The Titan Corporation Business Information, Profile, and History

Company Perspectives:

The Titan Corporation creates, builds and launches technology-based businesses and offers innovative global technology solutions. Three of Titan's four core businesses develop and deploy communications and information technology solutions and services. In addition, Titan markets the leading technology for the electronic pasteurization of food products and is continually identifying promising technologies suitable for commercialization.

History of The Titan Corporation

Historically, The Titan Corporation was a defense department contractor involved in areas such as wireless communications, navigational systems, information systems, and other high-technology projects. Following a reduction in defense spending in the early 1990s, Titan redefined itself by seeking commercial applications for new technologies it had developed. At the end of the decade its most highly publicized venture was its SureBeam electron beam technology for the irradiation of ground beef, which went online in 2000 following approval by the Food and Drug Administration (FDA) and the U.S. Department of Agriculture. In 1999 the company's stock rose 760 percent and was named the top performer on the New York Stock Exchange.

As of mid-2000 Titan had four core businesses: Titan Systems Corp., Cayenta, Titan Wireless, and SureBeam. It also had an Emerging Technologies group that developed commercial applications for new technologies. The company planned to develop new start-up companies based around these technologies and spin off minority interests in them as a way of raising capital. Titan also continued to be an active defense contractor as well. Its subsidiary Titan Systems itself had some 16 business subsidiaries involved in such fields as communication services, information systems, signal and imaging systems, electronic systems, and more.

Primarily a Defense Contractor: 1980s

Dr. Gene W. Ray cofounded Titan Systems Inc. in 1981 as a defense contractor. Prior to 1981 Ray worked for defense contractor Science Applications International Corp., where he was a member of the board of directors and held managerial positions, including executive vice-president and general manager of the systems group.

In 1985 La Jolla, California-based Titan Systems acquired Electronic Memories & Magnetics Corp., a maker of military microcomputers and memory systems, for about $26 million. At the time, Titan was operating as a systems engineering contractor for defense programs and had revenue of $24.3 million for fiscal 1984. Titan's president and CEO, Gene W. Ray, became head of the combined operation, renamed The Titan Corporation.

In 1987 Titan's revenue was $92.8 million and net income was $1.5 million. The company's stock was listed on the New York Stock Exchange. Titan specialized in providing high-technology solutions to the U.S. government and international customers in systems development and integration. Its technical specialties included electro-optics, pulsed power sciences and applied mechanics and computational fluid dynamics, systems software development, space and surveillance systems, and advanced defense systems.

Titan was organized into three business groups: Titan Technologies, Titan Systems, and Titan Electronics. Titan Technologies included electro-optics, pulsed power, computational fluid dynamics, and applied mechanics. Titan Systems designed, developed, deployed, and tested highly advanced communications, aerospace, and weapons systems for defense. Titan Electronics provided militarized computers, electronic subsystems, and meteor-burst communications equipment.

For 1988 Titan reported a loss of $11.2 million on revenue of $96.7 million. Losses were attributed to one-time charges from internal restructuring and changes in the industry. At year-end Titan divested a number of its operations in an attempt to remain competitive in a cost-conscious defense market. In January 1989 it sold off its advanced materials division, which manufactured ferrite powders and related products, to Nippon Iron Powder Co., a subsidiary of Mitsui Mining & Smelting Co. It also sold its 87 percent interest in Computing Applications Software Technology Inc. Its simulator trainer line of business, Severe Environment Systems Co., was discontinued in October 1988. After selling 80 percent of its interest in its Canadian operations in 1987, it sold the remaining 20 percent in 1988. The company was also pursuing new commercial opportunities in radiation processing and explosive detection.

For 1989 Titan reported a profit of $2.3 million on slightly higher revenue of $97.7 million. During the year the company restructured, selling all of the outstanding stock in its subsidiary, Meteor Communications Corp., to MCC's former owners and employees.

Diversifying into Commercial Markets: 1990s

In 1990 Titan acquired Government Systems Inc., formerly Linkabit, a division of Boston-based M/A-Com Inc. Government Systems, which was located in San Diego and had about 500 employees, supplied surveillance products for use in intelligence collection.

For 1991 Titan reported a growing business in education and training products. Its revenue increased 18 percent to $146.5 million, while net income rose 49 percent to $3.4 million. The acquisition of Linkabit contributed to the increase in revenue, as did growth in the commercial and international areas of all of Titan's business segments. Revenue from the electronics segment decreased.

Shrinking defense budgets were causing the company to diversify into other areas, and about 30 percent of revenue came from non-defense sales. More than 60 percent of the firm's 1991 revenue came from the sale of high-tech software and hardware products. It was producing more satellite communications products for both defense and commercial applications. In June 1991 Titan announced a joint venture with Motorola to produce a portable satellite terminal. Titan was also producing the next generation of satellite terminals for the U.S. Navy. The company was also developing laser communication technology, and during 1991 it had a full-scale demonstration of simultaneous, two-way laser communication between an aircraft and a submerged submarine. Titan had about 1,500 employees in 1991.

By 1992 it was clear that U.S. defense spending would be cut drastically in the coming years. That was motivating defense contractors to convert their technology into commercial applications. Three areas that Titan was working on were a satellite scrambling system for satellite TV, medical instrument sterilization, and a pay-per-use retrieval system using CD-ROM data-storage disks.

In 1992 Titan acquired the Satcom product line from Gamma Microwave Inc. of Santa Clara, California. Gamma Satcom, which would be renamed Titan Gamma Satcom, produced commercial radios for high data rate earth stations and sold them to satellite equipment manufacturers in the United States as well as to other U.S. and international users. The acquisition was part of Titan's overall strategy to expand into commercial markets.

Titan Satellite Systems Corp. was formed in mid-1992 as a joint venture of The Titan Corp. and Houston Satellite Systems, a Denver-based home satellite equipment manufacturer that was owned in part by EchoSphere, the largest U.S. home satellite distributor. The venture was formed to enter the satellite television descrambler business. Titan and competitor General Instrument Corporation jointly owned patents on a satellite descrambler system. Titan had acquired the technology from M/A-Com Inc. in 1990, but M/A-Com had already sold the commercial application of the scrambling system to General Instrument and signed a five-year non-compete agreement. The venture involving Titan and Houston Satellite Systems was formed after the non-compete agreement expired in 1992. GI's system was called VideoCipher, while Titan's would be marketed as the Link-A-Bit system. However, by March 1993 Titan Satellite Systems had shut down operations after major providers of satellite programming decided against using the system for technical reasons. Titan also reported that programmers were not interested in developing the necessary encryption for the system. Later in the year Titan Corp. provided the technology for International Cargo Management Systems to introduce a cargo tracking device that utilized a network of U.S. Department of Defense satellites.

In September 1992 Titan broke ground in Denver on a 28,000-plus square-foot facility for medical products sterilization. The facility would use electron beams to kill bacteria on medical devices. The Titan division was called Titan Scan, and a second facility was planned for San Diego.

For 1992 Titan's revenue increased slightly to $149 million, while net income rose to $3.6 million. During the year Titan experienced an $11 million reduction in revenue from the U.S. Department of Defense, although defense revenue accounted for about 70 percent of overall sales in 1992. During the year Titan invested heavily in commercial business areas. Earnings were negatively affected by losses in new commercial software and satellite communication businesses as well as by investments in research and development and start-up costs for Titan Satellite Systems Corp. and Titan Scan.

For 1993 revenue remained relatively flat, increasing slightly to $149.4 million. However, the company reported a net loss of $7.9 million. During the year it received $10 million from the U.S. Navy after a defense contract dispute was resolved. Commercial applications under development included satellite communications, broadcast systems, medical and food sterilization, and environmental systems and solutions. During the year Titan sold off its Applications Group for about $19 million.

Titan was focused on two areas, information systems and applied technologies. In information systems Titan developed software, manufactured secure satellite television communications, defense communications, and government information systems. Applied technologies included the manufacture of medical sterilization systems and utilizing technology in other niche markets.

For 1994 Titan reported lower revenue of $136.2 million, due largely to the earlier sale of the firm's Applications Group. During the year government revenue remained fairly constant, with commercial revenue accounting for 32 percent of sales. The company returned to profitability with net income of $5.95 million.

Enjoying Record Growth: 1998--2000

The year 1998 was one of record growth for Titan. Revenue rose 75 percent to $303 million, and the company's workforce increased from 1,400 at the end of 1997 to 2,500 at the end of 1998. During the year Titan acquired six companies: VisiCom Laboratories, Inc., of San Diego; Transnational Partners II, LLC of San Diego; Horizons Technology, Inc. of San Diego; Validity Corp. of San Diego; Delfin Systems of Santa Clara; and Florida-based DBA Systems, Inc. Through its subsidiary, Titan Software Systems, Titan and Cap Gemini America LLC were awarded a contract from the state of Wyoming to provide Y2K services for the state's computer systems.

In February 1999 the U.S. Department of Agriculture (USDA) approved the irradiation of red meat as a way to eliminate food-borne illnesses, with final regulations due at the end of the year. The FDA had approved the process for red meat in 1998. Titan announced it would build the first electronic pasteurization system specifically designed to pasteurize ground beef in Sioux City, Iowa. The system, patented by Titan under the name SureBeam and utilizing electron beam technology, would eliminate such bacteria as E. coli, Listeria monocytogenes, salmonella, and campylobacter. The SureBeam system utilized electricity and did not use gamma radiation or radioactive isotopes. It was the same technology that Titan had been using since 1992 to sterilize medical instruments. A number of large ground beef producers had signed up to use the system.

Titan would later provide a similar system utilizing X-rays to Hawaii Pride LLC in Hilo, Hawaii, to address the state's fruit fly problem regarding local fruit and flower products.

The USDA's final regulations governing irradiation were issued in December 1999 and included labeling requirements. Following a 60-day waiting period, Titan's Sioux City facility began operating. Titan had multi-year contracts with food producers Cargill Inc., IBP Inc., and Tyson Foods, Inc., among others. Kraft Foods, Inc. signed an agreement with Titan to research the process in early 2000. By March 2000 it was estimated that 75 percent of the U.S. ground beef industry and nearly 50 percent of the poultry processors had signed agreements with Titan to use the SureBeam technology. The first food products to be treated with the SureBeam electron pasteurization technology were rolled out in May 2000. Later in 2000 Titan registered an initial public offering to spin off 16 percent of SureBeam Corp.'s stock to the public.

For the year 1999, Titan's stock increased 760 percent and was noted as the best performer on the New York Stock Exchange. Titan was one of the first companies to set up an in-house incubator to create start-up companies for the commercialization of new technologies. Titan developed two such start-ups in 1999: Wave Systems, which provided specialized electronic product distribution and metering systems for Internet access devices, and IPivot, which was sold to Intel for $500 million. Titan's eight percent ownership in IPivot netted it $41 million in cash. Overall revenue for 1999 was about $407 million, and net income rose to $21 million.

At the end of 1999 Titan filed for a proposed public offering of stock in its business-to-business e-commerce subsidiary, Cayenta. During 1999 Cayenta evolved from a commercial software integration business to a services provider offering a full line of Internet-based management systems. Titan planned to spin off 20 percent of Cayenta.

At the beginning of 2000 Titan acquired Advanced Communications Systems, which was founded in 1987. ACS was primarily a government contractor supplying communications, information systems, and aerospace services to U.S. government agencies. It was a major provider of satellite communications to the U.S. Navy.

Titan Wireless was seen as another strong growth area for the company. It had been providing wireless services for defense for 20 years; now it was building a global wireless communications service business. Titan's wireless segment tripled during 1999, accounting for $27 million in revenue. Using its satellite communications technology, Titan reached an agreement with companies in 16 countries to provide long-distance telephone service. Service in ten of those countries was up and running by mid-2000. It appeared that Titan would also become an Internet service provider in developing nations.

While Titan's commercial businesses seemed to be firing on all cylinders, the company continued to have a very active defense business. In early 2000 it obtained a $29 million contract from the U.S. Navy's Space and Naval Warfare Systems Center.

Titan continued with its acquisitions in 2000. Among the companies it acquired were AverStar, Inc., a private company headquartered in Burlington, Massachusetts, that supplied information systems and products. On the horizon were plans for more spinoffs from the company's Emerging Technologies group. Among the areas it was involved in were fingerprint and card scanning systems; motion-tracking technology to create three-dimensional views of trajectory speed and movement of objects; Internet transaction metering systems; and wireless broadband multimedia modem technology and wireless LAN technology.

Principal Subsidiaries: Titan Systems Corporation; Cayenta, Inc.; Titan Wireless, Inc.; SureBeam Corporation; Advanced Communications Systems; Atlantic Aerospace Electronics Corporation; AverStar, Inc.; Intermetrics, Inc.; Pacer Infotec, Inc.; Computer Based Systems, Inc.; MJR Associates, Inc.; DBA Systems, Inc.; Delfin Systems; Eldyne, Inc.; Horizons Technology, Inc.; LinCom Corporation; Titan Linkabit; Pulse Engineering, Inc.; SenCom Corporation; System Resources Corporation; Unidyne Corporation; Validity Division; VisiCom Laboratories, Inc.

Principal Competitors: Booz-Allen & Hamilton Inc.; Computer Sciences Corporation; SAIC (Science Applications International Corporation); Sapient Corporation; Flow International Corporation; Steris Corporation.

Chronology

• Key Dates:

• 1981: Dr. Gene W. Ray cofounds Titan Systems Inc., a defense contractor.
• 1985: Titan Systems acquires Electronic Memories & Magnetics and is renamed The Titan Corporation, with Dr. Ray as CEO and president.
• 1987: Titan goes public.
• 1988: Titan divests some businesses and begins to diversify as defense spending is cut.
• 1992: Titan begins building a facility in Denver for medical products sterilization.
• 1999: Titan builds the first electronic pasteurization system for ground beef in Sioux City, Iowa; during the year Titan's stock price increases 760 percent and is named the top performer on the New York Stock Exchange.