<PAGE>
Tracor Deferred Compensation Plan
AUDITED FINANCIAL STATEMENTS
December 31, 1997 and 1996
<PAGE>
Tracor Deferred Compensation Plan
AUDITED FINANCIAL STATEMENTS
December 31, 1997
Audited Financial Statements
Report of Independent Auditors 1
Statement of Financial Condition -- 1997 2
Statement of Income and Changes in Plan Equity -- 1997 4
Statement of Financial Condition -- 1996 6
Statement of Income and Changes in Plan Equity -- 1996 6
Notes to Financial Statements 7
<PAGE> 1
Report of Independent Auditors
Retirement Committee
Tracor, Inc.
Austin, Texas
We have audited the accompanying statements of financial condition of
the Tracor Deferred Compensation Plan (the "Plan") as of December 31,
1997 and December 31, 1996, and the related statements of income and
changes in plan equity for the years then ended. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Plan at December 31, 1997
and 1996, and the income and changes in plan equity for the years then ended,
in conformity with generally accepted accounting principles.
/S/ Ernst & Young LLP
Austin, Texas
June 19, 1998
<PAGE> 2
Tracor Deferred Compensation Plan
STATEMENT OF FINANCIAL CONDITION -- 1997
December 31, 1997
<PAGE>
<TABLE>
<CAPTION>
Small
Cap
Stable Stable Growth Oppor- Well-
Return Income Equity tunities ington
Total Fund Fund Fund Fund Fund
---------- ------- ---------- ------- -------- --------
<S><C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments at market:
Norwest funds:
Stable Income Fund
(249,068 shares, cost
$2,569,723) $2,575,367 $ -- $2,575,367 $ -- $ -- $ --
Growth Equity Fund
(2,676 shares, cost
$87,772) 85,860 -- -- 85,860 -- --
Small Cap Opportunities
Fund (16,220 shares,
cost $345,541) 363,006 -- -- -- 363,006 --
Vanguard Funds:
Wellington Fund
(11,302 shares, cost
$324,975) 332,855 -- -- -- -- 332,855
Institutional Index Fund
(6,272 shares, cost
$526,163) 561,723 -- -- -- -- --
Windsor II Fund
(18,238 shares, cost
$497,755) 521,962 -- -- -- -- --
International Growth Fund
(9,319 shares, cost
$162,798) 152,745 -- -- -- -- --
T. Rowe Price Spectrum
Income Fund
(10,868 shares, cost
$125,920) 126,724 -- -- -- -- --
Fidelity Contrafund
(13,659 shares, cost
$636,140) 636,935 -- -- -- -- --
Tracor Stock Fund
(3,669 shares, cost
$94,294) 111,446 -- -- -- -- --
---------- ------- ---------- ------- -------- --------
Total investments 5,468,623 -- 2,575,367 85,860 363,006 332,855
Interest income receivable 89 2 -- -- -- --
Cash and cash equivalents 99,038 12,205 33,689 734 (5,558) 7,137
---------- ------- ---------- ------- -------- --------
Plan equity $5,567,750 $12,207 $2,609,056 $86,594 $357,448 $339,992
========== ======= ========== ======= ======== ========
See notes to financial statements.
</TABLE>
STATEMENT OF FINANCIAL CONDITION -- 1997 (continued)
<TABLE>
<CAPTION>
Institu- Interna-
tional Windsor tional Spectrum Tracor
Index II Growth Income Contra- Stock
Fund Fund Fund Fund fund Fund
-------- -------- -------- -------- -------- --------
<S><C> <C> <C> <C> <C> <C>
$ -- $ -- $ -- $ -- $ -- $ --
-- -- -- -- -- --
-- -- -- -- -- --
-- -- -- -- -- --
561,723 -- -- -- -- --
-- 521,962 -- -- -- --
-- -- 152,745 -- -- --
-- -- -- 126,724 -- --
-- -- -- -- 636,935 --
-- -- -- -- -- 111,446
-------- -------- -------- -------- -------- --------
561,723 521,962 152,745 126,724 636,935 111,446
-- -- -- -- -- 87
12,046 7,555 (9,583) 7,085 (3,824) 37,552
-------- -------- -------- -------- -------- --------
$573,769 $529,517 $143,162 $133,809 $633,111 $149,085
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE> 4
Tracor Deferred Compensation Plan
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY -- 1997
Year Ended December 31, 1997
<TABLE>
Small
Cap
Stable Stable Growth Oppor- Well
Return Income Equity tunities ington
Total Fund Fund Fund Fund Fund
---------- ---------- ---------- ------- -------- --------
<S><C> <C> <C> <C> <C> <C> <C>
Investment income:
Dividends $ 61,711 $ -- $ 36,064 $ 96 $ -- $ 8,327
Interest 346 2 -- -- -- --
Administrative expense (3,232) (3,232) -- -- -- --
---------- ---------- ---------- ------- -------- --------
Net investment income 58,825 (3,230) 36,064 96 -- 8,327
Realized gain on investments 169,744 65,770 92 7,744 8,367 17,030
Unrealized appreciation (depreciation) of investments 96,591 (951) 5,643 (1,911) 17,466 7,880
Contributions:
Employee 3,840,106 1,420,571 1,136,209 40,698 134,687 89,853
Employer 143,669 18,644 68,287 2,835 5,365 5,429
---------- ---------- ---------- ------- -------- --------
Total contributions 3,983,775 1,439,215 1,204,496 43,533 140,052 95,282
Distributions to participants (40,199) (28,189) (12,010) -- -- --
Net transfer into (out of) fund -- (2,759,422) 1,374,771 37,132 191,563 211,473
---------- ---------- ---------- ------- -------- --------
Net increase (decrease) in plan equity 4,268,736 (1,286,807) 2,609,056 86,594 357,448 339,992
Plan equity at beginning of period 1,299,014 1,299,014 -- -- -- --
---------- ---------- ---------- ------- -------- --------
Plan equity at end of period $5,567,750 $ 12,207 $2,609,056 $86,594 $357,448 $339,992
========== ========== ========== ======= ======== ========
See notes to financial statements.
</TABLE>
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY -- 1997 (continued)
<TABLE>
<CAPTION>
Institu Inter
-tional Windsor -tional Spectrum Tracor
Index II Growth Income Contra- Stock
Fund Fund Fund Fund fund Fund
-------- -------- -------- -------- -------- --------
<S><C> <C> <C> <C> <C> <C>
$ 5,045 $ 8,655 $ 1,414 $ 2,110 $ -- $ --
-- -- -- -- -- 344
-- -- -- -- -- --
-------- -------- -------- -------- -------- --------
5,045 8,655 1,414 2,110 -- 344
9,422 42,060 3,635 172 10,048 5,404
35,560 24,207 (10,053) 803 795 17,152
242,939 231,408 64,632 78,595 358,124 42,390
9,577 9,195 3,260 4,969 13,959 2,149
-------- -------- -------- -------- -------- --------
252,516 240,603 67,892 83,564 372,083 44,539
-- -- -- -- -- --
271,226 213,992 80,274 47,160 250,185 81,646
-------- -------- -------- -------- -------- --------
573,769 529,517 143,162 133,809 633,111 149,085
-- -- -- -- -- --
-------- -------- -------- -------- -------- --------
$573,769 $529,517 $143,162 $133,809 $633,111 $149,085
======== ======== ======== ======== ======== ========
/TABLE
<PAGE>
<PAGE> 6
Tracor Deferred Compensation Plan
STATEMENT OF FINANCIAL CONDITION -- 1996
Year Ended December 31, 1996
ASSETS
Investment at market:
Norwest Stable Return Fund
41,371 shares, cost $974,575 $ 975,526
Cash 323,488
----------
Plan equity $1,299,014
==========
STATEMENT OF INCOME AND CHANGES IN PLAN EQUITY -- 1996
From Inception through December 31, 1996
Unrealized appreciation of investments $ 951
Contributions:
Employee 1,257,028
Employer 41,035
----------
Total contributions 1,298,063
----------
Net increase in plan equity 1,299,014
Plan equity at inception --
----------
Plan equity at end of period $1,299,014
==========
See notes to financial statements.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS
Note A -- Description of the Plan
The following description of the Tracor Deferred Compensation Plan (Plan)
provides general information only. Reference should be made to the Plan
document for more complete information.
Plan Sponsor
The Plan was adopted by Tracor, Inc. (Plan Sponsor or the Company), and certain
of its domestic subsidiaries (Participating Employers) effective December 1,
1996. On this date, the Company also established the Tracor, Inc. Nonqualified
Trust (Trust) for the purpose of conducting the activities of the Plan. The
Plan is a nonqualified deferred compensation plan which is optional to all
eligible employees. The Plan is administered by the trustee, Norwest Bank,
under the direction of the Plan Sponsor and Participating Employers. The Plan
is not a qualified plan under the Internal Revenue Code and is not subject to
the funding requirements of Title I of the Employee Retirement Income Security
Act of 1974, as amended (ERISA). The participants have the status of general
unsecured creditors of Tracor, Inc. and the Plan constitutes a promise by the
employer to make benefit payments in the future.
Participants
Any employee of the Plan Sponsor and Participating Employers is eligible to
participate in the Plan, if he or she qualifies under the definition of a
"highly compensated" employee in the Tracor, Inc. 401(k) Savings Plan (Qualified
Plan) and is selected by the plan administrator.
Contributions
Participants who have elected to defer the maximum amount permitted under the
Qualified Plan may elect to defer to the Plan an amount not greater than 50% of
their compensation, as defined by the Plan, or 100% of their incentive
compensation, to the extent that such amount exceeds the amount to be credited
under the Qualified Plan. Participants are immediately vested in their
contributions, as well as earnings on those contributions. Participant
contributions and Plan earnings are not taxable to the participants as income,
until they are withdrawn from the plan.
The Plan Sponsor and Participating Employers contribute to participant accounts
as follows:
Tracor Aerospace Electronic Systems, Inc. 75% of the first 3% plus 50%
of the next 3% of the
participant's contributions
and discretionary profit
sharing contributions
Quality Systems, Inc. 50% of the participant's
contributions, limited to 6%
of participant's compensation
and money purchase plan
contributions
Tracor Services Corporation Up to 50% of the participant's
contributions, limited to
5% of participant's compensation
or a profit sharing contribution
Tracor Enterprise Solutions, Inc. 50% of the participant's
contributions, limited to 6% of
participant's compensation and
discretionary profit sharing
contributions
All other Participating Employers 25% of the participant's
contributions, limited to 6% of
participant's compensation
For each pay period, the Plan Sponsor and Participating Employers contributions
are reduced by any matching contributions made to the participant's account in
the Qualified Plan. Vesting for Plan Sponsor and Participating Employer
matching contributions occurs over two to four years for Vitro Corporation and
Tracor Services Corporation, four years for Quality Systems, Inc., five years
for Tracor Enterprise Solutions, Inc., and five years for Tracor Aerospace
Electronic Systems, Inc. (except for participants employed on 10/1/96 whose
vesting is immediate). Vesting for all other participants occurs immediately.
Investment Options
Contributions made by the participants and by the Plan Sponsor or a
Participating Employer may be directed by the participant to any of the ten
investment options:
Norwest Stable Income Fund -- Invests in fixed income securities.
Norwest Growth Equity Fund -- Invests in large company growth stocks, small
company stocks and international stocks.
Norwest Small Cap Opportunities Fund -- Invests all assets in the Schroder
U.S. Smaller Companies Portfolio, a series of Schroder Capital Funds,
itself a registered open-end management investment company.
Vanguard Wellington Fund -- Invests 60-70% of assets in equity securities
and 30-40% in fixed income securities.
Vanguard Institutional Index Fund -- Invests in equity securities of
companies in the Standard & Poor's 500 Composite Stock Price Index. The
fund holds all of the 500 underlying securities in proportion to their
weighting in the Index.
Vanguard Windsor II Fund -- Invests in equity securities of companies that
are undervalued or out-of-favor.
Vanguard International Growth Fund -- Invests in stocks of companies based
outside the United States that have above-average growth potential. 60-70%
of the fund is invested in small- to medium-sized companies, and the
remainder is invested in liquid, large capitalization stocks.
T. Rowe Price Spectrum Income Fund -- Invests primarily in domestic bond
funds and in a foreign bond fund. Up to 25% of fund assets may be
allocated to a stock fund.
Fidelity Contrafund -- Invests in equity securities of companies that are
undervalued or out-of-favor.
Tracor Stock Fund -- Invests in Tracor, Inc. common stock.
At December 31, 1997, there were 197 participants in the Plan. Participation in
each investment option is presented below. The sum of participation by
investment option is greater than the total number of plan participants making
contributions because participation is allowed in more than one fund.
Approximate
Participants
Norwest Stable Income Fund 124
Norwest Growth Equity Fund 13
Norwest Small Cap Opportunities Fund 24
Vanguard Wellington Fund 24
Vanguard Institutional Index Fund 40
Vanguard Windsor II Fund 40
Vanguard International Growth Fund 19
T. Rowe Price Spectrum Income Fund 12
Fidelity Contrafund 36
Tracor Stock Fund 14
Distributions
Participants designate their distribution period (in excess of one plan year) in
terms of age, termination of employment, or the earlier of termination or age,
and distributions may be made in a lump-sum or in five- or ten-year annual
installments. Participants or beneficiaries are also entitled to receive a
distribution of their accounts upon death (received in five- or ten-year annual
installments depending on employment status), disability (received in five
annual installments), or hardship withdrawal. Distribution payments are made by
the Company and are taxable to the participant when received. In the event the
Company is unable to pay its debts as they become due or is subject to any
proceedings as a debtor under the United States Bankruptcy Code, the trustee
will cease making payments from the trust until the Company is no longer
insolvent.
Termination
Although it has not expressed any intent to do so, the Board of Directors of the
Company has the right under the Plan to discontinue its contributions at any
time and to terminate the Plan. In the event of Plan termination, participants
will become 100% vested in their accounts.
Administrative Costs
Administrative costs of the Plan of approximately $23,000 were paid by the Plan
Sponsor and Participating Employers in 1997.
Note B -- Significant Accounting Policies
Investments
All collective fund and common stock investments are valued at the net asset
value quoted in an active market as of the last business day of the year.
Realized gains or losses on the sale of investments are determined using the
average cost method.
Distributions
Distributions to participants are recorded by the Plan when actual payment is
made.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires Plan management to make estimates and assumptions
that affect the reported amounts of assets and liabilities. Actual results could
differ from those estimates.
Note C -- Federal Income Taxes
The Plan is an unfunded, nonqualified deferred compensation plan. All plan
assets are held in a grantor trust. The employer will not be entitled to a
deduction for a participant's deferred compensation or for the employer
contributions until such time amounts are actually paid to the participant. Any
earnings on plan assets are taxable to the employer rather than the Plan;
therefore, no provision for income taxes has been made.
Note D -- Investments
The Plan's investments are held by a trust fund and are presented in the
following table for December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Description of Investment Cost Fair Value
------------------------- ---------- ----------
<S><C> <C> <C> <C>
December 31, 1997:
Norwest Stable Income Fund 249,068 shares, share value $10.34 $2,569,723 $2,575,367
Norwest Growth Equity Fund 2,676 shares, share value $32.08 87,772 85,860
Norwest Small Cap
Opportunities Fund 16,220 shares, share value $22.38 345,541 363,006
Vanguard Wellington Fund 11,302 shares, share value $29.45 324,975 332,855
Vanguard Institutional
Index Fund 6,272 shares, share value $89.56 526,163 561,723
Vanguard Windsor II Fund 18,238 shares, share value $28.62 497,755 521,962
Vanguard International
Growth Fund 9,319 shares, share value $16.39 162,798 152,745
T. Rowe Price Spectrum
Income Fund 10,868 shares, share value $11.66 125,920 126,724
Fidelity Contrafund 13,659 shares, share value $46.63 636,140 636,935
Tracor Stock Fund 3,669 shares, share value $30.38 94,294 111,446
Norwest Bank Cash and cash equivalents 99,038 99,038
---------- ----------
Total investments $5,470,119 $5,567,661
========== ==========
December 31, 1996:
Norwest Stable Return Fund 41,371 shares, share value $23.58 $ 974,575 $ 975,526
Norwest Bank Cash and cash equivalents 323,488 323,488
---------- ----------
Total investments $1,298,063 $1,299,014
========== ==========
</TABLE>
Realized gains on sales of investments for the period ended December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
Cost of
Invest-
Proceeds ments Realized
from Sales Sold Gain
---------- ---------- --------
<S><C> <C> <C> <C>
Norwest Stable Return Fund $2,667,668 $2,601,898 $ 65,770
Norwest Stable Income Fund 159,063 158,971 92
Norwest Growth Equity Fund 48,116 40,372 7,744
Norwest Small Cap Opportunities Fund 52,313 43,946 8,367
Vanguard Wellington Fund 50,875 33,845 17,030
Vanguard Institutional Index Fund 80,538 71,116 9,422
Vanguard Windsor II Fund 140,839 98,779 42,060
Vanguard International Growth Fund 15,651 12,016 3,635
T. Rowe Price Spectrum Income Fund 9,959 9,787 172
Fidelity Contrafund 68,692 58,644 10,048
Tracor Stock Fund 169,011 163,607 5,404
---------- ---------- --------
Realized gain $3,462,725 $3,292,981 $169,744
========== ========== ========
</TABLE>
The net unrealized appreciation (depreciation) of investments in the Plan equity
by fund for the period ended December 31, 1997 and 1996, are as follows:
Balance
at Balance
Beginning Unrealized at
of Appreciation End of
Period (Depreciation) Period
--------- -------------- --------
December 31, 1997:
Norwest Stable Return Fund $951 $ (951) $ --
Norwest Stable Income Fund -- 5,643 5,643
Norwest Growth Equity Fund -- (1,911) (1,911)
Norwest Small Cap Opportunities Fund -- 17,466 17,466
Vanguard Wellington Fund -- 7,880 7,880
Vanguard Institutional Index Fund -- 35,560 35,560
Vanguard Windsor II Fund -- 24,207 24,207
Vanguard International Growth Fund -- (10,053) (10,053)
T. Rowe Price Spectrum Income Fund -- 803 803
Fidelity Contrafund -- 795 795
Tracor Stock Fund -- 17,152 17,152
---- ------- -------
Total $951 $96,591 $97,542
==== ======= =======
December 31, 1996:
Norwest Stable Return Fund $ -- $ 951 $ 951
==== ======= =======
Note E -- Year 2000 Issue (Unaudited)
The Plan Sponsor has developed a plan to modify its internal information
technology to be ready for the year 2000 and has begun converting critical data
processing systems. The project also includes determining whether third party
service providers have reasonable plans in place to become year 2000 compliant.
The Plan Sponsor currently expects the project to be substantially complete by
early 1999. The Plan Sponsor does not expect this project to have a significant
effect on plan operations.
Note F -- Subsequent Event
Subsequent to year end, the Plan Sponsor was acquired by General Electric
Corporation, p.l.c. of the United Kingdom. As of the report date, no decision
has been made to change, merge or terminate the Plan.
<PAGE>
TRACOR DEFERRED COMPENSATION PLAN
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
Tracor Deferred Compensation Plan
Date: June 26, 1998 By: /s/ Peter Price
------------------------------
Peter Price
Treasurer
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(No. 33-55624 , No. 33-93186, No. 33-96474, No. 333-17409, No. 333-27061, and
No. 333-30363, all on Form S-8) pertaining to various benefit plans sponsored by
Tracor, Inc. of our report dated June 19, 1998, with respect to the financial
statements of the Tracor Deferred Compensation Plan included in this Annual
Report (Form 11-K) for the period ended December 31, 1997.
/S/ Ernst & Young LLP
Austin, Texas
June 26, 1998
