Tracor Inc.
Type: Public Company
Address: 6500 Tracor Lane, Austin, Texas 78725, U.S.A.
Telephone: (512) 926-2800
Fax: (512) 929-2241
Employees: 9,400
Sales: $886 million (1995)
Stock Exchanges: NASDAQ
Incorporated: 1955 as Associated Consultants and Engineers,
SIC: 3812 Search & Navigation Equipment; 8711 Engineering Services
Tracor Inc. is ranked among the top 15 defense electronics companies in the United States. The company sells its products, systems, and services primarily to the U.S. Department of Defense, although management has recently initiated a strategy to enter commercial markets in the fields of civil aviation, information systems, and commercial imagery systems. Almost untouched by the decline of the defense budget over the last five years, Tracor has created a niche for itself in the Department of Defense's operations and maintenance areas. An industry leader in many defense technology markets, Tracor provides such items as mission planning systems, intelligence information systems, automatic test systems, weapons and combat, and integration and support systems, weapons testing systems and support and electronic countermeasure systems to the different branches of the American Armed Forces. With its acquisition of Vitro Corporation and GDE Systems in 1994 and 1995, respectively, and AEL in 1996, almost overnight the company became the leader in providing engineering and support services for the U.S. Army's strategy plan for battlefield digitalization.
The roots of the company can be traced back to July 1955, when four ambitious, intelligent, and highly creative associates, who were teaching and conducting extensive research in the area of acoustical research at the University of Texas, decided to transform their late-night moonlighting at the laboratory into a full-time business venture. The four young men included physicists Jess Stanbrough, Chester McKinney, and Richard Lane, and mechanical engineer Frank McBee. The partners approached Harry Polland, an attorney in Austin, to look after the legal aspects of their new firm, named Associated Consultants and Engineers, Inc. The new company's first contract, an industrial noise abatement project for Eastern State Petroleum & Chemical Company, was worth a total of $5,000. During the next two years, the firm garnered numerous small contracts and began to make a reputation for itself as a reliable and creative enterprise.
In 1957, after much discussion among the founding members of the firm, it was decided to change the name to Texas Research Associates, Inc. While the name change was intended to reflect the company's growing concentration on research and development in a wide variety of fields, the partners maintained their focus on acoustical research and sonar technology. That same year, the company received a grant of approximately $200,000 from the Union Carbide Corporation to design, develop, and manufacture a new liquid transistor. With this grant, the founders realized that their new enterprise was going to be a successful business venture. They immediately began to form a skeleton organization to take care of the financial and administrative aspects of the firm's growth. The company purchased its first computer and constructed a facility to house administrative offices and research laboratories. New and bigger contracts with the U.S. Navy began to arrive, mostly involving additional research in sonar technology. One of the new contracts involved a long-term program for the firm to evaluate the U.S. Navy's sonar capabilities and, based on the information gathered, to implement a plan for the design and development of sonar equipment and its use.
During the late 1950s and early 1960s, another firm based in Austin, Texas, was making a name for itself in the burgeoning field of defense electronics. Formed by four men, including physicist O. J. Baltzer, mechanical engineer Marcel Gres, mathematician Gene Smith, and accountant George Strandtmann, Textran Corporation was growing in much the same way as Texas Research Associates. Contracts from the U.S. Armed Forces, especially the Navy, had made Textran Corporation one of the most rapidly growing defense firms in the country. Knowing one another's reputations, and acquainted with the technological developments in both firms, the eight men met and decided that it was in everyone's best interest to merge the two companies and share both financial resources and scientific talent. In 1962 Texas Research Associates, Inc., merged with Textran Corporation to form Tracor, Inc.
Immediately after the merger, the new company embarked on an aggressive strategy of acquisition. The firm's first acquisition, Rudmose Associates, Inc., a well-known and financially successful manufacturer of audiometers, was incorporated into Tracor quickly and efficiently. The company's entire product line, and its president, renowned physicist Wayne Rudmose, were brought to Austin. New manufacturing operations were established at 6500 Tracor Lane, just east of downtown Austin. Wayne Rudmose was asked to become more involved in the company's research and development activities, and Tracor, Inc., was soon winning larger and larger contracts from the U.S. Department of Defense.
By the early 1960s, Tracor had grown larger and more rapidly than any of its founders had expected. Having reached a level of financial security the directors of the company were comfortable with, Tracor made its first public stock offering in 1964. Primarily implemented to fund the purchase of Sulzer Laboratories, a Rockville, Maryland-based defense industry contractor specializing in crystal frequency standards, the public offering was an enormous success. The day Tracor began trading on the OTC exchange, approximately 110,000 shares were sold at an opening price of $19.50.
With such impressive successes, Tracor continued its growth through acquisition strategy for the remainder of the decade. Tracor purchased companies across the United States in order to build a broader and firmer manufacturing base within the defense electronics industry. Firms specializing in the design and manufacture of analytical instruments and electronic components were single-mindedly pursued by Tracor management. Many of the companies purchased during this time were leading manufacturers in electronic components for the automobile, electronics, and home appliances markets.
During the 1970s, the company's growth through acquisition program continued without interruption. At the same time, Tracor was introducing innovative products to the defense electronics industry, including graphic display software for electronic defense systems and a noise monitoring system for the U.S. Navy. When some of the acquisitions made during the 1960s began to falter, Tracor management sold them immediately and concentrated the company's resources on strengthening its traditional product lines in defense electronics. By the mid-1970s, Tracor had increased its market share in numerous domestic markets and, with ever-increasing sales, began a strategic plan to enter foreign markets and cultivate overseas customers. By the end of fiscal 1975, the company reported that it had surpassed the $100 million milestone in sales for that year.
By the beginning of the 1980s, Tracor had developed an international reputation in the defense electronics industry, with customers in Europe and the Middle East. The election of Ronald Reagan as president of the United States, and the subsequent U.S. military build-up under his direction, also helped to strengthen Tracor. Throughout the early and mid-1980s, Tracor's future prospects seemed assured.
In a development that the management of Tracor could not avoid, however, the company was suddenly purchased by Westmark Systems, Inc., in 1987 for just under $900 million in a leveraged buyout that included junk bonds and significant bank debt. Westmark was created by a group of bondholders to acquire and build a consortium of high-quality defense companies. Retired U.S. Navy admiral Bobby R. Inman was hired to manage the entire operation; although he had no experience in the corporate arena, Inman was highly regarded because of his previous tenure as deputy director of the Central Intelligence Agency.
From the beginning, Inman had trouble on his hands. Manufacturing difficulties and cost overruns began to cut into Tracor's profit margins, especially in the area of electronic components. Quality control and new product delays also began to plague the company, with overall sales declining precipitously in 1988 and 1989. Inman was unable to meet the large debt created by the buyout, and he could not foresee the beginning of the end of the Cold War and the decrease in defense spending by the U.S. government that would follow.
In 1990 the bondholders at Westmark, thoroughly dissatisfied with Inman's performance, replaced him with James E. Skaggs. Skaggs had worked for 37 years in the aerospace industry, with extensive experience in computer-based electronic systems at major corporations such as AlliedSignal, AMEX Systems, NASA, and System Development Corporation. Given a free hand by the bondholders, Skaggs brought in his own management team, sold off or closed the company's unprofitable product lines, streamlined and consolidated operations, implemented strict quality control measures, and reduced the company's operating costs. Under his direction, as the company began to stabilize, a petition was filed for a reorganization under Chapter 11 of the Bankruptcy Code.
By December 1991, less than two years after Skaggs had replaced Inman, the reorganization was complete. Westmark had disappeared, and two companies had been formed from the bankruptcy reorganization: Tracor and Littlefuse. Tracor comprised the defense systems manufacturing capability of the former company while Littlefuse concentrated on electronic components. In January 1992, the bondholders became shareholders of Tracor when shares began trading on the NASDAQ exchange. Although the price per share ranged from $2.00 to $4.00 during the first year of its new life, Tracor was obviously a much healthier company. By the beginning of 1993, the company's stock had more than doubled in value to $9.00 per share.
In 1993 Tracor made two major acquisitions, GDE Systems, Inc., and Vitro Corporation. GDE Systems was a worldwide market leader in the application of advanced digital technology in the design, development, and manufacture of highly sophisticated electronic defense systems such as soft copy mapping, charting, and geodesy systems, automated mission planning systems, test program sets, integrated maintenance, and diagnostic systems. Vitro Corporation had developed a reputation within the defense industry for its systems engineering and integration support to the U.S. Navy. After both GDE Systems and Vitro were fully integrated into Tracor, the company's annual sales increased by 28 percent from 1994 to 1995, from $694 million to $886.9 million.
In 1995 almost 90 percent of the company's sales were to various agencies of the U.S. government, most notably the Department of Defense and the Armed Services. The company played a key role in developing defense systems for the U.S Navy, engineering and manufacturing almost all the technology for the Polaris, Poseidon, and Trident missile systems. Since the beginning of World War II, the company has provided engineering services for every guided missile system used on Navy ships. Recently, Tracor has designed and installed the control system for the launching of ship-based Tomahawk cruise missiles. In addition, the company designs, develops, manufactures, installs, and maintains the advanced radio communications systems for all of the U.S. Navy's AEGIS class of cruisers and destroyers, which is projected to form the backbone of the Navy's fighting fleet during the first part of the 21st century.
In addition, the company provides avionics maintenance for the U.S. Air Force and 16 foreign air forces, including electronic systems aboard the F-16 fighter jet, the C-17 transport, and the B-2 bomber. In May 1996 Tracor won a major contract from the U.S Department of Defense to design and manufacture the Explosive Standoff Minefield Breacher system for the both the Army and Marines. The new system is designed to detonate and neutralize large minefields to clear the way for the safe passage of armored personnel carriers and infantry.
Largely insulated from reductions in the defense budget due to its focus on the operation and maintenance of electronic defense systems, Tracor intends to take advantage of growing government expenditures on maintaining the combat-readiness of the U.S. Armed Forces. Through a strategic policy of acquisition and consolidation, Tracor is positioning itself to continue playing a major role in the electronic systems market of the defense industry.
Principal Subsidiaries
Tracor Aerospace, Inc.; Tracor Applied Sciences, Inc.; Tracor Flight Systems, Inc.; Vitro Corporation; GDE Systems, Inc.
Further Reading
Dornheim, Michael, A., "Litton Teams to Market Integrated EW Systems," Aviation Week & Space Technology, July 5, 1993, pp. 64-65.
Kelly, Kevin, "The Education of Bobby Inman," Business Week, December 18, 1989, p. 50.
"Purchase of AEL Planned for about $115 Million," Wall Street Journal, October 3, 1995, p. B4(E).
"Vitro Wins Naval Contract for Systems Engineering," Wall Street Journal, January 22, 1996, p. B4(E).
"Westmark to Sell Assets for $120 Million in Stock," Wall Street Journal, March 13, 1996, p. B4(E).
— Thomas Derdak
