Item 1. Business.
General
Tracor, Inc. provides sophisticated electronic and information technology products, systems and services for the Department of Defense ("DOD"), other U.S. government agencies, foreign governments and commercial customers. The Company's business units operate in the U.S. and foreign defense electronics, information technology and systems engineering and integration markets.. The Company's products and services and largely support high-priority DOD weapons, platforms and systems enable defense customers to enhance the operational performance and readiness of existing systems and platforms, as well as extend their useful lives and survivability. As a result, the Company believes it is well positioned to benefit from fundamental changes in national defense strategy precipitated by the end of the Cold War. Since August 1993, the Company has made three substantial acquisitions as part of its strategy to take advantage of a consolidating defense industry. With the Company's recent acquisition of Cordant, Inc., Tracor has achieved a major presence, and substantially increased its revenues, in the information technology market serving a broad range of new DOD and other government customers. Largely as a result of such acquisitions, Tracor's revenues and operating income have increased from $261.8 million and $11.1 million, respectively, in 1992 to $1,082.5 million and $92.6 million, respectively, in 1996. Industry Overview
Beginning in the mid-1980s, the U.S. defense industry in general was negatively impacted by the perceived reduction of threats from the former Soviet Union and eastern European countries and, more recently, by competing demands upon the federal budget. This has resulted in a U.S. defense budget that has declined in real dollars, adjusted for inflation, since the mid-1980s. For many defense contractors, the defense budget decrease and the related DOD procurement strategies have resulted in program cancellations, scope reductions, delays in contract funding or awards and significant predatory pricing pressures associated with increased competition and reduced funding. The defense budget has begun to stabilize and, for the first time in many years, has increased in 1996, adjusted for inflation.
The U.S. defense budget may generally be divided into four major areas: military personnel, operations and maintenance, procurement, and research and development. A major portion of the Company's activities are funded by the operations and maintenance segment, relating primarily to systems, products and services which support the readiness, improved performance and increased life expectancy of existing platforms, weapons systems and military forces. Despite the sharp overall decline in the defense budget, the operations and maintenance segment has declined less sharply, as existing weapons platforms are upgraded and maintained to provide a cost-effective means of supporting a smaller military force. As a result, the operations and maintenance segment has become the largest segment of the DOD budget. Management estimates the current DOD operations and maintenance market to be approximately $90 billion per year, or more than one-third of the U.S. defense budget. Defense procurement relates primarily to the development, production and acquisition of weapons platforms such as aircraft, land vehicles and naval vessels. Until the last few years, the procurement budget was the largest segment of the DOD budget. Over the past decade, the declining U.S. defense budget has resulted in a significant decrease in the military procurement budget as new generation weapons platforms have been canceled or delayed. DOD budget priorities over the next several years are likely to emphasize the readiness (operations and maintenance) of a smaller force structure and the need to extend the lives of existing weapons platforms by incrementally upgrading their capabilities, while the procurement portion is expected to experience a modest increase. Management believes Tracor is also well positioned to benefit from this procurement upturn.
Declining defense budgets and increasing pressures for cost reductions have precipitated a major consolidation in the defense industry. The Company believes large diversified companies are likely to continue to make the decision to divest non-strategic defense assets, as noncompetitive cost structures and lack of critical mass and long-term commitment to the industry put such diversified companies at a relative competitive disadvantage. In addition, smaller, independent businesses may find it more difficult to compete effectively in the changing defense environment and may become available for acquisition. The Company believes this industry condition will continue for the next several years and that businesses and product lines will become available for acquisition on acceptable financial terms.
Company Strategy
The Company's strategy in the evolving defense market consists of three key elements: (i) protect and strengthen core businesses; (ii) expand and diversify into new markets complementary to current operations; and (iii) make strategic acquisitions of well-positioned companies which complement the existing business strategy. Key elements in support of this strategy are continued high-quality performance and continued improvements in efficiency to remain highly competitive.
Protect and Strengthen Core Businesses. The Company's strategy for protecting and strengthening its core businesses is comprised of a number of the following key elements:
Support high-priority programs. The foundations for Tracor's core businesses are high-priority, long-term, stable programs in which Tracor has performed for many years. Many of Tracor's systems, products and services support key weapons platforms and systems which are expected to continue their important roles in the U.S. defense strategy. These platforms include the AEGIS cruisers and destroyers, the Trident submarines, the Tomahawk missile and key aircraft including the, F/A-18, C-17, C-130, B-1, B-2 and most helicopters. In addition, Tracor has been a long-term incumbent contractor in producing a large percentage of the nation's full scale target drones, in producing a variety of range instrumentation systems for more than 20 years, in supplying high-quality image exploitation and mission planning systems and in providing important information systems expertise to a number of customers including national intelligence agencies.
Tracor's strategy is to continue its excellent performance record in its core business areas by supplying high-quality products, systems and services at competitive prices. Because of the Company's long-term established presence, experience and knowledge, quality performance and cost competitiveness, management believes the Company is well positioned to continue to support these stable, high-priority DOD programs.
Maintain the readiness of existing forces. The Company will continue to compete for contracts to provide products, systems and services which are suited to supporting the readiness of the military force, a major thrust of the DOD's current defense strategy. A substantial portion of the Company's operations are focused on extending the useful lives of existing weapons systems through upgrades and modifications rather than the procurement of costly new systems and providing a wide range of capabilities which enhance the combat effectiveness and readiness of military personnel and equipment.
Enhance survivability of weapons platforms and crews. The Company's electronic warfare systems enhance the survivability of weapons platforms and related personnel at a relatively low cost. Management expects demand for these products to remain strong as customers seek effective, cost-efficient means for protecting crews and high-value assets.
Expand and Diversify Into New Markets. The Company is experiencing success in transferring its core technologies and competencies to new customers and markets. The expansion of the Company's core businesses and its diversification to new businesses generally require several years of planning, development and marketing. The Company's diversification and expansion efforts have focused on the following areas:
Nondefense U.S. Government. The Company has established an important presence in the U.S. government nondefense market, which was further enhanced with the acquisition of Cordant in September 1996. Its information systems specialists are providing advanced information systems capabilities to an expanding set of U.S. intelligence customers, as well as to the U.S. Postal Service and the Department of Justice. In 1993 and 1995, the Company was awarded contracts from the Federal Aviation Administration (the "FAA") to perform system engineering and integration for its new radar systems. The Company has also received contracts from NASA.
International. The Company sells a wide range of products and services to numerous friendly foreign governments. Products sold internationally include countermeasures systems and expendables, radar and electronic tracking systems, target drones, imagery systems and automatic test equipment for aircraft acquired by foreign governments. In addition, Tracor's aircraft avionics test equipment business was expanded in 1995 with the winning of a contract to provide test equipment for the new Japanese fighter. International business accounted for 10% of total 1996 revenues.
New DOD Business. Tracor is constantly evaluating its technology to identify areas of potential new business within the DOD. Recent contract awards include a program in support of the U.S. Army's battlefield digitization initiatives, a new flare development program and a program to develop a minefield breaching system. Tracor also won a key contract to upgrade an important National Imagery and Mapping Agency system and a contract from the Naval Air Warfare Center to provide design engineering and software services for a variety of defense systems. The Company expanded its radio communication systems business by winning the first competition for Nimitz class aircraft carrier radio communication systems.
Commercial. The Company has developed a number of commercial applications of its technology in areas as diverse as automotive laser detectors, artificial heart valve testing, digital photogrammetry, direct broadcast television antenna materials and test systems for developing commercial satellite communications systems. In addition, the Company has several contracts for applying a range of sophisticated information systems capabilities to commercial and state government customers, plus new contracts relating to major upgrades, modifications and manufacture of structures for commercial aircraft, including electronics installation and systems integration.
Acquire Complementary Businesses. The Company's acquisition strategy is a key component of its overall business strategy. Tracor management believes the continuing consolidation within the defense industry will result in additional opportunities for the Company to make attractive acquisitions.
Vitro Acquisition. On August 25, 1993, Tracor purchased all of the outstanding common stock of Vitro Corporation and its subsidiaries ("Vitro"), a provider of high-technology systems engineering and integration, software engineering, and various other services, from The Penn Central Corporation for approximately $92 million. Tracor financed the Vitro Acquisition and refinanced existing indebtedness through the issuance of $105 million of Senior Subordinated Notes and a new $78 million credit facility. As a result of the Vitro Acquisition, the Company is one of the major providers of systems and software engineering support to the Navy and is one of the few companies capable of providing the U.S. Navy with the expertise necessary for its most technologically advanced communications and guided missile systems, including those for the AEGIS cruisers and destroyers and the submarine ballistic missile programs. The acquisition of Vitro also strengthened Tracor's position with key nondefense U.S. government customers such as national intelligence organizations and the FAA.
GDE Acquisition. On November 17, 1994, Tracor purchased all of the outstanding common stock of GDE Holdings, Inc. and its subsidiaries ("GDE"), which has a major presence in the application of advanced digital imagery technology to key DOD and intelligence systems and programs, from its shareholders for approximately $102 million, including the effect of a post-closing amendment to the acquisition that was finalized in March 1995. Tracor financed the GDE Acquisition by borrowing $55 million in additional term loans under its amended credit agreement, issuing approximately $10.9 million of Series A Notes, issuing 1,928,050 shares of Common Stock and using approximately $19.9 million of the Company's cash on hand. As a result of the GDE Acquisition, the Company has strengthened its position as a provider of products and services to both the DOD and non-DOD intelligence communities. GDE produces advanced digital technology products for imagery information systems, mission planning and automatic ground test equipment.
AEL Acquisition. On February 22, 1996, Tracor purchased all of the outstanding common stock of AEL Industries, Inc. ("AEL") (now named "Tracor Aerospace Electronic Systems, Inc."), which designs and manufactures sophisticated countermeasures, simulation and radar-warning receiver systems, installs and integrates electronic avionics equipment in military and commercial aircraft and provides state-of-the-art antenna, microwave and integrated circuit components. The consideration paid to AEL shareholders for the common stock was approximately $103 million in cash. AEL's long-term indebtedness prior to the acquisition totaled approximately $20 million, of which approximately $10 million was retired and approximately $10 million was assumed by Tracor. Since the acquisition, Tracor has sold several excess AEL facilities and two non-core business lines for $14 million and another facility is currently for sale. The financing of the transaction and related expenses was obtained through an increase of the Company's existing bank term credit facility and from cash on hand.
Cordant Acquisition. On September 26, 1996, Tracor purchased all of the outstanding common stock of Cordant Holdings, Inc. and its subsidiaries ("Cordant"), an employee-owned information systems company. Cordant focuses on the design, development and integration of information systems for a variety of applications, including mail processing, records management and CAD/GIS ("computer aided design/geographic information systems"). The purchase price of $65.7 million is subject to a contingent payment of up to an additional $10 million based upon the potential award of a large contract. The acquisition was financed by the use of $34.2 million of cash on hand and the issuance of two promissory notes totaling $31.5 million supported by cash collateralized irrevocable standby letters of credit. The promissory note in the principal amount of $26.5 million requires a payment of approximately $1.8 million on April 1, 1997, and an additional payment of $3.5 million on April 1, 1997, if the contingent payment discussed above does not occur. The balance of this note is payable upon the resolution of a former Cordant minority shareholders' lawsuit. The $5 million promissory note for the balance of the purchase price is subject to adjustments for indemnification claims and is payable on March 26, 1998.
Cost Reductions. Historically, Tracor has identified substantial cost savings following the integration of acquired businesses. Since the acquisitions of Vitro, GDE and AEL, significant cost savings have been realized resulting from the consolidation of facilities, staff reductions, process improvements and elimination of other duplicative costs. Although a substantial portion of these annualized cost reductions are shared with customers in the form of reduced rates on cost-reimbursement contracts, management believes the Company's cost competitiveness has been enhanced. The Company has also identified additional savings in connection with the Cordant Acquisition.
Core Businesses
The Company's core businesses are primarily in the U.S. and foreign defense electronics, information technology and systems engineering and integration markets and largely support high-priority DOD weapons, platforms and systems. A major portion of Tracor's DOD business is funded by the operations and maintenance segment of the defense budget which supports the operational readiness, effectiveness and the survivability, upgrading and long-term viability of DOD defense systems. The many agencies of the U.S. Navy are Tracor's primary customers within the operations and maintenance segment of the budget. The major electronic products, systems and services comprising the Company's core businesses are described below and the approximate pro forma revenue and percentage of total pro forma revenue for 1996 and the approximate historical revenue and percentage of total revenue for 1996, 1995, 1994 and 1993 represented by each are as follows:
(1) Assumes acquisitions of AEL and Cordant as of January 1, 1996. (2) Reflects approximately 10 months of AEL revenue in 1996. (3) Reflects approximately 3 months of Cordant revenue in 1996. (4) Reflects approximately 6 weeks of GDE revenue in 1994. (5) Reflects approximately 4 months of Vitro revenue in 1993.
Weapons and Combat Systems Integration and Support. The Company provides systems engineering and integration, software engineering and management and technical capabilities for the operation, testing, maintenance, upgrade, protection and extension of the lives of high-priority weapons and combat systems including:
Submarine Ballistic Missile Weapon Systems. The Company has been the systems integration contractor for submarine ballistic missile programs since the mid-1950s. Tracor's role includes systems engineering, testing, data analysis and logistics for the Polaris, Poseidon and TRIDENT weapon systems. As the weapon systems integration contractor for the United States and United Kingdom TRIDENT II system, Tracor ensures the major subsystems, including missile, launcher, navigation and fire control, are fully integrated and tested to perform as specified.
U.S. Navy Surface Combatant and Ship Systems. Tracor is the systems engineering and integration contractor for shipboard anti-air warfare guided missile systems such as the Terrier New Threat Upgrade, Tartar, AEGIS, NATO SeaSparrow and Tomahawk. The Company has performed systems engineering for every guided missile system installed on U.S. Navy ships since World War II. The Company develops software for track control of the Tomahawk missile and performs combat systems integration for the Tartar system. Tracor also operates a remotely controlled quarter-scale submarine used to test and evaluate various submarine component designs. In addition, the Company provides systems engineering and integration services for ship systems on board AEGIS destroyers such as propulsion power plants and electrical power generation plants.
Anti-Submarine Warfare Systems. The Company has provided engineering, software and testing capabilities for the U.S. Navy's anti-submarine warfare ("ASW") systems since 1948. Complex systems engineering and integration are provided for development, operation, quality control and life cycle maintenance of the newest ASW systems. The Company performs software engineering and systems integration for surface ship sonars; tests ASW weapons and combat systems; develops acoustic signal processing software and test instrumentation and conducts research and development in ASW sonar systems and related oceanography. The Company also provides project management, engineering and system assessment and evaluation for both the U.S. Navy's lightweight and heavyweight torpedo programs.
U.S. Navy Aircraft. Tracor's systems engineering expertise is being applied to a program with a new U.S. Navy customer for support of the U.S. Navy's fighter and attack aircraft, helicopters, maritime patrol/reconnaissance planes and weapon avionics systems. In this area, the Company is developing software to support the common airborne instrumentation system, which is the DOD's standard test and evaluation data collection system. Tracor won a new design engineering and software contract in 1995, supporting the entire acquisition life cycle of various U.S. Navy avionics and electronic systems.
Electronic Warfare. Tracor designed, and is currently the only manufacturer of, the most advanced and widely used countermeasures dispenser systems in the United States and is a major supplier of expendables, which create false targets for hostile radar-guided and heat-seeking missiles to protect aircraft, land vehicles, naval vessels and personnel. The acquisition of AEL greatly expanded the Company's electronic warfare capabilities. Tracor's primary products in this market include:
Countermeasures Dispensers. The Company has a long history of developing and producing aircraft countermeasures dispenser systems. Tracor has developed and manufactured several generations of these systems during the past 30 years, including the newest system, the AN/ALE-47, which is an advanced, automatic and integrated dispenser system for use aboard U.S. Air Force, Navy and Army tactical and transport aircraft and helicopters, as well as aircraft of other governments. To date, Tracor has been the sole producer of the AN/ALE-47 system, and has submitted a bid to produce additional systems. The winner of this award, which is being openly bid, will be announced in April 1997. The Company's systems dispense chaff and flares as decoys against hostile missiles. These systems are also designed to dispense certain active radio-frequency decoys to counter advanced anti-aircraft threats.
Countermeasures Expendables. Tracor develops and manufactures chaff and flare decoys, which are ejected from countermeasures dispenser systems and provide protection for aircraft, ships and personnel when operating in a missile threat environment. In 1995, Tracor acquired the chaff manufacturing business of its only U.S. chaff-producing competitor, the Lundy Division of TransTechnology Corporation. The Company is the leading developer of infrared flares in the U.S. and won a program in 1995 to develop next-generation flare expendables which decoy infrared-seeking missiles incorporating the latest counter-countermeasures features.
Communications and Electronic Countermeasures. Through its recent acquisition of AEL, the Company continues its long and extensive experience in the development and fielding of electronic countermeasures systems. The TACJAM-A system provides the DOD with a common, modular, multiplatform communication electronic attack capability into the 21st century. AEL's transmitters are key components of the jamming capability on the U.S. Navy's EA-6B. Their reliability and effectiveness have been dramatically demonstrated in operational service. Recently, the Company won the competition to provide a new low band communications jammer.
Radar Warning Systems. Tracor's systems seek and identify radar systems across the spectrum of frequency and application. The Company's integrated front-end technology provides expanded frequency coverage, improved direction finding accuracy and dual polarization detection for Radar Warning Receivers and Electronic Warfare Support Measures systems, which detect, identify and locate hostile radar and communication transmitters.
Mine Neutralization and Detection Systems. The Company is developing an Explosive Standoff Minefield Breacher ("ESMB") system prototype for the U.S. Army and Marine Corps. The prototype features a Tracor-designed rocket-deployed net which expands to detonate and neutralize a large area of surface or buried mines, clearing the way for rapid, safe vehicle and personnel passage. To enhance the Company's capabilities in this business area, the Company acquired the shaped-charge munitions business unit of The Titan Corporation in 1995, which provides the explosive shaped-charges used in the ESMB system and in smaller systems for deactivating mines. Tracor is also under contract to develop hand-held and vehicular platform mounted mine detection systems which illuminate the ground with electromagnetic energy to measure field disturbances, determining mine presence and location. In addition, Tracor personnel have created products which work with standard ship navigation devices and use sonar to identify the presence of mines at sea.
Head-up Displays. The ANVIS Head-up Display provides a high-resolution, programmable display of critical flight data to the pilot through night vision goggles, allowing the pilot to concentrate on the outside environment while maintaining cognizance of the flight instruments. The system is being installed in the U.S. Army UH-60A/L Blackhawk and the CH-47D Chinook; the U.S. Marine Corps UH-1N Huey, CH-46E Sea Knight, KC-130T Hercules and the CH-53E Sea King; and the U.S. Navy HH-60H Seahawk. It is planned for installation in the UH-1H/V Huey, OH-58A/C Kiowa Warrior and the AH-1F Cobra.
Information Systems. An increasingly important component of the Company's focus is now on providing a wide range of information technology products, systems and services to the DOD, nondefense government agencies and the commercial market. This includes offering information systems solutions to customers, such as those in intelligence agencies, the U.S. Postal Service and the U.S. Department of Justice. The acquisition of Cordant in September 1996 increased Tracor's number of Indefinite Delivery, Indefinite Quantity ("IDIQ") information technology contracts. In these contracts, Tracor provides commercial off-the-shelf ("COTS") products, custom-tailored and designed to meet specific customer needs. Tracor can serve a number of government customers under each IDIQ contract for which it is providing services. Following the Cordant acquisition, Tracor formed Tracor Information Systems Company by grouping Cordant, Quality Systems, Inc. and the Software Center of Excellence. Tracor Information Systems Company business includes:
Intelligence Information Systems. An important component of the Company's acquisition strategy has been to build a strong presence in the intelligence information systems market. The acquisition of Vitro and its subsidiary Quality Systems, Inc., was a major penetration into the intelligence market, and the acquisition of GDE substantially expanded the Company's presence in a wide range of intelligence areas. Tracor now has a large employee base with special high-level security clearances, which are crucial for doing business in this sector. Since the early 1980s, Tracor has provided systems engineering, software engineering, systems management and training under numerous classified contracts with U.S. intelligence community customers. The Company uses state-of-the-art software engineering methods and has re-engineered specialized intelligence systems to provide customers with the tools required for on-demand, dynamic and highly reliable data access and analysis.
Systems Engineering and Design and Products. Cordant provides systems engineering, design and information technology products primarily to DOD and other government customers. The primary focus is to provide integrated systems solutions utilizing COTS products custom-tailored to a customer's needs.
Software Development. The Software Center of Excellence is a corporate resource for software development, engineering/re-engineering and production operations. The primary goal is to ensure that best practices are developed and uniformly applied. The Software Engineering Program ("SEP") provides technology to continuously enhance software engineering standards and practices, software development facilities, software tools and reusable application software, software engineering training and software metrics. The tools developed by SEP enable the Company to assess diverse user requirements and varied hardware platforms and customer software environments to provide modern re-engineered software systems capable of handling large volumes of dynamic data. Computer-Aided Software Engineering ("CASE") tools, which are central to the Company's high-productivity environment, are carefully integrated into this environment through SEP. This organization is one of only 60 companies which has achieved Software Engineering Institute's level 3 designation for the advanced level of capability to design software systems.
Weapons Testing Systems and Support. The DOD is committed to sustaining the readiness of weapons and adapting current weapons to counter future threats. Tracor manufactures products for testing and evaluating weapons systems and supports weapons testing operations to achieve these objectives. The Company's work in this area includes:
Drones. The Company has been a major producer of full scale target drones for the DOD for more than 25 years and is the sole provider of the current drone (the QF-4) for the U.S. Armed Forces. The Company designs, manufactures and modifies retired military aircraft into full scale drones for use as targets in weapons system testing and evaluation and personnel training. Tracor is also producing sub-scale target drones for the U.S. Army and Navy with options for additional targets through the year 2000. In late 1996, these Tracor-built targets were selected in an international competition to replace Australia's currently fielded aerial target. The Company also performs major upgrades and modifications for military and commercial aircraft.
Range Operations and Instrumentation. For more than 21 years, Tracor has been a worldwide supplier of precision tracking radars, optical tracking systems, radar-threat simulators and range instrumentation control systems. This diverse array of capabilities for weapons systems test ranges includes logistics support, on-site depot level maintenance, repair of components and engineering design and fabrication. For more than 40 years, the Company has performed operations and maintenance on high-technology equipment and has supplied logistics and engineering support for research and development programs for more than 146 radar systems at 28 test ranges.
Flight Testing and Training. Tracor performs a variety of flight testing using both military and civilian aircraft. The Company uses its tactical aircraft, equipped to launch guided and unguided weapons, to test and evaluate weapons systems and tows targets for U.S. and foreign tactical air forces to support air-to-air combat training. The Company's pilots also fly aircraft for training naval aviation navigators. Electronic Warfare Simulators. Tracor designs, develops and certifies a variety of airborne radar threat emitters, simulators and jammers, both pod and internally mounted. The Company also develops advanced signal threat generators for laboratory testing of the defensive avionics systems aboard a variety of U.S. military aircraft.
Imagery and Information Systems. In another major part of the Company's overall information technology business, the Company develops and integrates systems which extract and analyze information from various types of imagery. Tracor's expertise in the automation of information extraction satisfies the sophisticated image-processing requirements of both government and commercial customers worldwide. Applications for the Company's software, systems and products include digital mapping, charting and geodesy ("MC&G"), image-processing ground stations, interpretation and analysis centers, and other imagery information systems in which digital image processing is an essential technology. Currently, Tracor has an installed base of more than 760 MC&G workstations. In 1996, two Tracor subsidiaries became key participants on the recently awarded U.S. Air Force Electronic Systems Center Reconnaissance/Intelligence Ground Systems Products and Services program. This dual-award contract will build imaging ground stations to new common standards developed by the Defense Airborne Reconnaissance Office. Other new business activities include continued development of a front-end processing capability to allow efficient use of data from a wide variety of imaging sources; a new digital photo interpretation ground station system for a foreign customer; and a multi-source intelligence analysis software system for use by operational forces.
Communication Systems. Tracor provides radio communication engineering and technical services to the DOD and other government customers. The Company performs systems and design engineering, subsystem procurement, systems integration, testing and installation for these systems. It also provides logistics support, maintenance and technology upgrades for these high-priority systems to maintain their operational readiness throughout their service life. The Company's key systems include:
AEGIS Communication Systems. Tracor is the primary contractor of turnkey radio communication systems for the U.S. Navy's newest class of destroyers and cruisers which are equipped with AEGIS weapon systems. Tracor's cost-effective performance has contributed to its winning every recompetition for its AEGIS work over the past 22 years. The most recent award extends Tracor's participation in this high-priority program through 2001.
Aircraft Carrier Communication Systems. In 1996, Tracor's shipboard radio communications business was expanded by winning the first competitive contract to provide these systems for the Nimitz class aircraft carriers.
Special Forces Communication Systems. The Company has designed, produced, installed and maintained, for more than 14 years, communication systems used by U.S. Navy Special Warfare and Joint Special Operations Forces and various national agencies. Systems range in size from hand-held communication devices to full-scale communication suites for special-purpose boats, planes and vans.
Command and Control Systems. For more than 20 years, the Company has provided systems engineering and test and evaluation systems in connection with the modernization and upgrading of the U.S. Navy's command and control systems communication equipment and for the U.S. Navy's worldwide center for airborne ASW flight planning and post-mission analysis. In addition, Tracor provides software and systems engineering, signals intelligence and electronic warfare engineering, and technical communication support services for U.S. Army military command and control systems. In addition, Tracor is providing engineering development and technical support services to the U.S. Army Communications - Electronics Command Space and Terrestrial Communications Directorate.
U.S. Navy Air Traffic Control and Landing Systems. The Company has provided management, engineering and research and development for the U.S. Navy's automatic carrier landing systems and U.S. Marine air traffic control and landing systems for 24 years. These systems assist naval and marine aviators in achieving safe landings aboard carriers, shore stations and expeditionary fields. Tracor expanded its work in this area with the acquisition of Codar Technology's shelter integration business. Under contract with the U.S. Air Force, the Company is producing vehicle-mounted air traffic control towers, which provide a mobile, deployable, quick-response capability to areas that have little or no base airport facilities.
Identification Systems. For more than 23 years, the Company has provided hardware and software design engineering and technical support for shipboard and shore-based identification systems used by the U.S. Navy, Marines and Coast Guard.
Mission Planning Systems. The Company provides mission planning systems for the U.S. Navy, Air Force and Strategic Command as part of Tracor's broad range of information technology products and services. Products include specialized software used to plan and coordinate military aircraft and weapons, imagery systems in support of targeting, planning and rehearsing military operations, and government information systems. The Company provides imagery-based mission planning systems for stealth aircraft and cruise missiles, which are expected to continue to represent the U.S. Armed Forces' primary strike capability for the foreseeable future. Management believes these products and services will benefit from the DOD's increasing need for precision weapons and tactical intelligence in diverse areas of the world in order to efficiently utilize and coordinate its increasingly sophisticated and costly weapons systems. Tracor's Digital Imagery Workstation Suite ("DIWS"), is a critical part of the U.S. Navy's Tomahawk cruise missile planning program. In 1996, Tracor won a program for the continued development of the DIWS. This Consolidated Configuration program increases the COTS hardware and software content of the suite, which reduces the size of the hardware while improving the suite's performance. Further, in 1996, the Company continued to deploy these precision targeting systems with two additional suites going aboard U.S. Navy carriers and two suites delivered to support rapid deployment forces. These systems are expected to be installed on all Navy aircraft carriers and amphibious assault ships by the year 2000. The Company has also gained prominence in the emerging field of information warfare by developing the mission planning systems for the Global Hawk and DarkStar high altitude endurance unmanned aerial vehicles. Under development for the Defense Advanced Research Projects Agency and the Defense Airborne Reconnaissance Office, the Global Hawk will provide a high capacity reconnaissance and surveillance platform with an endurance of 42 hours and a total range of 14,000 miles.
Automatic Test Systems. The Company has designed and built automatic test systems ("ATS") for more than 30 years and is a major supplier of ATS to the U.S. Air Force. Principal ATS products include avionics test equipment for the U.S. and other air forces for the fighter, the C-17 and C-5B transports and the B-1B and B-2 bombers. The Company produces a new generation of downsized, mobile testers, supporting the program as well as munitions programs. The Company also provides diagnostic systems, test program sets and operations and logistics for ATS products. Deliveries of the Company's core test systems have recently declined due to reduced production of aircraft. However, the remains the primary U.S. Air Force tactical fighter, and the Company expects to continue to receive significant orders for program maintenance and upgrades as well as testers for international sales and established Air National Guard requirements. Expanding this product line and the Company's international presence, Tracor won two contracts in 1995 to supply avionics test equipment for the new Japanese fighter. Tracor's success in the development phase of the program led to additional contract awards in 1996 for technical assistance and software co-development with the Japanese. Tracor also produces avionics subsystems for the Atlas and Titan launch vehicles. In 1996, Lockheed Martin Astronautics authorized Tracor to proceed with the development and production of avionics for the next-generation Atlas launch vehicle with an award of more than $26 million. This long-term contract provides a continuing production base for work to be performed to the year 2003.
Expansion and Diversification
Tracor has increased its sales to both established and new customers. The Company has been successful in translating its technologies and products to other military customers, other governmental agencies, the foreign marketplace and select commercial customers. See "Core Businesses" and "Company Strategy." Tracor's other expansion and diversification initiatives are described below.
U.S. Army Programs. Over the past eight years, Tracor has expanded its systems, software and technical capabilities to various U.S. Army areas including the Global Command and Control System, signals intelligence/electronic warfare, Communications-Electronics Command and C4I support.
Camouflage, Concealment and Deception. In an extension of its countermeasures technology, Tracor has developed coatings and camouflage materials to conceal aircraft, vehicles, ground-based installations and ships from detection by radar, infrared scanners and other sensing systems.
Air Transportation Systems. The Company won a $66 million contract with the FAA in 1993 to provide systems, hardware and software engineering for the development, testing and operation of new air traffic control and surveillance systems across the U.S. This seven-year contract emphasizes Tracor's ability to transfer its radar engineering expertise to non-DOD governmental agencies. In 1995, Tracor won another FAA contract to provide test and evaluation engineering services for surveillance and weather radar systems.
NASA Programs. Since 1988 the Company has provided engineering for safety, reliability, maintainability and quality assurance for NASA's manned and unmanned space flights.
Public Information Systems. The Company has successfully translated certain of its defense related capabilities into business opportunities with new government and commercial customers. For example, signal processing expertise developed under U.S. Navy sonar programs and advanced database systems are the foundation for a statewide regulatory and compliance system, client/server based order fulfillment system for Hewlett-Packard, as well as for aircraft noise monitoring systems sold to 18 major U.S. airports.
Commercial. The Company has successfully applied its technologies to a number of commercial products and services and continues to seek new opportunities. Current commercial diversifications include:
Aircraft Structures. The Company performs major upgrades and modifications and manufactures structures for commercial aircraft, including electronics installation and systems integration. Under two new programs awarded in 1996 by McDonnell Douglas, Tracor will join the wing halves and manufacture the y-barrel assembly for the new-generation MD-95 commercial jet.
Photogrammetry. Through its subsidiary, Helava, the Company provides integrated digital stereo software which operates on commercial computer hardware, principally in the commercial photogrammetry market. Helava provides photogrammetric workstations and high-quality scanners for map compilation, engineering regional planning, orthophoto production, digital terrain collection and environmental management. Through a distributorship agreement with Leica, Inc., a world leader in surveying and photogrammetric systems, Tracor's systems are now operational in 48 countries. In addition, in 1996 the Company acquired Aerial Data Reduction Associates ("ADR"). ADR has a 26-year history of using photogrammetric technology to produce mapping and geographic information systems database services primarily for federal, county and municipal governments throughout the United States. Management believes the acquisition provides the Company with the nation's largest photogrammetric map production capacity in private industry.
Remote Sensing. Tracor has entered the growing new market of commercial remote sensing systems by joining with Boeing, Farmland Industries and Agrium, Ltd., to develop and operate the Resource21(TM) imaging satellite system which is planned to become operational at the turn of the century. This multispectral satellite system is designed to facilitate agriculture, forestry and environmental management on a worldwide scale. Employing technologies developed for military applications, Tracor is responsible for the ground data processing, image assessment, archiving and production generation for this commercial system. With the Company's proprietary technologies in image processing and manipulation, coupled with the leading edge satellite technologies provided by its teammates, Tracor management believes it is well positioned in this emerging market.
Chaff. Tracor is working with the leading manufacturer of direct broadcast satellite antennae to design a new generation antennae which uses Tracor's aluminum-coated glass fibers (chaff) in that firm's molded antennae. The proprietary nature of Tracor's manufacturing process of chaff, typically used in military applications, positions the Company to benefit from the increasing popularity of direct broadcast television.
Telecommunications. The Company is providing automatic test systems to support the commercial telecommunications and satellite market, including custom systems to test Motorola's Iridium R(R) global communications system.
Major Customers
The net sales of Tracor are predominantly derived from contracts with agencies of, and prime contractors to, the U.S. government. The various U.S. government customers exercise independent purchasing decisions, and sales to the U.S. government are generally not regarded as constituting sales to one customer, but instead, each contracting entity is considered to be a separate customer. As of December 31, 1996, Tracor was performing under more than 700 contracts with approximately 100 customers within various U.S. government agencies. Sales to all such agencies are subject to conditions unique to sales to the U.S. government.
Research and Development
Tracor employs scientific, engineering and other personnel to improve existing product lines and to develop new products in the same or related fields under programs funded by the respective companies or, in the case of Tracor, under customer contracts through which Tracor is reimbursed directly for its efforts. Customer-sponsored programs sometimes lead to the development of products which Tracor has the opportunity to produce for others.
During the past three fiscal years, Tracor has expended the following amounts on Company-sponsored and customer-sponsored research and development activities:
					1996		 1995 		1994 ---- ---- ---- 						 (in millions)
Customer-sponsored $ 157.5	 $ 132.3	 $ 104.9 Company-sponsored 11.1 5.4 4.7
A significant portion of the increase in Tracor's customer-sponsored research and development costs in 1995 and 1996 is attributable to the inclusion of GDE and AEL expenditures following their acquisition by the Company in November 1994 and February 1996, respectively, the award of several new contracts, and increased research and development efforts under several existing contracts.
Competition
The Company experiences vigorous competition from industrial firms and U.S. government agencies, some of which have substantially greater resources. A majority of the sales of the Company is derived from contracts with the U.S. government and its prime contractors, and such contracts are awarded on the basis of negotiations or competitive bids. Management does not believe any one competitor or a small number of competitors is dominant in any of the business areas of the Company. Management believes the Company will continue to be able to compete successfully based upon the quality and cost competitiveness of its products and services.
Government Contracts
Approximately 86% of the Company's revenues result from contracts with the U.S. government and its prime contractors. System engineering and integration, software engineering and other engineering and management support contracts are generally cost-reimbursement fixed-fee type contracts. Product engineering and development contracts are either cost-reimbursement fixed-fee type or fixed-price type contracts. Contracts for the manufacture of products are usually fixed-price type contracts. Cost-reimbursement type contracts provide for the payment of actual allowable costs, plus a fee. Under fixed-price type contracts, the contractor benefits from or shares in cost savings but generally bears or shares the risk of cost overruns. Cost-reimbursement type contracts are normally priced to realize lower margins than fixed-price type contracts. For the year ended December 31, 1996, approximately 55% of the Company's revenues were derived from cost-reimbursement type contracts, and approximately 45% of the Company's revenues were derived from fixed-price contracts.
Contracts with the U.S. government and its prime contractors contain standard provisions for termination at the convenience of the U.S. government or such prime contractor, pursuant to which the Company is generally entitled to recover costs incurred, settlement expenses and profit on work completed prior to termination. Contracts with the U.S. government do not provide for renegotiation of profits.
Companies supplying products and services directly or indirectly to the U.S. government are subject to other risks such as contract suspensions, changes in policies or regulations and availability of funds. Any of these factors could adversely affect the Company's business with the U.S. government in the future.
Sales to Foreign Customers
For 1996, 1995 and 1994, approximately $104.8 million, $87.0 million and $63.6 million (representing 10%, 10% and 9%, respectively) of the net sales of the Company were attributable to sales and services provided to foreign customers. The principal customers are governments of those countries in Western Europe, the Middle East and the Pacific Rim region which are generally deemed to be friendly to the government of the United States and to have relatively stable governments. Each of the contracts with these customers is subject to the risks inherent in dealing with foreign governments (e.g., changes of administration or governmental form, economic problems). Although the loss of all of the Company's foreign business could have a materially adverse impact on the Company's results of operations and financial condition, it is management's opinion that this risk is remote and that the loss of any single contract with a foreign government would not be material.
Employees
As of December 31, 1996, the Company had approximately 10,450 employees. Of this number, approximately 3,950 employees held advanced or bachelor's degrees in a number of scientific disciplines. Approximately 100 of the Company's employees are located outside of the United States. Less than three percent of the Company's U.S. employees are covered by collective bargaining agreements with labor unions. The Company considers relations with its employees to be excellent.
Backlog
In each of its major lines of business, the Company has significant firm backlog and unexercised contract options which may be exercised by the customer. Firm backlog represents the amount of revenue expected to be recognized for contractually authorized performance of awarded firm contractual commitments. Firm backlog may include amounts yet to be fully funded by the customer or amounts for performance yet to be fully definitized. Unexercised contract options represent the amount of revenue which would be recognized from the performance of contract options that may be exercised by customers under existing contracts and from task orders to be issued under indefinite quantity contracts or basic ordering agreements. Amounts included in both firm backlog and unexercised contract options are based on the contract's total awarded value and the Company's estimates regarding the amount of the award that will ultimately result in the recognition of revenue. These estimates are based on the Company's experience with similar awards and similar customers. Estimates are reviewed periodically and appropriate adjustments are made to the amounts included in firm backlog and unexercised contract options. Historically, these adjustments have not been significant.
The Company's firm backlog at December 31, 1996, was $1.0 billion, compared with $924 million as of December 31, 1995. The Company's unexercised contract options as of December 31, 1996, were $1.6 billion, compared with $949 million at December 31, 1995. This total backlog of $2.6 billion at December 31, 1996 is the highest in the Company's history and represents a 40% increase over the total backlog at December 31, 1995. Management does not believe that the Company's firm backlog is seasonal in any material respect. Approximately 80% of firm backlog as of December 31, 1996, is expected to be realized as sales within one year. Approximately 76% of firm backlog as of December 31, 1996, was comprised of contracts with agencies of the U.S. government or its prime contractors. See "Major Customers" and "Government Contracts."
Sources and Availability of Raw Materials
The Company's manufacturing operations require a wide variety of electronic and mechanical components for which the Company has multiple commercial sources. The Company's manufacturing operations also require raw materials which are purchased in the open market and are normally available from a number of suppliers. The Company has not experienced any significant delays in obtaining timely deliveries of essential materials.
Compliance with Environmental Controls
There have not been, and the Company does not anticipate, any materially adverse effects upon the capital expenditures, earnings or competitive position of the Company resulting from compliance with federal, state and local provisions regulating the discharge of materials into the environment or otherwise relating to the protection of the environment.
Patents
There are a total of 110 Company owned patents with 33 patent applications pending. The Company does not believe that existing patents and licenses are material in the conduct of its business as a whole and believes that research, development and engineering skills are more significant. The U.S. government typically receives royalty-free licenses on inventions arising from government contracts, with each company retaining all commercial rights with respect to such inventions. While patents are not material to the operation of the business, proprietary information of the Company is adequately protected through the requirement that employees execute confidentiality agreements as a condition of employment.
Item 2.
Item 2. Properties.
The Company's facilities are located primarily in the United States. The Company's corporate offices and certain administrative, manufacturing and engineering facilities are located in Austin, Texas on a 140 acre campus owned by the Company and contain approximately 612,000 square feet of offices and engineering and manufacturing facilities. The Company occupies approximately 1,132,000 square feet of administrative and engineering facilities in the Washington, D.C. area consisting of multiple facilities owned and leased by the Company under leases with differing expiration dates, the latest of which expires in 2004. The Company also owns and leases approximately 278,000 square feet of administrative and engineering facilities located in the California, Maryland area. The Company leases approximately 73,000 square feet of administrative and engineering facilities in the Poulsbo and Silverdale, Washington area.
The Company owns and leases approximately 142,000 square feet of administrative, manufacturing and engineering facilities located in Fort Walton Beach, Florida. The Company leases (under a lease expiring in 1998) or owns engineering facilities in Groton, Connecticut, containing approximately 34,000 square feet of space. The Company leases 48,000 square feet of administrative and engineering facilities in Bloomington, Indiana. The Company owns approximately 10,000 square feet of administrative and manufacturing facilities in Butler, Georgia.
The Company occupies approximately 308,000 square feet of administrative, manufacturing, engineering and aircraft hangar facilities in Mojave, California, some of which is owned and some of which is leased under a lease expiring in 2036. This site also includes ramp space associated with the aircraft hangars. The Company owns approximately 134,000 square feet of administrative, manufacturing, engineering and aircraft hangar facilities in East Alton, Illinois which is currently vacant and for sale.
The Company occupies approximately 123,000 square feet of leased space located in East Camden, Arkansas utilized for administrative and manufacturing purposes under a lease expiring in 1999 and approximately 117,000 square feet of owned space located in San Ramon, California and utilized for administrative, manufacturing and engineering. The Company also utilizes leased space for administrative, engineering and manufacturing in Lillington, North Carolina (75,000 square feet) and Jerusalem, Israel (23,000 square feet), under leases expiring in 2000 and 2003, respectively.
The Company leases approximately 450,000 square feet of administrative, manufacturing and engineering facilities in various locations in San Diego, California. The Company owns approximately 92,000 square feet of administrative and engineering space located in Oxnard, California. The Company owns approximately 370,000 square feet of administrative, manufacturing and engineering facilities located in Montgomery Township, Pennsylvania.
The Company's facilities also include certain other leased and owned facilities at miscellaneous locations, having no more than 20,000 square feet at any locations and aggregating approximately 180,000 square feet.
Item 3.
Item 3. Legal Proceedings.
Tracor is involved in various lawsuits and is subject to certain contingencies incidental to its business. While the ultimate results of these matters cannot be predicted with certainty, management does not expect them to have a material adverse effect on the consolidated financial position or results of operations of Tracor.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Trading Market for Tracor Common Stock and Series A Warrants
The Common Stock and Series A Warrants of the Company are listed on the Nasdaq National Market where they have traded since late 1992 under the symbols "TTRR" and "TTRRW," respectively. Prior thereto, the Common Stock and Series A Warrants had a limited trading market and were not listed on a national securities exchange. The following table sets forth the reported high and low sales prices of the Common Stock and Series A Warrants on Nasdaq for the applicable periods:
Common Stock	 Series A Warrants ----------------------------------------- 	 High Low	 High Low ------- ------ ------ ------ Fourth Quarter 	 $24 3/8 	$19 3/4 	$21 3/4 $17 3/8 Third Quarter 20 5/8 16 5/8	 18 1/2	 14 7/8 Second Quarter 21 1/8 17 1/8	 18 1/2	 14 5/8 First Quarter 17 7/16 14 	 15 	 11 1/2
----------------------------------------- 	 High Low	 High Low ------- ------ ------ ------ Fourth Quarter	 $16 7/8	 $14 1/2 $14 5/8 $11 7/8 Third Quarter 18 1/8	 13 5/8	 15 5/8 11 1/8 Second Quarter	 14 1/4	 11 3/8	 11 3/4 8 7/8 First Quarter	 14 	 10 	 11 3/8 7 1/2
----------------------------------------- 	 High Low	 High Low ------- ------ ------ ------ Fourth Quarter	 $12 5/8 $7 1/2 	 $10 $5 1/2 Third Quarter	 8 3/4 7 1/8 	 7 1/8 5 1/4 Second Quarter	 8 1/2 6 15/16	 6 1/8 5 First Quarter	 10 1/8 7 7/8 	 7 1/2 5 5/8
As of February 17, 1997, the Company had approximately 7,000 holders of the Common Stock, of which 292 were stockholders of record. The approximate number of holders, not of record, was determined by a request of registered clearing agencies.
Dividend and Dividend Policy
The Company has never paid a cash dividend on its Common Stock, although the Company's predecessor paid dividends in certain years prior to 1989. The Company currently intends to retain its earnings to provide funds for the expansion of its business. The payment of dividends in the future will be at the sole discretion of the Board of Directors and will depend upon the Company's profitability, financial condition, capital needs, future prospects, contractual restrictions and other factors deemed relevant by the Board of Directors. The Company's current credit facilities impose certain limitations on the payment of dividends. See Note N to the Consolidated Financial Statements of Tracor, Inc.
Item 6.
Item 6. Selected Financial Data.
Years Ended December 31 (in thousands, except per share amounts)
See notes to consolidated financial statements.
TRACOR, INC. CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 (in thousands, except share amounts)
See notes to consolidated financial statements.
TRACOR, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended December 31, 1996, 1995, and 1994 (in thousands, except share amounts)
See notes to consolidated financial statements.
TRACOR, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 1996, 1995, and 1994 (in thousands)
- ---------- 1. Includes term life insurance premiums paid by the Company on behalf of each named individual. 2. No SARs have been issued as of the dates indicated. 3. During the majority of 1994, Dr. Straeter was employed by GDE Systems, Inc. when it was a subsidiary of GDE Holdings, Inc.
Option Grants in Fiscal Year 1996(1)
_____________ 1. The per share option exercise prices are the fair market value of the Company's common stock on the date of the grant, and the term of each option is 10 years. 30% of each option is exercisable one year after the date of grant, an additional 30% is exercisable two years after the grant, and the remainder is exercisable three years after the grant.
Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
_____________ 1. The last sale price of the Common Stock on December 31, 1996 was $21.25 per share.
Employment Agreements
Effective as of November 22, 1996, the Company entered into employment agreements with certain of its officers who had not previously entered into employment agreements with the Company and, further, entered into amended and restated employment agreements with certain of its officers who had previously entered into employment agreements with the Company. Each of the above-named officers has executed employment agreements with the Company, except for Dr. Straeter, whose employment agreement is with GDE Holdings, Inc., a subsidiary of the Company. All of the agreements provide for a termination date of the earlier of December 31, 1999, or the first day of the year following the year in which the officer reaches his/her 65th birthday. The agreements also provide for automatic renewals unless terminated earlier by the officer or the Board of Directors.
Among other things, the employment agreements assure the continuation of each such officer's base salary and his/her continued participation in the Company incentive and other welfare and benefit plans, as well as continuation of his/her then current level of job position and responsibilities, failing which such officer may terminate his/her employment with the Company and receive, as termination pay, stipulated amounts equal to up to two times such officer's base salary then in effect and other benefits. Under each employment agreement, the Company has the right to terminate an officer for cause, under which circumstances the officer would not be entitled to termination pay. Each agreement provides that upon termination the officer will not compete with the Company for a period of six months after the date of termination nor will the officer divulge confidential information or trade secrets to third parties.
Retirement Benefits and Related Information
The Company has a Defined Benefit Retirement Plan (the "Retirement Plan") which provides retirement benefits for its employees and employees of participating affiliates. The plan has three benefit formulas as described below for Tracor, Vitro, and GDE employees. Employees covered under the Tracor formula become vested in the Retirement Plan upon the completion of five years of vesting service. Monthly benefits, payable at normal retirement age, are based upon an amount equal to one percent of final "average monthly compensation" up to "covered compensation" plus one and one-half percent of final average monthly compensation in excess of covered compensation, multiplied by the years of credited service with the Company, less one year. Average monthly compensation is defined as the average monthly compensation actually paid, including bonuses and overtime pay for the five highest successive calendar years. Covered compensation is defined as the average of the maximum wages subject to social security taxes for the 35 years ending in the calendar year before the employee reached Social Security retirement age. Credited service is the period of the employee's total employment with the Company. The monthly benefits are not subject to deductions for Social Security or other offset amounts.
Employees covered under the Vitro formula are provided monthly benefits, payable at normal retirement age, which are based on the amount equal to one and one-tenth percent of average annual compensation up to covered compensation plus one and three-quarters percent of average annual compensation in excess of covered compensation, multiplied by the years of credited service. Average annual compensation means the average of annual earnings during the employee's five consecutive highest paid years with Vitro. Credited service generally means all the employee's years of service with Vitro. The monthly benefits are not subject to deductions for Social Security or other offset amounts.
Employees covered under the GDE formula are provided monthly benefits, payable at normal retirement age, which are based on the amount equal to approximately one and three-tenths percent of average annual compensation, multiplied by the years of credited service. Average annual compensation means the average of annual earnings during the employee's five consecutive highest paid years with GDE. Credited service generally means all the employee's years of service with GDE. The monthly benefits are not subject to deductions for Social Security or other amounts.
The following tables show the estimated annual benefits payable upon retirement to persons in specified remuneration and years of service classifications who would retire in 1997 at age 65. The amounts shown in the tables were determined as normal retirement benefits at December 31, 1996, and were based on pay limited by Section 401(a)(17) of the Internal Revenue Code (the "Code"). Benefits are limited by Section 415 of the Code without regard to combined plan limitations.
Retirement Plan Benefits Tracor, Inc.
Vitro Corporation(2)
___________
1. Represents 120% of covered compensation for the most highly compensated individual who would be entitled to benefits under this particular plan.
2. Employees of Vitro Corporation and Vitro Services Corporation whose credited service begins on or after January 1, 1996, are covered under the Tracor benefit formula. Benefits based on $150,000 pay are limited with a minimum benefit, as of December 31, 1993, under prior pay plan.
GDE Systems, Inc.
___________
1. Represents 120% of covered compensation for the most highly compensated individual who would be entitled to benefits under this particular plan.
Benefits under the Retirement Plan are computed based on a straight-life annuity, and monthly benefits are not subject to deductions for social security or other offset amounts.
As of December 31, 1996, the persons named in the Summary Compensation Table were credited with the following years of service under the Retirement Plan: Mr. Floyd, 6.6; Mr. Skaggs, 6.8; Mr. Melton, 6.8; Dr. Straeter, 16.8; and Mr. Campbell, 26.6.
The remuneration covered by the Retirement Plan for the named executive officer generally corresponds with the salary amounts set forth in the Summary Compensation Table.
Non-Qualified Supplemental Retirement Benefit. During 1993, the Company established a Non-Qualified Supplemental Retirement Program for certain of its officers, which was amended and restated effective as of January 30, 1997 (hereafter, the "Program"). The Program provides that upon normal retirement or termination not for cause, Company officers covered by the Program will receive a monthly income of up to 50% of the average compensation for the 36 months immediately prior to the date of retirement or termination, less the amount of retirement benefits which the officer would otherwise be entitled to under the Retirement Plan. The actual amount the participant would be entitled to receive is determined by the participant's total number of years of service to the Company after December 21, 1991. The Program further provides that upon the death of the participant, his or her spouse would also be entitled to receive a monthly income equal to one-half of the benefit which would otherwise be payable to the officer. Currently, Messrs. Skaggs, Floyd, and Melton are participants in the Program. The Program additionally provides that if any of the participants are terminated without cause, they shall become immediately 100% vested in the Program, and in the case of Messrs. Skaggs and Floyd, they may elect to receive the benefits payable to them under the Program in a lump sum. Assuming the individuals remain in the employ of the Company until their normal retirement age, each of the following executives will receive an annuity, as described above, which, on an actuarial basis, is equal to the following annual payments: Mr. Skaggs, $465,487; Mr. Floyd, $166,014; and Mr. Melton, $221,943.
Dr. Straeter is eligible to receive benefits from the GDE Systems, Inc. Supplemental Retirement Plan. This plan is designed to replace any pension benefit lost to Dr. Straeter if his final average covered compensation is in excess of the limitations for eligible compensation contained in Sections 415 or 401(a)17 of the Code. Assuming Dr. Straeter remains employed by the Company until his normal retirement age, he will receive an annuity with an estimated annual payment of $141,282.
Mr. Campbell is eligible to receive benefits from the Tracor Benefit Restoration Plan. This plan, adopted October 1, 1996, is designed to replace any pension benefit lost to Mr. Campbell if his final average monthly covered compensation is in excess of the limitations for eligible compensation contained in Sections 415 or 401(a)17 of the Code. Assuming Mr. Campbell remains with the Company until his normal retirement age, he will receive an estimated lump sum payment of $1,635,681
Effective December 1, 1996, Tracor adopted the Tracor Deferred Compensation Plan designed primarily to replace 401(k) Plan benefits lost due to the Code limitations on employee deferrals and covered compensation used to determine benefits from the qualified Tracor, Inc. 401(k) Plan. For 1996 matching contributions were credited in the amount of $6,612 to Mr. Skaggs; $1,756 to Mr. Campbell; $2,036 to Mr. Floyd; and $1,670 to Mr. Melton.
Outside (non-employee) directors of the Company receive annual Board retainers of $20,650, plus travel and allowances where appropriate. Attendance fees of $1,000 per meeting are also paid. Directors who also serve on a committee of the Board of Directors receive $950 for each committee meeting attended. Directors who chair committees receive an additional $950 per meeting attended. Directors who are currently on the board at the first of each year receive 1,000 shares of common stock and are granted 2,000 shares of stock options at the current market price.
COMMITTEES OF THE BOARD
Audit/Ethics Committee
The Committee met three times in 1996. The duties of the Audit/Ethics Committee are to:
a. recommend to the Board of Directors a firm of independent auditors to perform the audit of the annual financial statements of the Company;
b. review with the independent auditors and with financial management the proposed scope of the annual audit, past audit experience, the Company's internal audit program, recently completed internal audits, and other matters bearing upon the scope of the audit;
c. review with the independent auditors and with financial management significant matters revealed in the course of the audit of the annual financial statements of the Company;
d. review on an annual basis whether the Company's ethics policies have been communicated by the Company to all key employees of the Company and its subsidiaries;
e. review with financial management any suggestions and recommendations of the independent auditors of the Company;
f. meet on a regular basis with a representative or representatives of the Internal Audit Department of the Company and to review the Internal Audit Department's Reports of Operations; and
g. report its activities and actions to the Board at least once each fiscal year.
Members of the Audit/Ethics Committee are Anthony Grillo, chairman; William E. Conway; and Lt. Gen. Thomas P. Stafford.
The independent auditors and Tracor's internal auditor have direct access to the Committee and may discuss with it any matters which may arise in connection with audits, the maintenance of internal accounting controls, or any other matter relating to Tracor's financial affairs. Furthermore, the Committee may authorize the independent auditors to investigate any matters which the Committee deems appropriate and may present its recommendations and conclusions to the Board.
Compensation/Stock Option Committee
The Committee met four times in 1996. The duties of the Compensation/Stock Option Committee are to:
a. administer the Tracor stock option plan;
b. recommend policies dealing with compensation, position evaluations, and personnel engagements, transfers, and terminations, including the Company's annual incentive program;
c. review and recommend major compensation plans;
d. recommend the Company's management development programs and procedures;
e. approve and recommend to the Board of Directors compensation for corporate officers; and
f. review the administration of the Company's Retirement Plan.
Members of the Compensation/Stock Option Committee are Julian Davidson, chairman; Bob Marbut; and Elvis L. Mason.
COMPENSATION/STOCK OPTION COMMITTEE REPORT
Executive Compensation Principles
The Company's Executive Compensation Program is based on guiding principles designed to align executive compensation with Company values and objectives, business strategy, management initiative, and business financial performance. In applying these principles, the Compensation/Stock Option Committee (the "Committee") has established a program to:
a. attract and retain key executives critical to the long-term success of the Company and each of its business groups;
b. reward executives for long-term strategic management and enhancement of stockholder values;
c. integrate compensation programs with both the Company's annual and long-term strategic planning and measuring processes; and
d. support a performance-oriented environment that rewards performance not only with respect to Company goals but also Company performance as compared to that of industry performance levels.
Executive Compensation Program
The total compensation program consists of both cash and equity-based compensation. The annual compensation consists of a base salary and an annual incentive. The Committee determines the level of salary for key executive officers and a salary range for other executive officers. Actual salary changes are based upon performance and upon national industry salary surveys in related industries, depending on the areas in which the particular executive is employed, and supplemented by other surveys which are used to enhance the analysis. These surveys covered essentially the same companies that are included in the table comparing the cumulative total returns of the Company, set forth below. The salary levels are targeted to the median of such surveys, with variations based upon the experience of each officer and the complexity of his/her particular responsibilities. In considering the salary increases from 1996 to 1997, the Committee also evaluated each executive's performance in several areas, including increases in sales and revenue from the preceding year, increases in profits in the executive's area of responsibility, and the success of his/her budgetary controls. No increases were required, or given, pursuant to the terms of any employment agreements.
Incentive Compensation Program
Effective in December 1991, the Company adopted a performance incentive plan under which executive officers and other high-level employees may receive compensation based on the achievement of individual and Company objectives. Eligible participants include officers and other key employees of the Company who are in a position to make substantial contributions to the management, growth, and success of the Company. Payment of an award is contingent upon the achievement of specified levels of earnings, bookings, revenue, and cash generation of the Company or the employee's unit ("performance goals") each year based upon the annual operating plan of the Company. A smaller portion of each person's incentive payment is based on individual and organizational goals such as increases in efficiency of the executive's area of responsibility, adherence to budgetary plans, and implementation of new operating procedures and programs. At the close of each fiscal year, the performance of the operating unit in which the employee participates is reviewed against the performance goals, division objectives are evaluated, and awards are issued. In the event the performance goals are not achieved, the awards are reduced or eliminated entirely. If performance goals are exceeded, the amount of an award may be increased. In reviewing the performance of the named executives for 1996, the Committee determined each individual and Tracor exceeded their respective goals for the year. Executive officers as a group were awarded payments totaling $1,749,151.19, and all employees as a group received payments totaling $7,360,905.42 under this plan in 1996.
Stock Plan
The Company adopted, in December 1991, the Stock Plan for Employees of Tracor, Inc. and its Subsidiaries (the "1991 Plan"). In April 1995, the Company adopted the 1995 Stock Plan for Employees of Tracor, Inc. and its Subsidiaries (the "1995 Plan" or, collectively, the "Stock Plans") pursuant to which options to purchase common stock of the Company, stock appreciation rights ("SARs") (rights, granted in tandem with an option (or alone), to receive cash payments equal to any appreciation in value of the shares subject to option from the date of the option grant to the date of exercise in lieu of the exercise of an option), and/or shares of restricted stock may be granted to officers and other key employees of the Company and its subsidiaries. The plans are administered by the Committee which has authority to determine the individuals to whom and the terms pursuant to which grants shall be made. Per share option prices are not less than the fair market value of the Company's common stock on the date of the option grant, and the term of the options cannot exceed 10 years. The two plans are identical in all material respects, except that outside directors participate in the 1995 Plan.
Under the Stock Plans, the Committee grants stock options, restricted shares, and/or SARs based upon its review of surveys and publicly available information relating to the amount and type of awards granted to executives in the aerospace and defense industry, as well as its review of each executive's performance, evaluated as described above. Through the award of options, the objective of aligning executive officers' long-range interests with those of the shareholders are met by providing the executive officers with the opportunity to build a meaningful stake in the Company.
Officer Compensation
The Compensation Committee of the Board of Directors met for the purpose of evaluating the performance of the Company's CEO. In accordance with the Company's Executive Compensation Program, the Committee evaluated Mr. Skaggs' performance for the year based on both objectively evaluated quantitative criteria and on subjectively evaluated qualitative criteria. Mr. Skaggs' base salary and total compensation were also evaluated with respect to similar positions in the industry using a number of compensation surveys. The goal of the Committee was to determine whether an increase in his base salary was merited, and, if so, how much of an increase should be recommended to the Board. The Committee additionally determined the amount of incentive compensation and stock options to recommend that the Board award to Mr. Skaggs.
At the beginning of each fiscal year, the Board of Directors establishes quantitative and qualitative goals or "targets" for the CEO of the Company. Results are evaluated at the end of the fiscal year.
Quantitative Goals
For 1996, the Committee evaluated the results of three quantitative criteria. They were:
	 Target Actual (In Millions)	 (In Millions) % of Target	 ------------- ------------- ----------- Earnings(1) $ 88.8	 	 $ 104.6 118%	 Net Cash Activity	 52.5 60.9 116%	 Bookings 940.2 1,112.5 118%	 ________________
1. Before interest, taxes, depreciation, and other deductions.
Qualitative Goals
In addition, the Committee subjectively evaluated the results of qualitative criteria. The qualitative criteria include:
a. Return on shareholders' equity;
b. Share price increase;
c. Shareholders' equity increase;
d. Achievement of strategic business goals;
e. The conduct of business operations;
f. Board communications;
g. Equity restructuring to reduce warrants; and
h. Maintain outstanding corporate team
Base Salary and Annual Incentive Compensation
Based upon its review of Mr. Skaggs' overall 1996 performance for base salary and annual incentive purposes, the Committee determined Mr. Skaggs significantly exceeded both quantitative and qualitative target measures. The Committee also considered the Company's 1996 performance improvements over 1995 in determining the base salary increase. These improvements included a 22% increase in sales, a 36% increase in earnings before interest and taxes, a 31% increase in net income, a 12% increase in firm backlog, and a 41% increase in total backlog. As a result, the Committee recommended that Mr. Skaggs should receive a base salary increase of approximately ten percent (10%) effective for the 1997 year.
Mr. Skaggs' annual incentive compensation for 1996 was calculated using a mathematical equation which took into account quantitative performance results related to earnings, net cash, and bookings plus the achievement of qualitative goals as evaluated by the Committee. Using the mathematical equation and the evaluated incentive results described above, Mr. Skaggs' recommended annual incentive bonus is 83.13% of his 1996 base salary.
Stock Option Grants
The stock option grants made to Mr. Skaggs under the Company's Stock Plan were determined using the criteria described under the Stock Plan referenced previously. Option grants received by Mr. Skaggs in fiscal year 1996 are noted under the Executive Compensation section showing the five most highly compensated officers.
Compensation/Stock Option Committee Dr. Julian Davidson, chairman Bob Marbut Elvis L. Mason
Comparison of Cumulative Total Return1 Among the Nasdaq Market Index, Dow Jones Defense & Aerospace Index, and Tracor, Inc. Set forth below is a line graph comparing the cumulative total stockholder return on the Company's common stock, based on the market price of the common stock and assuming reinvestment of dividends, with the cumulative total return of companies on the Nasdaq Market Index and the Dow Jones Defense & Aerospace Index.
- --------------- 1. Assumes $100.00 invested on January 1, 1992, in the Nasdaq Market Index, Dow Jones Defense & Aerospace Index, and Tracor, Inc.
Item 12.
Item 12. Ownership of Management and Principal Stockholders
The following tables set forth as of March 17, 1997, certain information known to the Company with respect to the beneficial ownership (as defined in the rules of the Commission) of Tracor Common Stock by all directors, the chief executive officer and the other executive officers named on the summary compensation table, all directors and executive officers as a group and any person who is known by the Company to be the beneficial owner of more than five percent of the Tracor Common Stock. The percentages are calculated including shares which are subject to outstanding warrants and options held by directors and officers.
1 	* = less than 1%.
2	 2,000 shares are held directly by Dr. Davidson; 4,000 shares are held pursuant to stock options, none of which are currently exercisable.
3	 12,000 shares are held directly by Mr. Grillo; 4,000 shares are held pursuant to stock options, none of which are currently exercisable.
4 	26,500 shares are held directly by Mr. Marbut; 4,000 shares are held pursuant to stock options, none of which are currently exercisable.
5 	6,000 shares of common stock are held directly by Mr. Mason. Mr. Mason is the president of E. L. Mason Corporation, which is the general partner of MB Partners, Ltd. ("MB Partners"), which is the general partner of the Mason Best Company, L.P. ("Mason Best"). Mason Best directly owns 1,398,067 shares of common stock. Mr. Mason owns 50% of the general partner of Mason Best, MB Partners; however, Mr. Mason holds 100% of the voting rights in the general partner of Mason Best. In addition, Mr. Mason is the managing partner of Mason Best. As a result, Mr. Mason may be deemed to beneficially own 100% of the shares held by Mason Best. MB Partners directly owns 8,804 shares of common stock, and Mr. Mason owns 100% of E.L. Mason Corporation, which is the general partner of MB Partners, and may be deemed to beneficially own 100% of the shares held by MB Partners. 4,000 shares are held pursuant to stock options, none of which are currently exercisable.
6 	6,000 shares are held directly by Lt. Gen. Stafford; 4,000 shares are held pursuant to stock options, none of which are currently exercisable.
7	 250,520 shares are held pursuant to currently exercisable stock options. In addition, 5,000 shares are held pursuant to Series A Warrants which are convertible into common stock, and 32,329 shares are held directly.
8	 1,583 shares are held directly, and 31,000 shares are held pursuant to currently exercisable stock options.
9 	3,411 shares are held directly, and 64,500 shares are held pursuant to currently exercisable stock options. In addition, 1,000 shares are held pursuant to Series A Warrants which are convertible into common stock.
10 	9,800 shares are held directly, and 53,600 shares are pursuant to currently exercisable stock options.
11 	18,000 shares are owned directly by Dr. Straeter, and 160,333 shares are held by a family trust over which Dr. Straeter has control. In addition, 7,500 shares are held pursuant to currently exercisable stock options, and 5,000 shares are issuable upon exercise of Series A Warrants.
12 	14,046 shares are held directly, and 4,000 shares are held pursuant to stock options, none of which are currently exercisable.
13 	GBU, Inc. is the sole general partner of Oak Tree Partners, L.P. and GEM Convertible Securities Partners, L.P. GBU beneficially owns 1,177,599 shares of Tracor common stock (which are directly owned by Oak Tree Partners, L.P.) and 152,500 Series A Warrants (which are directly owned by GEM Convertible Securities Partners, L.P.) to purchase Tracor common stock. Mr. Unterman is the president, majority shareholder, and a director of GBU, Inc. He is also the president, sole shareholder, and a director of GEM Capital Management, Inc. GEM Capital Management, Inc. is a registered investment advisor whose accounts own 60,001 shares of Tracor common stock which Mr. Unterman may be deemed to beneficially own. Mr. Unterman is the trustee of a profit sharing plan which owns 34,000 shares of Tracor common stock. In addition, Mr. Unterman owns directly 100,000 shares of Tracor common stock and 514,375 Series A Warrants.
	With respect to the 1,177,599 shares owned by Oak Tree Partners, L.P., GBU owns a 9.9% interest in that partnership and Gerald B. Unterman owns 83% of GBU, Inc. Therefore, Mr. Unterman claims beneficial ownership of only 97,740 of those shares.
	With respect to the 152,500 shares which may be acquired upon the exercise of the 152,500 Series A Warrants owned by GEM Convertible Securities Partners, L.P., GBU, Inc. owns a 1% interest in that partnership, and Mr. Unterman owns 83% of GBU, Inc. Therefore, Mr. Unterman claims beneficial ownership of only 1,266 of those shares.
14 	Mr. Johnson is the chairman of FMR Corp. which beneficially owns 1,481,700 shares of Tracor common stock. Fidelity Management and Research Company, a wholly owned subsidiary of FMR Corp., is the beneficial owner of 1,396,700 shares of Tracor common stock. Mr. Johnson through his control of Fidelity Management and Research Company has sole dispositive power over 1,396,700 shares. Mr. Johnson and FMR Corp., through its control of Fidelity Management Trust Company, each have sole dispositive power over 85,000 and sole power to vote or to direct the voting of 82,300 shares, and no power to vote or to direct the voting of 2,700 shares of Tracor common stock.
15 	Includes shares subject to outstanding warrants and options held by directors and officers.
Item 13.
Item 13. Certain Relationships and Related Transactions.
On June 13, 1996, the Company consummated the acquisition (the "Westmark Acquisition") of substantially all of the assets of Westmark Systems, Inc. ("Westmark"), which had the effect of simplifying the Company's capital structure. The purchase consideration paid by Tracor to Westmark in the Westmark Acquisition included 8,267,435 shares of Tracor common stock. Shortly after its acquisition of the shares of Tracor common stock, Westmark dissolved and distributed all of such shares to its shareholders in a complete liquidation. The principal assets of Westmark acquired by Tracor in the Westmark Acquisition were 978,458 shares of Class A Common Stock of Tracor (the "Class A Common Stock"), a Series B Warrant to purchase 5,249,428 shares of Tracor common stock (the "Series B Warrant"), and a Series C Warrant to purchase 5,455,000 shares of Tracor common stock (the "Series C Warrant" and, together with the Series B Warrant, the "Tracor Warrants"). The shares of the Class A Common Stock and the Tracor Warrants were cancelled and will not be reissued.
Elvis Mason, a director of the Company, through his ownership in Mason Best Company, received an indirect benefit from this transaction. See footnote 12 to Item 12. "Ownership of Management and Principal Shareholders."
Recent Developments.
On February 12, 1997, the Board of Directors of the Company adopted a preferred share purchase rights plan (the "Rights Plan"), exercisable only if a person or group acquires 20% or more of Tracor's common stock or announces a tender offer which would result in ownership by a person or group of 20% or more of Tracor's common stock. The Rights Plan is designed to deter coercive or abusive takeovers, and ensure fair and equal treatment of all shareholders in the event of any proposed takeover of the Company. The Rights Plan may have an effect on the Change of Control provisions in the Indenture, to the extent that the Rights Plan could make a Change of Control less likely to occur.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)(1) Financial Statements. The following financial statements and supplementary data of Tracor are presented in a separate section of this Form 10-K.
	Report of Independent Auditors. 	 Consolidated Income Statements. 	 Consolidated Balance Sheets. 	 Consolidated Statements of Shareholders' Equity. 	 Consolidated Statements of Cash Flows. 	 Notes to Consolidated Financial Statements.
(a)(2) Financial Statement Schedules. All schedules are omitted because the required information is included elsewhere in the financial statements or is otherwise inapplicable.
(a)(3) Exhibits.
2.1 Agreement and Plan of GDE Acquisition, dated October 10, 1994, among the Company, Tracor Newco, Inc. ("GDE Acquisition Sub"), The Carlyle Group, L.P. ("Carlyle") and GDE relating to the merger of Tracor Newco, Inc. with and into GDE. Exhibit A to 8-K, File Number 0-20227, filed December 1, 1994, is incorporated herein by reference.
2.2 Amendment No. 1 to Agreement and Plan of GDE Acquisition, dated as of October 31, 1994, among the Company, the GDE Acquisition Sub, Carlyle and GDE. Exhibit 2.2 to Form S-1, File Number 33-67562, filed February 17, 1995, is incorporated herein by reference.
2.3 Amendment No. 2 to Agreement and Plan of GDE Acquisition, dated as of November 17, 1994, among the Company, the GDE Acquisition Sub, Carlyle and GDE. Exhibit 2.3 to Form S-1, File Number 33-67562, filed February 17, 1995, is incorporated herein by reference.
2.4 Agreement and Plan of Merger between Tracor, Inc. and Cordant Holdings, Inc., dated as of September 26, 1996. Exhibit 2.1 to Form 8-K, File Number 0-20227, filed September 26, 1996, is incorporated herein by reference.
2.5 Agreement and Plan of Reorganization among Tracor, Inc., AEL Industries, Inc., and Tracor AEL, Inc., dated as of October 2, 1995, and amended as of January 10, 1996, is incorporated by reference to Exhibit 2..1 in AEL Industries, Inc.'s Form 8-K reports dated October 2, 1995 and January 10, 1996.
2.6 Acquisition Agreement dated March 9, 1996, by and among Tracor, Inc. and Westmark Systems, Inc. Exhibit 2.1 to Form 8-K, File number 0-20227, filed March 22, 1996, is incorporated herein by reference.
3.1 Restated Certificate of Incorporation, as amended (incorporated by reference to the Company's Registration Statement Number 333-03330 filed with the Securities and Exchange Commission on April 10, 1996).
3.2 Bylaws of the Company, as amended and restated (incorporated by reference to the Company's Registration Statement Number 333-03330 filed with the Securities and Exchange Commission on April 10, 1996).
4.1 Registration Rights Agreement, dated as of March 14, 1997, among the Company, the Subsidiary Guarantors named therein and BT Securities Corporation. Filed herewith.
4.2 Indenture, dated as of March 14, 1997, among the Company and U.S. Trust Company of Texas, N.A. relating to the 8 1/2% Senior Subordinated Notes Due 2007. Filed herewith.
4.3 Form of Exchange Notes (included in Exhibit 4.2).
4.4 Series A Indenture, dated as of November 17, 1994, among the Company, each Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee, relating to the Series A Notes (the "Series A Indenture"). Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-89578) on February 17, 1995 and incorporated herein by reference.
4.5 First Supplemental Indenture, dated as of April 11, 1995, to the Series A Indenture. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-4/S-3 (No. 333-03330) on April 10, 1996 and incorporated herein by reference.
4.6 Second Supplemental Indenture, dated as of February 2, 1996, to the Series A Indenture. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-4/S-3 (No. 333-03330) on April 10, 1996 and incorporated herein by reference.
4.7 Third Supplemental Indenture, dated September 26, 1996, to the Series A Indenture. Filed herewith.
4.8 Fourth Supplemental Indenture, dated March 14, 1997, to the Series A Indenture. Filed herewith.
4.9 Specimen Series A Note. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-89578) on February 17, 1995 and incorporated herein.
4.10 Indenture, dated as of August 15, 1993, among the Company, each Subsidiary Guarantor, and U.S. Trust Company of Texas, N.A., as Trustee, relating to the Existing Notes (the "Existing Note Indenture"). Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33- 67562) on August 18, 1993 and incorporated herein by reference.
4.11 First Supplemental Indenture, dated as of November 17, 1994, to the Existing Note Indenture. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-1 (No. 33-89578) on February 17, 1995 and incorporated herein by reference.
4.12 Second Supplemental Indenture, dated as of February 22, 1996, to the Existing Note Indenture. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-4/S-3 (No. 333-03330) on April 10, 1996 and incorporated herein by reference.
4.13 Third Supplemental Indenture, dated September 26, 1996, to the Existing Note Indenture. Filed herewith.
4.14 Fourth Supplemental Indenture, dated March 14, 1997, to the Existing Note Indenture. Filed herewith.
4.15 Credit Agreement among Tracor, the lending institutions party to the Credit Agreement, Credit Lyonais, The First National Bank of Chicago and Wells Fargo (Texas), National Association, as Co-Agents and Bankers Trust Company, as Agent, dated as of March 14, 1997. Filed herewith.
4.16 1995 Stock Plan for Employees of Tracor, Inc. and Subsidiaries. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-8 (No. 33-93186) on June 2, 1995 and incorporated herein by reference.
4.17 Specimen Certificate representing Common Stock of Tracor, Inc. Previously filed with the Commission as an exhibit to the Registrant's Registration Statement on Form S-10 (No. 0-20227) on July 17, 1992 and incorporated herein by reference.
10.1 Form of Employment Agreement. Filed herewith.
10.2 Form of Employment Agreement and Executive Stock Agreement, dated November 20, 1995 between GDE Systems and Dr. Terry A. Straeter. Filed herewith.
11.1 Statement regarding computation of income per share.
21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Auditors.
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.
Tracor, Inc. Date:	March 28, 1997
					By:	/s/ James B. Skaggs --------------------- 						James B. Skaggs, 						President and 						Chief Executive Officer
			 		Tracor, Inc. Date:	March 28, 1997
					By:	/s/ Robert K. Floyd --------------------- 						Robert K. Floyd, 						Vice President, 						Chief Financial Officer, 						and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 28, 1997 				By:	/s/ William E. Conway, Jr. -------------------------- 					William E. Conway, Jr., Director
Date: March 28, 1997 				By:	/s/ Julian Davidson -------------------------- 					Julian Davidson, Director
Date: March 28, 1997 				By:	/s/ Anthony Grillo -------------------------- 					Anthony Grillo, Director
Date: March 28, 1997 				By:	/s/ Bob Marbut ------------------------- 					Bob Marbut, Director
Date: March 28, 1997 				By:	/s/ Elvis L. Mason ------------------------ 					Elvis L. Mason, Director
Date: March 28, 1997 				By:	/s/ James B. Skaggs ------------------------ 					James B. Skaggs, Director
Date: March 28, 1997 				By:	/s/ Thomas P. Stafford ------------------------ 					Lt. Gen. Thomas P. Stafford, Director