UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): July 19, 2002
TELOS CORPORATION
(Exact name of registrant as specified in charter)
Maryland 1-8443 52-0880974
(State of Incorporation) (Commission File Number) (I.R.S. Employer ID No.)
19886 Ashburn Road, Ashburn, Virginia 20147-2358
(Address of principle executive offices) (Zip Code)
Registrant's telephone number, including area code
(703) 724-3800
Item 2. Disposition of Business
On July 19, 2002 Telos Corporation, a Maryland corporation ("the Company")
and L-3 Communications Corporation ("L-3") entered into a purchase agreement
whereby the Company sold all of the issued and outstanding shares of its wholly
owned subsidiary, Telos Corporation - California ("TCC") to L-3 for a purchase
price of approximately $20 million. The parties agreed to pay the full amount of
the purchase price as follows: 1) approximately $15.3 million to the Company at
closing; 2) $2.0 million held in an escrow account which will be paid to the
Company over the next 30 months. The escrow amount may be subject to a reduction
if any claims for indemnification of L-3 arise during the 30 month period after
July 19, 2002; 3) approximately $2.7 million held back as deposits for
liabilities relating to leased properties in which at the time of closing TCC
was a lessee or guarantor. Such deposits will be released to the Company
consistent with their respective agreements in installments over the next five
years.
The purchase price shall be increased or decreased on a dollar for dollar
basis by the amount by which the closing date net assets, as defined in the
Purchase Agreement, deviate from $2.3 million. This adjustment of the sale price
will be determined within 75 days from the date of closing. In accordance with
the Company's loan agreement, all proceeds from the sale have been used to pay
down the Company's Senior Revolving Credit Facility.
As additional consideration for the sale of the shares of TCC, the Company
and its affiliates committed to certain "Non-Compete" and "No Solicitation"
provisions relating primarily to the business and employees associated with its
TCC/Ft. Monmouth operations.
The sale of TCC has been treated as a discontinued operation in accordance
with SFAS 144, "Accounting for the Impairment or Disposal of long-Lived Assets."
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired - Not Applicable
(b) Pro Forma Financial Information - Pro forma financial information
statements are included herein pursuant to Article 11 of
Regulation S-X.
(c) Exhibits - None
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, as amended, the registrant has duly caused this report to be filed
on its behalf by the undersigned, thereunto duly authorized.
Telos Corporation
Date: August 5, 2002 By: /s/ Thomas J. Ferrara
Thomas J. Ferrara
Chief Financial Officer
TELOS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On July 19, 2002 Telos Corporation, a Maryland corporation ("the Company")
and L-3 Communications Corporation ("L-3") entered into a purchase agreement
whereby the Company sold all of the issued and outstanding shares of its wholly
owned subsidiary, Telos Corporation - California ("TCC") to L-3 for a purchase
price of approximately $20 million. The parties agreed to pay the full amount of
the purchase price as follows: 1) approximately $15.3 million to the Company at
closing; 2) $2.0 million held in an escrow account which will be paid to the
Company over the next 30 months. The escrow amount may be subject to a reduction
if any claims for indemnification of L-3 arise during the 30 month period after
July 19, 2002; 3) approximately $2.7 million held back as deposits for
liabilities relating to leased properties in which at the time of closing TCC
was a lessee or guarantor. Such deposits will be released to the Company
consistent with their respective agreements in installments over the next five
years.
The purchase price shall be increased or decreased on a dollar for dollar
basis by the amount by which the closing date net assets, as defined in the
Purchase Agreement, deviate from $2.3 million. This adjustment of the sale price
will be determined within 75 days from the date of closing. In accordance with
the Company's loan agreement, all proceeds from the sale have been used to pay
down the Company's Senior Revolving Credit Facility.
As additional consideration for the sale of the shares of TCC, the Company
and its affiliates committed to certain "Non-Compete" and "No Solicitation"
provisions relating primarily to the business and employees associated with its
TCC/Ft. Monmouth operations.
The sale of TCC has been treated as a discontinued operation in accordance
with SFAS 144, "Accounting for the Impairment or Disposal of long-Lived Assets."
The following unaudited Pro Forma Condensed Consolidated Balance Sheet as
of June 30, 2002 reflects the Company's Condensed Consolidated Balance Sheet as
of June 30, 2002, as previously reported, adjusted for the effects of the sale
of TCC and the application of the net proceeds thereof, assuming the transaction
occurred on June 30, 2002. The unaudited Pro Forma Consolidated Statements of
Operations for the three years ended December 31, 2001 and for the six months
ended June 30, 2002 ("pro forma financial information") present the pro forma
effect of the transaction as if it occurred as of January 1, 1999. In accordance
with the rules of the Commission, the estimated gain on the sale of TCC, net of
applicable income taxes, of $12.0 million has been excluded from the Pro-Forma
Consolidated Statements of Operations because it is a non-recurring item. Such
gain is included as an adjustment to retained deficit in the accompanying
unaudited Pro-Forma Condensed Consolidated Balance Sheet as of June 30, 2002.
The objective of pro forma financial information is to provide investors
with information about the estimated continuing impact of particular completed
or probable transactions by indicating how the transactions might have affected
historical financial statements had they occurred at an earlier date. These Pro
forma statements are subject to a number of estimates, assumptions and other
uncertainties, and do not purport to be indicative of the actual financial
position or results of operations that would have occurred had the transaction
and events reflected herein in fact occurred on the dates specified, nor do such
financial statements purport to be indicative of the results of operations or
financial condition that may be achieved in the future. These unaudited pro
forma condensed consolidated financial statements should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and all of the financial statements and notes thereto contained in
the Company's Annual Report on Form 10-K for the year ended December 31, 2001.
TELOS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)
(amounts in thousands)
Pro Forma
Historical --------------------------------------
Balances TCC Adjustments Balances
-------- --- ----------- --------
Sales
Systems and Support Services $23,418 $23,418 (d) $ -- $ --
Products 33,118 -- -- 33,118
Xacta 5,428 -- -- 5,428
----- ------ ---- -----
61,964 23,418 -- 38,546
Costs and expenses
Cost of sales 54,557 21,264 (d) -- 33,293
Selling,general and
administrative expenses 10,522 2,739 (e) -- 7,783
Goodwill amortization -- -- -- --
------ ----- ---- -----
Operating loss (3,115) (585) -- (2,530)
Other income (expenses)
Other income -- 5 (d) -- (5)
Interest expense (1,655) (460)(f) -- (1,195)
------ ---- ---- ------
Loss before taxes (4,770) (1,040) -- (3,730)
Income tax benefit (provision) 1,234 -- (269) (g) 965
----- ----- ---- ---
Loss from continuing
operations $(3,536) $(1,040) $(269) $(2,765)
======= ======= ===== =======
Please see Notes to the unaudited Pro Forma Consolidated Statement of
Operations and Consolidated Balance Sheet.
TELOS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(Unaudited)
(amounts in thousands)
Pro Forma
Historical ------------------------------------
Balances TCC Adjustments Balances
-------- --- ----------- --------
Sales
Systems and Support Services $60,402 $58,073 (d) $(2,329)(h) $ --
Products 96,301 -- 2,329 (h) 98,630
Xacta 13,558 -- -- 13,558
------ ------ ----- ------
170,261 58,073 -- 112,188
Costs and expenses
Cost of sales 143,041 53,783 (d) -- 89,258
Selling, general and
administrative expenses 24,634 6,099 (e) -- 18,535
Goodwill amortization 250 250 (d) -- --
--- --- ---- ------
Operating income 2,336 (2,059) -- 4,395
Other income (expenses)
Other income 70 3 (d) -- 67
Interest expense (4,073) (878)(f) -- (3,195)
------ ---- ---- ------
(Loss) income before taxes (1,667) (2,934) -- 1,267
Income tax benefit (provision) 996 -- (756) (g) 240
--- ----- ---- ---
(Loss) income from continuing
operations $(671) $(2,934) $(756) $1,507
===== ======= ===== ======
Please see Notes to the unaudited Pro Forma Consolidated Statement of
Operations and Consolidated Balance Sheet.
TELOS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
(amounts in thousands)
Pro Forma
Historical ----------------------------------
Balances TCC Adjustments Balances
-------- --- ----------- --------
Sales
Systems and Support Services $48,429 $48,429 (d) $ -- $ --
Products 87,799 -- -- 87,799
Xacta 9,082 -- -- 9,082
----- ------ ------ -----
145,310 48,429 -- 96,881
Costs and expenses
Cost of sales 124,028 43,076 (d) -- 80,952
Selling, general and
administrative expenses 19,796 6,549 (e) -- 13,247
Goodwill amortization 312 312 (d) -- --
--- --- ---- -----
Operating income 1,174 (1,508) -- 2,682
Other income (expenses)
Equity in earnings of Telos OK 2,328 2,328 (d) -- --
Other income 98 6 (d) -- 92
Interest expense (4,777) (1,286)(f) -- (3,491)
------ ------ --- ------
Loss before taxes (1,177) (460) -- (717)
Income tax provision (617) -- 409 (g) (208)
---- ---- --- ----
Loss from continuing
operations $(1,794) $(460) $409 $(925)
======= ===== ==== =====
Please see Notes to the unaudited Pro Forma Consolidated Statement of
Operations and Consolidated Balance Sheet.
TELOS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
(amounts in thousands)
Pro Forma
Historical ------------------------------
Balances TCC Adjustments Balances
-------- --- ----------- --------
Sales
Systems and Support Services $77,701 $77,701 (d) $ -- $ --
Products 89,261 -- -- 89,261
Xacta 4,402 -- -- 4,402
----- ------- ---- -----
171,364 77,701 -- 93,663
Costs and expenses
Cost of sales 151,216 65,653 (d) -- 85,563
Selling, general and
administrative expenses 17,459 5,568 (e) -- 11,891
Goodwill amortization 489 489 (d) -- --
--- --- ---- ------
Operating income (loss) 2,200 5,991 -- (3,791)
Other income (expenses)
Equity in net losses of Enterworks(18,765) -- -- (18,765)
Other income 67 5 (d) -- 62
Gain on sale of assets 4,731 4,731 (d) -- --
Interest expense (6,065) (1,705)(f) -- (4,360)
------ ------ ----- ------
(Loss) income before taxes (17,832) 9,022 -- (26,854)
Income tax benefit (provision) 7,853 -- (1,750)(g) 6,103
----- ---- ------ -----
(Loss) income from continuing
operations $(9,979) $9,022 $(1,750) $(20,751)
======= ====== ======= ========
Please see Notes to the unaudited Pro Forma Consolidated Statement of
Operations and Consolidated Balance Sheet.
TELOS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 2002
(Unaudited)
(amounts in thousands)
ASSETS
Pro Forma
Historical ------------------------------------
Balances TCC Adjustments Balances
-------- --- ----------- --------
Current assets
Cash and cash equivalents $ 109 $ -- $ 2,037(a) $ 2,146
Accounts receivable, net 24,571 28,419(b) 23,816(b) 19,968
Inventories, net 4,001 -- -- 4,001
Deferred income taxes, current 3,307 578(b) --(g) 2,729
Other current assets 106 11(b) -- 95
------ ------ ------ -----
Total current assets 32,094 29,008 25,853 28,939
Property and equipment, net 10,834 51(b) -- 10,783
Goodwill, net 2,499 2,499(b) -- --
Deferred income taxes, long term 6,216 425(b) --(g) 5,791
Other assets 549 6(b) -- 543
--- ------ ------ ------
$52,192 $31,989 $ 25,853 $46,056
======= ======= ========= =======
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current liabilities
Accounts payable $ 11,834 $3,097(b) $ -- $ 8,737
Other current liabilities 1,293 1(b) --(g) 1,292
Unearned revenue 8,402 20(b) -- 8,382
Senior credit facility 13,278 -- (13,278)(a) --
Senior subordinated notes 8,179 -- -- 8,179
Accrued compensation
and benefits 7,615 1,838(b) -- 5,777
----- ----- ------- -----
Total current liabilities 50,601 4,956 (13,278) 32,367
Capital lease obligations 10,509 10(b) -- 10,499
------ ----- ------ ------
Total liabilities 61,110 4,966 (13,278) 42,866
Redeemable preferred stock
Senior redeemable preferred
stock 7,113 -- -- 7,113
Redeemable preferred stock 50,709 -- -- 50,709
------ ----- ----- ------
Total preferred stock 57,822 -- -- 57,822
Stockholders' investment
Common stock 78 -- -- 78
Capital in excess of par -- -- -- --
Retained deficit (66,818) 27,023(b) 39,131(c) (54,710)
(g)
------- ------ ------ -------
Total stockholders' investment (66,740) 27,023 39,131 (54,632)
------- ------ ----- -------
$ 52,192 $31,989 $ 25,853 $46,056
======== ======= ========= =======
Please see Notes to the unaudited Pro Forma Consolidated Statement of
Operations and Consolidated Balance Sheet.
Pro Forma Adjustments
The pro forma adjustments outlined below present adjustments related to the
transaction:
a) Reflects the net receipt of $15.3 million in cash less the pay down of the
Company's Senior Revolving Credit Facility in the amount of $13.3 million.
The Company's Facility agreement requires that all proceeds from the sale
of a subsidiary be used to pay down the Facility balance.
b) Reflects the elimination of the June 30, 2002 TCC accounts from the
Company's balance sheet, as well as the elimination of the TCC intercompany
balances. Included in the TCC accounts was goodwill of $2.5 million
associated with the acquisition of TCC in 1992.
c) In connection with the sale of TCC, the Company expects to record an
immediate gain on the transaction in the amount of $12.0 million. This gain
is based on a $20 million purchase price, less net assets of approximately
$5.9 million, taxes to be paid of $0.1 million, and the escrow holdback of
$2.0 million. This gain will be increased in the future should any of the
escrow holdback be deemed collectible.
d) Reflects the adjustment to the Statements of Operations for the six month
period ended June 30, 2002 and the three years ended December 31, 2001 to
separate the operations of TCC from the respective periods.
e) Reflects the general and administrative expense ("S,G & A")allocation to
TCC. S,G & A has been allocated based on a three-factor formula which
includes TCC's ratio of payroll dollars, operating revenues, and net book
value of its tangible capital assets plus inventories to the Company's
consolidated payroll dollars, operating revenues and tangible capital
assets plus inventories.
f) Reflects the interest allocation to TCC. Interest has been allocated based
on the net assets of the discontinued operation in relation to the
Company's consolidated net assets plus non-specific debt.
g) Reflects the changes to the income tax provision and corresponding deferred
tax assets and liabilities in order to present a stand-alone income tax
provision for the Company in accordance with SFAS 109 for the six months
ended June 30, 2002 and for the three years ended December 31, 2001.
h) Reflects the revenue from a contract previously reported in the TCC
statement of Operations. This contract has subsequently been moved to the
parent Company, and is not included in the sale of TCC.