<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -------- EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
----------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ------------------
------------------------
Commission file number 1-6035
THE TITAN CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-2588754
- ------------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3033 SCIENCE PARK ROAD, SAN DIEGO, CALIFORNIA 92121
- ------------------------------------------------ ------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (619) 552-9500
------------------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ----
The number of shares of registrant's common stock outstanding at May 8,
1998, was 24,126,319.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
-------------------
1998 1997
------- ------
<S> <C> <C>
Revenues.......................................... $ 43,979 $ 48,721
-------- --------
Costs and expenses:
Cost of revenues................................ 33,836 38,266
Selling, general and administrative
expense....................................... 5,044 5,884
Research and development expense................ 1,518 1,607
Special acquisition related charges............. 1,460 ---
-------- --------
Total costs and expenses...................... 41,858 45,757
-------- --------
Operating profit.................................. 2,121 2,964
Interest expense.................................. (1,353) (1,331)
Interest income................................... 135 198
-------- --------
Income from continuing operations
before income taxes............................. 903 1,831
Income tax provision.............................. 316 641
-------- --------
Income from continuing operations................. 587 1,190
Loss from discontinued operation, net of taxes.... --- (343)
-------- --------
Net income........................................ 587 847
Dividend requirements on preferred stock.......... 219 219
-------- --------
Net income applicable to common stock............. $ 368 $ 628
-------- --------
-------- --------
Basic earnings per share:
Income from continuing operations............... $ .02 $ .04
Loss from discontinued operation................ --- (.01)
-------- --------
Net income...................................... $ .02 $ .03
-------- --------
-------- --------
Weighted average shares......................... 22,864 22,204
-------- --------
Diluted earnings per share:
Income from continuing operations............... $ .02 $ .04
Loss from discontinued operation................ --- (.01)
-------- --------
Net income...................................... $ .02 $ .03
-------- --------
-------- --------
Weighted average shares......................... 23,533 22,302
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and par values)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 1,153 $ 10,612
Investments..................................... --- 4,499
Accounts receivable - net....................... 71,028 58,108
Inventories..................................... 19,086 15,980
Net assets of discontinued operation............ 12,394 11,512
Prepaid expenses and other...................... 2,408 2,160
Deferred income taxes........................... 7,729 6,845
-------- --------
Total current assets.......................... 113,798 109,716
Property and equipment - net...................... 23,292 23,936
Goodwill - net.................................... 38,839 20,367
Other assets...................................... 8,125 7,905
Net assets of discontinued operation.............. 393 2,286
-------- --------
Total assets $184,447 $164,210
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit.................................. $ 19,900 $ 12,350
Accounts payable................................ 14,025 11,258
Acquisition debt................................ 3,000 ---
Current portion of long-term debt............... 1,130 1,104
Accrued compensation and benefits............... 7,616 8,899
Other accrued liabilities....................... 11,369 7,277
-------- --------
Total current liabilities..................... 57,040 40,888
-------- --------
Long-term debt.................................... 36,996 37,310
Other non-current liabilities..................... 13,147 9,223
Series B cumulative convertible redeemable
preferred stock, $3,000 liquidation preference,
6% cumulative annual dividend, 500,000 shares
issued and outstanding.......................... 3,000 3,000
Stockholders' equity:
Preferred stock: $1 par value, authorized
2,500,000 shares:
Cumulative convertible, $13,897 liquidation
preference: 694,872 shares issued and
outstanding................................. 695 695
Series A junior participating, authorized
250,000 shares: none issued.................. --- ---
Common stock: $.01 par value, authorized
30,000,000 shares, issued and outstanding:
23,839,256 and 23,804,809...................... 238 238
Capital in excess of par value................... 50,998 50,936
Retained earnings................................ 24,879 24,511
Treasury stock (954,894 and 971,894 shares),
at cost........................................ (2,546) (2,591)
-------- --------
Total stockholders' equity..................... 74,264 73,789
-------- --------
Total liabilities and stockholders' equity .... $184,447 $164,210
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
--------------------
1998 1997
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations.................. $ 587 $ 1,190
Adjustments to reconcile income from continuing
operations to net cash used for continuing
operations:
Depreciation and amortization.................. 1,301 1,718
Deferred income taxes and other................ 386 321
Pooling of interests........................... --- 1,022
Special acquisition related charges............ (1,460) ---
Changes in operating assets and liabilities,
net of the effects of business acquired
and business sold:
Accounts receivable........................ (7,764) (1,971)
Inventories................................ (3,106) (1,176)
Prepaid expenses and other assets.......... (569) 199
Accounts payable........................... 1,085 3,222
Accrued compensation and benefits.......... (1,963) (2,079)
Restructuring activities................... --- (815)
Other liabilities.......................... 1,182 (2,803)
-------- -------
Net cash used for continuing operations............ (10,321) (1,172)
-------- -------
Loss from discontinued operation................... --- (343)
Changes in net assets of discontinued operation.... 1,011 (1,787)
-------- -------
Net cash provided by (used for) discontinued
operation....................................... 1,011 (2,130)
-------- -------
Net cash used for operating activities............. (9,310) (3,302)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................... (451) (844)
Acquisition of business, net of cash acquired...... (11,679) ---
Proceeds from sale of investments.................. 4,499 405
Other.............................................. 377 176
-------- -------
Net cash used for investing activities............. (7,254) (263)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to debt.................................. 7,550 6,963
Retirements of debt................................ (250) (3,130)
Dividends paid..................................... (219) (219)
Proceeds from stock issuances..................... 136 32
Other............................................. (112) ---
-------- -------
Net cash provided by financing activities.......... 7,105 3,646
-------- -------
Net increase (decrease) in cash and cash equivalents (9,459) 81
Cash and cash equivalents at beginning of period... 10,612 4,751
-------- -------
Cash and cash equivalents at end of period......... $ 1,153 $ 4,832
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
THE TITAN CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
<TABLE>
<CAPTION>
CUMULATIVE CAPITAL
CONVERTIBLE IN EXCESS
PREFERRED COMMON OF PAR RETAINED TREASURY
STOCK STOCK VALUE EARNINGS STOCK TOTAL
---------- ------ --------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998
Balances at December 31, 1997 $ 695 $ 238 $ 50,936 $ 24,511 $ (2,591) $ 73,789
Exercise of stock options and other 136 45 181
Conversion of subordinated debentures 38 38
Shares contributed to employee
benefit plans (112) (112)
Dividends on preferred stock -
Cumulative convertible, $.25 per share (174) (174)
Series B, 6% annual (45) (45)
Net income 587 587
------ ------- -------- -------- -------- -------
Balances at March 31, 1998 $ 695 $ 238 $ 50,998 $ 24,879 $ (2,546) $74,264
------ ------- -------- -------- -------- -------
------ ------- -------- -------- -------- -------
THREE MONTHS ENDED MARCH 31, 1997
Balances at December 31, 1996 $ 695 $ 232 $ 49,073 $ 27,420 $ (2,960) $74,460
Pooling of interests (545) 323 545 323
Exercise of stock options 142 (545) (403)
Shares contributed to employee
benefit plans 166 166
Dividends on preferred stock -
Cumulative convertible, $.25 per share (174) (174)
Series B, 6% annual (45) (45)
Net income 847 847
------ ------- -------- -------- -------- -------
Balances at March 31, 1997 $ 695 $ 232 $ 48,670 $ 28,371 $ (2,794) $75,174
------ ------- -------- -------- -------- -------
------ ------- -------- -------- -------- -------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
THE TITAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Dollar amounts in thousands, except per share data)
NOTE (1) BASIS OF FINANCIAL STATEMENT PREPARATION
The accompanying consolidated financial information of The Titan Corporation
and its subsidiaries ("the Company" or "Titan") should be read in conjunction
with the Notes to Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K to the Securities and Exchange
Commission for the year ended December 31, 1997 and DBA Systems, Inc.'s
Annual Report on Form 10-K for the year ended June 30, 1997. The accompanying
financial information includes all subsidiaries on a consolidated basis and
all normal recurring adjustments which are considered necessary by the
Company's management for a fair presentation of the financial position and
results of operations for the periods presented. However, these results are
not necessarily indicative of results for a full year. The prior year
financial statements have been restated to reflect a merger in 1998 (see Note
2) and the discontinuance of an operation in 1997 (see Note 3). Additionally,
certain prior year amounts have been reclassified to conform to the 1998
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS. In January 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). This Statement establishes standards for reporting and display
of comprehensive income and its components in a full set of general purpose
financial statements. The objective of the Statement is to report a measure
of all changes in equity of an enterprise that result from transactions and
other economic events of the period other than transactions with owners
("comprehensive income"). Comprehensive income is the total of net income
and all other nonowner changes in equity. The adoption of the accounting and
disclosure provisions of SFAS 130 has had no material impact on the Company's
financial statements and results of operations, as comprehensive income is
the same as net income for all periods presented herein.
In March 1998, the Company adopted Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" ("SFAS 132"). This statement revises and
standardizes employers' disclosures about pension and other postretirement
benefit plans, but it does not change the measurement or recognition of those
plans. This Statement further requires restatement of disclosures for
earlier periods provided for comparative purposes. The adoption of the
disclosure provisions of SFAS 132 has had no material impact on the Company's
financial statements or related disclosures thereto.
In March 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" ("SOP 98-1"). This Statement
provides guidance on accounting for the costs of computer software developed
or obtained for internal use and identifies characteristics of internal-use
software as well as assists in determining when computer software is for
internal use. SOP 98-1
6
<PAGE>
is effective for fiscal years beginning after December 15, 1998, with earlier
application permitted. The Company believes that the adoption of the
accounting and disclosure provisions of SOP 98-1 will not have a material
impact on the Company's financial statements, results of operations or
related disclosures thereto.
In April 1998, the Accounting Standards Executive Committee issued AICPA
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities"
("SOP 98-5"). This Statement provides guidance on the financial reporting of
start-up costs and organization costs and requires that such costs of
start-up activities be expensed as incurred. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998, with earlier application
permitted. The Company has not yet determined what impact, if any, the
adoption of the accounting and disclosure provisions of SOP 98-5 will have on
the Company's financial statements, results of operations or related
disclosures thereto.
Note (2) MERGERS AND ACQUISITION
On February 27, 1998, the Company consummated a merger with DBA Systems, Inc.
("DBA"), a Florida Corporation, in a stock-for-stock transaction. DBA is a
developer and manufacturer of digital imaging products, electro-optical
systems and threat simulation/training systems. DBA's products and systems
are primarily used by the defense and intelligence communities; accordingly,
it is included in Titan's Information Technologies segment. Titan issued
approximately 6,100,000 shares of common stock for all the outstanding shares
of DBA stock based on an exchange ratio of approximately 1.37 shares of Titan
common stock for each share of DBA stock. The special charges of $1,460 in
the quarter ended March 31, 1998 represent the costs and expenses related to
this merger. The merger constituted a tax-free reorganization and has been
accounted for as a pooling of interests.
Effective January 1, 1998, DBA's June 30 fiscal year-end has been changed to
coincide with the Company's year-end. The 1997 financial statements presented
have been restated to include the combined results of operations, financial
position and cash flows of DBA as if the merger had occurred at the beginning
of the periods presented.
For fiscal 1997, the combined results reflect the results of operations, cash
flows and changes in stockholders' equity for the Company's three months
ended March 31, 1997 combined with DBA's corresponding activity for the three
months ended December 31, 1996. The balance sheet as of December 31, 1997,
reflects both Titan's and DBA's financial condition as of December 31, 1997.
7
<PAGE>
The combining periods are as follows:
<TABLE>
<CAPTION>
Fiscal Year 1996
-------------------------------------------
<S> <C>
Titan Fiscal year ended December 1996
DBA Fiscal year ended June 1996
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1997 Quarterly Periods
-------------------------------------------
<S> <C> <C> <C> <C>
Q1 '97 Q2 '97 Q3 '97 Q4 '97
------ ------ ------ ------
Titan March 97 June 97 Sept. 97 Dec. 97
DBA Dec. 96 March 97 June 97 Sept. 97
</TABLE>
A pooling of interests adjustment has been made in the consolidated
statements of cash flows and consolidated statements of stockholders' equity
for the quarter ended March 31, 1997 to reflect the activity for DBA in the
quarter ended September 30, 1996, as reported in DBA's Form 10-Q for the
fiscal quarter ended September 30, 1996.
The separate and combined results of Titan and DBA are as follows:
<TABLE>
<CAPTION>
Three months ended
March 31, 1997
------------------
<S> <C>
Revenues:
Titan $ 43,290
DBA 5,431
------
Combined $ 48,721
------
------
Net income
Titan $ 475
DBA 372
------
Combined $ 847
------
------
</TABLE>
On March 31, 1998, the Company acquired all of the outstanding common stock
of Validity Corporation ("Validity"), a California corporation, for $12
million in cash, and notes payable to the shareholders of Validity totaling
$3 million, due and payable March 31, 1999, and bearing interest at the prime
rate. The transaction has been accounted for as a purchase; accordingly, the
consolidated balance sheet includes Validity as of March 31, 1998. The
excess of the purchase price over the estimated fair value of net assets
acquired is approximately $18.7 million as of March 31, 1998, including
$5,156 of accounts receivable and accrued liabilities, current and
non-current, of $4,063 and $3,000, respectively. Validity's results of
operations will be consolidated with the Company's results of operations
beginning April 1, 1998.
On February 26, 1998, Titan entered into a definitive merger agreement with
Horizons Technology, Inc. ("Horizons"), a Delaware corporation, whereby, if
approved by the shareholders of Horizons, Horizons will become a wholly-owned
subsidiary of Titan Technologies and Information Systems Corporation, a
wholly-owned subsidiary of Titan, in a stock-for-stock transaction.
Note (3) DISCONTINUED OPERATION
In April 1997, the Company's Board of Directors adopted a plan to divest the
Company's broadband communications business. The results of the broadband
communications business have been accounted for as a discontinued operation
in accordance with Accounting Principles Board Opinion No. 30, which among
other provisions, anticipates that the plan of disposal will be carried out
within one year. Management has identified several potential strategic
investors with whom it is presently involved in negotiations for the sale of
all or part of the business and/or technology of the broadband communications
business.
8
<PAGE>
Concurrently, Titan continues to search for other potential investors.
Management does not anticipate that the ultimate disposition of broadband
will result in a material gain or loss. During the quarter ended March 31,
1998, the Company received approximately $2,400 as settlement of certain
contingencies related to the broadband patents and intangibles as well as
initial payments related to the licensing of the technology. These proceeds
were applied to net current assets of discontinued operation.
Revenues for the broadband communications business were $0 and $524 for the
three months ended March 31, 1998 and 1997, respectively. Included in the
loss from discontinued operation is a tax benefit of $177 for the three
months ended March 31, 1997. The Company deferred losses from the
discontinued operation of $9,721 in fiscal year 1997 and $3,290 in the three
months ended March 31, 1998, which primarily represented amortization costs
of intangible assets, and to a lesser extent, certain wind-down costs of the
business. Included in the deferred losses is interest of $100 in the three
months ended March 31, 1998, allocated to the discontinued operation based on
the ratio of net assets to be sold to the sum of total net assets of the
Company. Net current assets of the discontinued operation consist primarily
of accounts receivable, inventory, and cumulative deferred losses from the
date of discontinuance net of accounts payable, accrued compensation and
other current liabilities. Net noncurrent assets of discontinued operation
consist primarily of property and equipment.
NOTE (4) DEBT
In March 1998, the Company's line of credit agreement was amended to increase
the available credit to $30,000 and extend the maturity date to June 30,
1999. The Company has the option to borrow at a bank prime rate or at LIBOR
plus 2%. The agreement, as amended, contains certain financial covenants,
including, but not limited to, provisions prohibiting consecutive quarterly
losses, and provisions requiring the Company to have annual net income, as
defined, and maintain stipulated levels of net worth, and minimum fixed
charge coverage and quick ratios. At March 31, 1998, borrowings outstanding
under the line of credit were $19,900, at a weighted average interest rate of
8.38%. The Company also had commitments under letters of credit under this
agreement of $1,183, which reduced availability under the line of credit to
$8,917. At March 31, 1998, the Company was in compliance with all financial
covenants under its various debt agreements.
NOTE (5) OTHER FINANCIAL DATA
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Inventories:
Materials $ 5,123 $ 2,285
Work-in-process 13,130 11,668
Finished goods 833 2,027
-------- --------
$ 19,086 $ 15,980
-------- --------
-------- --------
</TABLE>
Supplemental disclosure of cash payments is as follows:
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
-------------------
1998 1997
------ ------
<S> <C> <C>
Interest $ 383 $ 356
Income taxes 666 463
</TABLE>
During the three month period ended March 31, 1997, the Company utilized
treasury stock of $711 for benefit plan funding and contributions.
9
<PAGE>
The following tables summarize revenues and operating profit (loss) by
industry segment for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Three months ended
MARCH 31,
------------------
1998 1997
------- ------
<S> <C> <C>
Revenues:
Information Technologies $25,488 $29,352
Communications Systems 11,898 11,025
Software Systems 3,491 4,039
Medical Sterilization and
Food Pasteurization 1,947 1,145
Emerging Technologies and Businesses 1,155 3,160
------- -------
$43,979 $48,721
------- -------
------- -------
Operating Profit (Loss):
Information Technologies $ 2,368 $ 2,692
Communications Systems 796 131
Software Systems 648 775
Medical Sterilization and
Food Pasteurization 208 (26)
Emerging Technologies and Businesses (431) 306
------- -------
Segment operating profit before
Corporate 3,589 3,878
Corporate (1,468) (914)
------- -------
$ 2,121 $2,964
------- -------
------- -------
</TABLE>
The operating profit of the Information Technologies segment in 1998 reflects
$1,460 of special charges primarily representing costs and expenses of the
merger with DBA (see Note 2).
10
<PAGE>
The following data summarize information relating to the per share
computations:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amounts
--------- ----------- -------
<S> <C> <C> <C>
Income from continuing operations $ 587
Less preferred stock dividends (219)
-----
Basic EPS:
Income from continuing operations --
available to common stockholders 368 22,864 $ .02
Effect of dilutive securities:
Stock options -- 625 (.00)
Warrants -- 44 (.00)
----- ------ ------
Diluted EPS:
Income from continuing operations
available to common stockholders
plus assumed conversions $ 368 23,533 $ .02
----- ------ ------
----- ------ ------
FOR THE THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amounts
--------- ----------- -------
Income from continuing operations $1,190
Less preferred stock dividends (219)
-----
Basic EPS:
Income from continuing operations
available to common stockholders 971 22,204 $ .04
Effect of dilutive securities:
Stock options -- 98 (.00)
----- ------ ------
Diluted EPS:
Income from continuing operations
available to common stockholders
plus assumed conversions $ 971 22,302 $ .04
----- ------ ------
----- ------ ------
</TABLE>
In 1998 and 1997, respectively, options to purchase 322,167 and 1,313,663
shares of common stock at prices ranging from $6.32 to $9.50 and $3.50 to
$9.50 per share were not included in the computation of diluted EPS, as the
exercise price of such options was greater than the average market price of
the common shares. In 1998 and 1997, 9,391,000 and 9,857,000 shares,
respectively, of common stock that could result from the conversion of the
Company's convertible subordinated debentures were not included in the
computation of diluted EPS, as the effect would have been anti-dilutive. In
both 1998 and 1997, 463,248 shares of common stock that could result from the
conversion of cumulative convertible preferred stock were not included in the
computation of diluted EPS, as the effect would have been anti-dilutive.
In 1997, 333,333 common shares that could result from the conversion of
Series B Cumulative Convertible Redeemable Preferred Stock were not included
in the computation of diluted EPS, as the effect would have been
anti-dilutive. The conversion privilege expired in November 1997. Also
anti-dilutive in 1997 were warrants outstanding for 100,000 common shares.
11
<PAGE>
THE TITAN CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
(Dollar amounts in thousands,
except per share data)
RESULTS OF OPERATIONS
Consolidated results:
Revenues for the first quarter of 1998 decreased approximately 10% from
$48,721 in the first quarter of 1997. Decreased revenues in the Information
Technologies (which includes DBA's operating results for all periods) and
Software Systems segments were offset partially by increases in the
Communications Systems and Medical Sterilization and Food Pasteurization
segments. The Company reported net income of $587 for the first quarter of
1998 compared to $847 for the first quarter of 1997. Included in the first
quarter of 1997 is a loss from discontinued operations of $343, and included
in the first quarter of 1998 is a special pre-tax charge for merger related
expenses of $1,460. Income from continuing operations in the first quarter of
1998 was $587, compared to $1,190 in the first quarter of 1997. This
difference was primarily due to the impact of increased margins in the
Information Technologies, Communications Systems and the Medical
Sterilization and Food Pasteurization segments.
Selling, general and administrative expense ("SG&A")decreased $840 or 14.3%
in the first quarter of 1998 compared to the same period in 1997. As a
percent of revenue, SG&A decreased from 12.1% in the first quarter of 1997 to
11.5% in the first quarter of 1998. SG&A decreased as a percentage of
revenues, as well as in absolute dollars, primarily as a result of the
Company's ongoing efforts to consolidate and streamline its administrative
functions. Research and development costs ("R&D") decreased slightly from
$1,607 in the first quarter of 1997 to $1,518 in the first quarter of 1998,
primarily as a result of the near completion of certain certification efforts
in the Communications Systems segment in the first quarter of 1998.
Special charges for merger related expenses of $1,460 were recorded in the
first quarter of 1998 relating to the Company's merger with DBA. These costs
relate to direct transaction costs, consisting primarily of investment
banking and other professional fees.
Net interest expense increased from $1,133 in the first quarter of 1997 to
$1,218 in 1998, primarily from increased borrowings on the Company's line of
credit.
The income tax provision reflects a 35% effective rate in the first quarter
of 1997 and the first quarter of 1998. This effective rate approximates the
expected combined federal and state statutory rates, less expected credits,
primarily related to R&D activities.
12
<PAGE>
Business Segments:
Revenues in the Information Technologies segment decreased $3,864 from
$29,352 in the first quarter of 1997 compared to $25,488 in the first quarter
of 1998. This decrease was primarily due to the redeployment of Department of
Defense ("DoD") funding appropriations, which impacted certain work the
Company performs for the U.S. Navy. Operating income decreased from $2,692 in
the first quarter of 1997 compared to $2,368 in the first quarter of 1998.
This change was primarily due to the impact of the special charges of $1,460
related to merger transactions, offset by improved margins on completed
contracts, and, to a lesser degree, the impact of cost reduction efforts
initiated by the Company in mid-1997.
Revenues in the Communications Systems segment increased $873 quarter to
quarter, from $11,025 to $11,898, due primarily to shipments made on the
Company's ongoing Mini-DAMA production contract and revenues related to the
Company's Multi Media Asia (M2A) project. Operating income increased $665,
from $131 in the first quarter of 1997 to $796 in the first quarter of 1998,
primarily reflecting the impact of the increased revenues, as well as the
winding down from 1997 to 1998 of significant development and certification
efforts.
The commercial satellite communications business accounted for approximately
$4,180 of the Communications Systems segment revenues generated in the first
quarter of 1998. The commercial satellite communications business provides
Xpress Connection terminals to PT. Pasifik Satelit Nusantara ("PSN") as well
as the ground segment for the M2A system. The ongoing economic and political
turmoil in Asia could result in a material and adverse impact on this
segment's revenues for the remainder of 1998.
Software Systems segment revenues declined $548, from $4,039 in the first
quarter of 1997 to $3,491 in the first quarter of 1998, primarily due to the
impact of a reduction in revenues from a significant customer as well as a
delay in the timing of work to be performed on certain projects. Operating
income decreased from $775 in the first quarter of 1997 to $648 in the first
quarter of 1998, primarily resulting from the decline in revenues.
Revenues in the Medical Sterilization and Food Pasteurization segment
increased $802, from $1,145 in the first quarter of 1997 compared to $1,947
in the same quarter for 1998. This increase primarily relates to work
performed on the Company's two contracts awarded in late 1997 to provide
in-house SureBeam sterilization systems. Operating income increased $234,
from an operating loss of $26 in the first quarter of 1997 compared to
operating income of $208 in the first quarter of 1998. The improvement in
operating performance is a result of the growth in revenues.
In the Emerging Technologies and Businesses segment, for the first quarter of
1997 compared to the first quarter of 1998, revenues and operating
performance declined from $3,160 to $1,155 and from operating income of $306
to an operating loss of $431, respectively. This decline was primarily
related to the wind down of the Company's environmental consulting business
during the first quarter of 1998 and reduced margins related to wind-down
costs incurred on certain of the Company's contracts to build linear electron
accelerators.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, Titan used $10,321 for
operating requirements. Significant cash uses included an increase in
accounts receivable balances of $7,764 and an increase in inventories of
$3,106, both increases primarily related to government satellite
communications and commercial rural telephony products, and the funding
requirements for accrued compensation obligations of $1,963.
Approximately $3,200 and $2,200 of the increases in receivables and
inventory, respectively, is related to the commercial satellite
communications business. Titan's aggregate investment in the commercial
satellite communications business is reflected in the balance sheet primarily
within the captions of Accounts Receivable, Inventories, and Property and
Equipment and aggregates approximately $16,088 at March 31, 1998. The
Company has negotiated a payment plan with its customer PSN for settlement
of all amounts due from PSN as of March 31, 1998, whereby PSN will make
monthly installments over the next 15 months, with a balloon payment at the
end of the term. In the event that PSN obtains financing from additional
sources, the payment terms will be renegotiated at that time. The Company is
continually assessing the impact of the recent events in Asia, including the
currency devaluation in Indonesia, Malaysia, Taiwan and the Philippines, on
its Communications Systems segment, and presently does not believe that there
has been any significant impairment in its aggregate investment, as
mentioned above, or in the segment's business.
Cash of $11,679, net of cash acquired, was used for the Company's acquisition
of Validity Corporation. Cash was provided primarily by the Company's line
of credit ($7,550) and by the sale of investments ($4,499). In March 1998,
the Company's line of credit agreement was amended to increase the available
credit to $30,000 and extend the maturity date to June 30, 1999. The Company
has the option to borrow at a bank prime rate or at LIBOR plus 2%. At March
31, 1998, borrowings outstanding under the line of credit were $19,900, at a
weighted average interest rate of 8.38%. The Company also had commitments
under letters of credit under this agreement of $1,183, which reduced
availability under the line of credit to $8,917. At March 31, 1998, the
Company was in compliance with all financial covenants under its various debt
agreements.
Funding for the advancement of the Company's strategic goals, including
continued investment in targeted commercial businesses and start-up ventures,
is expected to continue in 1998. The Company plans to finance these
requirements from a combination of sources, which include cash generation
from the Company's core businesses and continuation and expansion of the
Company's bank line of credit. Furthermore, the Company anticipates selling
its broadband communications business in 1998, and is also exploring several
equity alternatives as potential sources of capital. One of Titan's primary
strategies is the funding of growth in specific subsidiaries through spin-out
transactions. If Titan is unable to implement this strategy, whether in
whole or in part, then the Company may need to complete additional equity or
debt financings to fund the continued expansion of its operations and
potential acquisitions of new technologies. Any additional equity or
convertible debt financings could, however, result in substantial dilution to
the Company's stockholders. Management is continually monitoring and
reevaluating its level of investment in all of its operations and the
financing sources available to achieve the Company's goals in each business
area.
14
<PAGE>
FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS
Certain statements contained in this Management's Discussion and Analysis of
Results of Operations and Financial Condition that are not related to
historical results are forward looking statements. Actual results may differ
materially from those stated or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of
future events which may not prove to be accurate. These forward looking
statements involve risks and uncertainties including but not limited to those
referred to in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
15
<PAGE>
THE TITAN CORPORATION
PART II - OTHER INFORMATION
ITEM 4. (a),(b)and(c) SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At a special meeting of stockholders held on February 27, 1998, a proposal to
(i) approve and adopt an Agreement and Plan of Merger and Reorganization, dated
January 5, 1998, among Titan, Eagle Acquisition Sub, Inc., ("Titan Sub") a newly
formed, wholly-owned Florida subsidiary of Titan, and DBA Systems, Inc., a
Florida corporation ("DBA"), and (ii) approve the merger of Titan Sub with and
into DBA and the issuance by Titan of shares of Titan Common Stock in connection
therewith; pursuant to which, among other things, Titan Sub would cease to exist
and DBA would survive as a wholly-owned subsidiary of Titan, was submitted and
approved by shareholders voting as follows:
Affirmative Votes 10,045,384
Negative Votes 97,528
Abstaining 55,581
At the Annual Meeting of Stockholders held on May 14, 1998, the following
matters were submitted and approved by shareholders:
1. Election of Directors. The holders of proxies solicited by the Board cast
the following votes (no other votes were cast):
AFFIRMATIVE NEGATIVE/ABSTAINING
Charles R. Allen 20,902,274 89,102
Joseph F. Caliguiri 20,902,190 89,186
Daniel J. Fink 20,902,190 89,186
Robert E. La Blanc 20,902,223 89,153
Thomas G. Pownall 20,885,356 106,020
Gene W. Ray 20,915,158 76,218
J.S. Webb 20,879,376 112,000
2. Ratification of Selection of Arthur Andersen LLP as the Company's Auditors.
Affirmative Votes 20,879,215
Negative Votes 37,380
Abstaining 74,780
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(10) Amendment to Agreement Re release of Certain
Titan Information Systems Corporation Collateral
dated February 25, 1998, by and among the
Registrant, Imperial Bank and Sumitomo Bank of
California.
(10.1) Third amendment to the Amended and Restated
Commercial Loan Agreement, dated as of March
27, 1998, by and between the Registrant and
Sumitomo Bank of California and Imperial Bank.
(27.1) Financial Data Schedule for the three months ended
March 31, 1998.
(27.2) Restated Financial Data Schedule for the years
ended December 31, 1997 and 1996, and for the
three month, six month and nine month periods
ended March 31, 1997, June 30, 1997 and
September 30, 1997, respectively.
(27.3) Restated Financial Data Schedule for the year
ended December 31, 1995, and for the three month,
six month and nine month periods ended March 31,
1996, June 30, 1996 and September 30, 1996,
respectively.
(b) None
16
<PAGE>
THE TITAN CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: May 15, 1998
THE TITAN CORPORATION
/S/ ERIC M. DEMARCO
----------------------------
By: Eric M. DeMarco
Senior Vice President,
Chief Financial Officer
/S/ DEANNA H. PETERSEN
----------------------------
By: Deanna H. Petersen
Corporate Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT 10
AMENDMENT TO AGREEMENT RE RELEASE
OF CERTAIN TITAN INFORMATION
SYSTEMS CORPORATION COLLATERAL
This Amendment to Agreement Re Release of Certain Titan Information Systems
Corporation Collateral ("Amendment") is entered into by and among the Titan
Corporation, a Delaware corporation ("Borrower"), Imperial Bank, a California
banking corporation ("Imperial"), Sumitomo Bank of California, a California
banking corporation ("Sumitomo") (Imperial and Sumitomo are collectively
referred to herein as the "Banks"), and Sumitomo in its capacity as agent for
Sumitomo and Imperial (the "Agent"), and is dated as of February 25, 1998.
Reference is hereby made to (1) that certain Agreement Re Release of Certain
Titan Information Systems Corporation Collateral dated as of December 8, 1997
(the "Collateral Release Agreement"); (2) that certain Amended and Restated
Commercial Loan Agreement dated as of May 15, 1997 by and between Borrower,
the Banks and Agent (the "Loan Agreement"), and (3) that certain Amendment to
Existing Security Documents between the Banks, Agent, Borrower, and Titan
Information Systems Corporation, a Delaware corporation ("TISC") dated as of
May 15, 1997 (the "Amendment to Existing Security Documents"). Capitalized
terms used but not otherwise defined herein shall have the meaning set forth
in the Loan Agreement, the Collateral Release Agreement, and the Amendment to
Existing Security Documents.
I. RECITALS
A. TISC has changed its name to Linkabit Wireless, Inc. ("Linkabit").
Linkabit is engaged in an initial public offering of its stock (the
"IPO"). The IPO was expected to be finalized by March 15, 1998.
B. The IPO has not been completed and Borrower and Linkabit have
requested that the Banks and Agent extend the time for Linkabit to repay
certain loans and accommodations to Borrower as set forth in the
Collateral Release Agreement.
C. Borrower further desires to amend certain financial reporting
requirements in the Collateral Release Agreement and the Loan Agreement.
D. Borrower desires from time to time to form subsidiaries, affiliates
or other related entities, and the Banks wish to establish requirements
under the Loan Agreement in connection with the formation of any such
entities.
E. The Banks and Agent are willing to consent to such modifications on
the terms and subject to the condition set forth below.
II. AGREEMENT
Now, therefore, it is hereby agreed by and between the parties hereto as
follows.
1. Paragraph 3C of the Collateral Release Agreement is amended to
change the date of March 15, 1998, appearing in the 10th, 16th and 21st
lines of said paragraph, to June 30, 1998.
<PAGE>
2. The second sentence of paragraph 4 of the Collateral Release
Agreement is deleted and is replaced by the following:
"In addition, on or before February 28, 1998, Borrower shall provide
to each of the Banks, in form and detail reasonably acceptable to
each of the Banks, a detailed post-closing balance sheet of Borrower
and a post-closing, opening balance sheet of Linkabit."
3. The first sentence of section 6.2(e) of the Loan Agreement is
hereby amended to read as follows:
"Borrower will submit annual projections prepared by quarter, for
each new fiscal year contemporaneously with Borrower's delivery of
its fiscal year-end financial statements."
4. Paragraph 6.26 is added to the Loan Agreement to read as follows:
"Borrower will not form any new subsidiary, affiliate or related
entity nor transfer any of Borrower's assets to any subsidiary,
affiliate or related entity without first obtaining the written
consent of Agent to do so, which consent shall not be unreasonably
withheld. At any time that Borrower forms a new subsidiary,
affiliate, or other related entity, it will upon request of Agent or
either of the Banks, execute and deliver a continuing guaranty,
security agreement, and financing statement (UCC-1), together with
such other documents required by Agent or either of the Banks in form
and substance satisfactory to Banks, executed by such entity,
providing assurance to Banks that Banks' lien on all of Borrower's
assets and the assets of Borrower's subsidiaries, affiliates and
related entities is a first lien on all such assets."
5. The Collateral Release Agreement, the Loan Agreement, and the
Amendment to Existing Security Documents remain unmodified and in full
force and effect, except as otherwise amended hereby.
This Amendment is executed as of the date first written above.
"Borrower"
THE TITAN CORPORATION, A Delaware
corporation
By: /s/ ERIC M. DEMARCO
-------------------------------
Eric M. DeMarco
Senior Vice President
Chief Financial Officer
"Banks"
THE SUMITOMO BANK OF CALIFORNIA,
a California banking corporation,
in its individual capacity
By: /s/ SAJEDA SIMJEE
----------------------------------
<PAGE>
Sajeda Simjee, Vice President
IMPERIAL BANK, a California banking
corporation
By: /s/ TIM BUBNACK
--------------------------------------
Tim Bubnack, Vice President
"Agent"
THE SUMITOMO BANK OF CALIFORNIA,
a California banking corporation, as
Agent for itself and Imperial Bank
By: /s/ SAJEDA SIMJEE
--------------------------------------
Sajeda Simjee, Vice President
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT TO THE AMENDED AND RESTATED
COMMERCIAL LOAN AGREEMENT
This Third Amendment to the Amended and Restated Commercial Loan Agreement
("Third Amendment") is entered into by and between The Titan Corporation, a
Delaware corporation ("Borrower"), Sumitomo Bank of California, a California
banking corporation ("Sumitomo"), and Imperial Bank, a California banking
corporation ("Imperial") (Sumitomo and Imperial are collectively referred to
herein as the "Banks"), and Sumitomo in its capacity as agent for Sumitomo
and Imperial ("Agent"), and is dated as of March 27, 1998. Reference is
hereby made to (1) that certain Amendment to Agreement Re Release of Certain
Titan Information Systems Corporation Collateral dated as of February 25,
1998 ("Second Amendment"), (2) that certain Agreement Re Release of Certain
Titan Information Systems Corporation Collateral dated as of December 8, 1997
("First Amendment"), and (3) that certain Amended and Restated Commercial
Loan Agreement dated as of May 15, 1997 by and between Borrower, the Banks,
and Agent; collectively the "Loan Agreement". Capitalized terms used but not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement and Amendment to Existing Security Documents dated May 15, 1997.
Any reference in the Amendment to Existing Security Documents to the Amended
and Restated Commercial Loan Agreement, shall hereby be deemed to refer to
the Loan Agreement.
I. RECITALS
A. It is contemplated that Titan, or wholly-owned subsidiaries of
Titan, will acquire one hundred percent (100%) of the common stock of
Validity Corporation ("Validity"), and Horizons Technology, Inc.
("Horizons"). Banks have approved these acquisitions per the consent
letter dated March 25, 1998.
B. In connection with these acquisitions, Borrower has requested
that the Banks increase the Revolving Line of Credit to Thirty Million
Dollars ($30,000,000).
C. The Banks are willing to grant this request on the terms and
subject to the conditions set forth below.
II. AMENDMENT
Now, therefore, it is hereby agreed by and between the parties hereto as
follows:
1. Paragraph 1.1(a) of the Loan Agreement is hereby restated in its
entirety as follows:
1.1(a) REVOLVING LINE OF CREDIT. During the Availability Period,
Banks will provide a line of credit (the "Revolving Line of Credit") to
Borrower. The maximum amount of the Revolving Line of Credit including the
subline facility for letters of credit (the "Total Commitment") is Thirty
Million Dollars ($30,000,000). Of the Total Commitment, Sumitomo's Commitment
is Fifteen Million Dollars ($15,000,000) and Imperial's Commitment is Fifteen
Million Dollars ($15,000,000). Upon execution of this Agreement, the respective
Commitments of the Banks shall be as set forth above. Under no circumstances
shall any Bank be obligated to advance more than its particular Commitment. The
respective Commitments of the Banks may be assigned pursuant to SECTION 9.1
hereof. As used in this Agreement,
<PAGE>
"Pro Rata Share" means, as to any Bank at any time, the percentage equivalent
(expressed as a decimal, rounded to the fifth decimal place) at such time of
such Bank's Commitment DIVIDED BY the total Commitment of all Banks.
Sumitomo's initial Pro Rata Share is 0.50 and Imperial's initial Pro Rata
Share is 0.50. Borrower's obligation to repay the Revolving Line of Credit
is evidenced by two promissory notes (one in favor of Sumitomo and one in
favor of Imperial) substantially in the forms of EXHIBITS A-1 AND A-2
attached herewith (collectively, the "Revolving Line Notes").
2. Paragraph 1.2 is hereby restated in its entirety as follows:
1.2 AVAILABILITY PERIOD. The period under which Borrower may
draw on the Revolving line of Credit ("Availability Period") is between the date
of this Agreement and June 30, 1999 (the "Maturity Date"), unless Borrower is in
default, in which event Banks need not make any advances.
3. Paragraph 4.1(i) is hereby restated in its entirety as
follows:
4.1(i) RELEASE DOCUMENTS. Within 5 business days of closing the
acquisitions of Validity Corporation and Horizons Technology, Inc., Agent shall
have received UCC-2 termination statements executed by the acquired companies'
secured parties, allowing for permitted liens under Paragraph 6.10, and such
other release documents as the Banks may require to release all liens in favor
of such parties with respect to all property covered by the Security Documents.
4. Paragraph 5.6 is amended only to the extent of replacing the
date "December 31, 1996" with "December 31, 1997".
5. Paragraph 6.2(e) is amended only to the extent of replacing
the number "30" in line two of that paragraph with "60".
6. Paragraph 6.3 is hereby restated in its entirety as follows:
6.3 QUICK RATIO. To maintain on a consolidated basis of the
last day of each quarter, a ratio of Quick Assets to current
liabilities of at least 1.05:1.00. As used herein, "Quick
Assets" means cash, short-term cash investments, net trade
receivables and marketable securities not classified as
long-term investments. For purposes of computing this
ratio, Current Liabilities shall include the outstanding
balance under the Revolving Line of Credit.
7. Paragraph 6.4 is hereby restated in its entirety as follows:
6.4 NET WORTH. To maintain on a consolidated basis as of the
last day of each calendar quarter, a Net Worth in an amount
at least equal to One Hundred and Three Million Dollars
($103,000,000), PLUS an amount equal to seventy-five percent
(75%) of the cumulative sum of net income less cash
dividends for each calendar quarter beginning with the
calendar quarter ending June 30, 1998 and continuing on each
calendar quarter thereafter (with the quarterly step-ups in
the minimum Net Worth to be effective as of the last day of
each calendar quarter); and no reduction or deduction in the
permitted minimum Net Worth shall be made by reason of any
losses during any quarter.
<PAGE>
8. Paragraph 6.5 is hereby restated in its entirety as follows:
6.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH. To maintain on a
consolidated basis of the last day of each quarter, a ratio
of Total Liabilities to Tangible Net Worth not exceeding
1.45:1.00 and, effective December 31, 1998 and thereafter, a
ratio not exceeding 1.25:1.00. As used herein, (i) "Total
Liabilities" means the sum of current liabilities plus long
term liabilities, excluding the Subordinated Debt, and (ii)
"Tangible Net Worth" means book net worth minus intangible
assets (such as goodwill, patents, trademarks, trade names,
organization expense, treasury stock, unamortized debt
discount and expense, deferred research and development
costs, capitalized software costs, license fees, deferred
marketing expenses, and other like intangible, and monies
due from affiliates, officers, directors or shareholders of
Borrower) plus the Subordinated Debt. Deferred income taxes
shall not be deemed intangible assets.
9. Paragraph 6.6 is hereby restated in its entirety as follows:
6.6 PROFITABILITY. To maintain on a consolidated basis a
positive net income before taxes and extraordinary items and
a positive net income after taxes and extraordinary items on
an annual basis and not to experience two consecutive
quarters of losses.
10. Paragraph 6.7 is hereby deleted in its entirety.
11. Paragraph 6.8 is hereby restated in its entirety as follows:
6.8 FIXED CHARGE COVERAGE RATIO. To maintain on a consolidated
basis a Fixed Charge Coverage Ratio of at least 1.15:1.00.
"Fixed Charge Coverage Ratio" means the sum of net income
(or net loss), plus gross interest expense, plus
depreciation, plus non-cash amortization, minus
extraordinary income/gains, plus extraordinary non-cash
expenses/losses, minus gains (or plus losses) on
sales/dispositions of fixed assets, less capital
expenditures (net purchase money financing), less any cash
payments made under the terms of any acquisition agreements
with regards to seller financing and covenants not to
compete, less cash dividends, less cash stock purchases
DIVIDED BY the sum of gross interest expense plus current
portion of all indebtedness including capital leases. This
covenant shall be measured beginning June 30, 1998.
Calculation of this ratio (a) through December 31, 1998
shall be on the basis of year-to-date income statement
results annualized, and (b) on a rolling four quarter basis
thereafter; in either case, the balance sheet items shall
not be annualized.
12. Paragraph 6.9(d) is hereby restated in its entirety as
follows:
6.9(d) Debt and lease obligations reflected in the December 31,
1997 fiscal year end financial statement of Borrower
submitted to Agent and Banks.
<PAGE>
13. Paragraph 6.10(c) is hereby restated in its entirety as
follows:
6.10(c) Liens disclosed in the December 31, 1997 fiscal year end
financial statement of Borrower submitted to Agent and
Banks.
14. Paragraph 6.13 is hereby restated in its entirety as
follows:
6.13 LOANS TO OFFICERS. Not to make any loans, advances, stock
purchases, capital contributions or other extensions of
credit to any of Borrower's executives, officers, directors,
shareholders, employees (or any relative of any of the
foregoing) or affiliates (i.e. companies which are minority
owned or whose results are not consolidated in Borrower's
financial statements) in excess of $75,000 to one individual
or $400,000 in total in any fiscal year (other than those
reflected in Borrower's December 31, 1997 fiscal year end
financial statements).
15. Paragraph 6.14 is hereby restated in its entirety as
follows:
6.14 Not to, without the prior written consent of all Banks
(which consent will not be unreasonably withheld), acquire
or purchase a business or its assets for a consideration
(including assumption of debt, seller financing and net
present value of covenants not to compete) in excess of One
Million Dollars ($1,000,000).
16. Paragraph 6.26 is restated in its entirety as follows:
6.26 Borrower will not transfer any of Borrower's assets to
any subsidiary, affiliate or related entity without first
obtaining the written consent of Banks, which consent
shall not be unreasonably withheld in the case of a
transfer of assets to a wholly owned subsidiary. At any
time that Borrower forms a new subsidiary, affiliate, or
other related entity, it will immediately notify the
Banks of such formation and will, upon request of Agent
or either of the Banks, execute and deliver a continuing
guaranty, security agreement, and financing statement
(UCC-1), together with such other documents required by
Agent or either of the Banks, executed by such entity,
providing assurance to Banks that Banks' lien on all of
Borrower's assets and the assets of Borrower's
subsidiaries, affiliates and related entities is a first
lien on all such assets (and, without limiting the
foregoing, Agent and Banks may condition the transfer of
any such assets on the execution and delivery of such
guaranties, security agreements, financing statements and
other such documents). Borrower represents and agrees
that at all times the security interest and lien of the
Agent and the Banks in all assets of the Borrower and
each of Borrower's subsidiaries, affiliates or related
entities as to which security agreements, financing
statements or other security documents have been
provided, shall at all times remain a first position
security interest and lien against such assets, subject
to no other financing statements, liens or other prior
encumbrances of any nature whatsoever; and Borrower shall
at all times take all such actions as are
<PAGE>
necessary to maintain the first position priority of the
security interests and liens of Agent and Banks with respect
to the assets of Borrower and all such subsidiaries,
affiliates and other related entities.
17. As additional consideration for entering into this
Agreement, Borrower shall pay to Agent (a) for the sole
benefit of Agent, a fee of Seven Thousand and Five Hundred
Dollars ($7,500.00) which shall be payable substantially
concurrently with the execution of this Agreement and on
each anniversary thereafter, and (b) for the ratable benefit
of Banks a commitment fee in the amount of Seventy Five
Thousand Dollars ($75,000.00), which shall be payable
substantially concurrently with the execution of this
Agreement.
18. The Loan Agreement and the existing security documents
remain unmodified and in full force and effect, except as
otherwise amended hereby and the occurrence of any default
under this Amendment or the failure by Borrower to observe
or perform any term, covenant or agreement contained in this
Amendment, shall be deemed to be a default under the Loan
Agreement and other Loan Documents.
19. The Revolving Line Note in favor of Sumitomo is hereby
amended and restated in its entirety as set forth on Exhibit
A-1 hereto, and the Revolving Line Note in favor of Imperial
is hereby amended and restated in its entirety as forth on
Exhibit A-2 hereto. In connection herewith, Borrower shall
execute each of the Amended Revolving Line Notes in favor of
Sumitomo and Imperial.
20. Agent may condition the effectiveness of this Third
Amendment on all of the following conditions being satisfied
(any of which Agent may, in its sole and absolute
discretion, waive):
a. Agent shall have received fully executed originals of
this Third Amendment;
b. The Consent of Guarantors, Grantors and Pledgors
attached hereto shall be fully executed by each of the parties
indicated therein;
c. Borrower shall have paid all of the fees required in
this Third Amendment, and any and all costs and expenses incurred
by Agent, including without limitation reasonable attorneys'
fees, in connection with this Third Amendment and the matters
described herein; and
d. Borrower shall deliver such additional documentation
and information to Agent as Agent reasonably requests.
This Amendment is executed as of the date first written above.
<PAGE>
"Borrower"
THE TITAN CORPORATION, A Delaware
corporation
By:/S/ ERIC M. DEMARCO
--------------------
Eric M. DeMarco
Senior Vice President
Chief Financial Officer
"Banks"
THE SUMITOMO BANK OF CALIFORNIA,
a California banking corporation,
in its individual capacity
By:/S/ SAJEDA SIMJEE
-----------------------------
Sajeda Simjee, Vice President
IMPERIAL BANK, a California banking
corporation
By:/S/ MICHAEL A. BERRIER
-----------------------
Michael A. Berrier, Vice
President
"Agent"
THE SUMITOMO BANK OF CALIFRONIA, a
California banking corporation, as
Agent for itself and Imperial Bank
By:/S/ SAJEDA SIMJEE
-----------------------------
Sajeda Simjee, Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE TITAN CORPORATION'S REPORT ON FORM 10-Q FOR THE
THREE MONTHS PERIOD ENDED MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,153
<SECURITIES> 0
<RECEIVABLES> 71,028
<ALLOWANCES> 0<F1>
<INVENTORY> 19,086
<CURRENT-ASSETS> 113,798
<PP&E> 59,110
<DEPRECIATION> 35,818
<TOTAL-ASSETS> 184,447
<CURRENT-LIABILITIES> 57,040
<BONDS> 36,996
0
3,695
<COMMON> 238
<OTHER-SE> 73,331
<TOTAL-LIABILITY-AND-EQUITY> 184,447
<SALES> 43,916
<TOTAL-REVENUES> 43,979
<CGS> 33,836
<TOTAL-COSTS> 33,836
<OTHER-EXPENSES> 8,022
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 1,353
<INCOME-PRETAX> 903
<INCOME-TAX> 316
<INCOME-CONTINUING> 587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 587
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>Due to the use of condensed financial statements for interim reporting, this
information is not compiled on a quarterly basis
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> YEAR YEAR 3-MOS 6-MOS
9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1997 DEC-31-1997
DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1997 JAN-01-1997
JAN-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1996 MAR-31-1997 JUN-30-1997
SEP-30-1997
<CASH> 10,612 4,751 4,832 3,251
6,992
<SECURITIES> 4,499 9,888 9,483 11,766
9,311
<RECEIVABLES> 58,108 50,985 53,057 51,970
57,659
<ALLOWANCES> 451 437 0<F1> 0<F1>
0<F1>
<INVENTORY> 15,980 14,979 15,942 14,226
15,651
<CURRENT-ASSETS> 109,716 90,189 93,346 94,668
105,634
<PP&E> 58,447 59,110 59,561 59,445
59,547
<DEPRECIATION> 34,511 32,665 33,564 33,976
34,682
<TOTAL-ASSETS> 164,210 158,749 161,693 160,852
168,224
<CURRENT-LIABILITIES> 40,888 30,859 35,255 34,285
39,874
<BONDS> 37,310 40,071 39,850 39,487
39,218
0 0 0 0
0
3,695 3,695 3,695 3,695
3,695
<COMMON> 238 232 232 232
232
<OTHER-SE> 72,856 73,533 74,247 75,764
77,784
<TOTAL-LIABILITY-AND-EQUITY> 164,210 158,749 161,693 160,852
168,224
<SALES> 195,816 155,730 48,658 96,926
146,240
<TOTAL-REVENUES> 196,066 155,954 48,721 97,051
146,427
<CGS> 150,843 124,477 38,266 74,852
112,108
<TOTAL-COSTS> 150,843 124,477 38,266 74,852
112,108
<OTHER-EXPENSES> 29,068 27,269 7,491 15,711
23,474
<LOSS-PROVISION> 107 0 0<F1> 0<F1>
0<F1>
<INTEREST-EXPENSE> 5,137 3,201 1,331 2,566
3,944
<INCOME-PRETAX> 11,884 1,646 1,831 4,308
7,525
<INCOME-TAX> 4,380 221 641 1,396
2,690
<INCOME-CONTINUING> 7,504 1,425 1,190 2,912
4,835
<DISCONTINUED> (343) (3,642) (343) 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 7,161 (2,217) 847 2,912
4,835
<EPS-PRIMARY> .30<F2> (.14)<F2> (.03)<F2> .11<F2>
.19<F2>
<EPS-DILUTED> .24<F3> (.14)<F3> (.03)<F3> .10<F3>
.16<F3>
<FN>
<F1>Due to the use of condensed financial statements for interim reporting, this
information is not compiled on a quarterly basis.
<F2>Basic EPS in accordance with SFAS No. 128.
<F3>Diluted ESP in accordance with SFAS No. 128.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996 JUN-30-1996 SEP-30-1996
<CASH> 9,494 11,356 15,031 13,677
<SECURITIES> 0 0 0 0
<RECEIVABLES> 47,498 48,844 46,868 47,517
<ALLOWANCES> 394 0<F1> 0<F1> 0<F1>
<INVENTORY> 12,878 12,327 16,004 14,636
<CURRENT-ASSETS> 78,531 80,164 86,486 83,814
<PP&E> 57,341 58,433 66,452 62,641
<DEPRECIATION> 27,372 28,757 34,998 32,239
<TOTAL-ASSETS> 123,401 125,856 152,286 149,593
<CURRENT-LIABILITIES> 44,457 43,546 54,336 53,998
<BONDS> 6,821 7,983 8,560 7,798
0 0 0 0
695 695 3,695 3,695
<COMMON> 210 212 232 232
<OTHER-SE> 62,366 63,883 75,178 73,797
<TOTAL-LIABILITY-AND-EQUITY> 123,401 125,856 152,286 149,593
<SALES> 161,062 35,766 69,462 109,405
<TOTAL-REVENUES> 161,231 35,795 69,553 109,559
<CGS> 123,914 28,405 54,110 86,675
<TOTAL-COSTS> 123,914 28,405 54,110 86,675
<OTHER-EXPENSES> 37,229 6,416 12,933 20,773
<LOSS-PROVISION> 193 0<F1> 0<F1> 0<F1>
<INTEREST-EXPENSE> 1,353 468 1,247 2,035
<INCOME-PRETAX> (873) 637 1,551 550
<INCOME-TAX> (540) 165 447 (30)
<INCOME-CONTINUING> (333) 472 1,104 580
<DISCONTINUED> (1,972) (1,077) (2,241) (3,414)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,305) (605) (1,137) (2,834)
<EPS-PRIMARY> (.15)<F2> (.04)<F2> (.07)<F2> (.16)<F2>
<EPS-DILUTED> (.15)<F3> (.04)<F3> (.07)<F3> (.16)<F3>
<FN>
<F1>Due to the use of condensed financial statements for interim reporting this
information is not compiled on a quarterly basis.
<F2>Basic EPS in accordance with SFAS No. 128.
<F3>Diluted EPS in accordance with SFAS No. 128.
</FN>
</TABLE>
