company and a
$2.7 million award for a similar system in Thailand, the initial
shipments on the Company's rural telephony development contract in
Indonesia, the award of a $4 million contract to provide a
communications network in Bangkok, and the opening of the San Diego
medical sterilization facility. These accomplishments marked
significant progress for Titan. However, the need to complete
product development and realize positive profit contributions from
the commercialization process has heightened the challenge of
internally funding these start-up activities. Titan's strategic
plan focuses on the pursuit of various financing alternatives
including, but not limited to, public and private offerings of
minority interests in certain of its subsidiaries and the sale of
non-core businesses, in order to provide additional funding for the
development and commercialization of new products and services.
The Company is currently involved in a number of early stage
businesses, most notably commercial satellite communications,
broadband communications, and medical device sterilization.
Certain investments made in these early stage businesses have been
capitalized and are included in the balance sheet, primarily within
the captions of Inventories, Property and Equipment, and Other
Assets, which includes capitalized software costs. At December 31,
1996, these capitalized investments aggregate approximately $18.8
million. These early stage businesses are in various growth stages
and have not yet generated sufficient revenues to achieve
profitability. The capitalized investments in these businesses are
substantially complete. However, significant sales and marketing
efforts related to the commercialization process are expected to
continue. Management intends to carefully monitor its return on
investment from all of its early stage businesses. The Company has
been pursuing a process to identify potential strategic investors
for the broadband communications business. To date, an appropriate
strategic investor has not been identified. The Company intends to
reduce its investment in this area in 1997, and has taken actions
to significantly reduce the broadband communications business
operating costs.
An essential element of the Company's long-term strategy is the
growth associated with its core Defense Systems segment. As part
of this strategy, Titan acquired Eldyne, Unidyne, and Diversified
Control Systems ("the Acquired Companies") in May 1996. The
Acquired Companies provide the Department of Defense and other
government customers with systems research, development and
prototyping, and integration and life cycle support of electronic,
information and control systems. The services and systems provided
by the Acquired Companies are complementary to those provided by
the existing Defense Systems businesses. During 1996, achievements
in this segment included the exercise of an additional $8.3 million
production option and additional orders aggregating $6 million for
Mini-DAMA satellite communications terminals, and a $2.9 million
contract with NATO to provide hardware and software products, as
well as systems integration. Subsequent to year-end, the Company
received a $50 million task order contract to provide
communications systems integration support for the U.S. government.
In addition, Titan received new awards from the U.S. Navy, with an
initial value of $5 million in 1997 and a total potential value of
$25.3 million over the next five years for electronic systems,
support and equipment for submarine undersea warfare.
OPERATING RESULTS
The table below sets forth Titan's consolidated revenues, operating
profit (loss), net interest expense, income tax provision (benefit)
and net income (loss) for each of the three years ended December
31, 1996:
1996 1995 1994
==== ==== ====
Revenues $ 137,722 $ 133,967 $ 136,206
Operating profit (loss) (2,157) (3,955) 9,635
Interest expense, net 2,961 1,059 632
Income tax provision (benefit) (1,740) (1,207) 3,050
Net income (loss) (3,378) (3,807) 5,953
Titan's consolidated revenues were $137,722, $133,967 and $136,206
in 1996, 1995 and 1994, respectively. The revenue growth in 1996
was attributable to the Defense Systems segment, primarily
reflecting the revenues generated by Eldyne, Unidyne and DCS from
the date of acquisition, offset by revenue declines in the
Communications Systems, Software Systems and Emerging Technologies
segments. Excluding revenues from Titan's Applications Group,
which was sold in April 1994, Titan's pro forma 1994 revenues were
$124,293. Increased revenues in 1995 over pro forma 1994 were
generated in all segments.
Titan's consolidated operating profit (loss) has been significantly
impacted by a number of factors in each of the three years shown
above. Combined selling, marketing, and research and development
expenses were $11,121, $12,008 and $9,686 in 1996, 1995 and 1994,
respectively, reflecting Titan's efforts to expand commercial
applications of its technologies and to continue developing certain
defense communication technologies. General and administrative
expenses have remained relatively constant over the 3 year period,
with savings from cost-cutting actions offset by increased
investment in the Company's emerging commercial businesses,
primarily the Communications Systems segment. Restructuring charges
were recorded in both 1995 and 1994 reflecting management's efforts
to adapt to both internal and external forces impacting Titan's
long-term operating strategy. The 1994 charge was offset by a
$12,700 pre-tax gain resulting from the sale of Titan's
Applications Group.
Net interest expense has fluctuated significantly over the three
year period ended December 31, 1996. Generally, the principal
component of interest expense is the Company's borrowings under its
bank lines of credit. In addition, the 1996 interest expense
includes the interest related to the convertible subordinated
debentures issued by the Company in November 1996. Borrowings from
the Company's bank lines of credit averaged $12,315, $6,400, and
$4,180 at weighted average interest rates of 8.2%, 8.8% and 7.6%
during 1996, 1995 and 1994, respectively. Also affecting interest
expense is interest on the Company's deferred compensation and
retiree medical obligations. Interest expense related to these
items was $801, $726 and $529 for 1996, 1995 and 1994,
respectively. Interest on the deferred compensation obligation
will continue to increase as the total obligation increases, while
interest on the retiree medical obligation is expected to decrease.
Income taxes reflect effective rates of 34%, 24% and 34% in 1996,
1995 and 1994, respectively. The difference between the actual
provision and the effective provision (based on the United States
statutory tax rate) in 1995 was due to the alternative minimum tax
and to permanent differences between financial statement income and
taxable income.
Business Segments
Communications Systems: The Communications Systems segment
contains two business units, both targeting rapidly growing
commercial markets. The first business unit is satellite
communications, which develops and sells satellite earth station
networks and related systems which address the demand for telephony
services. The second business unit, broadband communications,
specializes in providing complete turnkey security for television
delivery systems, with applications for delivery of television
programming via wireless, satellite, coaxial cable and fiber
optics.
Revenues in this segment were $5,885, $7,490 and $6,319 in 1996,
1995 and 1994, respectively. The composition of the revenues was
significantly different over the three year period. Revenues in
the satellite communications business unit were approximately
$3,600 in 1996, $5,100 in 1995, and $6,000 in 1994. However, in
early 1995, Titan sold its transceiver manufacturing division which
was part of this business unit. On a pro forma basis, excluding
the sold division, the satellite communications revenues were
approximately $4,600 and $2,200 in 1995 and 1994, respectively.
The decrease in pro forma revenues to $3,600 in 1996 from $4,600 in
1995 was principally due to delays in shipments on the Company's
rural telephony contract. The increase in pro forma revenues from
1994 to 1995 resulted primarily from obtaining and performing on a
contract to develop and integrate a satellite communications
network in Thailand. Revenues in 1996 included approximately
$2,200 of broadband communications revenues from the completion of
the Company's first contract in this business area and revenues
from a follow-on order with this same customer. The decrease in
revenues from 1995 to 1996 was due to delays in receiving the
follow-on order mentioned above. The 1995 segment revenues
included approximately $2,400 of broadband communications revenues
from the Company's first contract in this business area. There
were no broadband communications revenues in 1994.
The segment's operating loss was $7,841 in 1996 compared to $4,488
in 1995 and $7,927 in 1994. The losses in 1996 and 1995 reflect the
start-up nature of this segment's businesses which requires
significant selling, marketing and research and development
activities disproportionate to the level of revenues generated.
The Company has been pursuing a process to identify potential
strategic investors for the broadband communications business. To
date, an appropriate strategic investor has not been identified.
The Company intends to reduce its investment in this area in 1997,
and has taken certain actions to significantly reduce the broadband
communications business operating costs. The loss in 1994 includes
approximately $5,400 of losses and restructuring charges associated
with Titan exiting its transceiver manufacturing business.
Software Systems: The Software Systems segment provides custom
software products and services to assist customers in moving from
older mainframe systems to distributed computing systems utilizing
client/server, object-oriented software.
Revenues in this segment were $18,505 for 1996, $33,175 in 1995,
and $28,868 in 1994. One customer accounted for approximately
$8,000 of this segment's revenue in 1996 and $24,000 of this
segment's revenue in both 1995 and 1994. In the second half of
1995, this segment experienced reduced demand from this customer
and this trend continued in 1996. Excluding the revenues from this
customer, there was moderate growth in other custom software
business.
Segment operating loss was $137 in 1996, compared to operating
income of $3,803 in 1995 and $6,237 in 1994. The 1996 results were
due primarily to reduced sales from the previously mentioned
customer, the timing of corresponding decreases in selling, general
and administrative expense, and additional costs associated with a
negotiated conclusion of certain programs with this customer. The
1995 decrease was principally due to the effect of restructuring
charges for severance and other reorganization costs and the impact
of reduced sales volume mentioned previously.
Defense Systems: The Defense Systems segment includes two business
units, information and communications systems, which provide
systems solutions primarily to U.S. and allied government and
defense customers. The defense information systems business
supports high priority government programs by providing information
systems engineering services, development and integration of
systems and specialized products, as well as systems research,
development and prototyping. The defense communications business
develops and produces advanced satellite terminals and associated
voice/data processing modems. These products are specifically
tailored to meet defense requirements, provide highly secure
communications and are produced in relatively small quantities.
Revenues in this segment were $90,902, $67,948, and $78,780 for
1996, 1995 and 1994, respectively. However, excluding revenues
attributable to the Company's Applications Group, which was sold in
1994, pro forma segment revenues were $66,867 in 1994. Revenues
increased in 1996 principally due to $33,600 revenues generated
from the acquired companies Eldyne, Unidyne and DCS. Revenue
growth from the Mini-DAMA production contract also contributed to
the revenue increase in this segment. Revenues in 1996, 1995 and
1994 included approximately $6,100, $18,300 and $9,700,
respectively, for work subcontracted to the buyer of the
Applications Group. There was no operating profit associated with
these revenues. This contract was substantially completed in 1996.
Revenues and operating profit for 1995 included approximately
$1,400 recovered from a termination for convenience claim with the
U.S. Government for work performed in prior years.
Segment operating income in 1996 was $10,018, compared with $4,456
in 1995, and $4,725 in 1994. The operating income increase in 1996
is attributable to the revenue growth discussed previously, and
certain non-recurring credits resulting from the reevaluation of
estimates of certain allowable contract costs based upon favorable
developments with certain government audit agencies, as well as
changes in the carrying value of assets being disposed of.
Operating results for 1994 include $2,500 of profit resulting from
a favorable settlement and from improved contract performance on
the Company's Mini-DAMA fixed price development contract. This
profit was offset by a charge of approximately $3,200 for
restructuring costs related to the Electronics division.
Emerging Technologies: Emerging Technologies contains a group of
mature businesses generally involved in Department of Defense (DoD)
funded research and development contracts and various early stage
commercial businesses, involved in medical product sterilization
services and systems and environmental consulting services. The
Company's strategy is to use the research and development
activities as a source for developing additional DoD and commercial
products, systems and services.
Revenues in this segment were $22,430, $25,354 and $22,239 in 1996,
1995 and 1994, respectively. Approximately $7,600 of 1996 and
$7,400 of 1995 revenue was generated by the segment's early stage
businesses. Substantially all remaining revenue for all periods
presented was derived from the various established business lines.
The decline in 1996 revenue is primarily attributable to the sale
of the Company's shaped-charged munitions business in September
1995 and the completion of certain pulsed power systems contracts
with the French government. This segment's operating profit (loss)
has not been material in relation to the Company's consolidated
operating results. Generally losses experienced by the start-up
operations have offset profits contributed by the segment's other
lines of business.
LIQUIDITY AND CAPITAL RESOURCES
During 1996, Titan used $12,684 cash for operating requirements.
In addition to funding the net loss, other significant cash uses
included an increase in inventories of $5,461 principally related
to commercial rural telephony products and to government satellite
communications, funding requirements for certain accrued
compensation obligations of $2,427 and funding of $4,099 of
restructuring activities. Cash was provided primarily by
collection of receivables in the Defense Systems segment of $3,633,
the proceeds from the issuance of the convertible subordinated
debentures, net of issuance costs and the repayments of borrowings
under the Company's revolving lines of credit, of $9,739, the
refinancing of the Company's Denver Scan facility for $1,773, and
proceeds from the sale of the Company's Electronics division of
$2,492.
In November 1996, the Company issued $34,500 of 8.25% convertible
subordinated debentures due 2003. The net proceeds of
approximately $32,400 were used to repay the borrowings under the
Company's revolving lines of credit. The remaining funds were used
to fund working capital requirements and other general purposes.
As of December 31, 1996, there were no borrowings outstanding under
the Company's $14,000 bank line of credit, and the Company had
available cash of $2,052. The Company had commitments under
letters of credit at December 31, 1996 of $1,104, which reduced
availability under the line of credit to $12,896. The maturity date
of the line of credit is May 31, 1997. Subsequent to December 31,
1996, the Company received a commitment from the bank to renew the
facility through May 31, 1998.
In connection with the Company's acquisition of Eldyne, Unidyne and
DCS in May 1996, the Company's Eldyne and Unidyne subsidiaries
assumed and renegotiated a separate credit agreement with a lender
which provides, among other things, for a working capital line of
credit facility of up to $7,000 for Eldyne and Unidyne. The actual
borrowing base is limited for each of Eldyne and Unidyne to the sum
of various percentages of billed and certain unbilled government
and commercial receivables. At December 31, 1996, there were no
borrowings outstanding under this line of credit. The Company had
commitments under letters of credit at December 31, 1996 of $85,
which, in addition to borrowing base limitations, reduced
availability under the line of credit to $4,663. The Company has
guaranteed up to $2,500 of indebtedness under this line of credit.
The maturity date of the line of credit is May 31, 1997. The
Company intends to renegotiate this line of credit with the lender
and/or other banks.
Cash requirements for 1997 are expected to continue to be
significant. Investments in product development within the
Communications Systems segment were substantially complete in 1996,
however, the Company plans to continue aggressive sales and
marketing efforts. The Company has been pursuing a process to
identify potential strategic investors for the broadband
communications business. To date, an appropriate strategic
investor has not been identified. Because there can be no
assurance that the Company will be successful in obtaining outside
funding, the Company will continue to reassess its investment in
all its early stage businesses, in relation to the availability of
funding sources, both internal and external. As part of this
assessment, the Company has taken certain actions in early 1997 to
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 below.
Entry Into Commercial Business. Prior to 1992, the Company's
revenues had been derived principally from business with the
Department of Defense and other government agencies. Since that
time, the Company has pursued a strategy of using the technology
from its defense business to build commercial businesses. This
strategy presents certain significant risks for the Company. Many
of the Company's commercial businesses, such as satellite
communications, broadband communications, and medical
sterilization, remain in an early stage. As such, the Company is
subject to all the risks inherent in the operation of a start-up
venture, including the need to develop and maintain marketing,
sales and customer support capabilities, to secure appropriate
third party manufacturing arrangements, to respond to the rapid
technological advances inherent in these markets, to secure the
necessary financing to support these activities and, ultimately, to
design and manufacture products or provide services acceptable to
buyers in its target markets. Certain of the Company's new
products, including products for which the Company has contracts
for delivery, are still in the testing stage. There can be no
assurance that such tests will be completed satisfactorily or that
the Company will be able to satisfy all of the requirements for
delivery of and payment for these products. In addition, many of
the opportunities in the satellite communications and broadband
communications businesses are large, international projects which
involve lengthy sales cycles. The Company's efforts to address
these risks have required, and will continue to require,
significant expenditures and dedicated management time and other
resources. There can be no assurance that the Company will be
successful in addressing these risks or in developing these
commercial businesses.
Reliance on Major Software Customer. The Company's Software
Systems business is substantially dependent on business from a
major telecommunications company to develop and support access
carrier client/server software applications. Revenues from this
customer totaled approximately $8.3 million, $24.5 million, and
$24.3 million or 6%, 18%, and 18% of total Company revenues in
1996, 1995, and 1994, respectively. In the second half of 1995,
the Company experienced reduced demand from this customer and this
trend continued in 1996. The loss of this customer, or a
substantial delay or continued decrease in the amount of its
business, could have a material adverse effect on the Software
Systems segment's results of operations and financial condition.
Dependence on Defense Spending. The Company's Defense Systems
segment is dependent upon continued funding of U.S. Department of
Defense programs. Titan, like other companies doing business with
the U.S. Department of Defense, has been affected by declining
defense budgets and has experienced increased competition in
certain of its defense business areas. The size and scope of any
reductions in future defense budgets is uncertain, and management
anticipates that competition in most defense-related areas will
continue to be intense.
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Financial Statement
Schedules
Page
Report of Independent Public Accountants............................. 15
Financial Statements
Consolidated Statements of Operations............................. 16
Consolidated Balance Sheets....................................... 17
Consolidated Statements of Cash Flows............................. 18
Consolidated Statements of Stockholders' Equity................... 19
Notes to Consolidated Financial Statements........................ 20-31
Supporting Financial Statement Schedule Covered by the Foregoing Report of
Independent Accountants:
Schedule II - Valuation and Qualifying Accounts...................... 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Titan Corporation:
We have audited the accompanying consolidated balance sheets of The
Titan Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. These financial
statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule
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.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of The
Titan Corporation and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed
in the index to financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and
is not part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken
as a whole.
ARTHUR ANDERSEN LLP
San Diego, California
February 20, 1997
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Statements of Operations
(in thousands, except per share data)
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Revenues $137,722 $133,967 $136,206
Costs and expenses:
Cost of revenues 110,589 102,231 99,921
Selling, general and administrative expense 24,501 23,538 22,511
Research and development expense 4,789 5,904 5,339
Restructuring and other (income) expense, net -- 6,249 (1,200)
Total costs and expenses 139,879 137,922 126,571
Operating profit (loss) (2,157) (3,955) 9,635
Interest expense (3,026) (1,154) (923)
Interest income 65 95 291
Income (loss) before income taxes (5,118) (5,014) 9,003
Income tax provision (benefit) (1,740) (1,207) 3,050
Net income (loss) (3,378) (3,807) 5,953
Dividend requirements on preferred stock (803) (695) (695)
Net income (loss) applicable to common stock $ (4,181) $ (4,502) $ 5,258
Net income (loss) per weighted average common share $ (.27) $ (.33) $ .40
Weighted average common shares outstanding 15,278 13,445 13,288
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Balance Sheets
(in thousands of dollars, except shares and per share values)
As of December 31,
1996 1995
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 2,052 $ 5,833
Accounts receivable - net 47,509 39,360
Inventories 13,157 10,399
Prepaid expenses and other 2,059 2,872
Deferred income taxes 6,037 4,809
Total current assets 70,814 63,273
Property and equipment - net 21,005 18,295
Goodwill - net of accumulated amortization of $4,723 and $3,842 21,348 3,550
Other assets - net 14,681 10,052
Total assets $127,848 $95,170
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 8,394 $10,184
Line of credit -- 9,200
Note payable to related party 1,000 --
Current portion of long-term debt 1,010 1,019
Accrued compensation and benefits 8,680 9,192
Other accrued liabilities 10,615 13,803
Total current liabilities 29,699 43,398
Long-term debt 40,071 4,281
Other non-current liabilities 8,433 8,852
Commitments and contingencies
Series B cumulative convertible redeemable preferred stock,
$3,000 liquidation preference, 6% cumulative annual dividend,
500,000 shares issued and outstanding 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: 17,133,680 and
15,087,087 shares 171 151
Capital in excess of par value 42,751 31,148
Retained earnings 5,988 10,169
Treasury stock (1,106,114 and 1,161,147 shares), at cost (2,960) (3,524)
Total stockholders' equity 46,645 38,639
Total liabilities and stockholders' equity $127,848 $95,170
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Statements of Cash Flows
(in thousands of dollars)
For the years ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $(3,378) $(3,807) $ 5,953
Adjustments to reconcile net income (loss) to
net cash provided by (used for) operating activities:
Depreciation and amortization 5,793 4,117 3,424
Deferred income taxes and other (1,909) 178 681
Change in operating assets and liabilities,
net of effects from businesses sold and
acquired:
Accounts receivable 3,453 (3,196) 8,091
Inventories (5,461) (3,287) (494)
Prepaid expenses and other assets 344 811 160
Accounts payable (3,496) 2,782 (44)
Income taxes payable (653) -- --
Accrued compensation and benefits (2,427) (1,808) 1,559
Restructuring activities (4,099) (486) (1,200)
Other liabilities (851) (1,249) (12,218)
Net cash provided by (used for) operating
activities (12,684) (5,945) 5,912
Cash Flows from Investing Activities:
Proceeds, net of transaction costs, from sale
of businesses 2,492 1,835 16,766
Capital expenditures (6,179) (8,988) (6,244)
Capitalized software costs (3,570) (1,957) (1,345)
Payment for purchase of businesses, net of cash acquired (2,679) -- --
Other 170 117 33
Net cash provided by (used for) investing activities (9,766) (8,993) 9,210
Cash Flows from Financing Activities:
Additions to debt 37,000 13,800 --
Retirements of debt (15,841) (621) (16,871)
Deferred debt issuance costs (2,035) -- --
Proceeds from stock issuances 348 3,158 2,199
Dividends paid (803) (695) (695)
Net cash provided by (used for) financing activities 18,669 15,642 (15,367)
Net increase (decrease) in cash and cash equivalents (3,781) 704 (245)
Cash and cash equivalents at beginning of year 5,833 5,129 5,374
Cash and cash equivalents at end of year $ 2,052 $ 5,833 $ 5,129
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Titan Corporation
Consolidated Statements of Stockholders' Equity
(in thousands of dollars, except per share data)
Cumulative
Convertible Capital
Preferred Common in Excess of Retained Treasury
Stock Stock Par Value Earnings Stock Total
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 $ 695 $ 138 $ 24,974 $ 9,413 $(5,899) $29,321
Exercise of stock options -- 8 2,191 -- -- 2,199
Shares contributed to employee
benefit plans and other -- -- -- -- 1,295 1,295
Income tax benefit from
employee stock transactions -- -- 695 -- -- 695
Dividends on preferred stock -
$1 per share -- -- -- (695) -- (695)
Net income -- -- -- 5,953 -- 5,953
Balances at December 31, 1994 695 146 27,860 14,671 (4,604) 38,768
Stock issuance -- -- 1,413 -- 912 2,325
Exercise of stock options -- 5 1,209 -- (381) 833
Shares contributed to employee
benefit plans -- -- 322 -- 549 871
Income tax benefit from employee
stock transactions -- -- 344 -- -- 344
Dividends on preferred stock -
$1 per share -- -- -- (695) -- (695)
Net loss -- -- -- (3,807) -- (3,807)
Balances at December 31, 1995 695 151 31,148 10,169 (3,524) 38,639
Stock issuance for acquisition -- 18 10,659 -- -- 10,677
Exercise of stock options and other -- 2 408 -- (62) 348
Shares contributed to
employee benefit plans -- -- 466 -- 626 1,092
Income tax benefit from employee stock
transactions -- -- 70 -- -- 70
Dividends on preferred stock --
Cumulative Convertible, $1.00 per share -- -- -- (695) -- (695)
Series B, 6% annual -- -- -- (108) -- (108)
Net loss -- -- -- (3,378) -- (3,378)
Balances at December 31, 1996 $ 695 $ 171 $42,751 $ 5,988 $ (2,960) $ 46,645
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
The Titan Corporation
Notes to Consolidated Financial Statements
(in thousands of dollars, except per share data)
Note 1. Summary of Significant Accounting Policies
Nature of Operations. The Titan Corporation provides engineering,
technical, management and consulting services in the areas of
national security, software systems, communication systems,
information systems, electronic control systems, advanced research
and development, sterilization and the environment. The Company
also develops, designs, manufactures and markets satellite
communications subsystems, broadband communications systems, and
pulsed power products including linear accelerators.
Principles of Consolidation. The consolidated financial statements
include the accounts of The Titan Corporation ("Titan" or "the
Company") and its subsidiaries. All significant intercompany
transactions and balances have been eliminated. Also, certain
prior year amounts have been reclassified to conform to the 1996
presentation.
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.
Start-up Activities. The Company is involved in a number of start-
up ventures, most notably commercial satellite communications,
broadband communications, and medical device sterilization.
Certain investments made in these start-up ventures are reflected
in the balance sheet, primarily within the captions of Inventories,
Property and Equipment, and Other Assets, which includes
capitalized software costs. These capitalized investments
aggregate approximately $18,810 at December 31, 1996. The
capitalized investments in these businesses were substantially
complete in 1996. These start-up ventures are in various early
growth stages and have not yet generated sufficient revenues to
achieve profitability. At this time, management plans to continue
to invest in these ventures, though the level of such investment
may change based on the business' operating performance and cash
flows. Furthermore, management will continue to review and
evaluate all alternatives related to these investments, including
strategic partnering, joint venturing, or sale. The realizability
of the related assets is routinely assessed by management from
both an operating perspective, as well as through giving
consideration to strategic alternatives believed to be available.
Revenue Recognition. A majority of the Company's revenue, both
commercial and government, is derived from products manufactured
and services performed under cost-reimbursement and fixed-price
contracts wherein revenues are generally recognized using the
percentage-of-completion method. Certain other revenues are
recognized as units are delivered. Estimated contract losses are
fully charged to operations when identified.
Cash Equivalents. All highly liquid investments purchased with an
original maturity of three months or less are classified as cash
equivalents.
Inventories. Inventories include the cost of material, labor and
overhead, and are stated at the lower of cost, determined on the
first-in, first-out (FIFO) and weighted average methods, or market.
Property and Equipment. Property and equipment are stated at cost.
Depreciation is provided using the straight-line method, with
estimated useful lives of 32 years for buildings, 2 to 15 years for
leasehold improvements and 3 to 7 years for machinery and equipment
and furniture and fixtures. Certain machinery and equipment in the
Company's medical sterilization business is depreciated based on
units of production.
Goodwill. The excess of the cost over the fair value of net assets
of purchased businesses ("goodwill") is amortized on a straight-
line basis over varying lives ranging from 5 to 30 years. The
Company periodically re-evaluates the original assumptions and
rationale utilized in the establishment of the carrying value and
estimated lives of these assets. The criteria used for these
evaluations include management's estimate of the asset's continuing
ability to generate positive income from operations and positive
cash flow in future periods as well as the strategic significance
of the intangible asset to the Company's business objectives.
Capitalized Software Costs. The Company's policy is to amortize
capitalized software costs over the greater of (a) the ratio that
current gross revenues for a product bears to the total of current
and amortized future gross revenues for that product, or (b) the
straight-line method over the remaining estimated economic life of
the product, including the period being reported on.
Notwithstanding the above, the maximum amortization period is four
years. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic
life of the product, or both, could be reduced in the future which
could significantly impact the carrying amount of the capitalized
software costs.
Impairment of Long-Lived Assets. Effective January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121). The statement
requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
possible impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully
recoverable. The adoption of this statement had no material effect
on the Company's financial statements.
Stock Based Compensation. The Company has elected to adopt the
disclosure only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, the Company will continue to account for its
stock based compensation plans under the provisions of APB No. 25.
Therefore, the adoption of SFAS 123 by the Company had no effect on
the Company's financial position and results of operations.
Income Taxes. The Company accounts for income taxes under
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS 109), which requires the use of 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 or
all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Per Share Information. Per share information is based on the
weighted average number of common shares and all dilutive common
share equivalents outstanding. Common stock equivalents consist
primarily of shares issuable upon the exercise of stock options.
Conversion of the Series A Preferred Stock has not been assumed as
the effect of the conversion would not be dilutive in any of the
periods presented. Neither the Series B Preferred Stock nor the
Company's convertible subordinated debentures are considered common
stock equivalents for the purpose of earnings per share
calculations. Common stock equivalents were not considered in the
calculation of net loss per share in 1996 and 1995, as the impact
would be antidilutive.
Note 2. Acquisition
On May 24, 1996, the Company completed the acquisition of three
privately-held affiliated businesses -- Eldyne, Inc. ("Eldyne"),
Unidyne Corporation ("Unidyne") and Diversified Control Systems,
LLC ("DCS"). Eldyne, Unidyne, and DCS are information technology
businesses that provide the Department of Defense and other
government customers with systems research, development and
prototyping, and integration and life cycle support of electronic,
information and control systems. The overall transaction
consideration, excluding associated transaction costs and expenses,
consisted of $1 million cash, 1,921,534 shares of Titan common
stock with an assigned value of $6.00 per share, the issuance of
500,000 shares of a new class of cumulative convertible redeemable
preferred stock (see Note 9), assumption of indebtedness (see Note
7), and a promissory note for $1 million issued to the principal
stockholder of the acquired companies. The $1 million note is due
on March 15, 1997, and interest of 10% per annum is due quarterly
and at maturity. The Company also entered into an agreement with
the principal stockholder, providing for annual payments of $.3
million, payable monthly, for 6 years beginning May 24, 1996. The
net present value this agreement ($1.5 million) was recorded as
additional purchase price at the acquisition date. This obligation
was settled in full on January 2, 1997. Estimated other direct
costs of the acquisition were approximately $3 million.
The acquisition has been 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. The purchase agreements provided for a post-closing
adjustment to the purchase price based on the final valuation of
the acquired assets and assumed liabilities, pursuant to which
142,036 shares of the Company's common stock were returned to the
Company by the seller in December 1996. This transaction was
recorded as a reduction of $852 to the purchase price in the fourth
quarter of 1996. The excess of the purchase price over the
estimated fair value of net assets acquired of $18,200 at December
31, 1996 is being amortized using a straight-line method over 30
years.
Unaudited pro forma data giving effect to the purchase of Eldyne,
Unidyne and DCS as if they had been acquired at the beginning of
1995 are shown below:
1996 1995
==== ====
Revenues $162,058 $185,052
Net loss (5,068) (3,356)
Net loss per share (.37) (.28)
The pro forma net loss for 1996 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 3. Restructuring
In 1995, the Board of Directors adopted a formal plan of
restructuring that redefined Titan's businesses into four business
segments: Communications Systems, Software Systems, Defense
Systems, and Emerging Technologies. The plan was an integral part
of management's strategy to position the Company for access to
capital markets as a significant source of continued development
funding. The plan resulted in charges of approximately $5,431 that
provided for disposition of businesses not central to the Company's
long-term strategy, as well as significant reorganization of the
Software Systems and sterilization businesses, reductions of
personnel, and other actions associated with reorganizing the
structure of the Company. As of December 31, 1996, the planned
restructure activities have been substantially accomplished.
Management currently anticipates that the remaining reserves will
be applied to costs estimated to be incurred in the first half of
1997. During 1996, charges against restructuring reserves for
severance were $1,125, related to 85 employees terminated
throughout the Company, and other charges to the reserves,
primarily related to the exiting of businesses, were $2,974. These
other charges reflect the sale on July 26, 1996 of the Company's
Electronics division, which was part of the Defense Systems
segment. At December 31, 1996, approximately $815 of the initial
restructuring accrual remained in other accrued liabilities for
costs associated with the exiting of businesses and the termination
of certain agreements. The group of businesses planned to be
exited in the restructuring plan had revenues of $14,160 and
$19,384 and operating income (loss) of $2,802 and $(298) for 1996
and 1995, respectively.
In early 1994, Titan sold its Applications Group (its Army training
and simulation service business) as part of a formal plan of
restructuring adopted at that time. The sale resulted in a pre-tax
gain of approximately $12,700 and generated net cash proceeds of
approximately $17,000. The gain on sale was substantially offset
by provisions made for the estimated costs of planned disposals
and/or consolidations of certain operations deemed not compatible
with the Company's long range strategy at that time. Such strategy
was primarily reliant upon Titan internally funding the product
development efforts and commercialization activities relating to
its start-up ventures.
Note 4. Other Financial Data
<TABLE>
<CAPTION>
Following are details concerning certain balance sheet accounts:
1996 1995
<S> <C> <C>
Accounts Receivable:
U.S. Government - billed $ 17,768 $ 14,449
U.S. Government - unbilled 19,885 10,758
Trade 10,093 14,447
Less allowance for doubtful accounts (237) (294)
$ 47,509 $ 39,360
</TABLE>
Unbilled receivables include approximately $11,200 and $5,000 at
December 31, 1996 and 1995 representing work-in-process which will
be billed in accordance with contract terms and delivery schedules.
Also included in unbilled receivables are amounts billable upon
final execution of contracts, contract completion, milestones or
completion of rate negotiations. Generally, unbilled receivables
are expected to be collected within one year. 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.
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Inventories:
Materials $ 2,051 $ 3,152
Work-in-process 9,840 4,159
Finished goods 1,266 3,088
$ 13,157 $ 10,399
Property and Equipment:
Machinery and equipment $ 29,986 $ 23,429
Furniture and fixtures 5,351 3,207
Land, buildings and leasehold improvements 7,584 3,503
Construction in progress 996 6,041
43,917 36,180
Less accumulated depreciation and
amortization (22,912) (17,885)
$ 21,005 $ 18,295
</TABLE>
Deferred income taxes of $4,094 and $5,904 and capitalized software
costs of $6,413 and $3,088 are included in Other Assets at December
31, 1996 and 1995, respectively. At December 31, 1996 and 1995,
respectively, other liabilities, current and non-current, include
$1,352 and $958 related to estimated losses on contracts. In
addition, these captions include liabilities for post-retirement
benefits for employees of previously discontinued operations of
$2,923 and $3,016 at December 31, 1996 and 1995, respectively.
Also included in other accrued liabilities are customer advance
payments of approximately $2,414 and $1,653 at December 31, 1996
and 1995, respectively, and $815 and $4,914 related to
restructuring activities at December 31, 1996 and 1995,
respectively.
Note 5. Segment Information
Titan classifies its businesses in four industry segments,
Communications Systems, Software Systems, Defense Systems, and
Emerging Technologies. The Communications Systems segment contains
two start-up business units, both targeting rapidly growing
commercial markets. The first business unit is satellite
communications, which develops, manufactures and sells satellite
earth station networks and related subsystems. The second business
unit, broadband communications, specializes in providing complete
turnkey security for television delivery systems. The Software
Systems segment provides custom and semi-custom software
development services to assist customers in moving from older
mainframe systems to distributed computing systems utilizing
client/server software. The Defense Systems segment, serving
primarily the U.S. Government, includes satellite communications
products; test and evaluation of complex systems; management and
technical consulting; training and simulation support; and other
consulting and engineering services. The Emerging Technologies
segment contains a group of businesses including the start-up
medical product sterilization services and systems and
environmental consulting services businesses as well as several
established businesses generally involved in broad-based technology
development primarily for the U.S. Government. Substantially all
operations are located in the United States. Export revenues
amounted to approximately $10,713, $14,240, and $8,498 in 1996,
1995 and 1994, respectively, primarily to countries in Western
Europe and the Far East.
<TABLE>
<CAPTION>
The following tables summarize industry segment data for 1996, 1995
and 1994.
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Communications Systems $ 5,885 $ 7,490 $ 6,319
Software Systems 18,505 33,175 28,868
Defense Systems 90,902 67,948 78,780
Emerging Technologies 22,430 25,354 22,239
$137,722 $133,967 $136,206
</TABLE>
Sales to the United States Government, including both defense and
non-defense agencies, and sales as a subcontractor as well as
direct sales, aggregated approximately $102,925 in 1996, $81,632 in
1995, and $93,107 in 1994. In the Defense Systems segment,
revenues in 1996, 1995 and 1994 included approximately $6,100,
$18,300, and $9,700, respectively, for work subcontracted to the
buyer of the Applications Group which was sold in April 1994.
There was no operating profit associated with these revenues. This
contract was substantially completed in 1996. Defense Systems 1995
revenues and operating profit included approximately $1,400
recovered from a termination for convenience claim with the U.S.
Government for work performed in prior years. Within the Software
Systems segment, sales to one customer, a telephone company,
totaled $8,325, $24,451, and $24,323, in 1996, 1995 and 1994,
respectively. No other single customer accounted for 10% or more
of the consolidated revenues for these years. Intersegment sales
were not significant in any year.
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Operating Profit (Loss):
Communications Systems $ (7,841) $ (4,488) $ (7,927)
Software Systems (137) 3,803 6,237
Defense Systems 10,018 4,456 4,725
Emerging Technologies 355 14 (305)
Corporate (4,552) (7,740) 6,905
$(2,157) $ (3,955) $ 9,635
The Defense Systems segment includes Applications Group revenue of
$11,913 and operating profit of $919 in 1994 through the date of
sale.
Corporate includes corporate general and administrative expenses,
certain Corporate restructuring charges, and gains or losses from
the sale of businesses. Corporate general and administrative
expenses are generally recoverable from contract revenues by
allocation to operations.
</TABLE>
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Identifiable Assets:
Communications Systems $ 19,035 $ 8,287 $ 4,813
Software Systems 6,139 8,945 6,084
Defense Systems 66,204 39,587 38,859
Emerging Technologies 20,014 19,191 12,165
General corporate assets 16,456 19,160 19,982
$127,848 $95,170 $81,903
</TABLE>
General corporate assets are principally cash, prepaid expenses,
deferred income taxes, and other assets.
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Depreciation and Amortization
of Property and Equipment,
Goodwill, and Other Assets:
Communications Systems $ 1,072 $ 366 $ 387
Software Systems 1,152 1,044 533
Defense Systems 2,346 1,744 1,838
Emerging Technologies 1,094 712 630
Corporate 129 251 36
$ 5,793 $ 4,117 $ 3,424
Capital Expenditures:
Communications Systems $ 1,837 $ 697 $ 397
Software Systems 261 1,709 1,784
Defense Systems 2,266 1,431 2,003
Emerging Technologies 1,726 5,007 1,963
Corporate 89 144 97
$ 6,179 $ 8,988 $ 6,244
Note 6. Income Taxes
The components of the income tax provision (benefit) are as follows:
1996 1995 1994
Current:
Federal $ -- $(2,232) $1,377
State -- (220) 203
-- (2,452) 1,580
Deferred (1,740) 1,245 1,470
$(1,740) $(1,207) $ 3,050
</TABLE>
Following is a reconciliation of the income tax provision (benefit)
expected (based on the United States federal income tax rate
applicable in each year) to the actual tax provision (benefit) on
income (loss):
<TABLE>
1996 1995 1994
<S> <C> <C> <C>
Expected Federal tax provision
(benefit) $(1,740) $(1,705) $3,061
State income taxes, net
of Federal income tax
benefits (256) (44) 450
Loss carryforwards/carrybacks -- -- (216)
Research credit -- -- (338)
Goodwill amortization 88 160 149
Alternative minimum tax -- 100 --
Keyman life insurance 36 75 83
Other 132 207 (139)
Actual tax provision (benefit) $(1,740) $(1,207) $ 3,050
</TABLE>
The deferred tax assets as of December 31, 1996 and 1995, result
from the following temporary differences:
<TABLE>
1996 1995
===== =====
<S> <C> <C>
Inventory and contract loss reserves $ 1,678 $ 3,005
Employee benefits 4,507 4,289
Restructuring 361 2,786
Tax credit carryforwards 1,383 815
Depreciation (3,051) (1,875)
Loss carryforward 6,932 1,680
Other (479) 1,213
11,331 11,913
Valuation allowance (1,200) (1,200)
Net deferred tax assets $10,131 $10,713
</TABLE>
Realization of certain components of the net deferred tax asset is
dependent upon Titan generating sufficient taxable income prior to
expiration of loss and credit carryforwards. Although realization
is not assured, management believes it is more likely than not that
the net deferred tax asset will be realized. The amount of the net
deferred tax asset considered realizable, however, could be reduced
in the near term if estimates of future taxable income during the
carryforward period are changed. Also, under Federal tax law,
certain potential changes in ownership of the Company which may not
be within the Company's control may limit annual future utilization
of these carryforwards.
Net tax refunds in 1996 and 1995 were $322 and $828, respectively.
Cash paid for income taxes was $1,252 in 1994.
Note 7. Debt
In November 1996, the Company issued $34,500 of 8.25% convertible
subordinated debentures due 2003. The debentures are convertible
into common stock of the Company at a conversion price of $3.50 per
share, subject to adjustment upon the occurrence of certain events.
The debentures are redeemable, on or after November 2, 1999,
initially at 104.125% of principal amount and at decreasing prices
thereafter to 100% of principal amount through maturity, in each
case together with accrued interest. The debentures also may be
repaid at the option of the holder upon a change in control, as
defined in the indenture governing the debentures, at 100% of
principal amount plus accrued interest. The net proceeds of the
offering were used to repay borrowings under the Company's bank
lines of credit and for working capital and general corporate
purposes. At December 31, 1996, other assets include $1,987 in
capitalized costs related to the issuance, which are being
amortized to interest expense ratably over the life of the debt.
At December 31, 1996, the Company had no borrowings outstanding
under a $14,000 bank line of credit with a maturity date of May 31,
1997. The Company had commitments under letters of credit at
December 31, 1996 of $1,104, which reduced availability under the
line of credit. The Company currently has the option to borrow at
prime plus 0.5 percent or at LIBOR plus 2.5 percent, decreasing to
prime or to LIBOR plus 2% after two consecutive quarters of
positive net income. Subsequent to December 31, 1996, the Company
received a commitment from the bank to renew the facility through
May 31, 1998. At December 31, 1995, borrowings outstanding under
this agreement were $9,200 at a weighted average interest rate of
8.13%. Borrowings under the Company's lines of credit, including
the line with a lender discussed below, averaged $12,315, $6,400,
and $4,180 at weighted average interest rates of 8.2%, 8.8% and
7.6% during 1996, 1995 and 1994, respectively.
In September 1996, the Company entered into an amendment to the
line of credit under which the Company and its wholly owned
subsidiary, Titan Information Systems Corporation ("TIS"), granted
the bank a security interest in substantially all of their non-real
property assets, including accounts receivable, inventory,
equipment and patents, and the Company pledged the stock of TIS,
Eldyne and Unidyne to the bank. The amendment also eliminated or
revised certain financial covenants. The amended line of credit
does, however, contain financial covenants which require the
Company to maintain stipulated levels of net worth, a specified
ratio of total liabilities to tangible net worth and a specified
quick ratio. The Company was in compliance with these covenants as
of December 31, 1996.
In connection with the acquisition of Eldyne, Unidyne, and DCS, the
Company's Eldyne and Unidyne subsidiaries assumed and renegotiated
a separate credit agreement with a lender which provides for a
working capital line of credit facility, a mortgage note and an
equipment note. The agreement allows borrowings on the line through
May 31, 1997, at an interest rate of LIBOR plus 2.75% and up to an
aggregate of $7,000, limited by the sum of various percentages of
billed and certain unbilled government and commercial receivables.
At December 31, 1996, there were no borrowings outstanding under
the line of credit facility. The Company had commitments of $85
under letters of credit, which, in addition to limitations based on
receivables, reduced availability under the line of credit to
$4,663. The line of credit is collateralized by substantially all
of the assets of the acquired companies, and borrowings up to
$2,500 under the line have been guaranteed by the Company. The
line of credit also requires that borrowings be used only for
Eldyne and Unidyne, and prohibits these entities and DCS from
transferring funds to the Company. The mortgage note of $1,244 and
the equipment note of $122 at December 31, 1996, are collateralized
by real estate and equipment, bear interest at LIBOR plus 2.5% and
require monthly payments through February 15, 2000 and December 15,
1998, respectively. This credit agreement contains, among other
financial covenants, provisions which require Eldyne and Unidyne to
maintain stipulated levels of tangible net worth and working
capital. Eldyne and Unidyne were in compliance with these
covenants as of December 31, 1996.
At December 31, 1996 and 1995, the Company had $5,215 and $5,300,
respectively, outstanding under two promissory notes, secured by
certain machinery and equipment, at interest rates of 8.5% and
7.42%, and 8.5% and 8.56%, respectively.
Cash paid for interest, primarily on these borrowings, was $2,000,
$572, and $578, in 1996, 1995, and 1994, respectively.
Note 8. Commitments and Contingencies
Titan is obligated for aggregate rentals of $37,502 under operating
lease agreements, principally for facilities. These leases
generally include renewal options and require minimum payments of
$5,460 in 1997, $4,861 in 1998, $4,152 in 1999, $3,536 in 2000,
$3,522 in 2001, and $15,971 for the years thereafter. Rental
expense under these leases was $7,975 in 1996, $7,496 in 1995 and
$7,367 in 1994. The Company has entered into a long-term lease
agreement for facilities which are owned by an entity in which the
Company has a minority ownership interest. Rental expense in 1996,
1995 and 1994 includes $884, $868, and $838, respectively, paid
under this agreement.
The Company is involved in appeals of the judgments resulting from
the trials of two separate lawsuits filed by former employees
claiming, among other things, wrongful termination and
discrimination. The Company intends to vigourously pursue and
defend against the appeals of these cases. While it is not
feasible to predict the outcome of these cases, management believes
that their ultimate disposition will not have a material adverse
effect on the financial position or results of operations of the
Company.
In the ordinary course of business, defense contractors are subject
to many levels of audit and investigation by various government
agencies. Further, the Company and its subsidiaries are subject to
claims and from time to time are named as defendants in legal
proceedings. In the opinion of management, the amount of ultimate
liability with respect to these actions will not materially affect
the financial position or results of operations of the Company.
Note 9. Series B Cumulative Convertible Redeemable Preferred Stock
In connection with the acquisition of Eldyne, Unidyne and DCS, the
Company issued 500,000 shares of Series B Cumulative Convertible
Redeemable Preferred Stock (the "Series B Preferred Stock"). The
Series B Preferred Stock accrues dividends at a rate of 6% per
annum payable quarterly in arrears cumulatively, has a liquidation
preference of $6.00 per share plus accrued and unpaid dividends
(the "Series B Liquidation Preference") and entitles the holder
thereof to one vote per outstanding share, voting together as a
class with the holders of shares of outstanding Common Stock (and
any other series or classes entitled to vote therewith) on all
matters submitted for a shareholder vote. The Series B Preferred
Stock is convertible at the holder's option into shares of the
Company's common stock at a conversion price of $9.00 per share
(subject to customary anti-dilution adjustments) on or after
November 24, 1996 until November 24, 1997. The Series B Preferred
Stock also is redeemable at the Series B Liquidation Preference (i)
at the holder's option, after May 24, 1998 until May 24, 2001, and
(ii) at the Company's option, after May 24, 2001 until May 24,
2006. The Series B Preferred Stock is not considered a common
stock equivalent for the purpose of earnings per share
calculations.
Note 10. Cumulative Convertible Preferred Stock
Each share of $1.00 cumulative convertible preferred stock is
entitled to 1/3 vote, annual dividends of $1 per share and is
convertible at any time into 2/3 share of the Company's common
stock. Common stock of 463,248 shares has been reserved for this
purpose. Upon liquidation, the $1.00 cumulative convertible
preferred stockholders are entitled to receive $20 per share, plus
cumulative dividends in arrears, before any distribution is made to
the common stockholders.
Note 11. Common Stock
At December 31, 1996, 12,800,181 aggregate common shares were
reserved for future issuance for conversion of convertible
subordinated debentures, preferred stock, all stock incentive plans
and warrants.
On August 17, 1995, the Board of Directors adopted a Shareholder
Rights Agreement and subsequently distributed one preferred stock
purchase right ("Right") for each outstanding share of the
Company's common stock. Each Right entitles the registered holder
to purchase from the Company one one-hundredth of a share of Series
A Junior Participating Preferred Stock, par value $1.00 per share
(the "Preferred Shares") at a price of $42.00 per one one-hundredth
of a Preferred Share, subject to adjustment. The Rights become
exercisable if a person or group acquires, in a transaction not
approved by the Company's Board of Directors ("Board"), 15% or more
of the Company's common stock or announces a tender offer for 15%
or more of the stock.
If a person or group acquires 15% or more of the Company's common
stock, each Right (other than Rights held by the acquiring person
or group which become void) will entitle the holder to receive upon
exercise a number of shares of Company common stock having a market
value of twice the Right's exercise price. If the Company is
acquired in a transaction not approved by the Board, each Right may
be exercised for common shares of the acquiring company having a
market value of twice the Right's exercise price. The Company may
redeem the Rights at $.01 per Right, subject to certain conditions.
The Rights expire on August 17, 2005.
In September 1995, the Company completed a private placement of
300,000 shares of its common stock, receiving net proceeds of
$2,325. Treasury shares were used for the issuance. The Company's
shares were placed with offshore institutional investors pursuant
to Regulation S under the Securities Act of 1933, as amended.
Note 12. Stock-Based Compensation Plans
The Company provides stock-based compensation to officers,
directors and key employees through various fixed stock option
plans and to all non-executive employees through an employee stock
purchase plan. The Company has adopted the disclosure only
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no
compensation cost has been recognized for the fixed stock option or
stock purchase plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent
with the method of SFAS 123, the Company's results of operations
would have been reduced to the pro forma amounts indicated below
<TABLE>
<CAPTION>
1996 1995
==== ====
<S> <C> <C>
Net loss As reported $(3,378) $(3,807)
Pro forma (3,795) (3,981)
Net loss per share As reported $ (.27) $ (.33)
Pro forma (.30) (.35)
</TABLE>
The Company currently has options available for grant under the
Stock Option Plans of 1990 and 1994, The 1992 Directors' Stock
Option Plan and The 1996 Directors' Stock Option and Equity
Participation Plan (the "1996 Directors' Plan"). Options
authorized for grant under the employee plans and under the
directors' plans are 2,000,000 and 230,000, respectively. Under
the 1996 Directors' Plan, a director may elect to receive stock in
lieu of fees, such stock to have a fair market value equal to the
fees. Under all plans, the exercise price of each option equals
the market price of the Company's stock on the date of grant.
Under the employee plans, an option's maximum term is ten years.
Under the directors' plans, options expire 90 days after the option
holder ceases to be a director. Employee options may be granted
throughout the year; directors' options are granted annually during
the first two or three years as a director. All options vest in
25% increments beginning one year after the grant date.
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1996 and
1995: zero dividend yield; expected volatility of 87%; a risk-free
interest rate of 6.57%; and an expected life of 5 years.
A summary of the status of the Company's fixed stock option plans
as of December 31, 1996 and 1995, and changes during the years
ending on those dates is presented below:
<TABLE>
1996 1995
=========================== ===========================
Shares Weighted-Average Shares Weighted-Average
(000) Exercise Price (000) Exercise Price
<S> <C> <C> <C> <C>
Fixed Options
==============
Outstanding at beginning of year 1,219 $ 5.05 1,429 $3.41
Granted 723 4.42 429 8.02
Exercised (125) 3.28 (454) 2.71
Cancelled (305) 6.20 (185) 5.16
Outstanding at end of year 1,512 4.66 1,219 5.05
Options exercisable at year-end 480 452
Weighted-average fair value of
options granted during the year $3.18 $5.76
</TABLE>
The following table summarizes information about fixed stock
options outstanding at December 31, 1996:
<TABLE>
Options Outstanding Options Exercisable
================================= ============================================
Range of Number Weighted-Average Number
Exercise Outstanding Remaining Weighted-Average Exercisable Weighted-Average
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
<S> <C> <C> <C> <C> <C>
$2.63 - 3.50 470,400 6.67 years $3.23 331,300 $ 3.24
4.00 - 5.88 792,500 9.07 4.33 105,500 4.86
6.25 - 9.50 249,500 8.84 8.41 43,400 9.03
1,512,400 8.28 4.66 480,200 4.12
</TABLE>
Under the 1995 Employee Stock Purchase Plan, the Company is
authorized to issue up to 500,000 shares of common stock to its
full-time employees. Elected officers are not eligible to
participate. Under the terms of the plan, employees may elect to
have between 1 and 10 percent of their regular earnings, as defined
in the plan, withheld to purchase the Company's common stock. The
purchase price of the stock is 85 percent of the lower of its
market price at the beginning or at the end of each subscription
period. A subscription period is six months, beginning January 1
and July 1 of each year. The first subscription period under the
plan began January 1, 1996. Approximately 11% of eligible
employees participated in the Plan and purchased 89,865 shares of
Company stock in 1996. Pro forma compensation cost is recognized
for the fair value of the employees' purchase rights, which was
estimated using the Black-Scholes model with the following
assumptions: zero dividend yield; a life of 1 year; expected
volatility of 87%; and a risk-free interest rate of 6.57%. The
weighted-average fair value of the purchase rights granted in 1996
was $1.71.
Three of the Company's emerging business subsidiaries have issued
stock options for subsidiary stock, which is not publicly traded.
Note 13. Benefit Plans
The Company has various defined contribution benefit plans covering
certain employees. The Company's contributions to these plans were
$2,269, $2,514, and $2,291 in 1996, 1995 and 1994, respectively.
The Company's discretionary contribution to its Employee Stock
Ownership Plan was $339 in 1994. There were no discretionary
contributions for 1996 or 1995. During 1996, 1995 and 1994, the
Company utilized treasury stock of $1,092, $871, and $1,267,
respectively, for benefit plan contributions.
The Company has a non-qualified executive deferred compensation
plan for certain officers and key employees. The Company's expense
for this plan was $901, $970, and $668 in 1996, 1995, and 1994,
respectively. At December 31, 1996 and 1995, respectively, Other
non-current liabilities include $3,492 and $2,975 for obligations
under this plan. Interest expense for the years ended December 31,
1996, 1995, and 1994 includes $561, $486, and $229, respectively,
related to the plan. The Company also has performance bonus plans
for certain of its employees. Related expense amounted to
approximately $1,169, $2,679, and $5,220 in 1996, 1995 and 1994,
respectively.
The Company has previously provided for post-retirement benefit
obligations of operations discontinued in prior years. The Company
has no post-retirement benefit obligations for any of its
continuing operations.
Note 14. Quarterly Financial Data (Unaudited)
<TABLE>
First Second Third Fourth Total
1996 Quarter Quarter Quarter Quarter Year .
==== ======= ======= ======= ======= ======
<S> <C> <C> <C> <C> <C>
Revenues $ 31,172 $ 29,162 $ 34,854 $ 42,534 $ 137,722
Gross profit 6,317 7,051 5,889 7,876 27,133
Net income (loss) (864) (747) (1,969) 202 (3,378)
Net income (loss)per
common share (.07) (.06) (.14) .00 (.27)
First Second Third Fourth Total
1995 Quarter Quarter Quarter Quarter(a) Year
==== ======= ======= ======= ======= ======
Revenues $ 30,165 $ 34,307 $ 34,983 $ 34,512 $133,967
Gross profit 8,464 9,222 7,346 6,704 31,736
Net income (loss) 535 719 470 (5,531) (3,807)
Net income (loss) per
common share .03 .04 .02 (.41) (.33)
(a) Net loss in the fourth quarter of 1995 includes a net restructuring charge (see Note
3 of Notes to Consolidated Financial Statements).
</TABLE>
The above financial information for each quarter reflects all
normal and recurring adjustments.
Item 9. Disagreements with Accountants on Accounting and Financial
Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by Item 10 with respect to the directors
and the executive officers of the Company is incorporated herein by
this reference to such information in the definitive proxy statement
for the 1997 Annual Meeting of Stockholders.
Item 11. Executive Compensation
The information required by Item 11 is incorporated herein by this
reference to such information in the definitive proxy statement for
the 1997 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information required by Item 12 is incorporated herein by this
reference to such information in the definitive proxy statement for
the 1997 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
The information required by Item 13 is incorporated herein by this
reference to such information in the definitive proxy statement for
the 1997 Annual Meeting of Stockholders.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1 and 2. Financial statements being filed as part of this report
are listed in the index in Item 8 on page 14.
(b) The Company filed a current report on Form 8-K dated October 22,
1996 to report preliminary unaudited results for the three months
and nine months ended September 30, 1996.
(c) Exhibits
3.1 Titan's Restated Certificate of Incorporation dated as of
November 6, 1986, which was Exhibit 3.1 to Registrant's 1987
Annual Report on Form 10-K is incorporated herein by this
reference. Titan's Certificate of Amendment of Restated
Certificate of Incorporation dated as of June 30, 1987, which
was Exhibit 3.2 to Registrant's 1987 Annual Report on Form 10-K
is incorporated herein by this reference.
3.2 Titan's by-laws, as amended, which was Exhibit 6(a)(3) to
Registrant's Quarterly Report on Form 10-Q dated November 13,
1995, is incorporated herein by this reference.
4.1 Warrant to Purchase Common Stock of Registrant issued to
Corporate Property Associates 9, L.P., a Delaware limited
partnership, which was Exhibit 4.1 to Registrant's Form 8-K
dated July 11, 1991, is incorporated herein by this reference.
4.2 Amendment to Warrant dated December 3, 1996, between the
Registrant and Corporate Property Associates 9, L.P.
4.3 Warrant to Purchase Common Stock of Registrant issued to
Corporate Property Associates 10 Incorporated, a Maryland
corporation, which was Exhibit 4.2 to Registrant's Form 8-K
dated July 11, 1991, is incorporated herein by this reference.
4.4 Amendment to Warrant dated December 3, 1996, between the
Registrant and Corporate Property Associates 10, Incorporated.
4.5 Rights Amendment, dated as of August 21, 1995, between
The Titan Corporation and American Stock Transfer and Trust
Company, which was Exhibit 1 to Registrant's Form 8-A dated
September 5, 1995, is incorporated herein by this reference.
4.6 Certificate of Designations of Series B Cumulative
Convertible Redeemable Preferred Stock which was Exhibit 4.1 to
Registrant's Registration Statement on Form S-3 (No. 333-10919)
is incorporated herein by this reference.
4.7 Registration Rights Agreement, dated May 24, 1996,
which was Exhibit 2 to Schedule 13D filed on behalf of Mr. Jack
D. Witt on June 5, 1996, is incorporated herein by this
reference.
4.8 Stockholders Agreement, dated May 24, 1996, which was
Exhibit 1 to Schedule 13D filed on behalf of Mr. Jack D. Witt
on June 5, 1996, is incorporated herein by this reference.
4.9 Form of Indenture relating to the Registrant's 8 1/4%
Convertible Subordinated Debentures due November 1, 2003, which
was Exhibit 4.1 to Amendment No. 1 to Registrant's Registration
Statement on Form S-3 (No. 333-10695) is incorporated herein by
this reference.
10.1 Stock Option Plan of 1983, as amended though January 1,
1987, which was Exhibit 10.2 to Registrant's 1987 Annual Report
on Form 10-K is incorporated herein by this reference.
10.2 Stock Option Plan of 1986, as amended through January 1,
1987, which was Exhibit 10.3 to Registrant's 1987 Annual Report
on Form 10-K is incorporated herein by this reference.
10.3 Stock Option Plan of 1990, which was filed in the 1990
definitive proxy statement and was Exhibit 10.11 to
Registrant's 1989 Annual Report on Form 10-K is incorporated
herein by this reference.
10.4 Stock Option Plan of 1994, which was filed in the 1994
definitive proxy statement and was Exhibit 10.17 to
Registrant's 1993 Annual Report on Form 10-K is incorporated
herein by this reference.
10.5 1989 Directors' Stock Option Plan which was filed in the
1990 definitive proxy statement and was Exhibit 10.12 to
Registrant's 1989 Annual Report on Form 10-K is incorporated
herein by this reference.
10.6 1992 Directors' Stock Option Plan which was filed in the
1993 definitive proxy statement and was Exhibit 10.14 to
Registrant's 1992 Annual Report on Form 10-K is incorporated
herein by this reference.
10.7 1996 Directors' Stock Option and Equity Participation Plan
which was filed in the 1996 definitive proxy statement and was
Exhibit 10.7 to Registrant's 1995 Annual Report on Form 10-K
is incorporated herein by this reference.
10.8 Supplemental Retirement Plan for Key Executives which was
filed in the 1990 definitive proxy statement and was Exhibit
10.13 to Registrant's 1989 Annual Report on Form 10-K is
incorporated herein by this reference.
10.9 1995 Employee Stock Purchase Plan, which was Exhibit 4 to
Registrant's Form S-8 dated December 18, 1995, is incorporated
herein by this reference.
10.10 Lease Agreement dated as of July 9, 1991, by and between
Torrey Pines Limited Partnership, a California limited
partnership, as landlord, and Registrant, as tenant, which was
Exhibit 10.1 to Registrant's Form 8-K dated July 11, 1991 is
incorporated herein by this reference.
10.11 Agreement and Plan of Reorganization of Eldyne, Inc. dated
as of April 19, 1996, by and among Eldyne, Inc., Jack Witt, ELD
Acquisition Sub, Inc. and Registrant, which was Exhibit 2.1 to
Registrant's Form 8-K dated May 24, 1996, is incorporated
herein by this reference.
10.12 Agreement and Plan of Reorganization of Unidyne
Corporation dated as of April 19, 1996, by and among Unidyne
Corporation, Jack Witt, UNI Acquisition Sub, Inc. and
Registrant, which was Exhibit 2.2 to Registrant's Form 8-K
dated May 24, 1996, is incorporated herein by this reference.
10.13 Asset Purchase Agreement as of March 5, 1994, by and
between Registrant and Cubic Corporation which was Exhibit 2 to
Registrant's Form 8-K dated March 5, 1994, is incorporated
herein by this reference.
10.14 Line of Credit Agreement dated as of August 8, 1994, by
and between Sumitomo Bank of California and Registrant, which
was Exhibit 10.16 to Registrant's 1994 Annual Report on Form
10-K, is incorporated herein by this reference.
10.15 Executive Severance Plan entered into by the Company with
Gene W. Ray, Eric M. DeMarco, Philip J. Englund, Ronald B.
Gorda, Cornelius L. Hensel, and Frederick L. Judge, which was
Exhibit 6(a)(10) to Registrant's Quarterly Report on Form 10-Q
dated November 13, 1995, is incorporated herein by this
reference.
10.16 First Amendment to Commercial Loan Agreement dated May 25,
1995, by and between Registrant and Sumitomo Bank of
California, which was Exhibit 10.15 to Registrant's 1995 Annual
Report on Form 10-K, is incorporated herein by this reference.
10.17 Second Amendment to Commercial Loan Agreement dated
December 29, 1995, by and between Registrant and Sumitomo Bank
of California, which was Exhibit 10.16 to Registrant's 1995
Annual Report on Form 10-K, is incorporated herein by this
reference.
10.18 Third Amendment to Commercial Loan Agreement dated May 9,
1996, by and between Registrant and Sumitomo Bank of
California.
10.19 Fourth Amendment to Commercial Loan Agreement dated
September 6, 1996, by and between Registrant and The Sumitomo
Bank of California, which was Exhibit 10.1 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.20 Security Agreement dated September 6, 1996, made by
Registrant in favor of The Sumitomo Bank of California, which
was Exhibit 10.19 to the Company's Registration Statement on
Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.21 Pledge Agreement executed as of September 6, 1996, by
Registrant in favor of The Sumitomo Bank of California, which
was Exhibit 10.3 to the Company's Registration Statement on
Form S-3/A No. 333-10919, is incorporated herein by this
reference.
10.22 Patent Collateral Assignment made and entered into as of
September 6, 1996, by Registrant in favor of The Sumitomo Bank
of California, which was Exhibit 10.4 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.23 Security Agreement dated as of September 6, 1996, made by
Titan Information Systems Corporation in favor of The Sumitomo
Bank of California, which was Exhibit 10.5 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.24 Patent Collateral Assignment made and entered into as of
September 6, 1996, by Titan Information Systems Corporation in
favor of The Sumitomo Bank of California, which was Exhibit
10.6 to the Company's Registration Statement on Form S-3/A No.
333-10919, is incorporated herein by this reference.
10.25 Continuing Guaranty executed as of September 6, 1996, by
Titan Information Systems Corporation in favor of The Sumitomo
Bank of California, which was Exhibit 10.7 to the Company's
Registration Statement on Form S-3/A No. 333-10919, is
incorporated herein by this reference.
10.26 Fifth Amendment to Commercial Loan Agreement dated October
18, 1996, by and between Registrant and Sumitomo Bank of
California.
10.27 Loan and Security Agreement, dated December 29, 1995, by
and between Registrant and Capital Associates International,
Inc., which was Exhibit 10.17 to Registrant's 1995 Annual
Report on Form 10-K, is incorporated herein by this reference.
10.28 Rider dated August 13, 1996, to Loan and Security
Agreement dated December 29, 1995 by and between Registrant and
Capital Associates International, Inc.
10.29 Loan and Security Agreement dated January 31, 1996, by and
between Registrant and Sanwa General Equipment Leasing, a
division of Sanwa Business Credit Corporation, which was
Exhibit 10.18 to Registrant's 1995 Annual Report on Form 10-K,
is incorporated herein by this reference.
10.30 Amended and Restated Loan and Security Agreement dated May
24, 1996, by and between Crestar Bank and Eldyne, Inc., Unidyne
Corporation and DCS Acquisition Sub, Inc.
10.31 Formal modification dated December 23, 1996, of the
Amended and Restated Loan and Security Agreement dated May 24,
1996, by and between Crestar Bank and Eldyne, Inc., Unidyne
Corporation and DCS Acquisition Sub, Inc.
21. Titan Subsidiaries as of December 31, 1996.
23. Consent of Independent Public Accountants.
27. Financial Data Schedule
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE TITAN CORPORATION
By: /s/ Gene W. Ray
====================
Gene W. Ray
President and Chief Executive Officer
March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
/s/ J.S. Webb Chairman of the March 26, 1997
J.S. Board of Directors
/s/ Gene W. Ray President, Chief March 26, 1997
Gene W. Ray Executive Officer and
Director
/s/ Eric M. DeMarco Senior Vice President and March 26, 1997
Eric M. DeMarco Chief Financial Officer
(Principal Financial Officer)
/s/ Deanna H. Petersen March 26, 1997
Deanna H. Petersen Corporate Controller
(Principal Accounting Officer)
/s/ Charles R. Allen Director March 26, 1997
Charles R. Allen
Director March 26, 1997
Joseph F. Caligiuri
/s/ Daniel J. Fink Director March 26, 1997
Daniel J. Fink
Director March 26, 1997
Robert E. La Blanc
/s/ Thomas G. Pownall Director March 25, 1997
Thomas G. Pownall
THE TITAN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended December 31, 1996, 1995 and 1994
(in thousands of dollars)
<TABLE>
Balance Balance
at at
beginning end
of year Additions Deductions of year
========= ========= ========== =========
<S> <C> <C> <C> <C>
1996:
Allowance for doubtful accounts $ 294 $ -- $ 57 $ 237
1995:
Allowance for doubtful accounts 412 193 311 294
1994:
Allowance for doubtful accounts 764 1 353 412
</TABLE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report, dated February 20, 1997, into the Company's previously filed
Registration Statements (as amended, as applicable) File Numbers 33-4041,
33-9570, 33-12119, 33-15680, 33-37827, 33-56762, 33-65123, 33-83402,
333-07413, 333-10919, and 333-10965.
/S/ Arthur Andersen LLP
San Diego, California
December 18, 1997
