<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT TO APPLICATION OR REPORT
Filed Pursuant to Section 12,13 or 15(d) of the
Securities Exchange Act of 1934
THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)
AMENDMENT NO. ONE
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K
(Dated January 24, 2000) as set forth in the pages attached hereto:
ITEM 5. OTHER EVENTS.
We are filing the following information with the Securities and Exchange
Commission for purposes of updating our publicly available disclosure.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As used herein, the words "we," "our," "ours," "us" and "Titan" refers to
The Titan Corporation and its subsidiaries.
OVERVIEW AND OUTLOOK
We are a leading diversified technology company that provides information
technology, communications and electron beam food pasteurization and medical
product sterilization systems and services. Through extensive government-funded
research and development activities since 1981 under contracts totaling in
excess of $2 billion, we have accumulated a broad portfolio of technologies,
intellectual property and expertise from which we have developed many of our
commercial businesses. The core technologies supporting our Titan Scan and Titan
Wireless segments were derived from technologies originally developed for
government applications. We believe that our government contracts business
enhances our technical expertise with sophisticated technologies and facilitates
our ability to develop commercial applications. We fund the development of
commercial technologies from our technology base both internally as well as in
conjunction with partners. In 1996, for example, we contributed the core
technology to form Servnow! Nettechnologies, Inc., which is now known as
IPivot, Inc. IPivot develops software products that improve the performance of
server farms, web sites and software applications. We raised the capital
required to fund IPivot from venture capital sources. In November 1999, we
received approximately $42 million in cash for our 8.1% equity interest when
IPivot was acquired by Intel Corporation. We plan to continue building our
technology portfolio, identifying commercial applications and entering into
strategic relationships to further our growth.
We have organized our business into five segments that reflect the specific
markets and industries in which we operate:
<TABLE>
<CAPTION>
SEGMENT SEGMENT DECRIPTION
- ------- -----------------------------------------------------
<S> <C>
Titan Systems Information technology and communications solutions
for defense, intelligence, and other U.S. and allied
government agencies
Cayenta Total services provider of comprehensive information
technology solutions for its customers' business
functions, including e-business, finance, accounting,
customer billing and collection, contract management,
supply chain integration and enterprise asset
management
Titan Scan Electron beam food pasteurization and medical product
sterilization systems and services
Titan Wireless Satellite communication systems and services which
support telephony in developing countries
Emerging Technologies Development of commercial applications for
technologies created by our other business segments
through government-sponsored research and development
programs
</TABLE>
Each of Titan Systems, Titan Scan and Titan Wireless is a wholly owned
subsidiary of ours, and has a management team that has significant relevant
experience in the segment's particular business
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and market area. Consistent with our strategy of aligning management motivation
with stockholder interests, each of these wholly owned subsidiaries has its own
key employee stock option plan to foster an entrepreneurial environment. We have
created stock option plans for each of Titan Systems, Titan Scan and Titan
Wireless. As of December 31, 1999, Titan Systems had approximately 13% of its
fully diluted common stock that had been reserved for issuance under its plan,
and each of Titan Scan and Titan Wireless had approximately 16% of their fully
diluted common stock that had been reserved for issuance under their respective
plans.
We control approximately 97% of the voting power of Cayenta through our
ownership of 10 million shares of Class B common stock. Each Class A share is
entitled to one vote and each Class B share is entitled to ten votes, with Class
A and Class B shares voting together on all matters submitted to the vote of the
holders of common stock. Cayenta has filed a registration statement on Form S-1
for an initial public offering of an as yet undetermined number of shares of its
Class A common stock that are estimated to have an aggregate value, excluding
the over-allotment option, of $70.0 million. If the proposed offering is
completed, the 2,345,000 outstanding shares of Series A preferred stock of
Cayenta will convert into Class A common stock of Cayenta. We cannot be certain
that Cayenta will be able to complete its offering or complete the offering at
the currently expected offering size. We currently expect to retain in excess of
90% of the voting power of Cayenta following its proposed initial public
offering. In addition, Cayenta has reserved 2,450,000 shares of Class A common
stock under stock option plans, of which 2,344,250 were subject to outstanding
options as of December 31, 1999. Cayenta has also issued warrants for 495,800
shares of its Class A common stock that have a weighted average exercise price
of $13.11 per share.
TITAN SYSTEMS
Titan Systems provides and is expected to continue to provide the largest
percentage of our consolidated revenues. During the nine months ended
September 30, 1999, Titan Systems had total revenues of $219.5 million, which
represented 80.1% of our consolidated revenues for the period. Titan System's
revenues have continued to grow internally and through our well-defined strategy
of increasing our core competencies through acquiring defense information
technology companies as part of the industry consolidation of defense companies.
We expect to continue to support this segment's growth through strategic
acquisitions.
On December 9, 1999, we entered into an Agreement and Plan of Merger to
acquire Advanced Communication Systems, Inc. in a stock-for-stock, pooling of
interest transaction that we expect to close by the end of our first quarter of
2000. Advanced Communication Systems provides communications, information
systems and aerospace services and solutions primarily to U.S. government
agencies. During the twelve months ended September 30, 1999, Advanced
Communication Systems had revenues from government contracts of approximately
$199 million. Advanced Communication Systems itself has participated in the
industry consolidation and acquired another company in September 1999 in a cash
transaction accounted for as a purchase. As of September 30, 1999, Advanced
Communication Systems had recorded goodwill of $57.6 million that is being
amortized over a period from five to 40 years in connection with its
acquisitions. Advanced Communication Systems also expects to record additional
goodwill of up to approximately $10 million at December 31, 1999 relating to a
potential $10 million earn-out that will be payable in February 2000 in
connection with an acquisition it made in 1998. The additional goodwill will be
amortized over 40 years.
During 1999, Titan Systems acquired System Resources Corporation ("System
Resources") for a cash purchase price of approximately $35.0 million, subject to
certain post-closing working capital adjustments and offsets for indemnification
claims, consisting of $33.0 million in cash paid at closing, less a
$0.5 million holdback, and $2 million in promissory notes which bear interest at
7% per annum and become fully payable on June 9, 2000, the one year anniversary
of the closing of the transaction. In addition, we agreed to pay the System
Resources stockholders one-half of approximately $1.5 million in
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System Resources receivables aged more than 720 days to the extent that any of
those receivables are collected within the two-year period following the closing
date. We also retired approximately $10 million in System Resources
indebtedness. On July 22nd, Titan Systems also acquired Atlantic Aerospace
Electronics Corporation for approximately $18 million, all of which was paid at
closing. In addition, we may pay up to $3 million in connection with earn-outs
tied to the receipt of specific future contract awards, subject to offsets for
indemnification claims. We accounted for both of these acquisitions as purchases
and recorded approximately $41 million in goodwill, which is being amortized on
a straight-line basis over 40 years.
During 1998, we completed five acquisitions, DBA Systems, Inc. on
February 27th, The Validity Corporation on March 31st, Horizons
Technology, Inc. on June 30th, VisiCom Laboratories, Inc. on August 24th, and
Delfin Systems, Inc. on October 23rd. With the exception of the Validity
acquisition, each of these mergers was a stock-for-stock transaction accounted
for as a pooling of interests. We recorded goodwill of approximately $18 million
in connection with the Validity transaction, which is being amortized over 30
years.
Titan Systems' backlog, including both funded and unfunded backlog, was
approximately $621.3 million at September 30, 1999. Titan Systems also had
remaining priced options of approximately $207 million at September 30, 1999. If
Titan Systems' completes its acquisition of Advanced Communication Systems, it
expects a substantial increase in its backlog. At September 30, 1999, Advanced
Communication Systems had funded and unfunded backlog of $704.6 million.
Although backlog represents only business which is considered to be firm, we
cannot guarantee that cancellations or scope adjustments will not occur.
Titan Systems' operating margin is affected by the mix of contract types
(cost reimbursement, fixed-price or time and materials) as well as by the mix of
prime contracts versus subcontracts. Significant portions of Titan Systems'
contracts are cost reimbursement contracts, under which Titan Systems is
reimbursed for all actual costs, plus a fee or profit. The financial risks under
these contracts generally are lower than those associated with other types of
contracts, and margins are also typically lower. The U.S. government also has
awarded Titan Systems fixed-price contracts. Such contracts carry higher
financial risks because Titan Systems must deliver the contracted services at a
cost below the fixed price in order to earn a profit.
The following table summarizes the percentage of revenues of Titan Systems
attributable to each contract type for the period indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
CONTRACT TYPE 1998 1999
- ------------- -------- --------
<S> <C> <C>
Cost Reimbursement................................ 49.8% 44.6%
Fixed-Price....................................... 32.0 27.0
Time and Materials................................ 18.2 28.4
------ ------
100.0% 100.0%
====== ======
</TABLE>
The percentage of Advanced Communication Systems' revenues attributable to cost
reimbursement contracts was 45.0%, the percentage attributable to fixed-price
contracts was 23.0%, and the percentage attributable to time and materials
contracts was 32.0%, for the twelve months ended September 30, 1999.
Revenues on cost reimbursement contracts are recognized to the extent of
costs incurred plus a proportionate amount of fees earned. Revenues on time and
materials contracts are recognized at the contractual rates as labor hours and
direct expenses are incurred. Revenues on fixed-price contracts are
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recognized on the percentage-of-completion method based on costs incurred in
relation to total estimated costs.
CAYENTA
During the period between 1995 and January 1999, Cayenta developed its
systems integration and software application expertise. In January 1999, Cayenta
acquired substantially all of the assets of Transnational Partners II, LLC
("Transnational Partners"), an enterprise application integration consulting
company, to broaden its systems integration capabilities and access
Transnational Partners' customer base. Cayenta acquired these assets for an
initial installment of $7.0 million in cash and 2,345,000 shares of its
convertible preferred stock. Cayenta will pay off an additional $2.8 million
note that it issued as part of its acquisition of Transnational Partners, plus
7% interest thereon, in February 2000. During late 1999, Cayenta acquired J.B.
Systems, Inc., an enterprise asset management company doing business under the
name Mainsaver ("Mainsaver"). Cayenta acquired Mainsaver for $11.7 million in
cash, of which $8.2 million was paid at the closing. Of the $3.5 million
withheld at the closing, $0.5 million is due in February 2000 and $3.0 million
is due in May 2001, plus 7.5% interest thereon in each case, after satisfaction
of possible working capital adjustments or indemnification obligations. In
addition, Cayenta paid approximately $3.4 million to reduce outstanding
indebtedness of Mainsaver. Also during late 1999, Cayenta acquired Assist
Cornerstone Technologies, Inc. ("Assist"), an e-commerce solutions and software
provider. Cayenta acquired Assist for 516,458 shares of its Class A common stock
and approximately $12.9 million in cash, of which $9.9 million was paid at the
closing. Of the $3.0 million withheld at the closing, $1.7 million is due in
March 2000 and $1.3 million is due in June 2001, plus 8% interest thereon in
each case, after satisfaction of possible working capital adjustments or
indemnification obligations. In addition, Cayenta paid approximately $3.2
million to retire outstanding indebtedness of Assist and redeem all of its
outstanding redeemable preferred stock. Cayenta also acquired SFG
Technologies, Inc. ("SFG Technologies"), a solutions and software provider
focusing on revenue cycle services for the utility industry, during the fourth
quarter of 1999. Cayenta acquired SFG Technologies for $11.6 million in cash, of
which $9.5 million was paid at the closing. Of the approximately $2.0 million
placed into escrow at the closing, approximately $0.5 million is due in
March 2000 and $1.5 million is due in June 2001, after satisfaction of possible
working capital adjustments or indemnification obligations. In addition, Cayenta
paid approximately $3.1 million to retire outstanding indebtedness of SFG
Technologies and redeem all of its outstanding redeemable preferred stock.
Cayenta intends to integrate the software and solutions developed by these
companies into its total services provider, or TSP, offering.
In September 1999, together with Sempra Energy's information solutions
subsidiary and modis, an application integrator, Cayenta established Soliance,
LLC, a joint venture that markets and delivers systems and solutions, including
TSP offerings, to the utility industry. Cayenta owns a 10% equity interest in
Soliance and has a management services agreement with Soliance under which it
provides TSP services to Soliance's customers.
Cayenta has historically derived its revenues from its application
integration and consulting services and from sales of its proprietary software
solutions. Cayenta provides its services primarily on a fixed-time, fixed-price
basis and, to a lesser extent, on a time and materials basis. Under its
fixed-time, fixed-price contracts, Cayenta recognizes revenues on a percentage
of completion basis. Cayenta's fixed-time, fixed-price contracts usually require
an advance payment from its customer with additional payments due on achievement
of specific milestones or on a predetermined schedule. Revenues earned but not
yet billed are recorded as unbilled receivables. Under its time and materials
contracts, Cayenta is paid at an agreed upon hourly rate for the actual time
spent on a customer's projects, and revenues are recorded at the time services
are performed. For the nine months ended September 30, 1999, Cayenta's revenues
from fixed-time, fixed-price contracts represented 66% of its actual revenues
and its revenues from time and materials contracts represented 34% of its actual
revenues. Each of Mainsaver,
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Assist and SFG Technologies recognizes revenues from the sale of its proprietary
software when the software is delivered and accepted, in accordance with the
American Institute of Certified Public Accountants' Statement of Position 97-2,
"Software Revenue Recognition." The related software support and maintenance is
billed at the beginning of the maintenance period, recognized ratably over the
term of the applicable contract and recorded as deferred revenues until
recognized.
As Cayenta expands the portion of its business that is based on its TSP
offering, Cayenta intends to enter into contracts with terms of between three
and five years. Cayenta expects revenues from its TSP offering to consist of
periodic recurring fees from ongoing services that will be recognized ratably
over the applicable contract's term. In addition, Cayenta expects to receive
application integration and consulting fees that will be recognized in
accordance with its revenue recognition policies discussed above.
Historically, Cayenta's interest expense has related to borrowings from us
to fund its acquisitions and working capital requirements. As of January 21,
2000, Cayenta owed approximately $54.0 million to us under a credit facility on
which Cayenta will make quarterly interest payments at the greater of the rate
of 10% per annum or our effective weighted average interest rate under our
senior credit facility. Cayenta may not use the proceeds of its proposed initial
public offering to pay amounts outstanding under its credit facility with us.
Under its variable stock option plan, Cayenta has granted options to certain
employees who have agreed to resell shares purchased with those options to
Cayenta. Cayenta has recorded deferred compensation related to these option
grants in an aggregate amount of $155,000 through September 30, 1999. As of
September 30, 1999, there are 628,000 options outstanding that are subject to
this buyback provision, for which Cayenta expects to record deferred
compensation expense equal to the difference between these options' exercise
price of $0.36 per share and the price per share in the proposed initial public
offering multiplied by all 628,000 options. Cayenta also issued 245,000 options
to employees not covered by this buyback option at exercise prices that were
less than the deemed fair market value of the underlying common shares on the
date of grant. Cayenta has recognized deferred compensation relating to these
grants of $514,000 and will amortize this deferred charge to expense over the
four-year vesting period of these options. We expect that there will be an
additional charge related to deferred compensation at the time the initial
public offering closes, and that this charge may be material.
If Cayenta completes its proposed initial public offering, Cayenta expects
to incur operating losses as it invests in the further development of its total
services provider, or TSP, offering. Cayenta expects its selling, general and
administrative expenses to increase significantly as it expands its recruiting
efforts, further develops and launches its TSP offering, initiates its branding
campaign, increases its direct sales staff and builds its administrative
infrastructure. Cayenta also expects its research and development expenses to
increase as it integrates recently acquired software into, and further develops,
its TSP offering.
TITAN SCAN
Titan Scan currently derives primarily all its revenues from providing
turnkey medical product sterilization systems for use at a customer's own
facility and from providing medical product sterilization services at
Titan-owned facilities in San Diego and Denver. Titan Scan's San Diego and
Denver facilities currently run seven days per week, perform sterilization
services for an average of 19 hours per day, and have performed over 100,000
hours of contract sterilization services.
Titan Scan currently derives a small portion of its revenues, and in the
future expects to derive significant revenues, from providing electron beam food
pasteurization services using our SureBeam technology. In December 1999, the
U.S. Department of Agriculture ("USDA") issued regulations setting forth
guidelines for the irradiation of meats. In anticipation of these regulations,
Titan Scan built, at Cloverleaf Cold Storage's facility in Sioux City, Iowa, the
first electron beam food
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pasteurization facility in the United States. In addition, Titan Scan entered
into multiyear arrangements with many of the major poultry and meat providers in
the United States, including Cargill, IBP, Tyson Foods, Emmpak and Huisken
Meats, among others. Titan Scan's multiyear arrangements with its customers
generally provide that Titan Scan will be the exclusive provider of electronic
pasteurization services whenever these companies elect to use pasteurization
technology. Our Sioux City, Iowa facility became operational in December 1999
and once at full capacity will be able to pasteurize in excess of 250 million
pounds of product annually. In January 2000, Titan Scan agreed to build a second
facility in Arkansas with a strategic partner. The strategic partner will form a
new entity to operate the SureBeam system, and Titan Scan will own a minority
interest in the new entity. The facility is scheduled to become operational in
December 2000. Also in January 2000, Titan Scan announced that it had sold a
SureBeam system to Japan's Mitsubishi Corp. that is expected to be fully
operational by the first quarter of 2001. In connection with the sale,
Mitsubishi will form a new entity to operate the SureBeam system, which is
expected to be initially used for medical product sterilization, Titan Scan will
hold an equity interest in the new entity, and Mitsubishi will market Titan
Scan's SureBeam technology in Japan. We cannot be certain that consumers will
accept irradiated foods and that meat and poultry providers and producers will
begin to use our pasteurization services. We also cannot guarantee the volume of
beef or poultry that meat and poultry providers and producers will elect to have
electronically pasteurized.
Together with a strategic partner, we are currently building a facility in
Hilo, Hawaii that will use our SureBeam technology for the disinfestation of
fruits and vegetables produced in Hawaii. Titan Scan will receive revenues from
the installation of our system in the plant and has an option to purchase a less
than 20% minority equity interest in the entity operating the facility, which
will receive revenues from disinfestation services. We cannot be certain that
the facility will attain market acceptance or generate significant revenues that
will be realized by Titan Scan through profit allocations if Titan Scan
exercises its option to purchase an equity interest in the entity operating the
facility.
On January 6, 2000, Ion Beam Applications s.a., a Belgian corporation, and
some of its U.S. subsidiaries filed an action for declaratory judgment in a
federal court in Virginia against us relating to our patent for our SureBeam
technology. The action attacks the validity of our patent, seeks a declaration
that Ion Beam Applications and its customers have not infringed any of the 62
claims in our patent, and alleges that we have engaged in unfair competition and
that our conduct constitutes patent misuse. We intend to vigorously defend our
patent position. However, a finding in favor of Ion Beam Applications in this
action could adversely affect our business, financial condition and results of
operation by reducing the growth of our Titan Scan business segment and
preventing us from generating the revenues that we expect from food
pasteurization.
With respect to equipment sales, we recognize revenue on a percentage of
completion basis. Service revenues are recognized as the related services are
performed.
If irradiated foods gain market acceptance, Titan Scan expects that its
revenues from pasteurization services would increase significantly. Depending
upon market demand, Titan Scan may build additional food pasteurization
facilities, which would increase its level of capital expenditures.
TITAN WIRELESS
Titan Wireless develops and produces advanced satellite ground terminals,
satellite voice/data modems, networking systems and other products to support
telephony in developing countries for government and commercial customers
worldwide. Titan Wireless's technology relies heavily on our Demand Assigned
Multiple Access, or DAMA, technology, which enables more cost-effective and
efficient use of satellite transmission capacity by allowing each ground
terminal in a satellite network to communicate with any other terminal in the
network.
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To date, Titan Wireless's revenues have been generated primarily through the
sale of products to commercial carriers of telephony services. Titan Wireless is
increasingly seeking to generate recurring service revenues from the telephony
systems it installs, and intends to derive at least 50% of all future revenues
from providing telecommunications services. In 1999, Titan Wireless formed Sakon
LLC with Sakon Corporation to provide carrier, direct dial telephony and
enhanced communications services in certain developing countries. In
November 1999, Titan Wireless formed a strategic relationship with Telecel
International Limited, a large wireless communications service provider to the
African continent, to provide satellite-based telecommunications services in
Africa.
Titan Wireless also owns a 50% equity interest in Titan Africa, Benin, which
is building a satellite-based telephone system for Benin's national telephone
company. Titan Wireless, the prime contractor for the project, will install the
major satellite hub, the Very Small Aperture Terminal hardware, the billing
system and network control system. Alcatel of France is a major subcontractor to
Titan Wireless on this project, and will handle the delivery, installation and
integration of the digital cellular system, wireless local loop, fiber optic
system and primary hub switching technology of the system. Titan Wireless will
build out the entire system, which is expected to be completed in 2001, co-
operate the system with the national telephone company for approximately eight
years, and then transfer the operations to the national telephone company. A
majority of the build-out costs under this contract will be subcontract costs
payable by Titan Wireless to Alcatel. Titan Wireless's operating margin on work
performed by subcontractors is substantially lower than its operating margin on
work it performs itself. In addition to realizing revenue and profit on the
equipment portion of the project, Titan Wireless will share in the revenue and
profit generated by the system while it is co-operating the system.
With respect to systems sales, we recognize revenue on a percentage of
completion basis. For equipment sales, we recognize revenue on shipment. Service
revenues are recognized as the related services are performed. As Titan Wireless
increases the number of developing countries in which it provides international
long distance telecommunications, Titan Wireless expects its revenues and
operating income to increase.
EMERGING TECHNOLOGIES.
This segment's operating activities consist primarily of the ImagClear 5000
fingerprint digitization system business, our truck and train tracking and
monitoring system business and other early stage commercial businesses,
including businesses in which we have less than a 20% equity interest. Emerging
Technologies pursues commercial applications for technologies originally
developed in our Titan Systems' segment or developed by defense companies we
have acquired.
In November 1999, we received approximately $42 million in cash for our 8.1%
equity interest in IPivot, Inc., which was acquired by Intel Corporation. IPivot
develops software products that improve the performance of server farms, web
sites and software applications. In 1996, we contributed the core technology to
form Servnow! Nettechnologies, Inc., which later changed its name to IPivot.
IPivot was one of the businesses contained in our Emerging Technologies segment.
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<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
(IN THOUSANDS) (IN THOUSANDS)
------------------------------ ---------------------
CONSOLIDATED FINANCIAL DATA 1996 1997 1998 1998 1999
- --------------------------- -------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................. $245,976 $275,923 $303,428 $218,678 $274,059
Cost of revenues.......................... 192,657 216,553 232,041 168,816 211,147
Selling, general and administrative....... 36,226 36,731 37,553 26,936 32,957
Research and development.................. 5,023 7,466 5,590 4,025 5,317
Special acquisition related charges and
other................................... -- 6,600 9,891 4,553 --
-------- -------- -------- -------- --------
Operating profit.......................... 12,070 8,573 18,353 14,348 24,638
Interest expense, net..................... 4,125 5,771 6,985 5,137 6,127
Income tax provision...................... 2,603 4,184 4,155 3,336 5,553
Cumulative effect of change in accounting
principle, net.......................... -- -- (19,474) (19,474) --
Loss from discontinued operations, net.... (6,326) (17,930) (7,444) (5,617) --
-------- -------- -------- -------- --------
Net income (loss)......................... $ (984) $(19,312) $(19,705) $(19,216) $ 12,958
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ---------------------
AS A PERCENTAGE OF REVENUES 1996 1997 1998 1998 1999
- --------------------------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues.......................... 78.4 78.5 76.5 77.2 77.0
Selling, general and administrative....... 14.7 13.3 12.4 12.3 12.0
Research and development.................. 2.0 2.7 1.8 1.8 1.9
Special acquisition related charges and
other................................... -- 2.4 3.3 2.1 --
-------- -------- -------- -------- --------
Operating profit.......................... 4.9 3.1 6.0 6.6 9.0
Interest expense, net..................... 1.7 2.1 2.3 2.3 2.2
Income tax provision...................... 1.1 1.5 1.4 1.5 2.0
Cumulative effect of change in accounting
principle, net.......................... -- -- (6.4) (8.9) --
Loss from discontinued operations, net.... (2.6) (6.5) (2.4) (2.5) --
-------- -------- -------- -------- --------
Net income (loss)......................... (0.4) (7.0) (6.5) (8.8) 4.7
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
(IN THOUSANDS) (IN THOUSANDS)
------------------------------ ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SEGMENT FINANCIAL DATA:
TITAN SYSTEMS
Revenues................................ $211,124 $225,686 $259,442 $188,366 $219,545
Operating profit........................ 18,770 8,361 25,270 18,356 21,604
TITAN SOFTWARE SYSTEMS
Revenues................................ 18,505 17,374 21,470 13,242 29,330
Operating profit (loss)................. (137) 4,580 5,137 3,232 6,173
TITAN SCAN
Revenues................................ 7,930 8,254 11,184 8,049 9,985
Operating profit (loss)................. (390) (204) 1,121 503 1,668
TITAN WIRELESS
Revenues................................ 3,430 18,405 6,717 6,004 9,885
Operating profit (loss)................. (5,421) (1,074) (6,732) (3,057) 1,656
EMERGING TECHNOLOGIES AND BUSINESSES
Revenues................................ 4,987 6,204 4,615 3,017 5,314
Operating profit (loss)................. (209) (286) 34 (235) 732
CORPORATE/OTHER........................... (543) (2,804) (6,477) (4,451) (7,195)
-------- -------- -------- -------- --------
TOTAL REVENUES............................ $245,976 $275,923 $303,428 $218,678 $274,059
TOTAL OPERATING PROFIT.................... $ 12,070 $ 8,573 $ 18,353 $ 14,348 $ 24,638
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------ ---------------------
1996 1997 1998 1998 1999
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
SEGMENT REVENUES AS A PERCENTAGE OF TOTAL
REVENUES:
TITAN SYSTEMS............................. 85.9% 81.8% 85.5% 86.1% 80.1%
TITAN SOFTWARE SYSTEMS.................... 7.5% 6.3% 7.1% 6.1% 10.7%
TITAN SCAN................................ 3.2% 3.0% 3.7% 3.7% 3.6%
TITAN WIRELESS............................ 1.4% 6.7% 2.2% 2.7% 3.6%
EMERGING TECHNOLOGIES AND BUSINESSES...... 2.0% 2.2% 1.5% 1.4% 1.9%
-------- -------- -------- -------- --------
100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== ========
</TABLE>
Historically, we operated our business in five segments--Information
Technologies, Software Systems, Medical Sterilization and Food Pasteurization,
Communications Systems and Emerging Technologies and Businesses. We have renamed
three of our five historical segments as follows: Information Technologies has
been renamed Titan Systems, Medical Sterilization and Food Pasteurization has
been renamed Titan Scan and Communications Systems has been renamed Titan
Wireless. All of our segments are comprised of multiple operating entities.
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RESULTS OF OPERATIONS
REVENUES
CONSOLIDATED. Revenues increased from $218.7 million for the nine months
ended September 30, 1998 to $274.1 million for the nine months ended
September 30, 1999.
TITAN SYSTEMS. Titan Systems' revenues increased from $188.4 million for
the nine months ended September 30, 1998 to $219.5 million for the nine months
ended September 30, 1999. This increase was due primarily to revenues generated
as a result of the acquisitions of Validity, System Resources and Atlantic
Aerospace and increased subcontract revenues and to a lesser degree due to
internal growth experienced by several of the information technologies and
systems businesses. These increased revenues were partially offset by reduced
shipments of certain defense communications products.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues increased
from $13.2 million for the nine months ended September 30, 1998 to $29.3 million
for the nine months ended September 30, 1999. This growth resulted primarily
from a significant new contract with a customer that accounted for $9.8 million
in revenues in the period and $8.3 million in revenues contributed by the
Transnational Partners business that was acquired in January 1999.
TITAN SCAN. Titan Scan's revenues increased from $8.0 million for the nine
months ended September 30, 1998 to $10.0 million for the nine months ended
September 30, 1999. This increase primarily relates to the completion of two
medical sterilization systems during the second quarter of 1999, and to
increased utilization at the San Diego and Denver contract medical sterilization
facilities and at the medical sterilization facility in the Dominican Republic
that we operate for Baxter Corporation.
TITAN WIRELESS. Titan Wireless's revenues increased from $6.0 million for
the nine months ended September 30, 1998 to $9.9 million for the nine months
ended September 30, 1999. The increase in revenues was due principally to
revenues recorded on its contract to provide a telecommunications system in
Benin, Africa, and to a lesser extent, due to revenues related to the launching
of long distance service in El Salvador and Cameroon. Also included in revenues
for the nine months ended September 30, 1999 is $1.5 million reflecting the
collection of a portion of receivables from PT. Pasifik Satelit Nusantara
("PSN"), for which we had previously provided a valuation allowance against the
amounts outstanding.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
increased from $3.0 million for the nine months ended September 30, 1998 to $5.3
million for the nine months ended September 30, 1999. This increase was due
primarily to increased shipments of fingerprint digitization systems.
SELLING, GENERAL AND ADMINISTRATIVE
Our selling, general and administrative expenses ("SG&A") increased from
$26.9 million for the nine months ended September 30, 1998 to $33.0 million for
the nine months ended September 30, 1999. SG&A, as a percentage of revenue,
decreased slightly from 12.3% for the nine months ended September 30, 1998 to
12.0% for the nine months ended September 30, 1999. This decrease resulted
primarily from the cost reduction measures implemented in our Titan Systems
segment.
RESEARCH AND DEVELOPMENT
Research and development costs ("R&D") increased from $4.0 million for the
nine months ended September 30, 1998 to $5.3 million for the nine months ended
September 30, 1999. These increases were due to the increased level of R&D
spending in the Titan Systems segment, specifically related to imaging products.
We anticipate that the level of R&D spending will continue to increase for the
remainder of fiscal 1999 and through fiscal 2000 across all of our core business
segments.
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OPERATING PROFIT
CONSOLIDATED. Our operating profit increased from $14.3 million for the
nine months ended September 30, 1998 to $24.6 million for the nine months ended
September 30, 1999. This increase was due primarily to the increased revenues
noted above and a special charge for merger-related and other expenses of $4.6
million included in operating results for the nine months ended September 30,
1998.
TITAN SYSTEMS. Titan Systems' operating profit increased from $18.4 million
for the nine months ended September 30, 1998 to $21.6 million for the nine
months ended September 30, 1999. This increase was due primarily to the
increased revenues noted above. Included in Titan Systems' results of operations
for the nine months ended September 30, 1998 are special acquisition related
charges of $3.4 million and $0.4 million related to costs incurred to file a
registration statement with the Securities and Exchange Commission ("SEC").
Excluding these special charges, operating income decreased $0.6 million from
$22.2 million in the nine months ended September 30, 1998 to $21.6 million in
the same period in 1999. One time credits in the nine months ended
September 30, 1998 resulted in higher than normal operating profit margins. In
addition, a change in product and service revenue mix, an increase in lower
margin subcontract revenue volumes, and increased R&D expenditures for certain
imaging and defense satellite communications products also resulted in lower
operating margins during the nine months ended September 30, 1999. The impact of
the change in revenue mix and increased R&D investment was partially offset by
credits related to favorable determinations from certain government agencies.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' operating profit
increased from $3.2 million for the nine months ended September 30, 1998 to $6.2
million for the nine months ended September 30, 1999. This increase resulted
primarily from the increase in revenues noted above.
TITAN SCAN. Titan Scan's operating profit increased from $0.5 million for
the nine months ended September 30, 1998 to $1.7 million for the nine months
ended September 30, 1999. This increase resulted primarily from the increase in
revenues noted above.
TITAN WIRELESS. Titan Wireless's operating results improved from an
operating loss of $3.1 million for the nine months ended September 30, 1998 to
an operating profit of $1.7 million for the nine months ended September 30,
1999. This increase resulted primarily from the increase in revenues noted
above. Titan Wireless's operating results for the nine months ended September
30, 1999 include $2.1 million reflecting the collection of a portion of
receivables from PSN, for which we had previously provided a valuation allowance
against the amounts outstanding. Titan Wireless's operating results for the nine
months ended September 30, 1998 include special charges of $0.4 million related
to costs incurred in connection with a withdrawn registration statement.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results improved from an operating loss of $0.2 million for the nine months
ended September 30, 1998 to an operating profit of $0.7 million for the nine
months ended September 30, 1999. This increase resulted primarily from the
increased revenues noted above.
INTEREST EXPENSE, NET
Our net interest expense increased from $5.1 million for the nine months
ended September 30, 1998 to $6.1 million for the nine months ended
September 30, 1999. This increase resulted primarily from increased borrowings
under our bank credit facility, principally in connection with our acquisitions
of System Resources and Atlantic Aerospace.
INCOME TAXES
Our income tax provision decreased from a 36% effective rate for the nine
months ended September 30, 1998 to a 30% effective rate for the nine months
ended September 30, 1999. The higher rate for the nine months ended
September 30, 1998 was due primarily to the inability to offset losses of
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certain acquired entities with income of other entities. We expect our effective
income tax rate to remain stable in the foreseeable future at an approximate
rate of 30% to 34%.
NET INCOME (LOSS)
We reported net income of $13.0 million for the nine months ended
September 30, 1999 compared to a net loss of $19.2 million for the nine months
ended September 30, 1998. Included in the results for the nine months ended
September 30, 1998 is a special pre-tax charge for merger-related and other
expenses of $4.6 million. Included in the results for the nine months ended
September 30, 1998 are losses from discontinued operations of $5.6 million. In
addition, we adopted Statement of Position ("SOP") 98-5 ("Start-up Costs") in
1998, which resulted in a $19.5 million write-off of capitalized start-up costs
recorded as a cumulative effect of a change in accounting principle.
FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
CONSOLIDATED. Our consolidated revenues increased from $246.0 million in
1996 to $275.9 million in 1997 and from $275.9 million in 1997 to $303.4 million
in 1998. Increased revenues were reported in the Titan Systems, Software Systems
and Titan Scan segments in 1998. Revenue growth in 1998 was primarily
attributable to the impact of acquisitions made and integrated into our Titan
Systems segment, work performed on new business in the Software Systems segment,
and the near-completion of two SureBeam systems in the Titan Scan segment.
Revenue growth in 1997 was primarily attributable to revenues generated by
Eldyne, Inc. and Unidyne Corporation, which integrate, install and maintain
information systems on U.S. ships and submarines and we acquired in May 1996 and
integrated into Titan Systems, as well as increased deliveries of telephony
units and Mini-DAMA units in our Titan Wireless and Titan Systems segments.
TITAN SYSTEMS. Titan Systems' revenues increased from $211.1 million in
1996 to $225.7 million in 1997 and from $225.7 million in 1997 to $259.4 million
in 1998. The increase in 1998 primarily relates to $23.0 million of revenue
generated from Validity, which was purchased in March 1998, and to a lesser
degree, revenues related to a claim with the U.S. government for work performed
in a prior year, increased shipments of Mini-DAMA units and increased sales
volume of certain VisiCom products. The increased revenue in 1997 was primarily
related to a full-year's revenues generated from Eldyne and Unidyne, which were
acquired in May 1996, increased shipments of Mini-DAMA units and increased
revenues generated under a contract awarded to DBA in 1996.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues decreased
from $18.5 million in 1996 to $17.4 million in 1997 and increased from $17.4
million in 1997 to $21.5 million in 1998. The increase in 1998 resulted
primarily from several new customers and from increased revenues from one
federal agency which accounted for approximately $6.8 million, $8.9 million and
$11.2 million of Software Systems' revenues during 1996, 1997 and 1998,
respectively, partially offset by a reduction in revenues from a major
telecommunications customer. The decline in 1997 resulted primarily from reduced
demand from the latter customer, substantially offset by increased revenues from
several new and existing customers. Cayenta expects to diversify its customer
base as it expands its sales and marketing efforts and further develops and
launches its TSP offering.
TITAN SCAN. Titan Scan's revenues increased from $7.9 million in 1996 to
$8.3 million in 1997 and from $8.3 million in 1997 to $11.2 million in 1998. The
increase in 1998 is a result of revenue recognized, using the
percentage-of-completion method of accounting, for two turnkey sterilization
systems which were ordered by customers in late 1997 and substantially completed
in 1998. Increased processing of medical products at our two medical
sterilization facilities also contributed to this revenue growth. Revenues in
1997 were also favorably impacted by increased processing of medical products as
well as the sale of our turnkey sterilization systems to Guidant Corporation and
Baxter Healthcare.
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TITAN WIRELESS. Titan Wireless's revenues increased from $3.4 million in
1996 to $18.4 million in 1997 and decreased from $18.4 million in 1997 to $6.7
million in 1998. The decline in 1998 revenues was due primarily to the decreased
shipments made on our contract with PSN for telephony units in Indonesia. The
revenue increase in 1997 primarily reflected the fulfillment of our initial
contract with PSN for telephony units and increased market acceptance for
certain of our modem and networking products.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
increased from $5.0 million in 1996 to $6.2 million in 1997 and decreased from
$6.2 million in 1997 to $4.6 million in 1998. The decline in 1998 was due
primarily to the wind-down of our environmental consulting business during the
first quarter of 1998, partially offset by increased sales volume of our
fingerprint digitization systems. The increase in 1997 revenues was due to
increased sales volume of fingerprint digitization systems.
SELLING GENERAL AND ADMINISTRATIVE
Our SG&A expenses increased from $36.2 million in 1996 to $36.7 million in
1997 and from $36.7 million in 1997 to $37.6 million in 1998. SG&A, as a
percentage of revenues, decreased from 14.7% in 1996 to 13.3% in 1997 and from
13.3% in 1997 to 12.4% in 1998. The reductions in 1997 and 1998 reflect the
impact of cost reduction measures as well as economies of scale and efficiencies
that have been achieved. In addition, we have eliminated many duplicate
functions and costs as part of our process of integrating certain of our
acquired businesses. In early 1997, we implemented a streamlining process of our
administrative functions. This process focused on eliminating redundancies, and
resulted in increased efficiencies, reduced infrastructures, and, ultimately,
reduced costs. This process continued throughout 1998, and we intend to continue
it.
RESEARCH AND DEVELOPMENT
Our R&D expenses increased from $5.0 million in 1996 to $7.5 million in 1997
and decreased from $7.5 million in 1997 to $5.6 million in 1998. The reduced
level of R&D expenditures in 1998 primarily reflects the completion of certain
development and certification efforts of certain defense communications products
within our Titan Systems segment which were substantially completed in 1997. The
increase in 1997 was due primarily to these development and certification
efforts that were completed in 1998, certain of which took longer than expected
to complete.
OPERATING PROFIT
CONSOLIDATED. Our operating profit decreased from $12.1 million in 1996 to
$8.6 million in 1997 and increased from $8.6 million in 1997 to $18.4 million in
1998. Our operating profits have been significantly impacted by a number of
factors in each of 1996, 1997 and 1998. The 1998 operating results include a
charge of $9.9 million primarily related to the direct transaction costs
incurred on the Delfin, VisiCom, Horizons and DBA mergers, and to a lesser
degree certain costs incurred to integrate these businesses into us, as well as
certain integration costs incurred in other business segments. The 1997
operating results include a charge of $9.8 million related primarily to
provisions taken to reflect certain asset impairments and an estimated
environmental liability pertaining to a DBA manufacturing facility which is held
for sale. The 1996 operating performance reflects our continuing investment in
and funding of our commercial ventures.
TITAN SYSTEMS. Titan Systems' operating profit decreased from $18.8 million
in 1996 to $8.4 million in 1997 and increased from $8.4 million in 1997 to $25.3
million in 1998. The 1998 operating income includes a charge of $7.2 million
related to $6.8 million of special acquisition and integration related charges
principally comprised of direct transaction and integration costs incurred by us
in conjunction with the mergers of DBA, Horizons, VisiCom and Delfin and $0.4
million of costs incurred
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to file a registration statement with the SEC which was ultimately withdrawn.
The 1997 operating income includes charges of $9.8 million related to the write
down of property held for sale, an estimated environmental liability for DBA,
which we acquired during 1998 and for which we recorded a special charge of $3.0
million during 1997, and certain other asset write-downs recorded in connection
with the acquisition of DBA. Excluding the impact of these charges, Titan
Systems' operating income decreased from $18.8 million in 1996 to $18.2 million
in 1997 and increased from $18.2 million in 1997 to $32.5 million in 1998,
primarily from the increased revenues discussed above, as well as from certain
cost reduction efforts taken during 1997 and 1998.
SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' operating profit
improved from an operating loss of $0.1 million in 1996 to an operating profit
of $4.6 million in 1997 and from an operating profit of $4.6 million in 1997 to
an operating profit of $5.1 million in 1998. The 1998 increase in operating
performance reflects the impact of the increased revenues discussed above. The
1997 results reflect the impact of cost reductions achieved, offset somewhat by
additional costs associated with a negotiated conclusion of certain contracts.
The 1996 operating loss was due primarily to reduced sales from the previously
mentioned telecommunications customer, the timing of corresponding decreases in
SG&A, and additional costs associated with the aforementioned conclusion of
contracts.
TITAN SCAN. Titan Scan's operating results improved from an operating loss
of $0.4 million in 1996 to an operating loss of $0.2 million in 1997 and from an
operating loss of $0.2 million in 1997 to an operating profit of $1.1 million in
1998. This improvement was primarily due to the increase in revenues mentioned
above.
TITAN WIRELESS. Titan Wireless's operating results improved from an
operating loss of $5.4 million in 1996 to an operating loss of $1.1 million in
1997 and worsened from an operating loss of $1.1 million in 1997 to an operating
loss of $6.7 million in 1998. The 1998 operating results include special charges
of $2.4 million including pre-operating and start-up costs of $0.5 million
related to the Titan Africa, Benin operation, $1.4 million related to employee
termination and retention costs related to the reorganization of this business,
as well as approximately $0.5 million related to costs incurred to file a
registration statement with the SEC which was ultimately withdrawn. Excluding
the impact of these charges, operating loss, as adjusted, was $4.3 million in
1998 compared to an operating loss of $1.1 million in 1997 and an operating loss
of $5.4 million in 1996. The increase in operating loss in 1998 was attributable
to the decline in revenues noted above. Operating performance improved in 1997
from 1996 due primarily to increased revenues combined with decreased SG&A and
R&D expenses as a percentage of revenues.
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results declined from an operating loss of $0.2 million in 1996 to an operating
loss of $0.3 million in 1997 and improved from an operating loss of $0.3 million
in 1997 to an operating profit of $0.03 million in 1998. The improved operating
results in 1998 were due primarily to the increase in revenues discussed above.
INTEREST EXPENSE, NET
Our net interest expense increased from $4.1 million in 1996 to $5.8 million
in 1997 and from $5.8 million in 1997 to $7.0 million in 1998. Net interest
expense has increased over 1996, 1997 and 1998, primarily as a direct result of
the increased level of our borrowings, primarily to fund the growth in the
various segments. In 1998 and 1997, the principal component of interest expense
was related to our convertible senior subordinated debentures, substantially all
of which had been converted into our common stock by the end of the fourth
quarter of 1999. In 1996, the principal component of interest expense was
related to our borrowings under our bank lines of credit. Borrowings from our
primary bank lines of credit, excluding working capital lines from acquired
companies, averaged $28.9 million at a weighted average interest rate of 7.7%
during 1998, $10.8 million at a weighted average interest rate of 8.1% during
1997, and $12.3 million at a weighted average interest rate of 8.2% during 1996.
Also
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included in interest expense is interest on our deferred compensation and
retiree medical obligations. Interest expense related to these items was $0.9
million for 1998, $0.8 million for 1997 and $0.8 million for 1996.
INCOME TAXES
Income taxes reflect effective rates of 37% in 1998, 149% in 1997 and 33% in
1996. The difference between the actual provision and the effective rate (based
on the United States statutory tax rate) in 1998 and 1996 was due primarily to
state income taxes. The increased rate in 1997 was due primarily to significant
non-deductible expenses which were recorded for financial reporting purposes, as
well as the inability to offset losses of certain acquired entities with income
of other entities. We anticipate that our effective income tax rate will remain
stable in the foreseeable future at an approximate rate of 30% to 34%.
NET LOSS
Our reported net loss increased from $1.0 million in 1996 to $19.3 million
in 1997 and from $19.3 million in 1997 to $19.7 million in 1998. Included in the
net losses for 1996, 1997 and 1998 are net losses from discontinued operations
of $6.3 million, $17.9 million and $7.4 million, respectively, relating to our
winding down of our access control systems and broadband communications
businesses as well as operations discontinued by certain of the companies
acquired by us during 1998. In addition, we adopted Statement of Position (SOP)
98-5 ("Start-up Costs") in 1998, which resulted in a $19.5 million write-off of
capitalized start-up costs recorded as a cumulative effect of a change in
accounting principle.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1999, we used $8.7 million for
the operating requirements of continuing operations. Cash of $50.9 million was
used for our acquisitions of Transnational Partners, System Resources and
Atlantic Aerospace and cash used for discontinued operations was $5.8 million.
Cash was provided primarily by borrowings under our line of credit of $76.9
million.
We have a receivable of approximately $3.9 million from our Indonesian
customer, PSN, due on September 30, 2000, which accrues interest at 10% per
annum. At any time prior to the payment of the obligation in full, we may elect
to convert all or a portion of the principal and interest due into common stock
of PSN, based on its then current market value. In addition, if PSN sells any of
its interest in its wholly-owned subsidiary, subject to other third party
obligations, PSN is required to immediately pay to us the lesser of the $3.9
million or the total amount of the outstanding balance owed to us. In the event
that PSN obtains financing from additional sources, the payment terms of its
obligations to us will be renegotiated at that time. Titan has received payments
from PSN in accordance with the negotiated payment terms.
On June 9, 1999, in conjunction with the acquisition of System Resources,
our bank syndicate, with The Bank of Nova Scotia as the administrative agent,
amended and increased our existing credit facility. The revised credit facility,
totaling $190 million, includes a $55 million line of credit for working capital
and general corporate purposes, $60 million ($25 million original and $35
million new facility) in lines of credit dedicated to acquisitions and a $75
million term loan. The credit facility is secured by substantially all of the
assets of Titan. Quarterly repayment schedules are in increasing percentages
over 4 years beginning September 1999 for the $25 million original portion of
the acquisition line and June 2000 for the $35 million new portion of the
acquisition line. The $75 million term loan is to be repaid quarterly at .25% of
original principal beginning September 30, 1999 through September 29, 2004 and
at 23.75% thereafter until the final payment at maturity on June 9, 2005. We
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have the option to borrow at the bank's base rate plus a margin of 2% or at
LIBOR plus a margin of 3% on the $75 million term loan. Margins applicable to
the remaining lines are based on the ratio of total debt to earnings before
interest, taxes, depreciation and amortization, or EBITDA. As of January 21,
2000, we had approximately $141 million of indebtedness outstanding under this
credit facility.
We have received a commitment letter from Credit Suisse First Boston, New
York branch, pursuant to which Credit Suisse First Boston, New York branch, has
agreed, subject to the terms and conditions set forth in the commitment letter,
to provide a new credit facility to us. We expect to replace our existing credit
facility with this new credit facility, which we anticipate will be secured by
substantially all of our and our subsidiaries' assets and guaranteed by
substantially all of our subsidiaries. Credit Suisse First Boston, a New York
branch, has committed to provide a senior secured multi-draw term loan facility
in an aggregate principal amount of up to $75 million, a senior secured term
loan facility in an aggregate principal amount of $75 million, and a five-year
senior secured revolving credit facility in an aggregate principal amount of up
to $100 million. Loans made under the multi-draw term loan facility would mature
on the sixth anniversary of the closing date of the new credit facility, and
amortize as follows: 2.5% quarterly in year two of the credit facility, 3.75%
quarterly in year three of the credit facility, 5% quarterly in year four of the
credit facility, 6.25% quarterly in year five of the credit facility and 7.5%
quarterly in year six of the credit facility. Loans made under the term loan
facility would mature on the seventh anniversary of the closing date of the new
credit facility, and amortize as follows: 0.25% quarterly for years one through
six of the credit facility and 23.5% quarterly for year seven of the credit
facility. Under each of the term loan facilities and the revolving facility, we
would have the option to borrow at the bank's base rate or at adjusted LIBOR
plus, in each case, an applicable ratio based on the ratio of our total debt to
EBITDA. We expect that the definitive documentation for the new credit facility
would also contain, among others, financial covenants that set maximum debt to
EBITDA limits and require us to maintain minimum interest and fixed charge
coverages and levels of net worth. We cannot guarantee that we will be able to
enter into satisfactory definitive documentation for, and ultimately access, the
new credit facility described above. We expect to use borrowings of
approximately $77 million under our new credit facility to repay existing
indebtedness of Advanced Communications Systems when we close the acquisition
and to pay certain acquisition-related expenses.
In November 1999, we received approximately $42 million in cash for our 8.1%
equity interest in IPivot, Inc. when IPivot was acquired by Intel Corporation.
IPivot develops software products that improve the performance of server farms,
web sites and software applications, and was one of the businesses in our
Emerging Technologies segment. In 1996, we formed Servnow! Nettechnologies,
Inc., which later changed its name to IPivot, and contributed its core
technology. We are entitled to receive up to approximately $3 million in
additional purchase price upon expiration of the escrow arrangements for this
transaction.
During the fourth quarter of 1999, Cayenta acquired Mainsaver, Assist and
SFG Technologies to further develop its TSP offering. Cayenta paid cash at the
closings for these acquisitions of approximately $39.1 million, which went to
the applicable sellers as well as to retire outstanding indebtedness and redeem
outstanding redeemable preferred stock of the entities acquired.
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Funding for the advancement of our strategic goals, including
acquisitions and continued investment in targeted commercial businesses and
start-up ventures, is expected to continue. We plan to finance these
requirements from a combination of sources, which include cash generation
from our core businesses, our new credit facility as described above and
other available cash sources. Management believes that the combination of net
proceeds from amounts available under the new credit facility and cash flow
expected to be generated from our operations will be sufficient to fund
planned investments and working capital requirements for at least the next
twelve months. However, we could elect, or we could be required, to raise
additional funds during that period and we may need to raise additional
capital in the future. Additional capital may not be available at all, or may
not be available on terms favorable to us. Any issuance of equity or
equity-linked securities may result in substantial dilution to our
stockholders. Management is continually monitoring and reevaluating its level
of investment in all of its operations, specifically the increased investment
required in fiscal 2000 to further grow its commercial businesses, and the
financing sources available to achieve our goals in each business area.
YEAR 2000 READINESS DISCLOSURE
We implemented a Year 2000 compliance program to address our current
hardware and software products and development tools and all of our major
computing information systems networks, desktop systems and infrastructure. In
addition, we contacted business associates such as our third party vendors,
business partners, contractors and service providers to assess their level of
readiness. We estimate that the cost of moving business units to new systems
will ultimately range from $1.0 million to $2.0 million. We do not expect to
experience any material disruptions or other problems relating to the Year 2000
rollover in the operation of our internal hardware and software systems. As a
result of prior assessments, we do not expect our current products or services
to have material Year 2000 issues, and, to date, we have not received any claims
or other indications that any of our segment's products and services are not
Year 2000 compliant. Our products and services generally do not have provisions
for extended warranties; as such, we do not expect that we will have to spend
any material amounts to make any of our prior products Year 2000 compliant.
Since September 30, 1999, our subsidiary Cayenta has completed three
acquisitions of computer software companies. Each of the acquired companies
represented to Cayenta that they used commercially reasonable efforts to make
their systems and products Year 2000 compliant. We cannot predict whether any of
the products of our recently acquired businesses may have Year 2000 issues.
Most of our customers, in particular the U.S. government, utilize complex
billing and accounting systems to determine the timing and the amounts that will
be paid to us under our various contracts. In addition, several of our major
strategic partners rely on complex software systems to coordinate and control
their day-to-day operations. These complex systems may not be Year 2000
compliant. Although these customers and strategic partners have advised us that
they expect to resolve any Year 2000 issues prior to December 31, 1999, we
cannot guarantee that our billing procedures and cycles, or our joint sales and
marketing efforts, will not be interrupted. If these customers' or business
partners' Year 2000 issues are not resolved on time, or at all, our financial
position, results of operations or cash flows could be materially and adversely
affected.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.1 Press Release dated as of January 28, 2000.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: January 28, 2000 THE TITAN CORPORATION
a Delaware Corporation
By: /s/ Cheryl L. Barr
Assistant General Counsel
and Assistant Secretary
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Exhibit 99.1
TITAN ANNOUNCES OFFERING OF $200 MILLION OF CONVERTIBLE PREFERRED SECURITIES
1/28/00 8:45am
SAN DIEGO, Jan. 28 /PRNewswire/ -- The Titan Corporation (NYSE: TTN) today
announced an offering of 4,000,000 of Convertible Preferred Securities,
Remarketable Term Income Deferrable Equity Securities. Each security will
have a stated liquidation amount of $50.
The securities offered will not be and have not been registered under the
Securities Act and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
This press release shall not constitute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in any
state which an offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities law of any such state.
Investor Relations Contact: Rochelle Bold, Vice President Investor Relations
(858) 552-9400 or [email protected].
Press Releases and other Titan information are available on The Titan
Corporation's World Wide Web site: http://www.titan.com.
/CONTACT: Rochelle Bold, Vice President Investor Relations of The Titan
Corporation, 858-552-9400, [email protected]/
08:30 EST
