-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FZn4e0x5ehs0JgYNSOgIGAAFv9Y2GwGclZCFD9CQ1/lt3m9FM7XefCpOxLLElmvn WjCR9qAScvW9OCUQKP8HTA== 0000898430-96-002858.txt : 19960626 0000898430-96-002858.hdr.sgml : 19960626 ACCESSION NUMBER: 0000898430-96-002858 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960625 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOGICON INC /DE/ CENTRAL INDEX KEY: 0000311946 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING SERVICES [7371] IRS NUMBER: 952126773 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07777 FILM NUMBER: 96585095 BUSINESS ADDRESS: STREET 1: 3701 SKYPARK DR CITY: TORRANCE STATE: CA ZIP: 90505-4794 BUSINESS PHONE: 3103730220X3237 MAIL ADDRESS: STREET 1: 3701 SKYPARK DRIVE CITY: TORRANCE STATE: CA ZIP: 90505-4794 10-K 1 FORM 10-K FOR YEAR ENDED MARCH 31, 1996 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K -------------------- (Mark one) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: MARCH 31, 1996 Commission File Number: 1-7777 LOGICON, INC. (Exact name of registrant as specified in its charter) Delaware 95-2126773 - ------------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 3701 Skypark Drive, Torrance, California 90505-4794 -------------------------------------------------------- (Address of principal executive offices) (Zip Code) (310) 373-0220 ------------------------------------------------------- Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.10 par value New York Stock Exchange, Inc. - ---------------------------- ------------------------------------------- (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12(g) of the Act: None ------------------ (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock as of a specified date within 60 days prior to the date of filing. $352,784,362 on June 4, 1996 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. $.10 par value common - 13,998,313 shares on June 4, 1996 DOCUMENTS INCORPORATED BY REFERENCE Portions of registrant's Annual Report to Stockholders for the fiscal year ended March 31, 1996 are incorporated by reference in Part II of this report. Portions of the registrant's definitive proxy statement dated June 25, 1996 are incorporated by reference in Part III of this report. ================================================================================ PART I ITEM 1. BUSINESS General Logicon, Inc., the Registrant (hereinafter referred to as Logicon or the company), was incorporated in California on April 10,1961, and reincorporated in Delaware on July 28, 1978. The company provides advanced technology systems and services to support national security, civil and industrial needs. On March 28, 1996, the company acquired Geodynamics Corporation (Geodynamics) for a purchase price of $31.7 million. Geodynamics specializes in remote sensing, geographic information systems, modeling and simulation, software development, and systems engineering and integration for the Department of Defense and other government agencies. The acquisition is being accounted for as a purchase and the excess of the purchase price over net assets acquired was approximately $9.3 million. The Consolidated Balance Sheet includes the assets and liabilities of Geodynamics. The company's consolidated results of operations will include the operations of Geodynamics beginning in fiscal year 1997. On February 16, 1995, the company acquired Syscon Corporation (Syscon), which operated as an indirectly wholly owned subsidiary of Harnischfeger Industries, Inc., for a cash purchase price of $45.3 million. Syscon is engaged principally in the business of providing systems development, systems integration and systems services to the U.S. government and commercial enterprises. The acquisition was accounted for as a purchase and the excess of the purchase price over net assets acquired was $21.9 million. The company's consolidated results of operations include the operations of Syscon from the acquisition date. Contracts with the U.S. government are the company's primary revenue source. These revenues accounted for 99 percent of total contract revenues for fiscal years 1994 through 1996. The current backlog value is composed of 39 percent fixed-price type contracts, 46 percent cost type contracts, and 15 percent time and material type contracts. The company is performing on a variety of contracts in the following defense markets: Command, Control, Communications & Intelligence Logicon's Command, Control, Communications & Intelligence (C/3/I) business accounts for 32 percent of the company's fiscal year 1996 revenues. Logicon's work in this area includes supplying products and services that ensure the interoperability of the Defense Information Infrastructure; systems engineering of C/3/I systems for warfighters; project support for the government's Process Reengineering initiatives; networking of computer systems of federal, state and local law enforcement agencies so they can more successfully gather intelligence on criminal activity; integration, evaluation and testing of prefielded versions of advanced C/3 /systems; lifecycle engineering support services for digital computer-based shipboard combat systems; and software development for communication systems used for Naval undersea surveillance programs. Logicon's $32 million counter drug network project for the four southwestern border states links the computer systems of federal, state and local law enforcement agencies so they can share information on drug trafficking and other criminal activity. The network, which has been fielded and meets initial operational requirements, is currently being tested and evaluated and will have full operational capability by this summer. Logicon is using Functional Process Improvement techniques to help military experts, the Office of the Secretary of Defense and the Joint Staff analyze and improve the way the U.S. military conducts joint air operations. The overall goals of the Process Reengineering initiative are to eliminate redundancy and improve interoperability of information systems within and among the services. At the Defense Information Systems Agency's Joint Interoperability Test Center at Ft. Huachuca, Arizona, Logicon staff test and evaluate various types of communications equipment. The work is aimed at determining whether this equipment is operational, interoperable with other specified elements and in compliance with military specifications. Logicon helps the U.S. Army test and evaluate advanced command and control systems before they are fielded for operational use. Logicon's most recent project, the Integrated Meterological System is a U.S. Army Program for use by the U.S. Air Force Staff Weather Officer in each U.S. Army Corps, Division, Special Forces Group and selected brigades. Logicon integrated commercial and government off-the-shelf hardware and software and combined it with Logicon- develolped software and shelter prototypes to create a workstation which will be used to forecast weather and analyze how weather impacts the Army organizations. Block II software development will be completed in 1996. -1- Logicon became an important player in the U.S. Navy's Battle Group Passive Horizon Extension System (BGPHES) in late 1994. BGPHES is the first of its kind reconnaissance system that has the demonstrated capability to link U-2 aircraft to a Battle Group Commander embarked on a carrier. This year Logicon was awarded a five-year contract to continue development support for this critical tactical surveillance and reconnaissance system. Weapon Systems Logicon's Weapon Systems business accounts for 24 percent of the company's fiscal year 1996 revenues. Logicon specializes in mission planning system development and integration, verification and validation of software, development and operation of simulations for weapon systems, lifecycle engineering support services for combat systems, modification and maintenance of software for missile systems and laboratory support for research into new submarine combat systems. As the B-2 mission planning contractor, Logicon is developing the Strategic Mission Data Preparation System which prepares data cartridges and mission materials used by flight crews and aircraft avionics to fly their missions, and the Aircraft/Cruise Missile Force Application System which generates routes for the aircraft that minimize the probability of detection. The software currently supports the first block of operational aircraft with software for the second block of aircraft scheduled for delivery in the summer of 1996. As an outgrowth of the B-2 mission planning work, Logicon developed the Unit Level Advanced Planning system, a specialized software product that provides an air squadron with the capabilities needed to create, edit and analyze combat or training missions, and produces the supporting combat mission folder materials for executing these missions. The Logicon-developed and maintained Conventional Mating and Ranging Planning System helps planners coordinate the aerial refueling of aircraft by producing flight plans and resource summaries for both the mission aircraft and the tankers that refuel them. Logicon is currently rehosting legacy software to new modern processors on both the B-1B bomber and the C-17 transport. Logicon's approach uses an integrated set of processes, tools and staff which may be tailored to any system. Logicon personnel support all aspects of the AEGIS program---from analysis of new missions and capabilities such as Littoral Warfare and Theater Ballistic Missile Defense---to weapon system and radar improvement recommendations, risk management, simulator development, software development and testing, system integration, shipboard installation, fleet introduction and training, system test and evaluation and interoperability assessment with joint services and allies. Logicon continues to provide program management support to the Navy's Standard Missile Program including program planning, management information systems, systems engineering and foreign military sales. Logicon staff provide systems analysis, engineering and logistics support to the Navy's Combat Systems Technology Laboratory in Newport, Rhode Island, where research into new submarine combat systems is conducted. Information Systems Logicon's Information Systems business accounts for 19 percent of the company's fiscal year 1996 revenues. Company capabilities include network architecture design for customized management information systems, enterprise integration, migration strategies for transitioning from legacy systems to distributed systems, systems integration and software development, automated office environments and software engineering environments for small-to large-scale software development projects. Toward the end of December 1995, the Air Force modified Logicon's I-CASE contract so that it would better fit the current Information Technology needs of government organizations. Government agencies can now order an expanded number of hardware and software tools and applications or customized software engineering environments (SEEs) to suit their particular situations. Logicon's Logicase SEEs continue to be available under the contract, as are training and other support services. Under a contract awarded this year, Logicon is supporting the Internal Revenue Service (IRS) in their ongoing Tax Systems Modernization effort. Logicon is helping the IRS undertake a complete redesign and modernization of its computer- based information processing system by supplying a broad spectrum of system integration/engineering support services. Under several contracts awarded this year, Logicon is supporting the development of client/server systems for large information technology programs for the state of California. Services provided include project management, independent verification and validation (IV&V) and systems engineering. State agencies and departments supported include the Department of Welfare and the Department of Corrections. -2- A new version of the Logicon Message Dissemination System (LMDS), a powerful message retrieval and distribution software product, became available this year for use with the Commerce Business Daily. An enhanced version of LMDS operates with Lotus Notes and on a World Wide Web server. During the year, Logicon initiated a marketing campaign that targets Internet users. By year end, three Internet content providers were using LMDS to disseminate their products to their customers in real time. America Online has introduced a new service that uses LMDS to allow their six million users to create individual interest profiles that select newswire stories for their review. On the DoD's Defense Enterprise Integration Services program, Logicon is supporting the integration and migration of legacy information systems to distributed, networked systems. This involves assessing integration strategies, performing Functional Economic Analyses, standardizing data and developing automated migrational support tools and prototypes. At the National Archives and Records Administration (NARA), the Integrated Communications and Administration Support System, a Logicon-developed network provides the infrastructure for managing the huge volumes of archival material from the Federal Record Centers, the Regional Archives and the Presidential Libraries. Logicon is playing a key role in NARA's ongoing efforts to make archival information available to the public via the Internet. Logicon also helps the Department of Justice's (DOJ) Criminal and Civil Divisions operate their offices' automated environments by managing their networks and developing application software for information systems. On another DOJ program, the Justice Consolidated Office Network, Logicon provides office automation support to the attorney General's office, other senior management and policy offices and the 93 U.S. Attorney offices. Training & Simulation Logicon's Training & Simulation business accounts for 14 percent of the company's fiscal year 1996 revenues. Logicon's expertise in the Training & Simulation area includes conducting hands-on wargaming exercises using an interactive computer model of military field operations, managing the operations of battle simulation centers across the country, developing a real-time multi- warfare Naval training system, operating and managing the world's largest vertical motion simulator for training of flight crews and developing multimedia interactive courseware. Under the U.S. Army's Battle Command Training Program (BCTP), the Army's premiere battle preparedness training program, Logicon staff operate the computer-based simulation-driven training exercises that are used to train units at minimum cost and with maximum flexibility. A key activity of these warfighting exercises is the After Action Review (AAR), a post-exercise analysis session presented to commanders and their staffs. As part of the AAR, Logicon developed the After Action Review System, an automated support system that collects a wealth of data on key battle decisions and provides training feedback. Logicon also supplies battle simulation center support to the U.S. Army's XVIII Airborne Corps and instructs U.S. Reserve Component training personnel in how to train their own staffs at four Army Reserve Battle Projection Centers. At the NASA-Ames Simulation Laboratory, Logicon experts operate and develop usage plans for the world's largest vertical motion simulator, used to train space shuttle astronauts and pilots of fighter aircraft, helicopters and transport planes. The simulator features four interchangeable cabs which simulate different classes of aircraft. New and different simulations are conducted each year, with each simulation requiring four months of planning. Logicon's Tactical Advanced Simulated Warfare Integrated Trainer, or TASWIT, developed in 1987, is used to train Naval Surface Tactical Teams. Today it is the Navy's shore-based Surface Warfare Trainer and ashore adjunct to the Battle Force Tactical Trainer Program. Logicon's TASWIT team is currently involved in modeling and simulation activities related to the DoD's Distributed Interactive Simulation initiative. The TASWIT software has also become the key component for integrating the Naval Undersea Warfare Center's undersea warfare simulation capabilities with the Naval Surface Warfare Center's above-water warfare simulations for the Advanced Research Projects Agency's Ship Systems Automation program. At the Navy's AEGIS Training Center, Logicon personnel design, maintain and operate computer-based training tools used to train AEGIS crews. This effort includes the development of computer-based training modules and team training scenarios designed to stimulate the AEGIS Combat System with a multi-threat battle environment. -3- Science & Technology Logicon's Science and Technology business accounts for 11 percent of the company's fiscal year 1996 revenues. Work in this area includes research and experimentation in high energy laser applications and advanced imaging technology, nuclear and conventional weapons effects and anti-proliferation strategies, application of ocean physics to expand our capabilities in ocean surveillance, neural network artificial intelligence techniques for automated machine recognition of image features, and human factors engineering used in the development of the next generation of aircraft and weaponry. At the U.S. Air Force's Phillips Laboratory in Albuquerque, New Mexico, Logicon scientists and engineers model all aspects of high energy lasers, including photon generation, aiming and propagation through the atmosphere, and their effects on targets. In the imaging field we design, analyze and support experiments to further exploit advanced imaging concepts for space identification in space control applications. The Logicon-developed Virtual Interactive Target (VIT) is a computer simulation which provides the Defense Nuclear Agency with a model for studying the effects of conventional weapons used in attacks on hardened structures, such as an airplane hanger. VIT is used for training of warfighting forces, planning and rehearsal of operational missions, test and evaluation of new weapon systems and development of new tactics and concepts of operation. Logicon is helping manage the development of a capability for evaluation of hazardous material releases in the atmosphere. The effort, called Hazard Prediction and Assessment Capability, was given a real-world test when the Chemical Officer for the European Command requested it for use in Bosnia. Logicon and DNA staff worked together under tight deadline constraints to prepare the hardware, software, weather data, hazard source term data and a training plan for shipment to Europe. At the Armstrong Laboratory at Wright-Patterson AFB, Logicon research scientists help develop and conduct experiments aimed at exploring the limits of human capability in complex flight systems. Logicon personnel were largely responsible for developing the most recent addition to the Armstrong Laboratory, the Synthesized Immersion Research Environment (SIRE) laboratory. SIRE is a state-of-the-art virtual reality facility used for development and evaluation of crew station technologies that may have value to the pilot of the 21st century. Backlog The dollar amount of backlog, including contract options and untasked indefinite quantity contract values at March 31, 1996, was $2.0 billion, compared to $1.7 billion at March 31, 1995. Backlog from firm contracts at March 31, 1996, was $547 million, compared to $518 million at March 31, 1995. The funded portion of the March 31, 1996 and 1995 backlog was $226 million and $222 million, respectively. It is estimated that approximately 60 percent of backlog from firm contracts will be expended by March 31, 1997. On April 12, 1994, the company was awarded a U.S. Air Force contract to provide Integrated Computer-Aided Software Engineering (I-CASE) systems and related services to the Department of Defense. In December 1995 the Air Force issued a contract change order for the I-CASE contract which essentially restructured and modified the contract by reducing program management and software update requirements and related costs. The program management function was changed from a firm-fixed price task to a cost plus fixed-fee task. The untasked, indefinite quantity value, over the remaining eight-year period, of this indefinite delivery/indefinite quantity (ID/IQ) contract was $637 million at March 31, 1996. Also, included in the untasked indefinite quantity value is a five-year, $200 million ID/IQ contract from the Internal Revenue Service (IRS) for software and systems engineering services in support of the IRS's Tax Systems Modernization effort that was awarded during fiscal 1996. The company's backlog is not subject to any significant seasonal fluctuations but is likely to vary substantially as contracts near completion and in conjunction with the execution of major contract renewals or the award of major new contracts. Contract Terminations All of the company's government contracts are subject to redirection or termination for convenience. Such action could occur as a result of reductions in government expenditures, changes in the allocations of spending or for other reasons and could have a material adverse effect on the company's business. In the event of such actions, the company is entitled to reimbursement of costs incurred plus a reasonable fee. Historically, there have been very few government contract terminations and those that have occurred have had a negligible impact. -4- Competition Strong competition is encountered from numerous firms, many of which are larger and have greater financial resources than the company. Direct competition comes from companies that market systems and services substantially the same as those provided by the company. Additionally, indirect competition is encountered from many major industrial organizations and agencies of the government that perform services for themselves similar to those marketed by the company. It is believed that the company obtains only a small part of the available business in the markets served. Research Activities Many of the company's government contracts involve development of new systems or improvement of existing ones and, therefore, may be considered customer- sponsored research activities. Costs of company-sponsored research activities during the fiscal years ended March 31, 1996, 1995 and 1994 were, respectively, $3,952,000, $2,692,000 and $2,751,000. Employee Relations The company's success is dependent upon its ability to attract and retain highly trained professional and technical employees. At March 31, 1996, the company had 4,986 employees, of whom 3,510 were on the technical staff. Of those on the technical staff, 86 percent held degrees, with 42 percent holding advanced degrees. The company has had no work stoppages of any kind as a result of labor difficulties and believes it enjoys excellent relations with its employees. None of the company's employees is represented by a labor union. Raw Materials, Energy and Environmental Matters Raw materials, energy shortages, and environmental protection and energy conservation laws have not had a material adverse effect on the company's operations to date. It is impossible to predict what effect, if any, future raw materials and energy shortages or environmental and energy-related legislation would have on the company's operations. ITEM 2. PROPERTIES Logicon's principal facilities, aggregating 1,200,000 square feet, are occupied under leases expiring prior to April 2008. The principal facilities are located in the metropolitan areas of Los Angeles and San Diego, California, and Washington, D.C., and are suitable for offices, laboratories, or light manufacturing. ITEM 3. LEGAL PROCEEDINGS There are no pending or existing legal proceedings which, in the opinion of company management, if decided against the company, would have any material adverse effect on its financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of fiscal year 1996 to a vote of security holders through the solicitation of proxies or otherwise. -5- PART II The information required by Items 5 through 8 of this report is set forth on page 3 and pages 25 through 40 of the 1996 Annual Report to Stockholders and is incorporated by reference in this Annual Report on Form 10-K. Item 9 is not applicable. PART III The information required by Items 10 through 13 of this report is set forth in the sections entitled "Election of Directors", "Executive Compensation Committee Report", "Stock Options", "Other Remuneration Plans", "Long-Term Incentive Plan Awards Table", "Certain Transactions", "Shares Owned by Directors and Named Executive Officers", "Ownership of Certain Beneficial Owners", "Compliance With The Securities Exchange Act", "All Executive Officers of the Company" and "Common Stock Performance" in the company's definitive proxy statement, dated June 25, 1996. Such information is incorporated by reference in this Annual Report on Form 10-K. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1 & 2. Financial Statements and Financial Statement Schedules: The Consolidated Financial Statements, together with the report thereon of Independent Accountants dated May 24, 1996, appearing on pages 28 through 39 of the accompanying 1996 Annual Report to Stockholders are incorporated by reference in this Annual Report on Form 10-K . With the exception of the aforementioned information and the information incorporated in Items 5, 6, 7 and 8, the 1996 Annual Report to Stockholders is not to be deemed filed as part of this report. No financial statement schedules are required to be filed as part of this report. The Consent of Independent Accountants to Incorporation by Reference of Reports in Continuous Offerings on Form S-8 is located on page 9 of this report. 3. Exhibits: See index of exhibits on pages 10 and 11. (b) Reports on Form 8-K: A report on Form 8-K was filed on April 11, 1996, pursuant to Item 2 "Acquisition or Disposition of Assets" for the acquisition of Geodynamics Corporation by Logicon. The financial statements of Geodynamics Corporation for the period ended June 2, 1995, were part of that filing along with pro forma financial information for Logicon and Geodynamics Corporation. -6- Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. LOGICON, INC. by J.R. WOODHULL ----------------------------------- J.R. Woodhull, President and Chief Executive Officer Signatures Title Date ---------- ----- ---- (1) Principal Executive Officer: J.R. WOODHULL ----------------------------- J.R. Woodhull President and June 24, 1996 Chief Executive Officer (2) Principal Financial and Accounting Officer: RALPH L. WEBSTER ------------------------------ Ralph L. Webster Vice President - June 24, 1996 Chief Financial Officer -7- (3) Directors: ------------------------------ James L. Hesburgh Director June , 1996 CHARLES T. HORNGREN ------------------------------ Charles T. Horngren Director June 24 , 1996 W. EDGAR JESSUP, JR. ------------------------------ W. Edgar Jessup, Jr. Director June 24 , 1996 CHARLES F. SMITH ------------------------------ Charles F. Smith Director June 24, 1996 ROLAND R. SPEERS ------------------------------ Roland R. Speers Director June 24 , 1996 ROBERT G. WALDEN ------------------------------ Robert G. Walden Director June 24 , 1996 J.R. WOODHULL ------------------------------ J.R. Woodhull Director June 24, 1996 -8- CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statement on Forms S-8 (Nos. 2-82905, 2-82906, 2-82907, 33-45813 and 33-45815) of our report dated May 24, 1996, appearing on page 39 of the 1996 Annual Report to Stockholders of Logicon, Inc., which is incorporated in this Annual Report on Form 10-K. PRICE WATERHOUSE LLP Costa Mesa, California June 24, 1996 -9- LOGICON, INC. INDEX OF EXHIBITS Exhibit No. Description --- ----------- 3 Articles of Incorporation and Bylaws: (a) Certificate of Incorporation (2) (b) First amendment to the Certificate of Incorporation (5) (c) Second amendment to the Certificate of Incorporation (6) (d) Third amendment to the Certificate of Incorporation (7) (e) By-laws with Amendment (3) (f) Second amendment to the By-laws (5) (g) Third amendment to the By-laws (6) (h) Fourth amendment to the By-laws (7) (i) Fifth amendment to the By-laws (7) (j) Sixth amendment to the By-laws (9) (k) Seventh amendment to the By-laws (9) (l) Eighth amendment to the By-laws (12) (m) Ninth amendment to the By-laws (13) (n) Tenth and Eleventh amendment to the By-laws (14) 4 Instruments defining rights of security holders: (a) Common Stock Certificate (6) (b) Stockholder Rights Plan (8) 9 Voting trust agreement: (a) Trust agreement for Employee Stock Purchase Plan of Logicon, Inc. together with designation of Sanwa Bank California as trustee (3) 10 Material Contracts: (a) 1979 Restricted Stock Purchase Plan (1) (b) 1979 Performance Units Plan (2) (c) 1982 Incentive Stock Option Plan (4) (d) 1991 Stock Option Plan for Non-Employee Directors (10) (e) 1992 Employee Incentive Stock Option Plan (11) 11 Statement regarding computation of earnings per share 13 Annual Report to security holders 21 Subsidiaries of the registrant 23 Consents of experts and counsel: (a) Consent of Independent Accountants to incorporation by reference of reports in continuous offerings on Forms S-8 is located on page 9 of this report. 27 Financial Data Schedule -10- Notes: (1) Filed with the Securities and Exchange Commission in Form S-8 on April 25, 1983, registration No. 2-82905. (2) Filed with the Securities and Exchange Commission in Form 10-K on June 26, 1981, registration No. 2-33461. (3) Filed with the Securities and Exchange Commission in Form 10-K on June 29, 1982, registration No. 2-33461. (4) Filed with the Securities and Exchange Commission in Form S-8 on April 25, 1983, registration No. 2-82906. (5) Filed with the Securities and Exchange Commission in Form 10-K on June 28, 1983, registration No. 2-33461. (6) Filed with the Securities and Exchange Commission in Form 8-A on December 14, 1984, registration No. 1-7777. (7) Filed with the Securities and Exchange Commission in Form 10-K on June 27, 1988, registration No. 2-33461. (8) Filed with the Securities and Exchange Commission in Form 8-A on May 7, 1990, registration No. 1-7777. (9) Filed with the Securities and Exchange Commission in Form 10-K on June 27, 1990, registration No. 1-7777. (10) Filed with the Securities and Exchange Commission in Form S-8 on February 19, 1992, registration No. 33-45815. (11) Filed with the Securities and Exchange Commission in Form S-8 on February 19, 1992, registration No. 33-45813. (12) Filed with the Securities and Exchange Commission in Form 10-K on June 21, 1993, registration No. 1-7777. (13) Filed with the Securities and Exchange Commission in Form 10-K on June 24, 1994, registration No. 1-7777. (14) Filed with the Securities and Exchange Commission in Form 10-K on June 26, 1995, registration No. 1-7777. -11- EX-11 2 COMPUTATION OF EARNINGS PER SHARE Exhibit 11 LOGICON, INC. COMPUTATION OF EARNINGS PER SHARE Earnings per share of common stock including common stock equivalents, have been computed based on the following weighted average number of shares:
For the Year Ended March 31 ----------------------------------- 1996 1995* 1994* ---- ----- ----- Average number of shares outstanding during the year 13,763,000 13,672,000 14,356,000 Net additional shares issuable in connection with dilutive stock options based upon use of the treasury stock method based on average market prices 446,000 532,000 648,000 ---------- ---------- ---------- Average number of common shares, including common stock equivalents 14,209,000 14,204,000 15,004,000 ========== ========== ==========
* Earnings per share have been restated to reflect a 100% stock split effective on September 13, 1995. Fully diluted earnings per share of common stock are omitted because there is less than 3 percent dilution in any year. EX-13 3 FINANCIAL STATEMENTS FROM ANNUAL REPORT EXHIBIT 13 SELECTED CONSOLIDATED FINANCIAL DATA Logicon, Inc.
For the year ended March 31 (dollars in millions, ------------------------------------------------- except per share data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------ Revenues $ 476.1 $ 345.2 $320.2 $325.1 $299.1 Net income 25.3 19.5 21.0 15.5 13.5 Per share amounts -------------------------------------------------- Earnings $ 1.78 $ 1.37 $ 1.40 $ 1.02 $ 0.87 Dividends 0.19 0.16 0.14 0.12 .098 Equity 9.72 7.96 7.05 6.20 5.43 March 31 -------------------------------------------------- Backlog $2,037.8 $1,686.3 $727.4 $630.6 $657.6 Total assets 193.4 152.5 129.3 119.8 113.8 Working capital 87.2 70.8 85.5 76.2 67.3 Stockholders' equity 135.9 107.5 97.7 89.1 81.0
Per share data reflects a two-for-one stock split in fiscal year 1996. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Revenues and Backlog Logicon provides advanced technology systems and services to support national security, civil and industrial needs in the following areas: Command, Control, Communications & Intelligence; Weapon Systems; Information Systems; Science & Technology; and Training & Simulation. Contracts with the U.S. government are the company's primary revenue source, accounting for approximately 99 percent of total contract revenues for fiscal years 1994 through 1996. The company's contractual revenue mix has shifted in recent years with a greater percentage of revenue being derived from "Time and Material" and "Fixed-Price" contracts. The following tables present an analysis of the company's revenues and backlog by contract type for the past three years:
For the year ended March 31 -------------------------------- (dollars in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Contract revenues: Cost plus fixed fee $ 124,058 $ 80,064 $ 93,795 Cost plus award and incentive fee 149,275 125,668 128,501 Fixed-price 72,839 51,317 33,339 Time and material 127,550 84,798 62,581 -------------------------------- $ 473,722 $ 341,847 $318,216 ================================ March 31 -------------------------------- (dollars in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Backlog: Firm contracts: Cost plus fixed fee $ 155,130 $ 155,283 $139,118 Cost plus award and incentive fee 159,836 163,044 102,952 Fixed-price 42,705 34,166 17,919 Time and material 188,958 165,385 87,078 -------------------------------- 546,629 517,878 347,067 -------------------------------- Contract options and untasked indefinite quantity contract values: Cost type 620,261 367,904 259,882 Fixed-price 749,411 743,261 98,521 Time and material 121,498 57,285 21,941 -------------------------------- 1,491,170 1,168,450 380,344 -------------------------------- Total backlog $2,037,799 $1,686,328 $727,411 ================================
Backlog, including priced options, has increased to $2.0 billion at March 31, 1996, from $1.7 billion at March 31, 1995. The company's backlog is not subject to any significant seasonal fluctuations, but is likely to vary substantially as contracts near completion and in conjunction with the execution of major contractual renewals or the award of major new contracts. The company's contracts with the government are subject to redirection or termination for convenience, or may not result in future revenues due to events and actions taken by the customer outside of the company's control. 25 Contract awards that authorize the company to provide services and products are included in firm backlog. When such authorizations have become inactive and the company reasonably anticipates no future revenue from such awards, they are removed from firm backlog. Firm backlog may be funded or unfunded. The funded backlog at March 31, 1996, 1995 and 1994 was $225.5 million, $221.8 million and $180.9 million, respectively. Contract awards that allow the customer to contract for services and products at specified values upon the issuance of contract modifications, normally referred to as options or delivery orders, are recorded in backlog at the value stated in the contract. These amounts are not included in firm backlog until such future contract modifications are issued. Accordingly, total backlog reflected above may not result in future revenues. In recent years the company's customers have increasingly entered into this form of contract. In December 1995 the Air Force issued a contract change order for the I-CASE contract which essentially restructured and modified the contract by reducing program management and software update requirements and related costs. The program management function was changed from a firm-fixed price task to a cost plus fixed-fee task. The untasked, indefinite quantity value, over the remaining eight-year period, of this indefinite delivery/indefinite quantity (ID/IQ) contract was $637 million at March 31, 1996. Also, included in the untasked indefinite quantity value is a five-year, $200 million ID/IQ contract from the Internal Revenue Service (IRS) for software and systems engineering services in support of the IRS's Tax Systems Modernization effort that was awarded during fiscal 1996. Profit Margins Profit margins from operations for the three years ended March 31, 1996, 1995 and 1994 were as follows:
For the year ended March 31 -------------------------------- (dollars in thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Return on revenue before tax 8.9% 9.5% 10.8% Return on revenue after tax 5.3% 5.7% 6.6% Effective income tax rate 40.5% 40.5% 40.9% Before-tax return on short-term portfolio 5.4% 4.8% 3.2%
The increase in revenues and net income for fiscal year 1996 from fiscal year 1995 is primarily the result of the acquisition of Syscon Corporation (Syscon) on February 16, 1995. The profit margin for fiscal year 1996 decreased from the margin reported in fiscal year 1995 due to lower profit margins on the Syscon revenues and to a decrease in interest income earned on a smaller cash and marketable securities portfolio. The fiscal 1994 results included net income of $3.9 million or 26 cents per share and revenues of $4 million resulting from the settlement of two claims the company had filed with the United States Court of Federal Claims. The claims were for increased costs relating to changes in contract requirements for two fixed-price development contracts with the U.S. Navy to provide air traffic controller training systems, which were delivered and accepted by the U.S. Navy in prior periods. Net income during fiscal 1994 was also increased by $635,000, or four cents per share, as a result of the company's adoption of Financial Accounting Standard No. 109 "Accounting for Income Taxes". This amount is the total cumulative effect on income for this change in accounting for income taxes. During fiscal year 1993 the company relocated three operating unit headquarters and consolidated administrative support functions to achieve business and management efficiencies. These changes, combined with the company's ability to control costs while revenues increased, have contributed to the reduction in selling and administrative expenses to 8.3%, 8.8%, and 8.6% of revenues for fiscal years 1996, 1995 and 1994, respectively. On March 28, 1996, the company acquired Geodynamics Corporation (Geodynamics) for a purchase price of $31.7 million. Geodynamics specializes in remote sensing, geographic information systems, modeling and simulation, software development, and systems engineering and integration for the Department of Defense and other government agencies. The acquisition is being accounted for as a purchase and the excess of the purchase price over net assets acquired was approximately $9.3 million. The Consolidated Balance Sheet includes the assets and liabilities of Geodynamics. The company's consolidated results of operations will include the operations of Geodynamics beginning in fiscal year 1997. 26 On February 16, 1995, the company acquired Syscon, which operated as an indirectly wholly owned subsidiary of Harnischfeger Industries, Inc., for a cash purchase price of $45.3 million. Syscon is engaged principally in the business of providing systems development, systems integration and systems services to the U.S. government and commercial enterprises. The acquisition was accounted for as a purchase and the excess of the purchase price over net assets acquired was $21.9 million. The company's consolidated results of operations include the operations of Syscon from the acquisition date. Days sales in receivables decreased slightly to 67 days at March 31, 1996, compared with 69 days at March 31, 1995, and increased from 45 days at March 31, 1994. The fiscal year 1996 days sales measurement would have been approximately 60 days if the fiscal year 1996 unaudited pro forma revenues, which includes the unaudited pro forma revenue of Geodynamics, would have been used for the calculation. The increase for fiscal year 1995 is due primarily to the acquisition of Syscon Corporation on February 16, 1995. The company has adequate cash and credit lines available to fund such fluctuations. Inflation Inflation has had little impact on the company's results of operations. The majority of revenues result from contracts in which the expected impact of inflation, including increased labor rates, is provided for in the contract pricing. The impact of inflation on replacement costs of plant and equipment has not been of great significance because the investment is low, and accelerated depreciation methods are used for both tax and cost recovery purposes. Liquidity and Capital Resources Cash provided by operating activities was $32.5 million, $26.5 million and $38.3 million in fiscal years 1996, 1995 and 1994, respectively, and is the company's primary source of liquidity. The company's working capital increased to $87.2 million at the end of fiscal year 1996, from $70.8 million at the end of fiscal year 1995 and from $85.5 million at the end of fiscal year 1994. The company's working capital position is reflected in the current ratio of 2.5 to 1, 2.6 to 1 and 3.7 to 1 for fiscal years 1996, 1995 and 1994, respectively. The company's Consolidated Balance Sheet is exceptionally strong, with no debt. Management believes that the company's existing capital resources are sufficient to provide for its operating needs and continued growth. A $25 million unsecured line of credit has been arranged with a bank to provide working capital for temporary requirements. There were no borrowings under the line during the last three fiscal years. Purchase of Treasury Stock On October 13, 1995, the board of directors granted the authority to spend up to $10 million to repurchase shares of the company's common stock in open market transactions. The company did not repurchase any shares during fiscal 1996. Over the last three fiscal years, the company has purchased 1,587,800 shares for an aggregate cost of $22.4 million under prior authorizations. Two-for-One Stock Split The board of directors declared a two-for-one stock split on August 7, 1995. New shares were issued on September 13, 1995, and the split is reflected in the financial statements contained in this report. All per share data in this report for prior periods have been restated. Forward-looking Statements To the extent the information contained in this discussion and analysis of consolidated financial condition and results of operations and the information included elsewhere in the 1996 Annual Report to Stockholders are viewed as forward-looking statements, the reader is cautioned that various risks and uncertainties exist that could cause the actual future results to differ materially from that inferred by the forward-looking statements. Since the company's primary customer is the U.S. government, future results could be impacted by: the right of the government to redirect, modify, terminate or otherwise cause work to be stopped on contracts issued by it; government customers' budgetary constraints; and the contracting practices of the company's current and prospective customers. Some additional factors, among others, that also need to be considered are: the likelihood that actual future revenues that are realized may differ from those inferred from existing total backlog; the ability of the company to attract and retain highly trained professional employees; the availability of capital and/or financing; and changes in the utilization of the company's leased facilities that could result in higher costs. The reader is further cautioned that risks and uncertainties exist that have not been mentioned herein due to their unforeseeable nature, but which, nevertheless, may impact the company's future operations. 27 CONSOLIDATED STATEMENT OF INCOME Logicon, Inc.
For the year ended March 31 ---------------------------- (shares and dollars in thousands, except per share data) 1996 1995 1994 - ------------------------------------------------------------------------------------------------- Revenues: Contract revenues $473,722 $341,847 $318,216 Interest 2,381 3,344 1,976 ---------------------------- 476,103 345,191 320,192 - ------------------------------------------------------------------------------------------------- Costs and expenses: Cost of contract revenues 394,224 282,074 258,165 Selling and administrative expenses 39,343 30,302 27,511 ---------------------------- 433,567 312,376 285,676 - ------------------------------------------------------------------------------------------------- Income before taxes on income 42,536 32,815 34,516 Provision for taxes on income (Note 9) 17,228 13,306 14,109 ---------------------------- Income before cumulative effect of a change in accounting principle 25,308 19,509 20,407 Cumulative effect, on prior years, of change in accounting for taxes on income (Note 1) 635 ---------------------------- Net income $ 25,308 $ 19,509 $ 21,042 ============================ Earnings per share of common stock: (Note 2) Before cumulative effect of a change in accounting principle $ 1.78 $ 1.37 $ 1.36 Cumulative effect, on prior years, of change in accounting for taxes on income (Note 1) .04 ---------------------------- Net income $ 1.78 $ 1.37 $ 1.40 ============================ Average number of common shares including common stock equivalents (Note 2) 14,209 14,204 15,004
See notes to consolidated financial statements. 28 CONSOLIDATED BALANCE SHEET Logicon, Inc.
March 31 ------------------- (dollars in thousands) 1996 1995 - ------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents $ 37,802 $ 31,564 Marketable securities (Note 4) 8,244 9,210 Accounts receivable (Note 5) 87,725 64,233 Prepaid expenses 2,447 2,418 Deferred income tax benefits (Note 9) 8,551 8,308 ------------------- Total current assets 144,769 115,733 Property, plant and equipment (Note 5) 11,521 9,090 Other assets 1,085 Excess of purchase price over net assets of businesses acquired, net of accumulated amortization of $4,164 and $2,490 36,063 27,654 ------------------- $193,438 $152,477 =================== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and other accrued liabilities $ 17,995 $ 12,549 Accrued salaries, wages and employee benefits (Note 5) 38,522 30,831 Estimated taxes on income (Note 9) 1,023 1,583 ------------------- Total current liabilities 57,540 44,963 ------------------- Commitments and contingent liabilities (Note 10) Stockholders' equity, per accompanying statement: Preferred stock, $.10 par value - authorized 2,000,000 shares, none outstanding Common stock, $.10 par value - authorized 40,000,000 shares, outstanding 13,975,000 and 6,753,000 shares (Note 2) 1,397 675 Other paid-in capital 18,853 14,416 Retained earnings 118,569 95,889 Unrealized loss on available for sale securities (Note 4) (13) (159) Unearned compensation and notes receivable under Restricted Stock Purchase Plan (Note 8) (2,908) (3,307) ------------------- Total stockholders' equity 135,898 107,514 ------------------- $193,438 $152,477 ===================
See notes to consolidated financial statements. 29 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Logicon, Inc
Common stock ---------------------- Other paid- Retained (shares and dollars in thousands) Shares Amount in capital earnings - -------------------------------------------------------------------------------------------- Balance at March 31, 1993 7,190 $ 719 $ 9,857 $ 80,903 Retirement of treasury shares (463) (46) (537) (12,198) Transactions of stock plans 195 19 2,656 Cash dividends (2,005) Net income for year 21,042 - -------------------------------------------------------------------------------------------- Balance at March 31, 1994 6,922 692 11,976 87,742 Retirement of treasury shares (331) (33) (449) (9,176) Transactions of stock plans 162 16 2,889 Cash dividends (2,186) Net income for year 19,509 - -------------------------------------------------------------------------------------------- Balance at March 31, 1995 6,753 675 14,416 95,889 Transactions of stock plans 364 36 5,123 Two-for-one stock split (Note 2) 6,858 686 (686) Cash dividends (2,628) Net income for year 25,308 - -------------------------------------------------------------------------------------------- Balance at March 31, 1996 13,975 $1,397 $18,853 $118,569 ====================================================
Stockholders' equity in the accompanying Consolidated Balance Sheet has been reduced by unearned compensation and notes receivable under the Restricted Stock Purchase Plan (Note 8) and by unrealized loss on available for sale securities (Note 4). See notes to consolidated financial statements. 30 CONSOLIDATED STATEMENT OF CASH FLOWS Logicon, Inc.
For the year ended March 31 ------------------------------ (dollars in thousands) 1996 1995 1994 - ------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 25,308 $ 19,509 $ 21,042 Income charges (credits) not affecting cash - Depreciation and amortization 7,113 4,388 3,471 Provision for the collectibility of accounts receivable (2,000) Provision for (benefit from) deferred taxes (Note 9) 1,472 (2,529) (3,014) Amortization of deferred compensation 520 587 415 Effect of a change in accounting for income taxes (Note 1) (635) Changes in assets and liabilities, net of acquisitions - Decrease (increase) in accounts receivable (10,953) 1,304 18,820 Decrease in prepaid expenses 446 731 171 Increase (decrease) in accounts payable and other accrued liabilities 4,733 2,123 (3,227) Increase in accrued salaries, wages and employee benefits 4,423 2,892 285 Increase (decrease) in income taxes payable (538) (2,462) 2,956 ------------------------------ Net cash provided from operating activities 32,524 26,543 38,284 - ------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property, plant and equipment, net of sales (5,563) (2,397) (2,747) Maturity of available for sale securities 1,112 61,519 Purchase of available for sale securities (43,402) (27,486) Payment for acquisitions, net of cash acquired (Note 3) (23,339) (43,854) ------------------------------ Net cash used in investing activities (27,790) (28,134) (30,233) - ------------------------------------------------------------------------------------- Cash flows from financing activities: Cash dividends (2,628) (2,186) (2,005) Transactions of stock plans 4,132 1,610 2,035 Purchase and retirement of treasury shares (9,658) (12,781) ------------------------------ Net cash provided from (used in) financing activities 1,504 (10,234) (12,751) ------------------------------ Net increase (decrease) in cash and cash equivalents 6,238 (11,825) (4,700) Cash and cash equivalents at beginning of year 31,564 43,389 48,089 - ------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $37,802 $31,564 $43,389 ============================= Cash paid for income taxes $14,523 $18,215 $12,975 =============================
See notes to consolidated financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Logicon, Inc. - -------------------------------------------------------------------------------- NOTE 1. SUMMARY OF ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of the company and its subsidiaries. Significant intercompany accounts and transactions are eliminated. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the respective reporting periods. Actual results could differ from those estimates. Contract Revenues The company's business is to provide advanced technology systems and services to support national security, civil and industrial needs. Revenues result from a variety of cost-reimbursement and fixed-price contracts, principally with the U.S. government. Contract revenues are recorded using the percentage of completion method, primarily based on contract costs incurred to date compared with total estimated costs at completion. Amounts in excess of contract price for customer changes and increases in contract requirements, errors in specification and design, customer-caused delays and disruptions or other causes of unanticipated additional costs are recognized as revenue if it is probable that the requests for equitable adjustment to the contract will result in additional revenue and the amount can be reasonably estimated. To the extent estimated costs at completion exceed estimated contract price, charges are made to current earnings in the period in which this is first determined, with a related reduction of unbilled amounts to estimated realizable value. Property, Plant and Equipment Property, plant and equipment are recorded at cost. Depreciation is provided using the declining-balance and straight-line methods over estimated useful lives of three to 10 years for office furniture and equipment, three to eight years for computer and related equipment and 15 to 30 years for buildings. Leasehold improvements are amortized over the shorter of their service lives or the remaining terms of the leases. Excess of Purchase Price Over Net Assets of Businesses Acquired The excess of purchase price over net assets of businesses acquired is amortized on a straight-line basis, generally over periods not exceeding 20 years. The company regularly reviews the individual components of the balances and recognizes, on a current basis, any decline in value. Impairment of Long-Lived Assets The company has adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 121 establishes accounting standards for the impairment of long-lived assets to be reviewed whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Under the provisions of SFAS 121, the company reviews the recoverability of long-lived assets and intangible assets by comparing cash flows on an undiscounted basis to the net book value of the assets. In the event the projected undiscounted cash flows are less than the net book value of the 32 assets, the carrying values of the assets are written down to their fair value, less cost to sell. In addition, SFAS 121 requires that assets to be disposed of be measured at the lower of cost or fair value, less cost to sell. Adopting SFAS 121 had no effect on the company's financial statements. Research and Development The company charges all research and development expenditures to costs and expenses as incurred. Research and development expenditures for fiscal years 1996, 1995 and 1994 were, respectively, $3,952,000, $2,692,000, and $2,751,000. Income Taxes Effective April 1, 1993, the company prospectively adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), which changed the method of accounting for income taxes from the deferred method to an asset and liability method. Previously, the company deferred the past tax effects of timing differences between financial reporting and taxable income. The asset and liability method requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities. Statement of Cash Flows For purposes of the Consolidated Statement of Cash Flows, the company considers cash equivalents to be short-term, highly liquid investments that mature within 90 days from the date of acquisition. Accounting for Stock-Based Compensation In October 1995 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-based Compensation" (SFAS 123) which establishes financial accounting and reporting standards for stock-based employee compensation. Under SFAS 123, companies are encouraged, but not required, to adopt a method of accounting for stock compensation awards based upon the estimated fair value at the date the options/awards are granted as determined through the use of a pricing model (the "Fair Value Method"). Companies continuing to account for such awards in accordance with the existing guidance of Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" (APB 25) will have to disclose, in the Notes to Financial Statements, the pro forma impact on net income and net income per share had the company utilized the Fair Value Method. The company anticipates accounting for future stock compensation awards in accordance with APB 25 with the appropriate footnote disclosure required under SFAS 123. - -------------------------------------------------------------------------------- NOTE 2. COMMON STOCK On September 13, 1995, approximately 6,858,000 common shares were distributed to stockholders to effect a 100 percent stock distribution required by a two-for- one stock split declared by the board of directors, and $686,000 was transferred from other paid-in capital to common stock. Earnings per share, equity per share and dividends per share, common stock prices and all amounts in the notes to the Consolidated Financial Statements have been restated to reflect the stock split. - -------------------------------------------------------------------------------- NOTE 3. ACQUISITIONS On March 28, 1996, the company acquired Geodynamics Corporation (Geodynamics) for a purchase price of $31.7 million. Geodynamics specializes in remote sensing, geographic information systems, modeling and simulation, software development, and systems engineering and integration for the Department of Defense and other government agencies. The acquisition was accounted for as a purchase and the excess of the purchase price over net assets acquired was approximately $9.3 million. The Consolidated Balance Sheet includes the assets and liabilities of Geodynamics. The company's consolidated results of operations will include the operations of Geodynamics beginning in fiscal year 1997. 33 On February 16, 1995, the company acquired Syscon Corporation (Syscon), which operated as an indirectly wholly owned subsidiary of Harnischfeger Industries, Inc., for a cash purchase price of $45.3 million. Syscon is engaged principally in the business of providing systems development, systems integration and systems services to the U.S. government and commercial enterprises. The acquisition was accounted for as a purchase and the excess of the purchase price over net assets acquired was $21.9 million. The company's consolidated results of operations include the operations of Syscon from the acquisition date. Unaudited pro forma fiscal year 1994 revenues, income before cumulative effect of a change in accounting principle and net income, assuming Syscon was acquired at the beginning of fiscal year 1994, were $458.4 million, $23.6 million, and $24.2 million, respectively. Unaudited pro forma fiscal year 1994 earnings per share of common stock were $1.61. The following table summarizes the unaudited consolidated pro forma results of operations, assuming the acquisitions of Geodynamics and Syscon had occurred at the beginning of fiscal year 1995. However, these pro forma results are not necessarily indicative of the actual results of operations that would have occurred. For the year ended March 31 (unaudited)
For the year ended March 31 (unaudited) --------------------------- (dollars in thousands, except per share data) 1996 1995 - ----------------------------------------------------------------------------------------- Revenues $529,163 $510,307 Income before taxes on income $ 42,968 $ 32,637 Net income $ 25,376 $ 18,841 =========================== Earnings per share of common stock $ 1.78 $ 1.33 =========================== Average number of common shares including common stock equivalents 14,230 14,208 ===========================
NOTE 4. MARKETABLE SECURITIES - --------------------------------------------------------------------------------
Marketable securities are as follows: Amortized cost Fair value Gross (dollars in thousands) basis (plus interest) (plus interest) unrealized loss - --------------------------------------------------------------------------------------------------------------------- March 31, 1996 Available for sale securities (mature within one year) U. S. government and government agencies $8,269 $8,244 $ 25 =========================================================== March 31, 1995 Available for sale securities (mature within two years) U. S. government and government agencies $9,477 $9,210 $267 ===========================================================
The specific identification method has been used to determine cost for each security. There have been no realized gains or losses from the sale of available for sale securities during fiscal 1996 or 1995. The net unrealized holding loss on available for sale securities which is included in stockholders' equity at March 31, 1996, and 1995, was $13,000 and $159,000, respectively. 34 - -------------------------------------------------------------------------------- NOTE 5. DETAILS OF CERTAIN CONSOLIDATED BALANCE SHEET CAPTIONS
March 31 ------------------ (dollars in thousands) 1996 1995 - -------------------------------------------------------------------------------- Accounts receivable: U.S. government, including unbillable of $18,271 and $13,259 $83,756 $60,929 Other 3,969 3,304 ------------------ $87,725 $64,233 ================== Property, plant and equipment: Office furniture and equipment $ 6,168 $ 5,747 Computer and related equipment 29,471 24,172 Land, buildings and leasehold improvements 4,917 5,041 ------------------ 40,556 34,960 Less accumulated depreciation and amortization (29,035) (25,870) ------------------ $11,521 $ 9,090 ================== Accrued salaries, wages and employee benefits: Salaries and related expenses $13,024 $14,592 Personal leave 18,665 11,499 Benefit plans 6,833 4,740 ------------------ $38,522 $30,831 ==================
Unbillable receivables under fixed-price contracts are normally billable upon acceptance of deliverables by the customer. Unbillable receivables under cost- type contracts are normally billable upon contract completion and acceptance of costs incurred. Unbilled amounts are classified as current assets, since substantially all of these amounts will be realized within one year. Costs related to certain contracts, including applicable indirect costs, are subject to audit and adjustment from negotiations between the company and representatives of the U.S. government. Revenues for such contracts have been recorded in amounts that are expected to be realized on final settlement. - -------------------------------------------------------------------------------- NOTE 6. SHORT-TERM BORROWINGS The company has a $25 million unsecured line of credit with a bank that is renewable annually, subject to review of the company's financial condition. Borrowings under the line bear interest at the bank's prime rate minus 25 basis points. The company is expected to maintain an average collected demand deposit balance equal to three percent of the line. The compensating balances are not restricted and generally are composed of normal float and minimum operating balances. There were no borrowings under the unsecured line during the last three fiscal years. - -------------------------------------------------------------------------------- NOTE 7. EMPLOYEE BENEFIT PLANS The company and its subsidiaries have various tax qualified employee benefit plans which provide retirement benefits to substantially all employees. Annual contributions to the various plans are discretionary and are determined by the board of directors. Charges to costs and expenses with respect to the various plans for fiscal years 1996, 1995 and 1994 were, respectively, $9,071,000, $7,333,000, and $7,350,000. 35 Employees, except those of certain subsidiaries, are eligible to participate in the company's Stock Purchase Plan by contributing up to six percent of their salary. The company contributes an amount equal to one-half of each employee's contribution, less forfeitures. Company contributions vest and the purchased stock is distributed after the end of the second calendar year following the year of purchase. As of March 31, 1996, the Plan is authorized to purchase an aggregate of 459,657 additional shares of the company's common stock either on the open market or from the company. All shares purchased under the Plan have been open market purchases and it is management's current intent to continue this practice. The Plan held 382,856 shares of the company's common stock at March 31, 1996. Charges to costs and expenses with respect to the Plan for fiscal years 1996, 1995 and 1994 were, respectively, $1,507,000, $932,000, and $385,000. The company has incentive compensation plans for key employees that provide for current bonuses and deferred compensation based on the company's current and future earnings. Charges to costs and expenses with respect to the plans for the fiscal years 1996, 1995 and 1994 were, respectively, $3,467,000, $2,619,000, and $2,909,000. - -------------------------------------------------------------------------------- NOTE 8. STOCKHOLDERS' EQUITY The 1992 Employee Incentive Stock Option Plan provides for issuance of options to key employees to purchase shares of the company's common stock at prices not less than market value at date of grant. These options become exercisable as determined in each case by the Executive Compensation Committee of the board of directors, but in no event shall any exercise period exceed 10 years from the date of the grant of the option. No significant charges are made to earnings in connection with this Plan. The Plan authorizes issuance of 2,000,000 shares. Grants for 122,100 shares at a price of $23.38 per share were made during fiscal year 1996. The 1991 Stock Option Plan for Non-Employee Directors provides the company the ability to grant Non-Employee Directors options to purchase common stock of the company. Options are granted according to a formula contained in the Plan at prices not less than the fair market value at date of grant, are exercisable on or after the second anniversary of the date of grant and expire five years from the date of grant. No significant charges are made to earnings in connection with this Plan. A total of 160,000 shares of common stock are reserved for future issuance under the Non-Employee Directors' Plan. Grants for 6,500 shares at a price of $24.50 per share and for 4,500 shares at a price of $28.13 per share were made during fiscal year 1996. On March 28, 1996, the company acquired all of the outstanding stock of Geodynamics Corporation (Geodynamics) for a purchase price of $31.7 million. In connection with this transaction, the company agreed to honor the terms of all outstanding and unexercised Geodynamics stock options as of that date using a conversion factor based on the price paid per share of Geodynamics stock divided by the average trading price per share of Logicon stock over a 20-day period ending March 25, 1996. This resulted in the company issuing options for 89,683 shares at prices ranging from $8.63 to $34.52 per share. The estimated fair value of these options has been included in the price of Geodynamics with the resulting credit to other paid-in capital. 36 A summary of stock option transactions follows:
Options outstanding -------------------------------------------------- (in thousands) Shares Per share Amount - ---------------------------------------------------------------------------------------------- March 31, 1993 (472,312 shares exercisable) 1,178,372 $ 3.75-$ 7.25 $ 5,752 Granted 182,000 10.63- 13.38 2,012 Exercised (329,978) 3.75- 7.25 (1,331) Canceled and expired (10,400) 6.00- 10.94 (75) -------------------------------------------------- March 31, 1994 (456,794 shares exercisable) 1,019,994 3.75- 13.38 6,358 Granted 182,000 14.19- 16.00 2,654 Exercised (222,960) 3.75- 13.38 (1,119) Canceled and expired (7,400) 7.25- 14.19 (72) -------------------------------------------------- March 31, 1995 (482,134 shares exercisable) 971,634 3.75- 16.00 7,821 Granted 222,783 8.63- 34.52 5,036 Exercised (466,612) 3.75- 16.00 (2,361) Canceled and expired (15,320) 3.75- 15.94 (126) -------------------------------------------------- March 31, 1996 (239,190 shares exercisable) 712,485 $ 6.00-$34.52 $10,370 ==================================================
Under a Restricted Stock Purchase Plan, the Executive Compensation Committee of the board of directors selects eligible employees and determines the number of shares available for purchase by each participant. Eligible employees are entitled to purchase "restricted" shares of the company's common stock at a discount from market value. Following the date of purchase, restrictions on the transfer of the stock may be removed from a discretionary amount of the shares by the Executive Compensation Committee. Legends prohibiting transfers remain on the certificates and are not removed until any loans which have been made in connection with the purchase have been satisfied. During fiscal year 1996, awards for 16,130 shares were granted. Charges to costs and expenses with respect to the Plan for fiscal years 1996, 1995 and 1994 were, respectively, $520,000, $587,000 and $415,000. At March 31, 1996, and 1995, unearned compensation of $311,000 and $682,000 and notes receivable of $2,597,000 and $2,625,000, respectively, related to the issuance of the stock are deducted from stockholders' equity in the accompanying Consolidated Balance Sheet. At March 31, 1996, 2,775,390 shares of authorized but unissued common stock were available for future grants under these plans. In April 1990 the company established a Stockholder Rights Plan and declared a dividend of one right for each share of common stock. When the board of directors determines that an acquiring person, as defined, has acquired or intends to acquire 20 percent or more or, in certain circumstances, 15 percent or more of the company's common stock, each right may be exercised to purchase stock in the company equal to the result obtained by multiplying the then current per share purchase price, as defined by the Plan, by the number of shares currently held and dividing that product by 50 percent of the current per share market price or to acquire stock in an acquiring company by the same formula but where the current per share market price is of the acquiring company. An acquiring person is not entitled to any of the benefits of the Plan. The rights, which do not have voting privileges and automatically trade with the common stock after May 16, 1990, may be redeemed by an action of the board of directors at a price of $.01 per right within 10 days after the announcement that a person has acquired 20 percent or more of the outstanding common stock of the company. The Plan will expire on May 15, 2000, unless otherwise amended. 37 - -------------------------------------------------------------------------------- NOTE 9. TAXES ON INCOME The provision for taxes on income includes the following:
For the year ended March 31 --------------------------- (dollars in thousands) 1996 1995 1994 - ------------------------------------------------------------------- Current payable: Federal $13,002 $12,831 $13,845 State 2,754 3,004 3,278 --------------------------- 15,756 15,835 17,123 --------------------------- Tax effect of temporary differences: Federal 1,248 (2,167) (2,515) State 224 (362) (499) --------------------------- 1,472 (2,529) (3,014) --------------------------- $17,228 $13,306 $14,109 ===========================
The reasons for variance from the statutory federal income tax rates are as follows:
For the year ended March 31 --------------------------- 1996 1995 1994 - ----------------------------------------------------------------------------- Statutory federal income tax rate 35.0% 35.0% 35.0% State taxes, net of federal income tax benefit 4.6 5.2 5.2 Other .9 .3 .7 --------------------------- Effective tax rate 40.5% 40.5% 40.9% ===========================
Deferred income tax benefits consist of the following:
March 31 ----------------- 1996 1995 - --------------------------------------------------------- Deferred employee benefits $ 7,097 $5,570 Non-deductible accrued costs 4,263 2,993 Contractually unbillable receivables (3,610) (831) R&D credit carryforward 55 701 State taxes 452 431 Depreciation 1,415 284 Loss limitation carryforwards 99 158 Other (1,220) (691) ----------------- 8,551 8,615 Valuation allowance (307) ----------------- $ 8,551 $8,308 =================
The fiscal year 1995 valuation allowance relates primarily to loss limitation carryforwards and depreciation. Management believes that all fiscal year 1996 deferred amounts will be realized. The R&D credit carryforward expires during fiscal years 2005 to 2009. 38 - -------------------------------------------------------------------------------- NOTE 10. COMMITMENTS AND CONTINGENT LIABILITIES The company leases certain facilities and computer-related equipment under operating leases providing for payment of fixed rentals and, in certain cases, facilities operating expense, property tax and price index increases over base- period amounts. The majority of the leases are for one to 15 years, with options to extend the terms for up to five years beyond the original lease period. Facility and equipment rental expenses for fiscal years 1996, 1995 and 1994 were, respectively, $17,010,000, $15,438,000, and $16,957,000. The amounts due in future fiscal years for the fixed terms of the leases total $113,045,000. Commitments for the five fiscal years 1997 through 2001 are, respectively, $18,300,000, $15,315,000, $12,605,000, $10,868,000, and $10,334,000. - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS [LOGO OF PRICE WATERHOUSE LLP APPEARS HERE] To The Board of Directors and Stockholders of Logicon, Inc. In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of income, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of Logicon, Inc. and its subsidiaries at March 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for income taxes during fiscal year 1994. /s/ Price Waterhouse LLP Price Waterhouse LLP Costa Mesa, California May 24, 1996 39 SELECTED UNAUDITED CONSOLIDATED FINANCIAL AND STOCK MARKET DATA
For the quarter ended -------------------------------------------------- (dollars in thousands, except per share data) June 30 Sept. 30 Dec. 31 March 31 - ------------------------------------------------------------------------------------------------------------------ Fiscal Year 1996 Revenues $ 112,207 $ 114,622 $ 121,264 $ 128,010 Gross profit 16,989 18,063 21,073 23,373 Income before taxes on income 9,047 9,668 11,588 12,233 Net income 5,368 5,758 6,878 7,304 Earnings per common share .38 .41 .48 .51 Dividends per common share .04 .05 .05 .05 Common stock price: High 231/\\8\\ 321/\\8\\ 291/\\4\\ 333/\\4\\ Low 167/\\8\\ 2111/\\16\\ 211/\\2\\ 251/\\4\\ - ------------------------------------------------------------------------------------------------------------------ Fiscal Year 1995 Revenues $ 075,957 $ 079,712 $ 080,900 $ 108,622 Gross profit 13,868 13,136 13,504 19,265 Income before taxes on income 6,774 7,532 7,817 10,692 Net income 4,005 4,454 4,726 6,324 Earnings per common share .28 .31 .33 .45 Dividends per common share .04 .04 .04 .04 Common stock price: High 155/\\8\\ 169/\\16\\ 155/\\8\\ 173/\\16\\ Low 125/\\8\\ 139/\\16\\ 141/\\8\\ 1415/\\16\\ - ------------------------------------------------------------------------------------------------------------------
The common stock of Logicon, Inc. is listed on the New York Stock Exchange with the ticker symbol LGN. There were approximately 1,500 stockholder accounts of record at March 31, 1996. Common stock prices for the five quarters ended June 30, 1995, have been restated to reflect the two-for-one stock split distribution effected September 13, 1995. 40 EX-21 4 SUBSIDIARIES OF THE REGISTRANT Exhibit 21 LOGICON, INC. SUBSIDIARIES OF THE REGISTRANT Country or State Subsidiary (name under which subsidiary does business): of Incorporation - ------------------------------------------------------- ---------------- Geodynamics Services Corporation Colorado Logicon Eagle Technology, Inc. Delaware Logicon Geodynamics, Inc. California Logicon R & D Associates California Logicon Syscon. Inc. District of Columbia Logicon Syscon Services, Inc. District of Columbia Logicon Technical Services, Inc. California Logicon Ultrasystems, Inc. Delaware Syscon BVI, LTD British Virgin Islands Syscon Saudi Arabia, LTD Kingdom of Saudi Arabia EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K, FY 1996 FOR THE PERIOD ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000311946 LOGICON, INC. 1,000 YEAR MAR-31-1996 MAR-31-1996 37,802 8,244 87,725 0 0 144,769 40,556 29,035 193,438 57,540 0 0 0 1,397 134,501 193,438 473,722 476,103 394,224 433,567 0 0 0 42,536 17,228 25,308 0 0 0 25,308 1.78 1.78
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