Titan Corp. said yesterday that it will cost far more than it had originally expected to settle federal bribery investigations and that it will sell one of the business units targeted in those inquiries.
The San Diego-based government contractor also warned that the investigations by the Justice Department and Securities and Exchange Commission and the related breakdown of its planned acquisition by defense giant Lockheed Martin Corp. will contribute to a net loss of $62 million (74 cents a share) to $78 million (93 cents) for the second quarter, which ended last month.
The Justice Department is investigating whether Titan consultants violated the Foreign Corrupt Practices Act by bribing foreign officials, and the SEC has indicated it will pursue civil penalties against the firm. Bethesda-based Lockheed abandoned its $2.2 billion agreement to acquire Titan, which employs about 2,500 people in the Washington area, after the firm failed to meet a June deadline to resolve the investigations.
Legal costs associated with the failed acquisition and federal investigations will contribute $8 million to $9 million to the quarterly loss, company officials said. The quarter will also include a $24 million to $28 million charge to sell two business units -- Datron World Communications, which markets police radios overseas, and Titan Scan Technologies, which makes equipment to sterilize medical devices. Datron is one of the three business units targeted by the Justice Department's bribery investigation.
Titan said both units are being sold because they are not central to the company's operations. The company did not disclose the units' revenues.
Also targeted in the investigations is Titan Secure Systems, which has operations in Saudi Arabia, and the now-defunct Titan Wireless, which operated in the African country of Benin.
Despite the controversy, Titan said it expects to report operating profit of $33 million to $35 million during the quarter and $510 million to $515 million in revenue. During the second quarter of 2003, Titan reported revenue of $438 million, operating profit of $28.8 million and net income of $5.8 million.
"The merger-related distractions and uncertainties of the last nine months are behind us," Gene W. Ray, chairman and chief executive, said in a statement. "We will continue to work diligently to resolve the outstanding issues that face Titan. However, we believe that the heart of the Titan story is a well-positioned national security solutions provider with good growth prospects."
The company said it will set aside $26 million to $32 million to resolve the SEC and Justice Department inquiries -- compared with the $3 million the company originally reserved.
Titan will report an additional $20 million to $25 million charge largely related to the loss of a contract with an unnamed U.S. agency and to scaling back operations in Saudi Arabia, where Titan has struggled on a program to develop a national identification card. The Saudi Arabia contract has faced technical problems as well as logistical delays associated with security concerns in the country, company officials said.
Titan stock gained 28 cents, to $12.02, on the New York Stock Exchange yesterday. Lockheed Martin, even after lowering its original price, had agreed to pay $20 per share for Titan.
Also yesterday, Titan said it named board member Peter A. Cohen, former chief executive officer of Wall Street brokerage Shearson Lehman Brothers Inc., as its lead director.