Titan to Post 2Q Loss, Despite Record Revenues

By Leon Worden
Signal City Editor

Friday, July 9, 2004

*MEDIA—MANDATORY CREDIT: The Signal newspaper of Santa Clarita, Calif.

hursday was rough for investors in Titan Corp., the defense contractor that sent Canyon Country resident John B. Israel and thousands of other translators to Iraq last fall. But the company's difficulties aren't related to the fact that Israel and another Titan translator were implicated in the Abu Ghraib prisoner abuse scandal.
    Indeed, last month's unraveling of a planned takeover by Lockheed Martin Corp. has prompted San Diego-based Titan to put more of its eggs into its military intelligence basket and shed some unrelated business units.
    Eliminating loss leaders "will allow us to focus on our national security solutions businesses, where we are clearly one of the leading providers," Titan President Gene W. Ray said in a statement Thursday.
    For all of 2003, Titan posted record revenues of $1.8 billion. Its Army intelligence contract translators, of which 4,700 are currently deployed, generated $112.1 million of that total, according to Titan's year-end statement.
    Titan is on track to beat those figures this year. For the quarter ended June 30, it expects to see record-breaking revenues of $510 million to $515 million — up 16 to 18 percent on the year — thanks to its national security-related business units.
    "Titan continued to generate strong revenue growth in our business of serving our nation's military, intelligence and homeland security needs," Ray said.
    But revenues don't equal profits, and Titan's income ledger is a different story.
    Expenses associated with an ongoing probe of Foreign Corrupt Practices Act violations, coupled with one-time costs from floundering business units, will produce overall quarterly losses of $62 million to $78 million (74 to 93 cents per share), Titan predicted.
    Some of the costs stem from the cancellation of Titan Wireless in Benin, Africa. Also, a deal to provide national security cards to officials in Saudi Arabia proved more expensive than expected.
    Titan is being investigated for allegedly bribing government officials in both of those countries, and Titan is setting aside $26 million to $32 million for a settlement with the Justice Department.
    Titan's failure to reach the settlement by an agreed-to deadline last month provoked Lockheed to cancel its $1.66 billion buyout offer.
    Titan expects to spend another $24 million to $28 million to dispose of two subsidiaries, Datron World Communications, which provides radio communications globally, and Titan Scan Technologies, which manufactures electron-beam systems for sterilizing medical devices.
    And just as Titan was announcing a healthy backlog of more than $5 billion in government orders, the General Services Administration said Thursday that it won't renew Titan's contract for Military One Source, a 24-hour phone- and Internet-based counseling service for U.S. soldiers and their families.
    Conceivably worth as much as $250 million over five years, the contract is one of several that is being audited by the GAO, which has expressed concerns about the way the Pentagon stretched the limitations of several contract vehicles for operations in Iraq and Afghanistan.
    Titan, which made its earnings prediction at Thursday's close of business, finished trading on the New York Stock Exchange at $12.02, up 2.39 percent.
    Last year, share prices zoomed when the major hostilities in Iraq ended and the Army put in more orders, hitting a 52-week high of $21.99 on Jan. 14, 2004. Prices tumbled after Lockheed's June 26 cancellation, hitting a 52-week low of $10.30 on July 7 — still higher than pre-war values.