FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20227
Tracor, Inc.
(Exact name of registrant as specified in its charter)
Delaware 74-2618088
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6500 Tracor Lane,
Austin, Texas 78725-2000
(Address of principal executive offices)
(Zip Code)
512/926-2800
(Registrant's telephone number, including area code)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the last practicable date.
Common stock 24,653,580 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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<CAPTION>
TRACOR
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
------------- ------------
(Unaudited) (Audited)
(in thousands, except share data)
<S> ASSETS <C> <C>
Current assets:
Cash and cash equivalents $ 57,767 $ 59,478
Accounts receivable 198,413 141,657
Inventories 13,903 4,695
Prepaid expenses and other 13,294 7,988
Deferred income taxes 32,316 15,916
Net assets held for sale 3,787 -
-------- --------
Total current assets 319,480 229,734
Property, plant, and equipment, net 113,576 85,760
Goodwill, net 225,086 99,813
Other intangibles 14,155 18,385
Prepaid pension costs 16,393 23,107
Deferred charges and other assets 45,566 10,657
-------- --------
Total assets $734,256 $467,456
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $148,288 $ 89,870
Current portion of long-term debt 22,938 10,735
-------- --------
Total current liabilities 171,226 100,605
Long-term debt, less current portion 299,813 180,440
Deferred revenue 17,056 23,752
Other long-term liabilities 33,461 25,694
Shareholders' equity:
Preferred stock, par value $.01 a share: 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, par value $.01 a share: 53,000,000 shares
authorized; shares issued and outstanding: 24,643,180
in 1996 and 13,172,154 in 1995, net of 1,553 shares in
treasury in 1996 246 132
Class A common stock, par value $.01 a share: 1,000,000 shares
authorized; 978,458 shares issued and outstanding in 1995 - 10
Additional capital paid in 125,273 76,606
Retained earnings 87,181 60,217
-------- --------
Total shareholders' equity 212,700 136,965
-------- --------
Total liabilities and shareholders' equity $734,256 $467,456
======== ========
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TRACOR
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $255,994 $229,180 $752,413 $657,934
Cost of sales 197,969 185,906 595,276 529,559
-------- -------- -------- --------
Gross profit 58,025 43,274 157,137 128,375
Selling, administrative, and general expenses 30,950 26,235 88,674 78,127
-------- -------- -------- --------
Earnings before interest, income taxes, and
other income 27,075 17,039 68,463 50,248
Other income (expense) (217) 1,051 (448) 1,024
Interest expense, net 6,612 4,687 19,422 14,935
-------- -------- -------- --------
Income before income taxes 20,246 13,403 48,593 36,337
Income taxes 8,940 5,734 21,629 15,615
-------- -------- -------- --------
Net income $ 11,306 $ 7,669 $ 26,964 $ 20,722
======== ======== ======== ========
Net income per common and common equivalent share:
Primary $.43 $.33 $1.10 $.93
==== ==== ===== ====
Fully diluted $.43 $.33 $1.09 $.91
==== ==== ===== ====
See notes to unaudited condensed consolidated financial statements.
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<PAGE>
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<CAPTION>
TRACOR
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Operating activities:
Net income $ 26,964 $20,722
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation of property, plant, and equipment 13,280 10,418
Amortization of goodwill 4,179 2,703
Amortization of other intangibles 4,246 4,253
Decrease in prepaid pension costs 6,714 8,351
Decrease in debt issuance costs 2,334 1,514
Decrease in deferred revenue (6,714) (8,351)
Gain on sale of property, plant and equipment - (1,357)
Change in operating assets and liabilities:
Decrease in accounts receivable 8,755 8,559
Increase in inventories and prepaid expenses (4,997) (228)
Decrease in recoverable income taxes 52 1,495
Decrease in accounts payable and
accrued expenses (15,958) (5,163)
Decrease in other, net (519) (640)
-------- --------
Net cash provided by operating activities 38,336 42,276
Investing activities:
Purchases of property, plant, and equipment (11,172) (7,410)
Proceeds from sale of property, plant, and equipment 13,397 2,282
Acquisitions, net of cash acquired (166,020) (13,637)
-------- --------
Net cash used in investing activities (163,795) (18,765)
Financing activities:
Payments of long-term debt (99,735) (7,870)
Proceeds from issuance of long-term debt 180,000 -
Purchase of treasury stock - (32)
Proceeds from stock offering, net 48,224 17,897
Payment of debt issuance costs (5,191) -
Exercise of stock options and warrants 450 167
-------- --------
Net cash provided by financing activities 123,748 10,162
-------- --------
Increase (decrease) in cash and cash equivalents (1,711) 33,673
Cash and cash equivalents at beginning of period 59,478 24,152
-------- --------
Cash and cash equivalents at end of period $ 57,767 $57,825
======== ========
See notes to unaudited condensed consolidated financial statements.
</TABLE>
<PAGE>
TRACOR
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Note A -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of Tracor, Inc. (Tracor or the Company) have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring items,
considered necessary for a fair presentation have been included.
Operating results for the quarter and nine-month period ended
September 30, 1996, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1996. For further
information, refer to the Company's consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
as of December 31, 1995.
Note B -- Income Taxes
The effective income tax rate for the quarter and nine-month period
ended September 30, 1996, is based on the expected annual rate for
federal, state, and foreign income taxes.
Note C -- Income Per Common and Common Equivalent Share
Primary and fully diluted net income per share amounts for the quarter
and the nine-month period ended September 30, 1996, are computed in
accordance with the treasury stock method using the weighted average
common shares outstanding and equivalents assuming the exercise of all
outstanding warrants and options for common shares. The weighted
average common and common equivalent shares used in the fully diluted
calculation were 26,363,000 for the quarter and 24,940,000 for the
nine-month period ended September 30, 1996. Equivalent shares used in the
primary calculation were not significantly different from the amounts
used in the fully diluted calculation.
Note D -- Acquisitions
Cordant Acquisition
On September 26, 1996, Tracor purchased all of the outstanding shares
of Cordant Holdings, Inc. (Cordant), an employee-owned information
systems company. The company focuses on the design, development, and
integration of information systems for a variety of applications,
including mail processing, records management, and CAD/GIS
(computer-aided design/geographic information systems). The purchase
price of $63.5 million is subject to certain working capital
adjustments, and contingent payments up to an additional $15 million
based upon Cordant's performance in 1996 and the potential award of a
large contract. The acquisition was financed by the use of $32 million
of cash on hand and the issuance of two promissory notes totaling $31.5
million. One promissory note in the amount of $5 million, subject to
adjustments for indemnification claims, is payable March 26, 1998. If
the contingent payments discussed above do not occur, a portion of the
$26 million note may become payable on April 1, 1997, in an amount not to
exceed $5.3 million. The remaining balance of this note is payable upon
the resolution of a former Cordant minority shareholder's lawsuit.
Both promissory notes are supported by irrevocable standby letters of
credit which are fully collateralized by cash escrow deposits. The
promissory notes and the cash escrow deposits are classified as
long-term debt and other long-term assets, respectively.
The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price, including transaction expenses ($63.7
million) and the liabilities assumed ($36.8 million), have been
allocated to the assets acquired ($44.1 million) based on a preliminary
estimate of their respective fair values at the date of acquisition.
This preliminary estimate is subject to change based on finalization of
certain fair value determinations. Such fair value determinations are
not expected to have a material effect on the consolidated financial
position or results of operations of Tracor. The resulting excess of
the purchase price over the preliminary estimate of the fair value of
the net assets acquired ($56.4 million) is being amortized over 25
years.
AEL Acquisition
On February 22, 1996, Tracor purchased all of the outstanding common
shares of AEL Industries, Inc. (AEL). AEL designs and manufactures
sophisticated countermeasures, simulation, and radar-warning receiver
systems; installs and integrates electronic avionics equipment in
military and commercial aircraft; and provides state-of-the-art
antenna, microwave, and integrated circuit components.
The purchase price, including acquisition expenses, was approximately
$103 million. AEL's long-term indebtedness prior to the acquisition
totaled approximately $20 million, of which approximately $10 million
was retired and approximately $10 million was assumed by Tracor. The
financing for the transaction and related expenses was obtained through
an increase of the Company's existing bank term credit facility and
from cash on hand.
The acquisition has been accounted for using the purchase method, and,
accordingly, the purchase price ($103 million) and the liabilities
assumed ($68 million) have been allocated to the assets acquired ($105
million) based on a preliminary estimate of their respective fair
values at the date of acquisition. This preliminary estimate is
subject to change based on finalization of certain fair value
determinations. Several changes from initial estimates are described
below. Further changes are not expected to have a material impact on
the consolidated financial position or results of operations of Tracor.
The resulting excess of the purchase price over the preliminary
estimate of the fair value of the net assets acquired ($66 million) is
being amortized over 30 years.
In conjunction with the acquisition of AEL, Tracor has developed and is
executing a plan to exit certain non-strategic activities and product
lines of AEL, dispose of certain AEL properties which are excess
to the combined company, and to relocate the operations being performed
in the facilities to existing Tracor facilities.
As of September 30, 1996, Tracor has completed the sale of the
Instruments Services Division (ISD), a division of AEL, and two
excess AEL properties resulting in net proceeds of approximately $13
million. The fair value estimates established at the acquisition date
for these assets have been reduced by approximately $1.4 million.
As part of the plan to exit non-strategic activities and based on the
completion of a market study initiated in conjunction with the
acquisition, Tracor has determined to exit the Optical Communications
Division (OCD) product line. The fair value estimate assigned to this
division's net assets has been adjusted downward by approximately $2.8
million.
The relocation and consolidation into other Tracor facilities of
operations previously performed at AEL facilities and the elimination
of certain corporate functions at AEL's headquarters were substantially
complete as of September 30, 1996. Estimated liabilities of
approximately $6 million for employee severance, relocation costs,
facility closing-related costs, and other miscellaneous liabilities
were established at the date of acquisition of which approximately $3.4
million of cost has been incurred through September 30, 1996. Initial
estimates of these liabilities have been increased by approximately
$500,000.
Finally, Tracor has obtained the necessary information to finalize its
review of AEL's cost estimates to complete certain contracts which were
in loss positions at the date of acquisition. Based on these reviews,
Tracor has increased the estimated liabilities for completion of these
contracts for conditions existing as of the date of acquisition by
approximately $5.9 million.
The above revisions to fair value estimates of assets and liabilities
of approximately $10.6 million, net of a deferred tax asset increase of
approximately $4.3 million, have resulted in an increase to goodwill
related to the AEL acquisition of approximately $6.3 million at
September 30, 1996.
Pro forma Operating Results
The following net sales, net income, and net income per share are
presented on a pro forma basis, assuming the acquisitions of AEL and
Cordant had occurred on January 1, 1995 (in thousands, except per share
data):
Nine-month
Period Ended
September 30.
--------------------
1996 1995
Net sales $855,818 $829,684
Net income 14,992 18,475
Net income per share fully diluted .62 .82
The pro forma results are not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions of
AEL and Cordant occurred on January 1, 1995, nor of future results.
Westmark Acquisition
On June 13, 1996, Tracor concluded the acquisition of substantially all
the assets of Westmark Systems, Inc. (Westmark), which primarily
consisted of Tracor stock and warrants and certain other real estate
holdings. Westmark, the former parent company of Tracor, held all of
Tracor's Class A stock (978,458 shares), a Series B warrant to purchase
5,249,428 shares of Tracor common stock with an exercise price of $4.42
per share, and a Series C warrant to purchase 5,455,000 shares of
Tracor common stock with an exercise price of $7.36 per share. Under
the agreement, which was approved by the shareholders of both companies
on June 13, 1996, Tracor exchanged 8,267,435 shares of common stock for
the assets. Westmark liquidated concurrently with the closing by
distributing the Tracor shares to its shareholders. The agreement
provided for a distribution of the Tracor shares through underwritten
secondary offerings of a maximum of one-half of the shares during the
first two years after the closing. Accordingly, approximately 3.6
million shares were sold in a public offering concluded on
July 11, 1996. See Note F.
Note E -- Long-term Debt
Concurrent with the AEL acquisition, Tracor amended and restated its
existing credit agreement (Amended Credit Agreement) increasing the
total credit available thereunder from $135 million to $270 million.
The Amended Credit Agreement consists of a $180 million term loan
facility, a $40 million revolving loan facility, and a $50 million
letters of credit facility. Substantially all assets of Tracor and
certain domestic, wholly owned subsidiaries are pledged or mortgaged
under the Amended Credit Agreement, and all borrowings are guaranteed
by such subsidiaries.
The term loans are comprised of an $80 million A Term Loan, a $50
million B Term Loan, and a $50 million C Term Loan. The A Term Loan
facility is evidenced by promissory notes maturing October 31, 1999,
requiring quarterly principal payments of approximately $5.3 million.
The B Term Loan facility is evidenced by promissory notes maturing
October 31, 2000, requiring quarterly payments of $133,333 through and
including October 31, 1999, and quarterly payments of $12 million from
January 31, 2000, through October 31, 2000. The C Term Loan facility
is evidenced by promissory notes maturing April 30, 2001, requiring
quarterly payments of $131,578 through October 31, 2000, and two
payments of $23,750,000 on January 31 and April 30, 2001. The revolving
loans facility is evidenced by promissory notes maturing December 31,
2000. The letters of credit facility provides for the issuance of
letters of credit with expiration dates generally 18 months or less
from the date of issuance (automatically renewable unless a default
exists at the expiration date) but in any event not later than
December 31, 2000.
The Company made scheduled payments of $5.3 million on the A Term Loan
facility, $133,333 on the B Term Loan facility and $131,578 on the C
Term Loan facility during the third quarter of 1996. No borrowings
were made from the Company's revolving loan facility during the
quarter.
Certain mandatory prepayments are also required, including the
prepayment of amounts equal to 100% of the net proceeds from any asset
sales, subject to certain exceptions, and 50% of annual excess cash
flow. Such mandatory repayments are to be applied to equally and
ratably prepay the A, B, and C Term Loans based on the relative
principal amounts outstanding.
Term loans under the A Term Loan facility and the revolving loans bear
interest at Tracor's option at either the lender's base rate plus 1
1/2% or the eurodollar rate plus 2 1/2%. Loans under the B Term Loan
facility bear interest at Tracor's option at either the lender's base
rate plus 2% or the eurodollar rate plus 3%. Loans under the C Term
Loan facility bear interest at Tracor's option at either the lender's
base rate plus 2 1/4% or the eurodollar rate plus 3 1/4%. Interest on
base rate loans is payable quarterly, and interest on eurodollar loans
is payable at the end of the applicable interest period or every three
months in the case of interest periods in excess of three months. A
commitment fee of .5% per annum is charged on the unused revolving
loans and letters of credit facility and is payable quarterly in
arrears. Each letter of credit bears a total fee of 2 3/8% per annum
plus customary administrative charges. At September 30, 1996, the
Company had outstanding letters of credit totaling $34.4 million
relating to commitments for performance on certain contracts with
foreign customers and as collateral on certain insurance policies.
The Amended Credit Agreement contains covenants which, among other
things, impose limitations and restrictions on the incurrence of
additional indebtedness, capital expenditures, future mergers and
acquisitions, sales of assets, payment of dividends (limited to 30% of
net income for the prior year), and changes in control, as defined. In
addition, Tracor is required to satisfy certain financial covenants and
tests relating to, among other matters, interest coverage, working
capital, leverage, and net worth.
Interest expense is presented net of interest income of $1.5 million
for the quarter and $3 million for the nine-month period ended
September 30, 1996, compared to $800,000 for the quarter and $2
million for the nine-month period ended September 30, 1995.
Effective October 11, 1996, the Amended Credit Agreement was further
amended. See Note G.
Note F -- Shareholders' Equity
On July 11, 1996, Tracor concluded a public offering of 6,567,272
shares of its common stock at a price of $17.50 per share. Of the
shares sold, the Company sold 3,000,000 shares and certain former
shareholders of Westmark sold 3,567,272 shares. The net proceeds to
the Company from the primary shares sold in the offering, approximately
$48.2 million, were used to complete the acquisition of Cordant on
September 26, 1996.
Note G -- Subsequent Event
On October 11, 1996, Tracor reached agreement with its bank lenders to
further amend the Amended Credit Agreement. The amendment, effective
as of October 11, 1996, has the following major effects:
Increases the revolving loans facility from $40 million to $60
million;
Reduces the interest rate on the outstanding A Term Loan, revolving
loans, and letters of credit by .75% and provides for additional
reductions ranging from .25% up to 1.125% based on certain financial
tests. Currently the financial test allows for an additional .25%
reduction for a total 1% reduction from the rate in effect prior to
the amendment.
Reduces the interest rates on outstanding B and C Term Loans by 1%;
Reduces the commitment fee on the letters of credit and revolving
loans facility by .125% up to .25% based on certain financial tests.
Currently the financial test allows for a .125% reduction in the
fee.
Reduces mandatory repayments of outstanding loans required when
proceeds are obtained from sales of assets or equity instruments;
and
Allows the Company to use the revolving loans facility to complete
acquisitions in certain situations.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business Environment
Approximately 87% of the products, systems, and services of Tracor,
Inc. and its subsidiaries (Tracor or the Company) are sold to the U.S.
government through direct contracts, primarily with agencies of the
U.S. Department of Defense (DOD), or through subcontracts with other
U.S. government contractors. Beginning in the mid-1980s, the defense
industry in general was negatively impacted by the perceived reduction
of threats from the former Soviet Union and eastern European countries
and, more recently, by competing demands upon the federal budget.
While this has resulted in a U.S. defense budget that has decreased in
real dollars, adjusted for inflation, over the last decade, it has
recently begun to stabilize. For the first time in many years, the
total U.S. defense budget increased in 1996, excluding inflation. A
major portion of the Company's DOD sales are funded by the operations
and maintenance segment of the defense budget in areas which are among
today's top DOD priorities. This segment has declined less than other
segments of the budget as readiness priorities have emerged. It is now
the largest segment of the defense budget and is projected to comprise
about one-third of the defense budget over the next decade. The
electronic content of the operations and maintenance segment, as well
as the procurement portion of the budget, are expected to experience
modest increases over this same time frame. Tracor's ability to
benefit from this upturn is enhanced by its acquisition of AEL.
Budget reductions have also driven the DOD and other U.S. government
agencies to rapidly improve their operating efficiency. This, in turn,
has triggered a substantial increase in the demand for state-of-the-art
computer equipment and software systems and a major change in the
government's method for acquiring information technology, moving to
large government-wide acquisition contract vehicles. Tracor's
September 26, 1996, acquisition of Cordant has strengthened Tracor's
position in the rapidly growing information technology market for both
DOD and nondefense customers. Information technology represents the
fastest growing business area within Tracor.
The contraction of the defense budget in recent years and the resulting
excess capacity and increase in competition for contracts among defense
companies has resulted in a significant consolidation in the industry.
Principally through several acquisitions, the Company has substantially
increased its revenue base and reduced combined overhead costs through
staff reductions, facilities consolidations, process improvements, and
the elimination of certain other duplicative costs. These efficiencies
and increased revenue base have enhanced Tracor's cost competitiveness
in bidding on new contracts and recompetes of existing contracts.
Management is continuing to pursue its acquisition strategy and
believes the continuing consolidation within the defense industry will
result in opportunities to pursue additional selected acquisitions,
both large and small, which should allow the Company to continue to
expand its revenue base and further improve its cost-competitive
position.
While the long-term impact of changes in the defense budget and the
industry consolidation cannot be predicted with certainty, management
believes the Company is well positioned to continue to leverage its
strengths and successes in the U.S. defense and intelligence
marketplaces and increase its ongoing diversification efforts into
foreign defense markets, nondefense U.S. government markets, and
selected commercial markets.
Financial Condition
Working capital was $148.3 million at September 30, 1996, up from
$129.1 million at December 31, 1995. The ratio of current assets to
current liabilities was 1.9 at September 30, 1996, compared to 2.3 at
December 31, 1995. Cash provided by operating activities decreased
compared to the prior year due primarily to costs associated with
consolidating AEL facilities with existing Tracor locations. Increases
in program and spare parts inventories and payments of interest expense
further reduced cash provided by operations in the current year. Cash
from operating activities in 1995 also included a tax refund of $1.5
million related to the preacquisition period of an acquired company.
Normal capital expenditures of $11.2 million and scheduled long-term
debt payments of $14 million were incurred during the nine-month
period. Proceeds of approximately $13.4 million were received from the
sale of two properties and a product line obtained in the acquisition
of AEL, and $4 million of these proceeds was used to repay long-term
debt associated with one of the properties. The proceeds of the
Amended Credit Agreement and cash on hand were used to finance the
acquisition of AEL, to retire approximately $10 million of debt assumed
in the acquisition, and to pay approximately $5 million of financing
costs. Cash on hand was also used to complete two small acquisitions
with an aggregate purchase price of $6.3 million. Net proceeds from
the sale of Tracor common stock totaled approximately $48.2 million and
were used to complete the acquisition of Cordant.
No borrowings were made from the Company's $40 million revolving loan
facility during the quarter. At September 30, 1996, the Company had
outstanding letters of credit of approximately $34.4 million leaving
$15.6 million available under its $50 million letter of credit
facility. If the $50 million letters of credit facility should become
fully utilized, $20 million of the revolving loan facility, to the
extent then available, can be used for issuance of additional letters
of credit. Existing letters of credit secure performance commitments
on certain international contracts and serve as collateral for certain
insurance policies. In conjunction with the Cordant acquisition,
Tracor established an additional letters of credit facility with one of
its lenders. Letters of credit totaling $31.5 million outstanding
under this facility support notes payable issued as consideration
in the acquisition and are fully collateralized by cash escrow deposits.
At September 30, 1996, the Company had firm backlog, which includes
funded and unfunded contractual commitments, of $1 billion as compared
to $924 million at December 31, 1995. Approximately 78% of firm
backlog represents contracts with agencies of the U.S. government or
its prime contractors, and about 78% is expected to be earned within
one year. In addition, the Company's backlog of unexercised contract
options on U.S. government contracts was $1.6 billion at September 30,
1996.
The Company's operations typically do not require large capital
expenditures, and there were no material capital commitments at
September 30, 1996.
Except for available amounts under the Amended Credit Agreement's
revolving loans and letters of credit facilities, the Company's present
debt position somewhat limits its ability to obtain substantial
additional debt for operational purposes in the near future. However,
management believes existing cash, funds generated by continuing
operations, and the Amended Credit Agreement will provide sufficient
resources to allow the Company to meet its obligations, fund capital
requirements, and continue to pursue its business strategy. Management
also believes it can obtain the necessary resources to pursue further
acquisitions in the ongoing U.S. defense industry consolidation.
Results of Operations
Quarter and Nine-Month Period Ended September 30, 1996, Versus Quarter
and Nine-Month Period Ended September 30, 1995
The results of operations for the quarter and the nine-month period
ended September 30, 1996, include the operating results of AEL since
the date of acquisition, February 22, 1996. AEL's results are not
included in the comparative prior periods of 1995. The acquisition of
Cordant was completed on September 26, 1996, and had no effect on the
results of operations for the quarter and the nine-month period.
Sales increased 12% for the quarter and 14% for the nine-month period.
The addition of AEL operations resulted in sales increases of 10% for
the quarter and 9% for the nine-month period. Excluding AEL
operations, increased sales in the quarter were realized on
intelligence and engineering contracts, and sales of chaff and
electronic countermeasures. These increases were offset by decreases
in sales of test equipment and reduced deliveries of digital imagery
workstations. Sales increases for the nine-month period resulted from
increased sales on intelligence contracts, increased deliveries of
digital imagery workstations, production of drones under the QF-4
contract, and work performed under new contracts for chaff and mine
detection and neutralization systems.
Operating profits increased 55% for the quarter and 34% for the
nine-month period; 40% and 19%, respectively, of these increases were
due to the addition of AEL operations. Earnings recorded by AEL
include $3.6 million due to a negotiated increase to the price of a
U.S. government contract for work performed prior to 1996. This item
represents an increase of $2.1 million in net income or $.08 in fully
diluted earnings per share. Other increases in earnings for the
quarter and the nine-month period were attributable to sales on
intelligence, electronic countermeasures, and F-16 test set contracts.
Increased deliveries of digital imagery workstations and increased
profits on those deliveries resulted in additional increases in
earnings for the nine-month period.
Other income recorded in the prior year included a $1.2 million gain
resulting from the sale of a building.
Interest expense increased 41% for the quarter and 30% for the
nine-month period. The increases are due to the additional senior term
debt borrowed in conjunction with the acquisition of AEL and the
increased amortization of debt issuance costs. The increase in
interest expense for the nine-month period is less than the increase
for the quarter primarily due to higher investment interest income
during the first and third quarters of 1996.
The effective tax rate increased from 43% in the prior year to 44% for
the quarter and 45% for the nine-month period due to an increase in
combined federal and state income tax rates.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Cordant, Inc. Plan of Reorganization and Merger.
Exhibit 3(a)(1) to Tracor's Form 8-K, dated September 26, 1996,
is incorporated herein by reference.
11. Statement regarding computation of income per common
and common equivalent share.
27. Financial Data Schedule
(b) Tracor filed a Report on Form 8-K dated September 26, 1996,
during the quarter, reporting the acquisition of all issued
and outstanding stock of Cordant Holdings, Inc. Financial
Statements and required pro forma information relating to
this acquisition will be filed on or before December 10, 1996.
<PAGE>
SIGNATURES
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 thereunto duly authorized.
Tracor, Inc.
Date: November 14, 1996 By: /s/ Robert K. Floyd
--------------------
Robert K. Floyd
Vice President and
Chief Financial Officer
<TABLE>
<CAPTION>
TRACOR
COMPUTATION OF INCOME PER COMMON AND COMMON EQUIVALENT SHARE
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Primary:
Net income $11,306 $ 7,669 $26,964 $20,722
Pro forma adjustments, net of income taxes:
Interest expense - 384 424 1,410
Investment income - - - -
-------- -------- -------- --------
Pro forma net income $11,306 $ 8,053 $27,388 $22,132
======== ======== ======== ========
Weighted average common shares outstanding 24,345 13,932 18,062 12,919
Weighted average common share equivalents:
Assumed exercise of warrants 1,228 12,242 7,723 12,532
Assumed exercise of options 1,719 1,179 1,645 1,059
Assumed purchase of common shares for treasury (1,022) (2,791) (2,521) (2,636)
-------- -------- -------- --------
Net weighted average additional shares issuable 1,925 10,630 6,847 10,955
-------- -------- -------- --------
Common and common equivalent shares 26,270 24,562 24,909 23,874
======== ======== ======== ========
Income per common and common equivalent share $.43 $.33 $1.10 $.93
==== ==== ===== ====
Fully diluted:
Net income $11,306 $ 7,669 $26,964 $20,722
Pro forma adjustments, net of income taxes:
Interest expense - 371 360 1,087
Investment income - - - -
-------- -------- -------- --------
Pro forma net income $11,306 $ 8,040 $27,324 $21,809
======== ======== ======== ========
Weighted average common shares outstanding 24,345 13,932 18,062 12,919
Weighted average common share equivalents:
Assumed exercise of warrants 1,228 12,242 7,723 12,532
Assumed exercise of options 1,719 1,179 1,645 1,059
Assumed purchase of common shares for treasury (929) (2,791) (2,490) (2,636)
-------- -------- -------- --------
Net weighted average additional shares issuable 2,018 10,630 6,878 10,955
-------- -------- -------- --------
Common and common equivalent shares 26,363 24,562 24,940 23,874
======== ======== ======== ========
Income per common and common equivalent share $.43 $.33 $1.09 $.91
==== ==== ===== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 57767 57767
<SECURITIES> 0 0
<RECEIVABLES> 198413 198413
<ALLOWANCES> 0 0
<INVENTORY> 13903 13903
<CURRENT-ASSETS> 319480 319480
<PP&E> 157512 157512
<DEPRECIATION> 43936 43936
<TOTAL-ASSETS> 734256 734256
<CURRENT-LIABILITIES> 171226 171226
<BONDS> 299813 299813
0 0
0 0
<COMMON> 246 246
<OTHER-SE> 212454 212454
<TOTAL-LIABILITY-AND-EQUITY> 734256 734256
<SALES> 752413 255994
<TOTAL-REVENUES> 752413 255994
<CGS> 595276 197969
<TOTAL-COSTS> 595276 197969
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 19422 6612
<INCOME-PRETAX> 48593 20246
<INCOME-TAX> 21629 8940
<INCOME-CONTINUING> 26964 11306
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 26964 11306
<EPS-PRIMARY> 1.1 0.43
<EPS-DILUTED> 1.09 0.43
