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**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

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**FORM10-K**

| x       | **ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934** |
|---------------------------------------|---------------------------------------------------------------------------------------------|

**For thefiscal year ended December 31, 2002**

**-OR-**

| o       | **TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934** |
|---------------------------------------|-------------------------------------------------------------------------------------------------|

**For thetransition period from               to              **

**Commission File No. 1-6035**

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**THETITAN CORPORATION**(Exact name of registrant as specified inits charter)

| **Delaware**                                                  |   | **95-2588754**                   |
|---------------------------------------------------------------|--------|----------------------------------|
| (State orother jurisdiction of incorporation or organization) |   | (IRSEmployer Identification No.) |

**3033Science Park RoadSan Diego, California 92121-1199**(Address of principal executive offices,zip code)

Registrant's telephone number, including areacode:  **(858)552-9500**

Securitiesregistered pursuant to Section 12(b) of the Act:

| **Title ofeach class**
****                                  | **     ** | **Name ofexchange on which registered**
**** |
|--------------------------------------------------------------|------------------------------------|----------------------------------------------|
| $1.00 CumulativeConvertible Preferred Stock, $1.00 par value |                               | New YorkStock Exchange                       |
| Common Stock, $.01 parvalue                                  |                               |                                         |
| Preferred Stock PurchaseRights                               |                               |                                         |

Securitiesregistered pursuant to Section 12(g) of the Act:None

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        Indicateby check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes x  No o

        Indicateby check mark if disclosure of delinquent filers pursuant to Item405 of Regulation S-K is not contained herein, and will not becontained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to thisForm 10-K.  x

        Indicateby check mark whether the registrant is an accelerated filer asdefined in Rule 12b-2 of the Securities Exchange Act of1934.  Yes x  No o

        Aggregatemarket value of the voting stock held by non-affiliates of theregistrant as of June 28, 2002, the last business day of theregistrant’s most recently completed second fiscalquarter:  $1,358,773,533.

        Numberof shares of Common Stock outstanding as of March 21, 2003was:  79,152,067.

**Documents Incorporated ByReference:**

        ProxyStatement for the 2003 Annual Meeting of Stockholders on June 3,2003.  (The Company expects to file a definitive proxystatement with the Commission within 120 days after the close ofthe fiscal year pursuant to Regulation 14A.)  With theexception of those portions which are incorporated by reference inthis Form 10-K Annual Report, the Proxy Statement for the 2003Annual Meeting of Stockholders is not deemed to be filed as part ofthis Report, Parts II and III. 

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**PARTI**

**Item 1.  Business**

**CorporateOverview**

      The TitanCorporation is a leading technology developer and systemsintegrator for the Department of Defense, the Department ofHomeland Security, and intelligence and other key governmentagencies.  We provide a range of services and systemssolutions.  These solutions and services include research anddevelopment, design, installation, integration, test, logisticssupport, maintenance and training.  We also provide servicesand solutions to government agencies with sophisticated informationsystems.  These include information processing, informationfusion, data management, and communication systems.  Inaddition, we develop and produce digital imaging products, sensors,lasers, electro-optical systems, threat simulation/trainingsystems, intelligence electronic hardware, signal interceptsystems, and complex military specific systems.

      We focus onthe following four markets:  C4ISR (Command, Control,Communications, Computers, Intelligence, Surveillance andReconnaissance), Transformational Programs, Enterprise IT, and theWar on Terrorism/Homeland Security.

      Ourconsolidated revenues were approximately $1.4 billion for theyear ended December 31, 2002.

      *IndustryOverview.*  Recent defense budgets are significantlyhigher than in prior years, especially in areas related tointelligence, surveillance, and reconnaissance and homelandsecurity because of increased counter-terrorism activitiesfollowing 9/11, the U.S. military operations in Afghanistan, thewar in Iraq and the resulting changes required in the Department ofDefense to prepare for these types of threats.  In addition,the U.S. government is increasingly using open systems thatincorporate commercial off-the-shelf products to increase theadaptability and interoperability of its information technologysystems architectures, creating greater contracting opportunitiesfor systems and software integration work.  The U.S.government is also increasingly using the Internet and web-basedsystems to improve its efficiency, providing contractingopportunities for Internet-based integration work. The U.S.government is among the largest buyers of information technologysystems and services in the world.  According to INPUT, Inc.(a market research organization), the U.S. government's informationtechnology budget for fiscal year 2003, an important element ofTitan’s addressable market, is projected to be approximately$50 billion, an increase of 11% from 2002.  Current forecasts,according to INPUT, for federal information technology spending arefor a compound annual growth rate of approximately 10% over thenext three to five years.

      The U.S.government's focus on modernization through increased spending oninformation technology reflects the critical role that thiscapability plays both in national security and in improvinggovernment efficiency.  In outlining the priorities of theBush Administration, Secretary of Defense Donald Rumsfeld hasstated that one of his five key objectives is to modernize the U.S.government's C4ISR capabilities.  The U.S. military is placinggreater emphasis on interoperability and increasing productivitywhile using fewer resources by employing systems that act as forcemultipliers and increasing operating capabilities under differingconditions.  To further this strategy, military andintelligence agencies continue to increase their reliance oncommunications products and systems that provide secure, reliableand efficient transmission of voice, video and data in verydemanding environments.

      Thetransition from the single threat, cold war era to today’smultiple and more widely dispersed threats, most notably the war onterrorism, coupled with the rapid rate of technological change, hasincreased the U.S. military’s need for more efficient andadvanced information, communications, and military platformcapabilities.  President Bush coined the term“transformation” when he said, “Our security willrequire transforming the military...(to) be ready to strike ata moments notice in any dark part of the world”. Transformational Programs, especially in the C4ISR and informationtechnology arena, represent a new paradigm in which there isgrowing importance on having systems that are designed, developedand cost-effectively built and very rapidly deployed.  This isoften accomplished through innovative uses of existing technologiesand integrating low-cost, commercially-available components andproducts to achieve best of breed cost effective systems andsolutions.

      *CompetitiveStrengths.*  We attribute our growth and performanceto several factors:
|        |       *LongStanding Customer Relationships and ExperiencedManagement.*  Founded in 1981, Titan has an extensivehistory of providing comprehensive information and communicationsproducts, solutions and services to U.S. defense, intelligence, andcivil government agencies.  Collectively, Titan’sexecutives and general managers have on average approximately 25years of industry experience and have developed long-standing, keycustomer relationships across all of the U.S. military services andseveral allied countries.  The industry experience ofTitan’s executives and general managers has also helped todevelop a significant presence with many civilian governmentagencies, which has contributed to Titan’s success insecuring new contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
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|        |       *BroadSolution Capabilities.*  Titan has extensive industryexpertise in the development of comprehensive information andcommunications products, solutions and services for governmentcustomers.  We provide products and solutions in areas such assignal processing, antenna design, low-detection waveforms,computer-aided target and image recognition, satellitecommunications hardware and software, signal direction-findingsystems, and real-time object tracking and targeting.  Inaddition, we have significant knowledge of legacy informationtechnology and C4ISR systems currently in operation and the abilityto integrate new solutions into existing systems.  Thisability to provide full-service products, solutions and services,coupled with our employee base of over 6,600 "Secret" andabove-cleared personnel, is enabling us to bid on larger, morecomprehensive government contracts than at any time in ourhistory.  During 2002, we won seven of eight competitiveprocurements with potential values exceeding $100 million in whichwe participated, including our largest contract ever, the$533 million Enterprise Architecture and Decision Support(EADS) contract with the National Security Agency. |
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|                                 |       Ourinformation systems solutions and services include systemsanalysis, design, and architecture, software development servicesand systems integration.  Our initial work in this areagenerally involves a joint analysis of the customer's enterprisestructure and processes and information and communications systemsneeds.  Once this analysis is completed, we design thetechnology solution to meet the customer's needs.  Thisprocess typically involves software development, coupled withintegration of commercial off-the-shelf software andhardware.  We also provide a variety of professional andtechnical support services, including electronics and mechanicaldesign and fabrication, computer-aided design and manufacturingservices, technical documentation and prototyping.  Inaddition, we offer a variety of standard products, includingsatellite communications modems and terminals, signaldirection-finding systems, lasers, sensors, and electro-opticalsystems.  As a result of the complex nature of Titan’scustomer solutions, our engagements often are long-term and involvefollow-on contracts.                                                                                                    |
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|        |       *ExtensiveAcquisition and Integration Experience.*  As a resultof changes in U.S. government procurement policies towardconsolidating programs and awarding larger, more comprehensivecontracts, we placed more emphasis on an acquisition strategy thatwould broaden our capabilities to allow us to effectively competefor these larger contracts.  Since January 1, 1998, we haveacquired and successfully integrated 18 government informationtechnology companies into Titan.  These acquisitions occurredand are continuing to occur at a time when a broad consolidation inthe government information technology industry was and isongoing.  We have won larger government contracts as a directresult of our successful integration of acquired technologies,expertise and intellectual property, and we continue to bid onlarger, more comprehensive government contracts as a result ofthose acquired capabilities.                                                                                                                                                                                                                                                                                                                |

      *Strategy.*  Ourobjective is to expand market share in the national security andgovernment IT markets, improve our operating margins andprofitability, and generate strong net cash flow to reduce ouroverall debt.  We intend to achieve these objectives with thefollowing strategic initiatives:
|        |       *MaintainTechnological Advantage.*  Our successful track recordover the past 21 years with research and development projects hashelped us create a diversified portfolio of technologies which inturn helps us obtain additional government research and developmentfunding and ultimately new system and product contracts.  Webelieve that our expertise and capabilities with a wide range oftechnologies make us well positioned to provide informationtechnology and communications systems, products and services to ourcustomers.  We will seek to maintain this advantage by keepingpace with new developments in technology, and by continuing tocompete for contracts that require high-quality, sophisticatedtechnical solutions.                                                                                                                                                                                                                                                                                                                                                          |
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|        |       *Build Uponour Competitive Strengths to Bid on Larger, More ComprehensiveContracts.*  We have an extensive history of providingincreasingly broader and more complex information systems andcommunications solutions and services to defense andintelligence-related government agencies.  We havedemonstrated that this experience, our reputation, our products andservices, and the enhanced technical and personnel resourcesresulting from our acquisitions have enabled us to bid on and winlarger dollar value and more comprehensive governmentcontracts.  We believe we will continue to successfully bid onand win larger and broader contracts due to our focused businessdevelopment practices, our demonstrated strong performance on largecontracts and due to increased outsourcing and consolidation ofgovernment programs.                                                                                                                                                                                                                                                           |
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|                                      | *      ImproveProfitability.  *We areactively engaged in increasing our profitability by reducingfacility and operations costs, and improved scale of efficiency onthe larger contracts recently won.  We are strengtheningcontrols and incentives on business productivity, including profitmargins and cash flow, across all our operations to promoteincreasing profitability both short and long term.  Ourbusiness mix is expected to gradually change in order to derive agreater portion of revenue from higher margin products and systemsproduction contract vehicles as products and systems move fromdevelopment to production.                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
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|                                      | *      BalancedBusiness Mix.*  Our currentcontract type and customer mix is well diversified.  Ourcontract mix of approximately 36% cost reimbursement contractsprovides a low risk and more predictable revenue and profit base,while the remaining 64% of our revenues which are derived from timeand materials and fixed price contracts provide an opportunity toincrease our operating margins.  We intend to continue tomaintain diversification in our customer mix by bidding andexecuting on contracts across all the Armed Services, intelligenceagencies, Department of Homeland Security and other federal andcivilian agencies.   We also intend to maintain a diversifiedmix of cost plus, time and materials, and fixed price contracts;however, we are seeking to moderately increase the percentage ofservice revenue derived from time and materials contracts anddecrease the percentage derived from cost-plus contracts.  Inaddition, faster growth in our products and systems business shouldresult in a greater percentage of revenues derived from fixed pricecontracts. |

*Four Focused andInterrelated Market Areas.*  We apply our corecapabilities to provide technology, products and services with afocus in four often overlapping and synergetic marketareas:  C4ISR, Transformational Programs, EnterpriseInformation Technology, and Homeland Security and the War onTerrorism.  Each of these markets are described in greaterdetail in the following sections, including specific examples ofthe work we are doing in these areas.

*      Command,Control, Communications, Computers, Intelligence, Surveillance, andReconnaissance (C4ISR)*

      C4ISR hasbeen the cornerstone of our expertise since we were founded in 1981and it is the principal business foundation on which we have grownover the years.  C4ISR can be described as the process ofgathering military information through intelligence, surveillance,and reconnaissance measures, and transmitting this informationdigitally through high technology communications systems,processing the digitized information to facilitate command andcontrol decision making, and discriminating such commandselectronically back to military and intelligence platforms forexecution.  Computers and communications systems are thecommon vehicle for this information gathering, processing anddeployment process.  We are a key contributor to thesignificant C4ISR systems that support the United States military,Department of Defense agencies and organizations, and the evolvingDepartment of Homeland Security.  Through systems engineering,technical assistance, program management, products, and systemsintegration, we have been in the forefront of assisting ourcustomers in reaching their C4ISR mission goals.  Thefollowing are examples of our efforts in C4ISR:
|        | ·       | *The Joint RangeExtension.*  We have developedan information solution that allows real-time tactical data linkinformation developed by a variety of sensors to be transmittedover any communications medium.  This innovative capabilityallows commanders to “see” and share the actualtactical events of a campaign at different locationssimultaneously.  This capability was used very successfully inthe recent Afghanistan operations to provide commanders with a viewof the battle space at extended ranges, thus allowing forces to becoordinated, sequenced, and deployed rapidly to meet the needs ofthe operational commander.  We expect this system to be a keyprovider of extended situational awareness in any futurecontingencies or conflicts.                                                                                        |
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|        | ·       | *Advanced DigitalWaveform for the U.S. Navy.*  Our Advanced Digital Waveform, or ADW, increasesdata throughput rates on dedicated ultra-high frequency satellitecommunication channels by up to four times current rates. Increased data transport is critical to support new platforms suchas UAV’s, and to enhance weapons coordination and the commandand control of naval forces.    Our Mini-DemandAssigned Multiple Access, or Mini-DAMA, terminals will be the firstU.S. Navy systems to receive ADW capability.  Once thiscapability is installed, the terminals will be capable of passinginformation at three to four times the previous rate.  Thecurrent project contemplates that the majority of the U.S. Navy'sMini-DAMA terminals will be outfitted with this improvedcommunications feature within the next couple of years. |
|        |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                      | ·       | *Systems SupportServices*.  Our nation’sdefense depends heavily upon sustaining fielded systems. U.S. AirForce, U.S. Army, Combatant Commanders, The National ReconnaissanceOffice (NRO), and intelligence agencies depend upon us to providesystems support in the form of rigorous engineering, programmanagement and training.  We provide the U.S. Navy withcritical C4I systems and networks. Additionally, Titan is anessential Navy provider in the field engineering, installation andquality integration of sophisticated communications, weapons, hull,mechanical and engineering support systems for virtually all shiptypes. We provide the U.S. Marine Corps with its operationalmodeling and simulation system via the Marine Air Ground Task Force(MAGTF) Tactical Warfare Simulation System (MTWS).                                                    |
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|                                      | ·       | *System-LevelSolutions*.  We develop, deliverand support system-level solutions for a wide range of weapon,sensor, surveillance, and reconnaissance systems. Additionally, weare conducting analysis of aircraft and ship structures, applyingadvanced corrosion control methodologies, and supporting thedevelopment of advanced materials. In support of informationoperations, we provide highly specialized information security andsignal intelligence systems and services to the intelligencecommunity. In the key national imperative areas of missile defenseand combating terrorism, we conduct weapons effects analysisservices and develop computer models for effectsprediction.                                                                                                                                                                                     |
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|        | ·       | *Channel Control Modemsfor Integrated Monitoring and Power ControlSubsystems.*  We are developing,integrating and producing a modem for the Integrated Monitoring andPower Control Subsystem, or IMPCS. IMPCS is being developed toreduce manpower requirements and increase the efficiency ofcommunication between the various control terminals and deployed,tactical terminals that use the geosynchronous satellites of theDefense Satellite Communications System.  Satellite networkefficiency is improved greatly by balancing the power levelsarriving at the satellites.  Today's system uses amanpower-intensive manual approach to monitor the entire globalnetwork and conduct point-to-point communications with terminaloperations to provide power-balancing direction.  Our modem isexpected to fully automate this process.                       |
|        |                | *      *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                 |                | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | *CommunicationsProducts*.  We have provided theDepartment of Defense and Intelligence community withstate-of-the-art products from our earliest days as acompany.  Our communications product specialization is in thedevelopment, manufacture and support of satellite communications(UHF, SHF, EHF) radios, modems, baseband systems, power amplifiersand complete terminals.  We design and produce the AN/USC-42DAMA terminal, which provides bandwidth efficient mobile satelliteservices at UHF for military users.  We are the industryleader in small, lightweight, low-power signal intercept, directionfinding and signal processing systems for Signal Intelligence(SIGINT) applications. These high-value SIGINT products include20Mhz to 2GHz manportable, ground vehicle, maritime patrol craftand fixed-site applications.  |
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|                                 |                                              | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | *The Naval Air SystemsCommand/Naval Air Warfare Center.*  We are helping with the systems engineering andintegration of Naval Aviation Reconnaissance and Surveillancesystems under a multi-year contract.  Under current tasking,our engineers provide design and analysis support for theinstallation and integration of state-of-the-art sensor systems inboth manned and unmanned reconnaissance platforms.  Systemslevel support typically includes concept exploration, specificationpreparation, interface design, laboratory integration, and test andevaluation.  We also support tactical manned and unmannedplatforms and avionics equipment.  Our engineers providedesign and analysis support for the integration of sophisticatedsubsystems into the avionics and weapons systems of many types ofaircraft.  These subsystems include electro-optic/infrareddevices, radar, electronic warfare systems, mission planningmodules, and tactical data links. |
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|                                 |                                              | ·                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | *Military SatelliteCommunications.*  Our engineersand technicians provide engineering, program and operationalsupport to the Space and Naval Warfare Systems Command and theSpace Warfare Systems Centers in San Diego, California, andCharleston, South Carolina.  Our satellite communicationsexperts are involved in all aspects of U.S. Navy and other militarysatellite programs including: the determination of requirements,laboratory and in-field operational testing, on-the-job and formaltraining, maintenance, operation, technical assistance,integration, and installation.  Our members of the FleetSystem Engineering Team provide on-site support at U.S. Navysatellite communications sites in Virginia, Hawaii, Italy andBahrain. |

*      TransformationalPrograms*

    *  * Weare developing new transformational systems for the Department ofDefense that focus on national security challenges faced by theUnited States.  We are seeking to win engineering developmentcontracts and ultimately full-scale production contracts to providelow-cost, mission critical transformational systems.  We alsoapply our expertise to the life cycle challenges of today. The following are several key initiatives in our portfolio ofactive “transformational” efforts:
|        | ·       | *X-Craft*.  We have a contract to design, build andintegrate a vessel for the United States Navy that is unlike anyother currently in the fleet today.  The X-Craft will be ahigh-speed aluminum catamaran 240 feet in length with a combinedgas turbine or diesel propulsion plant, capable of speeds greaterthan 50 knots.  It will be self-deployable over trans-Atlanticranges.  The craft will have two helicopter landing spotscable of handling H-60 series and smaller aircraft and the uniqueX-Craft’s mission module bay will be capable ofsimultaneously supporting the developing multiple mission packagesthat will be key to the follow-on new ship class, the LittoralCombat Ship (LCS).  The X-Craft program incorporates not onlyinnovative design, development and management methods, but also isusing revolutionary acquisition processes intended to get thiscraft and the information derived from using the craft in supportof the LCS in the hands of naval forces as rapidly aspossible.  The X-Craft is expected to be in the water in thesummer of 2004.  Extensive testing will follow to demonstratetactics, techniques, procedures, and technology for the LCS, theNavy’s planned next generation of warship. |
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|        | ·       | *AffordableWeapon*.  We are developing aloitering Unmanned Aerial Vehicle (“UAV”) that isdesigned to carry a 200-pound warhead at extended ranges and remainairborne and ready for rapid deployment for up to 24 hours. The UAV will be built using commercially-available off-the-shelfcomponents at a cost expected to be approximately one-tenth of thecost of comparable missiles used by the military.  We havebuilt and tested 15 of these UAV’s, which can be launchedfrom land, ship or aircraft.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                | *      *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        | ·       | *U.S. Army's ProphetInitiative.*  Our initial roleas part of this initiative was to design and integrate amulti-faceted, radio frequency intercept and direction-findingsystem into an existing Army vehicle.  We completed theinitial 13 low-rate production systems ahead of schedule and wereawarded the first full-scale, competitive production contract toproduce and field up to 83 production-level mobile systems. In its eventual implementation, the U.S. Army's Prophet initiativeis planned to be a combination of mobile, ground-basedintercept/direction-finding receivers and an airborne complement ofunmanned aerial vehicles.  This innovative system was deployedsuccessfully in the recent U.S. military operations inAfghanistan.  The Prophet program validated our“transformational” systems development strategy --applying innovation and technology insertion, taking a systemsengineering focus on unique defense challenges, winning thedevelopment contract, providing stellar systems performance in testand evaluation, winning the production contract, providinglife-cycle management, and participating in updates and follow-onsystems.                                                                           |
|        |                | *      *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|        | ·       | *KaBand SatelliteTerminal*.  In 2002, we receiveda contract from the U.S. Army to develop a new terminal for theKaSAT, the military’s new wideband gapfiller satellitecommunications system, scheduled for deployment in 2004.  Theterminal will provide KaSAT connectivity to ground forces as anadjunct to existing satellite communications and is expected tobecome an integral part of the Army’s Warfighter InformationNetwork – Tactical, WIN-T, program.  This program is animportant part of the Army’s transformational concept of“SATCOM on the Move” allowing maneuvering forces toreceive and transmit critical voice and data at high bandwidthwithout having to stop and erect satellite equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

*      EnterpriseInformation Technology*

      We providecomplete enterprise information technology solutions that enableseamless connectivity from the strategic to the tactical level of acustomer’s critical enterprise.  By necessity, thedefense and intelligence organizations require technology thatenables information to flow into multi-disciplined,cross-organizational teams of analysts that respond quickly andeffectively to continuing threats and immediate crises. Information is gathered through all source collection methods andassessed, and in many cases, enriched, to assure its relevance anduse.  We support many enterprise information technology andmodernization efforts within our nation’s defense andintelligence communities, as well as mission critical networks forcivilian agencies.  The following are several examples ofEnterprise Information Technology contracts: 
|        | ·       | *USSOCOM.*  Under the Enterprise Information TechnologyContract (EITC), we are bringing the U.S. Special OperationsCommand (USSOCOM) an improved level of service and reliability insupport of all worldwide Special Operations information technologyrequirements. EITC is an innovative solution meeting theCommand’s enterprise needs while delivering strategicimprovements, increased interoperability, and efficient support atall USSOCOM sites and locations. EITC includes the planning,management, operations and maintenance (O&M), and training, forall garrison and deployed Wide Area Networks (WAN), MetropolitanArea Networks (MAN), Local Area Networks (LAN), desktops,applications, databases, and communication and networkinfrastructures for data, voice, and video. This includes theO&M, development, integration, testing, training, and customersupport for all desktops, portable computing devices, applications,messaging systems, databases, and web services used by SpecialOperations Forces (SOF). This program also includes informationassurance, transmission, and communication security requirements,requirements management, configuration management, hardwaremaintenance, and disaster recovery. |
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|        | ·       | *Supporting the JointDeployable Intelligence Support System (JDISS).*  We are assisting with the systems engineeringfor JDISS, a worldwide intelligence network with over 10,000 nodesthat we maintain on a seven day per week/24 hour per day basis(7/24).  This very secure network provides criticalintelligence information to all facets of the United Statesmilitary and many homeland security agencies and is located at allfront line combat locations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|        |                | *      *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        | ·       | *NavyCash.*  We are assisting theU.S. Treasury, Naval Supply Systems Command, JP Morgan Chase andothers in providing a cashless environment for sailors and marinesdeployed throughout the world, so that their money is safe andtheir families have 7/24 access to it.  It is a system ofpoint of sales, ATMs, and other automated financial servicesprovided to service members.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|        |                | *      *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|        | ·       | *Information Assuranceand e-Government Services.*  Weprovide systems and solutions related to information assurance,security consulting and e-government applications.  We alsofocus on the design, installation and maintenance of local and widearea networks used to operate the U.S government's Internet-basedinitiatives.  We design electronic filing, procurement andpayment systems for the government agencies involved in thoseinitiatives, along with Internet portals used to electronicallydistribute confidential and non-confidential information to othergovernment entities and the public at large.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

*      HomelandSecurity and the War on Terrorism*

      Although theU.S. Department of Homeland Security is a new organization, we havebeen providing homeland security solutions to various governmentagencies for over 15 years.  As with our efforts in ourtraditional defense business, Titan brings innovation, integration,deployment, and life cycle service to the national imperative ofhomeland security and counter terrorism measures.  We provideproducts and services in the following key homeland securityareas:
|        | ·       | *Support of FirstResponders*.  We support firstresponders through our communications systems such as APCO 25compliant radio systems that greatly facilitate interoperabilityand crisis response.** ** In addition, we develop,integrate and build emergency mobile command vehicles and systemsto provide backup communications capability to governmentalagencies and first responders.  We also provide very realistictraining facilities through our contract to run the Center forNational Response and exercises to prepare first responders for avariety of potential terrorist threats.               |
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|        |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        | ·       | *Defending AgainstBio-terrorism.*  We provideengineering, analytical support, systems development, andintegration of many key systems to agencies protecting our countryagainst the threat of chemical and bio-terrorism.  Some keyexamples of our efforts in this area include supporting over 200cities through the HHS Metropolitan Medical Response System, andsupporting the U.S. Army Soldier and Biological Chemical Command,which would be the center of any federal government effort to fighta bio-terrorism attack.                                                                                         |
|        |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        | ·       | *SecuringAmerica’s Borders*.  Protecting America’s cyber borders is amajor Titan endeavor, as network and information technologysecurity and protecting critical infrastructure have becomeincreasingly important initiatives in national security.  Weare also working in the areas of intelligence informationdistribution, such as wining the prime integrator role in thedevelopment of the Department of Defense’s IntegratedBroadcast Service, which integrates and fuses near real-timecorrelated intelligence data via satellite to intelligence agenciesand combatant commanders worldwide. |
|        |                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|        | ·       | *21st CenturyTechnology to Secure the Homeland*.   We are in various stages of developing severalnew technologies to support homeland security, including a newdigital data link between aircraft and the ground, concealedweapons detectors, through-the-wall surveillance capabilities,buried mine detection devices, fissile material detectors and RF(radio frequency) attack warning chips.                                                                                                                                                                                                                            |

      *ContractProfile.*  We are currently performing work underapproximately 2,500 contracts.  No single contract accountedfor more than 1.9% of our total 2002 revenues.  Our totalrevenues from business with government agencies in 2002 wereapproximately $1.3 billion, of which approximately 43% weregenerated by time and materials contracts, approximately 36% weregenerated by cost reimbursement contracts, and approximately 21%were generated by fixed-price contracts.  Since operatingmargins on time and materials contracts are generally higher thanthose generated by cost reimbursement contracts, we have made andcontinue to make an effort to generate an increasing amount ofrevenue from time and materials contracts.

      *Competition.*  Weare one of many companies involved in providing information systemssolutions, support services and communications products for avariety of programs for agencies of the U.S. government and civilgovernments.  Most activities in which we engage are verycompetitive and require that we have highly skilled and experiencedtechnical personnel to compete.  Many of our competitors havesignificantly greater financial, personnel and other resources thanus.  These competitors include Computer Sciences Corporation,General Dynamics Corporation, Lockheed Martin Corporation, NorthropGrumman Corporation, Raytheon Company, and Science ApplicationsInternational Corporation.  In addition, we compete withsmaller and medium sized companies such as:  AnteonCorporation, CACI International Inc., Dynamics ResearchCorporation, Veridian Corporation and ViaSat, Inc.  We believethat the primary competitive factors for our information systemssolutions, support services and communications products includereputation, technical skills, past contract performance, experiencein the industry and customer relationships.

**CommercialBusinesses**

      We haverestructured our organization to focus our primary efforts on ourcore national security business.  However, we continue to ownall or portions of commercial businesses that were built ontechnology we developed under government contracts, or acquiredthrough our acquisition of other defense companies.

The following are examplesof our commercial technology-based businesses andinvestments:

      *Titan ScanTechnologies'* core technologies and expertise were developed byus from our government contracts business.  Titan ScanTechnologies sells medical equipment sterilization systems andprovides medical equipment sterilization services, which utilizethe electron beam process that SureBeam Corporation (which wefunded and spun-off in August 2002) uses for foodirradiation.  Titan Scan Technologies' medical equipmentsterilization systems are currently used in the medical deviceproduction lines of Guidant Corporation in San Diego, California,Baxter Corporation in the Dominican Republic and in France,Mediscan in Austria, Rochialle Corporation in Wales, and Isotron inthe United Kingdom.  Titan Scan Technologies also offerscontract sterilization services for medical product manufacturersat facilities that it owns in San Diego, California, Denver,Colorado and Lima, Ohio. Following the 2001 anthrax terrorism,Titan Scan Technologies became known for its efforts to sanitizethe mail to mitigate this bioterrorism threat from treated mail andparcels.  In addition to contracting for use of Titan Scan'sfacility for mail sanitization, the Postal Service purchased eightmail sanitization systems.  Titan Scan has also begun tomarket the use of electron beam technology outside of itstraditional medical device customer base, including the use ofelectron beam technology to improve material performance insemiconductors, aerospace composites, wire and cable, plastics andpackaging films.

      *e-tenna's*core technologies and expertise were acquired as part of ouracquisition of Atlantic Aerospace Electronics Corporation during1999 and then further developed by us.  We have chosen toutilize external equity financing to help fund the development ofthis business and have retained an investment in thiscompany.  As a result, e-tenna's results are not consolidatedwith our results of operations.  e-tenna is developingantennas and radio frequency systems based on electromagnetictechnology that it expects will establish new performance standardsfor the next generation of radio frequency technology.  Thekey features of the technology are that it suppresses undesiredradio frequency currents, thereby isolating the antenna frominfluences that could degrade performance.  It also improvessignal strength by causing power to radiate away from the device orequipment in which the technology is being used.  e-tenna iscurrently focused on creating products for the mobile device marketwhere its technology has the potential to significantly reduce thesize, increase the functionality, improve the performance, anddecrease the cost of wireless equipment.  Another key benefitof e-tenna's technology is the isolation property that allowsmulti-frequency devices such as phones, PDAs, and laptops tofunction efficiently and without significantinterference.

      In 1996, wecontributed the core technology to form Servnow!NetTechnologies, Inc., which later became known asIPivot.  Titan created the technology spin-off in 1996 tocommercialize a concept developed in Titan’s softwarebusiness unit.  In October 1999, IPivot was sold to IntelCorporation.

      *Competition.*  TitanScan and e-tenna employ different technologies and business models,and as such compete in different markets.  Titan Scan competesagainst substantially larger enterprises involved in medicalsterilization, including Ion Beam Applications, s.a., andSteris.  e-tenna is a start-up enterprise and will becompeting with larger more established component manufacturers inthe mobile wireless device business.

**DiscontinuedOperations**

      During 2002,the Company’s board of directors made the decision to exit asubstantial portion of its commercial businesses, consisting ofTitan Wireless, Cayenta, AverCom, and LinCom Wireless.  Priorto these decisions to exit these businesses, the Company groupedits business into five segments – Titan Systems, TitanWireless, Software Systems (including Cayenta), Titan Technologiesand the SureBeam business.  Titan is no longer reporting theresults of operations by these segments, however, reference may bemade to these segments in discussions of other historicalinformation.

***Titan Wireless(Discontinued July 11, 2002)***

      *Overview.*  TitanWireless provides communications services and systems to developingcountries primarily in Africa, Central Asia, the Middle East andLatin America.  Titan Wireless's network has been built usingits own communications products and products purchased from otherequipment vendors, which include advanced satellite groundterminals, Very Small Aperture Terminals, or VSATs, monitoring andcontrol software, satellite voice/data modems, broadband accesssystems, packet switches and voice over Internet protocol (VoIP)gateways.

      Despite ourlow cost technology and efficiency advantages, competition in theinternational telecommunications sector has driven market rates tolevels that make operations of our networks at our existing sizeuneconomical. Notably, the bankruptcies of Global Crossing Ltd.,WorldCom, Inc. and Phone1Globalwide Corporation (formerlyGlobaltron Corporation), and the dire financial condition of otherproviders such as Ibasis, imposed a rapid and sudden deteriorationin wholesale prices in 2002.  In July 2002, we decided to exitour international telecommunications businesses through acombination of selling assets or businesses and shutting downoperations.  We are continuing to operate our networks whilewe complete the divestiture process to preserve the value of thebusinesses and assets we are seeking to sell.

      For the yearended December 31, 2002, Titan Wireless had revenues ofapproximately $130.3 million.

***Cayenta(Discontinued March 1, 2002)***

      *Overview.* Cayenta provided software applications and implementation andintegration services to customers to solve specific business andoperating problems.  These software applications were tailoredfor the customers’ business and operating requirements andmade accessible via the Internet.  For the year ended December31, 2002, Cayenta had revenues of approximately $6.4 million. These businesses were sold in July 2002.  (Refer to Note 6 tothe consolidated financial statements for furtherdiscussion).

***Titan Technologies(Substantially Discontinued August 2002)***

*      Overview.*  In Titan Technologies, we leveraged ourintellectual property portfolio to create commercial technologyapplications or individual businesses from technologies primarilydeveloped from government-sponsored research and developmentprograms.  We included in Titan Technologies at any given timethose commercial technology applications and individual businessesthat we have not at that point developed into separate operatingsegments.  In 2002, Titan discontinued its AverCom business,its LinCom Wireless business, and other commercial informationtechnology businesses.  For the year ended December 31, 2002,the discontinued operations of Titan Technologies had revenues ofapproximately $31.4 million.

**GovernmentContracts**

      A substantialportion of our revenues are dependent upon continued funding ofUnited States and allied government agencies, as well as continuedfunding of the programs targeted by our businesses.  Ourrevenues from U.S. government business represented approximately90% of our total revenues for the year ended December 31,2000, approximately 93% of our total revenues for the year endedDecember 31, 2001, and approximately 95% of our total revenuesfor the year ended December 31, 2002.  Any significantreductions in the funding of United States government agencies orin the funding areas targeted by our businesses could materiallyand adversely affect our operating results.

      U.S.government contracts are subject to termination for convenience bythe government, as well as termination, reduction or modificationin the event of budgetary constraints or any change in thegovernment's requirements.  When we subcontract with primecontractors, such subcontracts are also subject to the ability ofthe prime contractor to perform its obligations under its primecontract.  We often have little or no control over theresources allocated by the prime contractor to the prime contract,and any failure by the prime contractor to perform its obligationsunder the prime contract could result in our loss of oursubcontract.  In 2002, approximately 20% of our revenue wasderived under subcontracts with prime contractors.  Inaddition, our contract-related costs and fees, including allocatedindirect costs, are subject to audits and adjustments bynegotiation between us and the U.S. government.  As part ofthe audit process, the government audit agency verifies that allcharges made by a contractor against a contract are legitimate andappropriate.  Audits may result in recalculation of contractrevenues and non-reimbursement of some contract costs andfees.  Any audits of our contract-related costs and fees couldresult in material adjustments to our revenues.  In addition,U.S. government contracts are conditioned upon the continuingavailability of congressional appropriations.  Congressusually appropriates funds on a fiscal year basis even thoughcontract performance may take several years.  Consequently, atthe outset of a major program, the contract is usuallyincrementally funded and additional funds are normally committed tothe contract by the procuring agency as Congress makesappropriations for future fiscal years.  Any failure of suchagencies to continue to fund such contracts could have a materialadverse effect on our operating results.

      Our businesswith the U.S. government and prime contractors is generallyperformed under cost reimbursement, fixed-price or time andmaterials contracts.  Cost reimbursement contracts for thegovernment provide for reimbursement of costs plus the payment of afee.  Under fixed-price contracts, we agree to perform certainwork for a fixed price.  Under time and materials contracts,we are reimbursed for labor hours at negotiated hourly billingrates and are reimbursed for travel and other direct expenses atactual costs plus applied general and administrative expense. The following table gives the percentage of revenues realized by usfrom the three primary types of government contracts during theperiods indicated.
| ** **        | ** ** | **YearEnded December 31,** | ** ** |
|-------------------|------------|----------------------------|------------|
| ** **        | ** ** | ****                       | ** ** |
| **ContractType**  | ** ** | **2002**                   | ** ** | **2001** |  | **2000** | ** ** |
| ****              | ** ** | ****                       | ** ** | **** | ** ** | **** | ** ** |
| Time andMaterials |       | 42.6                       | %          | 41.5 | % | 38.6 | % |
| CostReimbursement |       | 36.3                       |       | 39.3 |   | 42.3 |   |
| Fixed-Price       |       | 21.1                       |       | 19.2 |  | 19.1 |   |
|              |       | ****                       |       | **** |   | **** |   |
|              |       | 100.0                      | %          | 100.0 | % | 100.0 | % |
|              |       |                            |       |  |   |  |   |

**Backlog**

      Contractsundertaken by us may extend beyond one year.  Accordingly,portions are carried forward from one year to the next as part ofbacklog.  Because many factors affect the scheduling ofprojects, no assurance can be given as to when revenue will berealized on projects included in our backlog. 

      Many of ourcontracts with the U.S. government are funded by the procuringagency from year to year, primarily based on its fiscalrequirements.  This results in two different categories ofU.S. government backlog: funded and unfunded backlog.  "Fundedbacklog" consists of the aggregate contract revenues remaining tobe earned by us at a given time, but only to the extent suchamounts have been appropriated by Congress and allocated to thecontract by the procuring government agency.  Although fundedbacklog is appropriated by Congress, we cannot guarantee thatcancellations or scope adjustments will not occur.  Themajority of funded backlog represents contracts under the terms ofwhich cancellation by the customer would entitle us to all or aportion of our costs incurred and potential cancellationfees.  "Unfunded backlog" consists of the aggregate contractrevenues expected to be earned as our customers incrementally allotfunding to existing contracts, whether we are acting as a primecontractor or subcontractor, and the aggregate contract revenues tobe funded on contracts which have been newly awarded to us. Unfunded backlog includes priced options, which consist of theaggregate contract revenues expected to be earned as a result of acustomer exercising an option period that has been specificallydefined in the original contract award.  "Backlog" is thetotal of the government and commercial funded and unfundedbacklog.

      Our backlogconsisted of the following approximate amounts as of the followingdates:

| ** **                      | ** ** | **As ofDecember 31,** |
|---------------------------------|------------|-----------------------|
| ** **                      | ** ** | ****                  |
| **Backlog**                     | ** ** | **2002**              | ** ** | **2001** | ** ** | **2000** |
| ****                            | ** ** | ****                  | ** ** | **** | ** ** | **** |
| ** **                      | ** ** | **(inthousands)**     |
| U.S. Government fundedbacklog   |       | $                     | 695,598 |   | $ | 545,569 |   | $ | 332,099 |
| U.S. Government unfundedbacklog |       |                  | 3,306,244 |   |   | 2,231,052 |   |   | 1,665,054 |
| Commercialbacklog               |       |                  | 39,568 |   |   | 26,788 |   |   | 24,187 |
|                            |       | ****                  |   | **** |   | **** |
| Total backlog                   |       | $                     | 4,041,410 |   | $ | 2,803,409 |   | $ | 2,021,340 |
|                            |       |                       |   |  |   |  |

      We expect torealize approximately 29% of our December 31, 2002 backlog byDecember 31, 2003.

      Managementbelieves that year-to-year comparisons of backlog are notnecessarily indicative of future revenues. The actual timing ofreceipt of revenues, if any, on projects included in backlog couldchange because many factors affect the scheduling ofprojects.  In addition, cancellations or adjustments tocontracts may occur.  Backlog is typically subject to largevariations from quarter to quarter as existing contracts arerenewed or new contracts are awarded.  Additionally, allUnited States government contracts included in backlog, whether ornot funded, may be terminated at the convenience of the UnitedStates government.

**Manufacturing **

      We operateboth fabrication and assembly facilities and also purchase certaincomponents and assemblies from other suppliers.  No onesupplier accounts for a significant portion of total purchases.  In limited cases, we obtain products from a sole supplier ora limited group of suppliers.  For example, Titan currentlyrelies upon SureBeam as an exclusive supplier of linearaccelerators for its medical sterilization business, and SureBeam,in turn, relies on one supplier for some of the key components usedto manufacture SureBeam's linear accelerators. Consequently, werisk disruptions in our supply of key products and components ifthese suppliers fail or are unable to perform because of strikes,natural disasters, financial condition or other factors.

**Patents, Trademarks andTrade Secrets**

      Our policy isto apply for patents and other appropriate statutory protectionwhen we develop new or improved technology, although we do not relyon patent protection in the normal course of our governmentcontract operations.  We presently hold over 100 U.S. andforeign issued patents, as well as a number of trademarks andcopyrights.  However, we do not rely solely on these statutoryprotections to protect our technology and intellectualproperty.  In addition to seeking patent protection for ourinventions, we rely on the laws of unfair competition and tradesecrets to protect our unpatented proprietary rights.  Weattempt to protect our trade secrets and other unpatentedproprietary information through agreements with customers, vendors,employees and consultants.  In addition, various names used byus for our products and services have been registered with theUnited States Patent and Trademark Office.

      Third partiescould independently develop competing technology or design aroundour technology.  If we are unable to successfully detectinfringement and enforce our rights in our technology, we may losecompetitive position in the applicable market.  We cannot becertain that our means of protecting our proprietary rights in theU.S. or abroad will be adequate or that competing companies willnot independently develop similar technology.

      To date wehave not been notified that our technologies infringe theproprietary rights of any third parties, but third parties may, inthe future, claim that our current or future technologies infringeupon their proprietary rights.  In addition, third partieshave and may continue to challenge the validity or enforceabilityof our proprietary rights.  Any such claim, whethermeritorious or not, could be time consuming, result in costlylitigation, cause delays in our development of technologies andproducts, or require us to enter into royalty or licensingagreements.  Such royalty or licensing agreements may not beavailable on terms acceptable to us, or at all.  As a result,any such claim could harm our business and prospects.

**Research andDevelopment**

      We maintain astaff of engineers, other scientific professionals and supportpersonnel engaged in development of new applications of technologyand improvement of existing products.  These programs' costsare expensed as incurred.  Titan-funded research anddevelopment expenditures were $5.7 million in the year endedDecember 31, 2000, $9.3 million in the year ended December 31,2001, and $9.6 million in the year ended December 31, 2002. Aportion of our research and development activities during 2002 wascustomer-funded and as such was paid for through contract revenueswith an associated expense in operating expenses.  All of ourcustomer-funded research and development activity is funded undercontracts with the U.S. government.

**Government andEnvironmental Regulations**

      We mustcomply with and are affected by various governmentregulations.  These regulations affect how we and ourcustomers can do business and, in some instances, impose addedcosts to our businesses.  Any changes in applicable laws couldadversely affect the financial performance of the business affectedby the changed regulations.  Any failure to comply withapplicable laws could result in material fines and penalties oraffect how we conduct our business in the future.

      We aresubject to environmental and safety laws and regulations governingthe use, storage and disposal of hazardous substances or wastes andimposing liability for the cleanup of contamination from thesesubstances.  Although our business is not generally involvedin the handling of hazardous materials, we cannot completelyeliminate the risk of contamination or injury from these substancesor wastes, and, in the event of such an incident, we could be heldliable for any damages that result.  From time to time, wehave been notified of violations of government and environmentalregulations.  We attempt to correct these violations promptlywithout any material impact on our operations.  In addition,we may be required to incur significant additional costs to complywith environmental laws and regulations in the future.  Thesecosts, and any future violations or liability under environmentallaws or regulations, could have a material adverse effect on ourbusiness, financial condition and results of operations.

      TitanWireless must comply with applicable laws and obtain the approvalof the regulatory authorities of each foreign country in which itoperates.  The laws and regulatory requirements relating tosatellite communications and other wireless communications systemsvary from country to country.  Some countries havesubstantially deregulated satellite communications and otherwireless communications, while other countries maintain strict andoften burdensome regulations.  The procedure to obtain theseregulatory approvals can be time-consuming and costly, and the termof the approvals vary from different countries.  In addition,in some countries there may be restrictions on the ability tointerconnect satellite communications with ground-basedcommunications systems.  Titan Wireless's sale of productsoutside the U.S. is also subject to compliance with the U.S. ExportAdministration Regulations.

**Employees**

      As ofDecember 31, 2002, we employed approximately 9,900 employees,most of whom were located in the United States.  We currentlyare not subject to collective bargaining arrangements, and webelieve that our relationships with our employees aresatisfactory.

**AvailableInformation**

      Our websiteaddress is www.titan.com.  We make available free of chargethrough our website our Annual Report on Form 10-K, QuarterlyReports on Form 10-Q, Current Reports on Form 8-K and allamendments for those reports as soon as reasonably practicableafter such material is electronically furnished to the Securitiesand Exchange Commission.

**Item 2.  Properties**

      Ouroperations' facilities occupy approximately 2,574,400 square feetof space located primarily throughout the United States.  Thelarge majority of the space is office space.  Substantiallyall of our facilities are leased.  We describe our leasecommitments in Note 10 to the accompanying consolidated financialstatements.

      As a resultof the merger of Titan Systems, Inc. into The Titan Corporation inSeptember 2002, a charge of approximately $32.2 million wastaken in 2002 for the consolidation of various Titan Systemsfacilities into centralized locations in Virginia andCalifornia.  This charge reflects the estimated losses, net ofestimated sublease income, on future lease commitments offacilities with terms extending through year 2009 and representingapproximately 395,000 square feet of excess space.  TheCompany is actively marketing the facilities for subleaseopportunities.  However, the available space is in marketsadversely affected by the economy and may not be subleased atattractive rates or at all.

**Item 3.  LegalProceedings**

      OnAugust 16, 2002, Perimex International Corporation (Perimex)filed a complaint against Titan, Titan Wireless and a former TitanWireless employee in San Diego Superior Court in San Diego,California.  The complaint alleges breach of contract, breachof the covenant of good faith and fair dealing, intentionalinterference with existing contractual relationships andprospective business advantage and violation of the Californiaunfair competition law arising from an alleged failure of TitanWireless to enter a joint venture with Perimex to provide wirelesstelecommunication services in Argentina and other related allegedmisconduct.  The complaint seeks damages of$53.65 million and seeks injunctive relief prohibiting Titanand Titan Wireless from transferring any of Titan Wireless’assets.  The court denied Perimex’s request for apreliminary injunction, sustained Titan and Titan Wireless’demurrer as to all causes of action in the complaint and grantedPerimex leave to amend the complaint.  The court also orderedPerimex to post a bond for $0.09 million to secure payment ofTitan and Titan Wireless’ costs if Titan prevails, or ifPerimex does not prevail.  Perimex elected not to post thebond, and the complaint was voluntarily dismissed without prejudiceby Perimex.  However, Perimex has the right to file a newcomplaint.  The Company believes that Perimex’s claimsare without merit and the Company intends to defend its positionvigorously.

      In theordinary course of business, defense contractors are subject tomany levels of audit and investigation by various governmentagencies. We have received a grand jurysubpoena from the Antitrust Division of the Department of Justicerequesting the production of documents relating to informationtechnology service we performed for the Air Force at Hanscom AirForce Base in Massachusetts.  We have been informed that othercompanies who have performed such services have received subpoenasas well.  We have been and continue to cooperate fully withthe investigation. 

      Further, we are subject to claims and from time to timeare named as defendants in various types of legalproceedings.  We may also assert claims from time totime.  Based upon current information and review, in theopinion of management, the amount of ultimate liability or recoverywith respect to these actions will not materially affect ourfinancial position or results of operations taken as a whole. However, our evaluation of the likely impact of these actions couldchange in the future and an unfavorable outcome, depending upon theamount and timing, could have a material adverse effect on ourresults of operations or our cash flows in a futureperiod.

**Item 4.  Submission of Matters Toa Vote of Security Holders**

      Noinformation is required by Item 4.

**PARTII**

**Item 5.  Market for the Company'sCommon Equity and Related Stockholder Matters**

      The Company'scommon stock and cumulative convertible preferred stock are tradedon the New York Stock Exchange (NYSE).  As of March 20, 2003,there were approximately 3,688 holders of record of the Company'scommon stock and 465 holders of record of the Company's preferredstock, excluding beneficial owners of shares held in the names ofbrokers or other nominees.  The closing prices for the commonand preferred stock on the NYSE as of March 20, 2003, were$7.58 and $15.50, respectively.  The quarterly market priceranges based on the high and low sales prices for the Company'scommon and preferred stock on the NYSE in 2002 and 2001 were asfollows:

| **CommonStock**   | ** ** | **2002** | ** ** | **2001** |
|-------------------|------------|----------|------------|----------|
|                   | ** ** | ****     | ** ** | ****     |
| **FiscalQuarter** | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** |
| ****              | ** ** | ****     | ** ** | ****     | ** ** | **** | ** ** | **** |
| First             |       | $        | 18.66      |     | $ | 12.64 |   | $ | 18.95 |   | $ | 11.71 |
| Second            |       |     | 17.43      |     |   | 12.72 |   |   | 18.70 |   |   | 9.81 |
| Third             |       |     | 13.64      |     |   | 6.62 |   |   | 16.71 |   |   | 12.07 |
| Fourth            |       |     | 13.94      |     |   | 8.86 |   |   | 21.57 |   |   | 13.25 |

| **CumulativeConvertible** | ** ** | **2002** | ** ** | **2001** |
|---------------------------|------------|----------|------------|----------|
| **PreferredStock**        | ** ** | ****     | ** ** | ****     |
| **Fiscal Quarter**        | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** |
| ****                      | ** ** | ****     | ** ** | ****     | ** ** | **** | ** ** | **** |
| First                     |       | $        | 20.40      |     | $ | 18.20 |   | $ | 21.25 |   | $ | 17.75 |
| Second                    |       |     | 19.80      |     |   | 17.15 |   |   | 20.85 |   |   | 15.55 |
| Third                     |       |     | 17.10      |     |   | 13.30 |   |   | 18.90 |   |   | 16.75 |
| Fourth                    |       |     | 17.35      |     |   | 15.30 |   |   | 21.30 |   |   | 17.00 |

      No cashdividends were paid on the Company's common stock in 2002 or2001.  Regular quarterly dividends of $.25 per share werepaid on the cumulative convertible preferred stock in bothyears. 

      On August 5,2002, we distributed to our stockholders in the form of a dividend0.6986 shares of SureBeam Corporation for each outstanding share ofTitan common stock.   The common stock prices presented abovefor periods before August 5, 2002 are restated stock prices andreflect the distribution of our ownership in SureBeam to ourstockholders.  The market prices were restated by dividing by1.345, the same adjustment made by Titan to outstanding Titan stockoptions to maintain the same aggregate intrinsic value of the stockoptions as before the spin-off.  See Note 12 to ourconsolidated financial statements.

**Equity CompensationPlan Information**

      The followingtable summarizes our equity compensation plans as ofDecember 31, 2002:
| **(Shares inthousands)**                              | ** ** | **Numberof securities to be issued upon exercise of options****(a)** | ** ** | **Weightedaverage exercise price of outstanding options (b)** | ** ** | **Numberof securities remaining available for future issuance under equity compensation plans (excluding securities reflected in   column (a))****(c)** |
|-------------------------------------------------------|------------|----------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                       |            | ****                                                                 |            | ****                                                          |            | ****                                                                                                                                                         |
| Equity compensation plansapproved by stockholders     |       | 11,006                                                               |       | $                                                             | 8.56       |                                                                                                                                                         | 6,186 |
| Equity compensation plansnot approved by stockholders |       | —                                                              |            |                                                               | —    |                                                                                                                                                              | — |
|                                                       |            |                                                                      |            |                                                               |            |                                                                                                                                                              |
| Total                                                 |       | 11,006                                                               |       | $                                                             | 8.56       |                                                                                                                                                              | 6,186 |
|                                                  |       |                                                                      |       |                                                               |       |                                                                                                                                                              |

**Item 6.  Selected FinancialData**(in thousands of dollars, except pershare data)

      The followingselected consolidated financial data should be read in conjunctionwith our consolidated financial statements and the related notesand “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”  The selectedconsolidated statement of operations data presented below for eachof the years ended December 31, 2002, 2001 and 2000, and thebalance sheet data at December 31, 2002 and 2001 are derived fromour consolidated financial statements included in thisfiling.  The consolidated statement of operations data for theyears ended December 31, 1999 and 1998 and the balance sheet dataat December 31, 2000, 1999, and 1998 are derived from auditedconsolidated financial statements not included in thisdocument.

| ** **                                                                                                                                                                                                          | ** ** | **2002** | ** ** | **2001** | ** ** | **2000**  | ** ** | **1999** | ** ** | **1998** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|-----------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                                                                                          | ** ** | ****     | ** ** | ****     | ** ** | ****      | ** ** | ****     | ** ** | ****     | ** ** |
| ***OperatingResults:***                                                                                                                                                                                             |       |     |       |     |       |      |       |     |       |     |       |   |   |   |   |   |
| Revenues                                                                                                                                                                                                            |       | $        | 1,392,160  |          | $          | 974,497   |       | $        | 846,208    |     | $          | 741,225 |   | $ | 525,519 |  |
| Income (loss) fromcontinuing    operations before extraordinary loss    and cumulative effect of change in    accounting principle                                     |       |     | (7,836     | )        |       | (3,457    | )          |     | (10,590    | )        |       | 37,660 |  |   | 18,540 |  |
| Income (loss) fromcontinuing    operations before extraordinary loss    and cumulative effect of change in    accounting principle per common    share: |       |     |            |          |       |           |            |     |            |          |       |  |  |   |  |  |
|       Basic                                                                                                                                                                           |       | $        | (.11       | )        | $          | (.13      | )          | $        | (.25       | )        | $          | .78 |  | $ | .43 |  |
|       Diluted                                                                                                                                                                         |       |     | (.11       | )        |       | (.13      | )          |     | (.25       | )        |       | .70 |  |   | .41 |  |
| ***Financial Position:***                                                                                                                                                                                           |       |     |            |          |       |           |            |     |            |          |       |  |  |   |  |  |
| Cash, cash equivalents andinvestments                                                                                                                                                                               |       | $        | 34,123     |          | $          | 18,621    |            | $        | 6,447      |          | $          | 12,970 |  | $ | 13,786 |  |
| Total assets                                                                                                                                                                                                        |       |     | 1,297,442  |          |       | 1,451,919 |            |     | 951,209    |          |       | 627,550 |  |   | 369,923 |  |
| Amounts outstanding underlines of    credit, long-term                                                                                                                                               |       |     | 344,750    |          |       | 317,187   |       |     | 260,625    |     |       | 215,014 |   |   | 98,215 |  |
| Other long-termdebt                                                                                                                                                                                                 |       |     | 2,045      |          |       | 5,612     |       |     | 1,250      |     |       | 5,749 |   |   | 36,796 |  |
| Company obligatedmandatory    redeemable convertible preferred    securities                                                                                                          |       |     | 250,000    |          |       | 250,000   |       |     | 250,000    |     |       | — |   |   | — |  |
| Stockholders'equity                                                                                                                                                                                                 |       |     | 312,313    |          |       | 496,958   |       |     | 167,416    |     |       | 166,348 |   |   | 98,440 |  |
| Preferreddividends                                                                                                                                                                                                  |       |     | 689        |          |       | 690       |       |     | 692        |     |       | 695 |   |   | 778 |  |

**Item 7.  Management's Discussion AndAnalysis Of Financial Condition And Results OfOperations**

(Amounts in thousands,except share and per share data, or as otherwise noted.)

      The followingdiscussion is qualified in its entirety by the more detailedinformation and consolidated financial statements, including thenotes thereto, included in this document.  The followingdiscussion of our financial condition and results of operationscontains forward looking statements that involve risks anduncertainties.  Our actual results may differ materially fromwhat is discussed in the forward-looking statements.  Factorsthat might cause such differences include those discussed belowunder the heading “Risk Factors.”

**Overview andOutlook**

      The TitanCorporation is a leading technology developer and systemsintegrator for the Department of Defense, the Department ofHomeland Security, and intelligence and other key governmentagencies.  We provide a range of services and systemssolutions.  These solutions and services include research anddevelopment, design, installation, integration, test, logisticssupport, maintenance and training.  We also provide servicesand solutions to government agencies with sophisticated informationsystems.  These include information processing, informationfusion, data management, and communication systems.  Inaddition, we develop and produce digital imaging products, sensors,lasers, electro-optical systems, threat simulation/trainingsystems, intelligence electronic hardware, signal interceptsystems, and complex military specific systems.

      We focus onthe following four markets:  C4ISR (Command, Control,Communications, Computers, Intelligence, Surveillance andReconnaissance), Transformational Programs, Enterprise IT, and theWar on Terrorism/Homeland Security.

      Prior to therecent developments discussed below, the Company grouped itsbusinesses into five business segments – Titan Systems, TitanWireless, Software Systems (including Cayenta), Titan Technologiesand the SureBeam business.  As discussed below, Titan is nolonger reporting the results of operations by these segments,however, reference may be made to these segments in discussions ofother historical information.

      OnOctober 16, 2001, Titan adopted a definitive plan to spin offits majority owned subsidiary SureBeam Corporation in the form of atax-free dividend to Titan stockholders within 12 months from thatdate.  The plan involved filing a letter ruling request withthe Internal Revenue Service to obtain approval of the tax-freedistribution.  Titan received a favorable ruling in May 2002,and on August 5, 2002, Titan’s remaining ownership interestin SureBeam was spun-off to Titan stockholders as a tax-freedividend.  Titan historically reported the SureBeam businessas a separate segment.  In accordance with AccountingPrinciples Board Opinion No. 30, "Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment ofa Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions," the consolidated financial statements ofTitan for all periods presented have been restated to reflectSureBeam as a discontinued operation.

      During thefirst quarter of 2002, Titan’s board of directors made thedecision to sell certain of its commercial information technologyoperations within its Cayenta segment and the AverCom businesswithin the Titan Technologies segment.  In accordance withStatement of Financial Accounting Standards No. 144,“Accounting for Impairment of Disposal of Long-LivedAssets,” (SFAS No. 144), all commercial operations that havebeen sold or that are held for sale have been reflected asdiscontinued operations for all periods presented in Titan’sconsolidated financial statements (see Note 6 to the accompanyingconsolidated financial statements).  For the year endedDecember 31, 2002, revenues from the Cayenta businesses wereapproximately $6.4 million.

      In July 2002,Titan’s board of directors made the decision to exit all ofits international telecommunications business through a combinationof selling and winding down its operations within its TitanWireless segment.  Titan began implementing these actionsimmediately and we expect to complete these actions during2003*. * The Company has reported this exit of the TitanWireless segment as a discontinued operation in accordance withSFAS No. 144 (see Note 6 to the accompanying consolidatedfinancial statements).  For the year ended December 31, 2002,Titan Wireless had revenues of approximately$130.3 million.

      InAugust 2002, Titan’s board of directors made thedecision to sell or otherwise divest its LinCom Wireless businessand to sell a remaining commercial information technology business,both of which were previously reported in the Company’s TitanTechnologies segment.  Accordingly, Titan has reflected bothoperations as discontinued in accordance with SFAS No. 144(see Note 6 to the accompanying consolidated financialstatements).  For the year ended December 31, 2002, revenuesfor these businesses, including AverCom, were approximately$31.4 million.

      As a resultof Titan’s decision in the third quarter of 2002 to exitsubstantially all of its remaining commercial businesses andbecause most of Titan’s remaining operations are itsgovernment businesses, Titan is no longer reporting the results ofoperations by segments in accordance with SFAS No. 131,“Disclosures about Segments of an Enterprise and RelatedInformation.”  Also, as a result of these decisions, theCompany merged its Titan Systems Corporation subsidiary, whichencompassed its primary government businesses, into The TitanCorporation on September 25, 2002 (see Note 1 to theaccompanying consolidated financial statements).

      Our revenueshave grown internally and through our strategy of increasing ourcore competencies and expanding our customer base through acquiringgovernment information technology companies as part of the generaltrend of the defense and government information technology industryconsolidation.

      Our operatingmargins are affected by the mix of contract types (costreimbursement, fixed-price or time and materials) as well as by themix of prime contracts versus subcontracts.  Significantportions of our contracts are time and materials and costreimbursement contracts.  We are reimbursed for labor hours atnegotiated hourly billing rates and other direct expenses undertime and materials contracts and reimbursed for all actual costs,plus a fee, or profit, under cost plus fixed fee contracts. The financial risks under these contracts generally are lower thanthose associated with other types of contracts, and margins arealso typically lower than those on fixed-price contracts.  TheU.S. government also has awarded us fixed-price contracts. Such contracts carry higher financial risks because we must deliverthe products, systems or contracted services at a cost below thefixed price in order to earn a profit.  Of our total revenuesfrom our government business in 2002, approximately 43% weregenerated by time and materials contracts, approximately 36% weregenerated by cost reimbursement contracts, and approximately 21%were generated by fixed-price contracts.

      During 2002,the Company completed three acquisitions within the U.S. Governmentbusiness that were accounted for using the purchase method and,accordingly, results of operations of the acquired companies areincluded in our operating results as of the date of thepurchase.  The following table represents selected dataregarding each acquisition.  For a more detailed discussion,refer to Note 3 to our consolidated financialstatements:

| **Name**                  |  | **Date ofAcquisition** |  | **Consideration Paid** |       | **Goodwilland Purchased Intangibles** |  |
|---------------------------|--|------------------------|--|------------------------|-------|---------------------------------------|--|
| ****                      |  | ****                   |  | ****                   |       | ****                                  |  |
| Wave Science,Inc.         |  | September 12,2002      |  | $                      | 8.5   | million*                              |  | $ | 8.2 | million |  |
| Jaycor, Inc.              |  | March 21, 2002         |  | $                      | 103.5 | million                               |  | $ | 45.9 | million |  |
| International Systems,LLC |  | February 22,2002       |  | $                      | 3.0   | million*                              |  | $ | 3.5 | million |  |

*Consideration paid issubject to adjustment if certain earn-out conditions areachieved.

      During 2001,the Company completed three acquisitions within the U.S. Governmentbusiness that were accounted for using the purchase method and,accordingly, results of operations of the acquired companies areincluded in our operating results as of the date of thepurchase.  The following table represents selected dataregarding each acquisition.  For a more detailed discussion,refer to Note 3 to our consolidated financialstatements:

| **Name**                                            |  | **Date ofAcquisition** |  | **Consideration Paid** |       | **Goodwilland Purchased Intangibles** |  |
|-----------------------------------------------------|--|------------------------|--|------------------------|-------|---------------------------------------|--|
| ****                                                |  | ****                   |  | ****                   |       | ****                                  |  |
| BTG, Inc.                                           |  | November 27,2001       |  | $                      | 135.5 | million                               |  | $ | 147.4 | million |  |
| Datron Systems,Inc.                                 |  | September 28,2001      |  | $                      | 48.9  | million                               |  | $ | 28.5 | million |  |
| Assets of MaxwellTechnologiesSystems Division, Inc. |  | March 23, 2001         |  | $                      | 10.7  | million                               |  | $ | 7.0 | million |  |

      During 2000,we consummated a merger with Advanced Communication Systems, Inc.,or ACS, in a stock-for-stock, pooling of intereststransaction.  ACS provides communications, information systemsand aerospace services and solutions primarily to U.S. governmentagencies.  We issued approximately 5,082,000 shares ofcommon stock for all the outstanding shares of ACS, and assumed ACSstock options representing approximately 263,000 shares of ourcommon stock.

      Also during2000, we consummated a merger with AverStar, Inc., orAverStar, in a stock-for-stock, pooling of intereststransaction.  AverStar provides services and software focusedon the areas of information technology assurance, informationtechnology development and information technology management andoperations for the mission-critical systems of civilian and defenseagencies of the U.S. government.  We issued approximately2,850,000 shares of common stock for all the outstanding shares ofAverStar common stock, and assumed AverStar stock optionsrepresenting approximately 551,000 shares of our commonstock. 

      In connectionwith the determination of the fair value of assets acquired inconnection with acquisitions in 2001, 2000 and 1999, and pursuantto the provisions of SFAS No. 141, the Company has valued acquiredcontracts in process at contract price, minus the estimated coststo complete and an allowance for the normal industry profit on itseffort to complete such contracts.  This adjustment has beenreflected in the accompanying balance sheet as an increase togoodwill and a corresponding increase to deferred profit.  TheCompany recognized approximately $2.3 million,$2.8 million, and $6.9 million as a reduction of costsagainst this deferred profit in 2002, 2001, and 2000,respectively.  The remaining amount of $0.8 million atDecember 31, 2002 is estimated to reduce costs through2007.

***DiscontinuedOperations***

***      ******·******      Titan Wireless(Discontinued July 11, 2002)  ***The Company is in the process of attempting to sell all of itsoperations within Titan Wireless, including all of the operationsdiscussed below.  Management expects to complete such saleswithin one year and believes that it is unlikely that Titan willmake significant changes to the plan or will withdraw theplan.  Accordingly, the Titan Wireless segment has beenreflected as a discontinued operation for all periodspresented.  Revenues for Titan Wireless were $130.3 millionand net loss was $155.4 million for the year ended December31, 2002.

      TitanWireless's wholly-owned subsidiary, Titan Africa, Inc.,completed work on a satellite-based communications system forBenin's national telephone company during 2001.  Under theterms of the applicable contracts governing the project, as part ofthe financing of this project, Titan Wireless will co-operate thesystem with the national telephone company of Benin until allequipment costs, including integration costs, have been paid forvia the revenues generated from the system and then transfer theoperations to the national telephone company of Benin.  Theterms of Titan Wireless's agreement with the OPT to pay for thisreceivable and further amounts include, among other things, arevenue sharing of total net receipts on this project for up to amaximum period of 9 years, depending upon when the equipmenthas been paid for.  The remaining carrying value of the netreceivable as of December 31, 2002 is approximately$34.6 million.  Approximately $2.4 million ofcollections were received in 2002, and approximately$3.7 million has been collected through March 25,2003.

      In 1999,Titan Wireless formed Sakon LLC with Sakon Corporation to providecarrier, direct dial telephony and enhanced communicationsservices, including voice over Internet protocol and Internetservices, in certain developing countries.  Titan Wirelessholds a 49.9% equity interest in Sakon LLC, which was converted inAugust 2002 from a 49.9% voting interest to an 15% voting interestand a 34.9% non-voting interest.

      On June 28, 2000, Titan Wireless Afripa Holding, Inc., asubsidiary of Titan Wireless, made a $5 million investment toacquire 80% of the outstanding equity interests in Ivoire TelecomS.A., a Luxembourg-chartered company that intended to engage,through various majority-owned local subsidiaries, in a wirelesstelecommunications business in Africa using a satellite uplinkthrough France.  Titan’s primary long-term investmentobjective was to acquire through the various majority-owned localsubsidiaries of Ivoire Telecom what Titan considered to bepotentially valuable telecommunications licenses in Africancountries, build out a supporting network and backbone system tocarry traffic in these countries and then, ultimately, to realizeits investment by sale of the fully operational business.  Atthe time of the initial equity investment, Titan also advanced anadditional $5.5 million to Ivoire Telecom for working capitalin exchange for a promissory note.  In addition, Titan agreedto lend Ivoire Telecom up to $35 million in additional fundspursuant to a line of credit agreement.  Such funds were to beused for capital and other expenditures necessary to acquirelicenses, fund operations and construct and build out the necessaryinfrastructure of Ivoire Telecom’s telecom network in Africa.  To that end, Titan also contributed equipment with anapproximate aggregate value of $4.5 million to IvoireTelecom.  In the third quarter of 2002, the entire carryingvalue of the investment of approximately $52 million wasdetermined to be impaired and written off.

      OnMarch 21, 2002, Titan completed the acquisition of GlobalNet,Inc. ("GlobalNet"), a provider of international voice, data, andInternet services that is part of the discontinued Wirelesssegment.  Titan issued approximately 1,452,800 shares ofcommon stock for all the common stock of GlobalNet at an aggregatevalue of $28.6 million, based on $19.67 per Titan share,the average trading price ending March 15, 2002, the date onwhich the formula for consideration became fixed, and assumed stockoptions and warrants representing approximately 77,900 sharesof Titan common stock at an aggregate value of $0.8 million,based on an exchange ratio of 0.3853 shares of Titan commonstock for each share of GlobalNet common stock.  GlobalNet'soperations from March 22, 2002 are reported in our TitanWireless business, which was discontinued in the third quarter of2002.  The transaction was accounted for as a purchase. The excess of the purchase price of $29.4 million over theestimated fair market value of the net liabilities acquired ofapproximately $26.4 million was approximately$55.8 million.  In April 2002, the Company had anindependent valuation completed by independent valuationspecialists Bearing Point (formerly KPMG Consulting, Inc.) toassist management in its purchase price allocation of the GlobalNetacquisition.  The independent valuation was the basis for theCompany’s allocation of $55.8 million to goodwill and $0to intangible assets as of March 31, 2002.  As ofDecember 31, 2002, the entire goodwill balance was written-offbased on estimates of fair value.

***      ******·******      Cayenta (Discontinued -previously included in our Software Systemssegment)***  InJuly 2002, the two information technology businesses ofCayenta were sold for approximately $3.5 millionconsideration, in the form of a promissory note, with$1.0 million due a year from the date of sale and theremaining balance due in eight equal quarterly installments withthe final payments due within 3 years from the sale date.  Inaddition, a maximum potential earn-out is available forapproximately $7.5 million based on certain future EBITDA(earnings before interest, taxes, depreciation and amortization)targets.  For the period from January 1, 2002 through the dateof sale, revenues for Cayenta were $6.4 million and net loss was$4.8 million.

***      ******·******      SureBeam (DiscontinuedOctober 2001)***  The Companydiscontinued the SureBeam segment in the third quarter of 2001 andin the third quarter of 2002, the Company completed a tax freespin-off transaction in which all of Titan’s shares ofSureBeam Corporation were distributed to Titanstockholders.

      Titan hasextended a $50 million senior secured revolving loancommitment to SureBeam that allows SureBeam to borrow up to$12.5 million in the second quarter of 2002, up to$17 million in the third quarter of 2002 and up to$12.5 million per quarter beginning in the fourth quarter of2002 through the fourth quarter of 2003, subject to the$50 million limitation on borrowing.  The amountavailable for borrowing in the second, third and fourth quarters of2003 is based upon SureBeam’s earnings before interest,taxes, depreciation and amortization (EBITDA) for the prior quarteras a percentage of the EBITDA target in its financial plansubmitted to Titan.  To the extent SureBeam does not fullyborrow the maximum amount during any quarter of 2002, theunutilized amount can be borrowed in the subsequent quarters. As of December 31, 2002, SureBeam had borrowed $25 million onthis facility, which amount is reflected as a non-current asset inOther Assets on the accompanying consolidated balance sheet. On February 3, 2003, SureBeam filed a Form 8-K with the Securitiesand Exchange Commission wherein SureBeam stated that they do notanticipate borrowing additional amounts on the credit facilityduring 2003 or during the remaining period that the credit facilityis outstanding.

***      ******·******      Titan Technologies(Substantially Discontinued August 2002) ***The Company is in the process of selling or has shut downsubstantially all of the operations in its Titan Technologiessegment.  Management expects to complete the sales within oneyear and believes that it is unlikely that Titan will make anysignificant changes to the plan or will withdraw the plan. Accordingly, these operations have been reflected as discontinuedoperations for all periods presented.  Revenues for theseoperations were $31.4 million and net loss was $48.0 millionfor the year ended December 31, 2002.

**DeferredCompensation**

      We haverecorded deferred compensation as follows:

*      Titan.*  Option grants to our employees in 1999exceeded the remaining common shares available under our stockoption plans.  Our stockholders approved our 2000 Employee andDirector Stock Option and Incentive Plan on May 30,2000.  The option grants in 1999 that were in excess of theshares available under our stock option plans at the time of theirgrant were placed under the 2000 stock option plan following itsapproval by our stockholders.  Under the provisions ofFinancial Accounting Standards Board Interpretation No. 44"Accounting for Certain Transactions Involving Stock Compensation"(an Interpretation of APB Opinion No. 25), the approval date forthe 2000 stock option plan becomes the grant date for purposes ofcomparing the market value of the shares covered by those optiongrants against those options' exercise price.  This resultedin deferred compensation of $15.6 million in 2000.  Thedeferred compensation is being amortized to expense over thefour-year vesting period of the applicable option grants, including$4.9 million expensed in 2000 and $3.9 million expensedin 2002 and 2001.  Unamortized deferred compensation as ofDecember 31, 2002, was $2.4 million, which will be fullyamortized during 2003.

      OnSeptember 25, 2002, Titan Systems Corporation, our nationalsecurity subsidiary, was merged into The Titan Corporation. As a result of this merger, outstanding stock options held byemployees of Titan Systems Corporation were exchanged using anexchange ratio of .8371, for approximately 5.2 million stockoptions in The Titan Corporation.  The exchange ratio wasdetermined by Titan using a valuation of Titan Systems Corporation,as determined by a globally recognized valuation firm, and theaverage of The Titan Corporation closing stock price for the20 trading days ending on the day before themerger.

      The exchangeof Titan options resulted in a non-cash deferred compensationcharge of approximately $21.3 million in the third quarter of2002, which is reflected in selling, general and administrativeexpense in the accompanying consolidated statements ofoperations.  Approximately $2.0 million was amortized inthe fourth quarter of 2002.  Additional non-cash deferredcompensation of approximately $6.4 million will be amortizedover the next three years as the options vest over time. Deferred compensation expense of $0.6 million was recognizedin 2002 related to Titan Systems options transactions before themerger.

*      SureBeam(Discontinued).*  During 2000,SureBeam recorded deferred compensation of approximately$3.2 million which resulted in a non-cash compensationamortization expense of approximately $0.6 million. SureBeam also recorded $78.6 million as deferred compensationat the time its initial public offering closed reflecting thedifference between the fair value of the options on the date ofgrant and the initial public offering price of $10.00 pershare.  This amount was recognized as a non-cash charge toSureBeam's earnings of approximately $38.9 million inMarch 2001 at the time its initial public offering closed,with the balance being recognized over the remaining vesting periodof the options of up to four years.  For the year endedDecember 31, 2001, approximately $54.3 million of deferredcompensation was expensed and approximately $7.6 million wasexpensed in 2002 prior to the tax free spin-off of SureBeam.

      *Cayenta(Discontinued).*  Under its variable stock optionplan, Cayenta had granted options to certain employees who agreedto resell shares purchased with those options to Cayenta. Cayenta recorded deferred compensation amortization related tothese option grants of approximately $0.6 million in the year endedDecember 31, 2000.  Cayenta also issued options to employeesnot covered by this buyback option at exercise prices that wereless than the deemed fair market value of the underlying commonshares on the date of grant.  Cayenta recorded deferredcompensation amortization relating to these grants of approximately$0.4 million in 2001 and $0.2 million in2002. 

      The followingtables set forth the results of operations expressed in dollars (inthousands) and as a percentage of revenues for the yearsbelow:
| ** **                                                | ** ** | **Consolidated Financial Data****Year Ended December 31,****** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| ** **                                                | ** ** | ****                                                                | ** ** |
| ** **                                                | ** ** | **2002**                                                            | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                | ** ** | ****                                                                | ** ** | **** | ** ** | **** | ** ** |
| Revenues                                                  |       | $                                                                   | 1,392,160  |  | $ | 974,497 |  | $ | 846,208 |  |
| Cost ofrevenues                                           |       |                                                                | 1,129,061  |  |   | 755,115 |  |   | 648,080 |  |
| Selling, general andadministrative                        |       |                                                                | 179,559    |  |   | 154,514 |  |   | 147,401 |  |
| Research anddevelopment                                   |       |                                                                | 9,555      |  |   | 9,310 |  |   | 5,701 |  |
| Valuation allowance foraccounts receivable                |       |                                                                | —    |  |   | — |  |   | 10,000 |  |
| Gain on sale ofIPivot                                     |       |                                                                | —    |  |   | — |  |   | (2,140 | ) |
| Exit and restructuringcharges and other                   |            |                                                                     | 53,317     |  |  | — |  |  | — |  |
| Acquisition andintegration related charges and other      |       |                                                                | —    |  |   | 27,847 |  |   | 28,820 |  |
|                                                      |       | ****                                                                |       | **** |   | **** |   |
| Operatingprofit                                           |       |                                                                | 20,668     |  |   | 27,711 |  |   | 8,346 |  |
| Interest expense,net                                      |       |                                                                | 30,956     |  |   | 34,890 |  |   | 32,400 |  |
| Income tax provision(benefit)                             |       |                                                                | (2,452     | ) |   | 1,007 |  |   | (11,308 | ) |
| Minorityinterests                                         |       |                                                                | —    |  |   | 4,729 |  |   | 2,156 |  |
| Loss from discontinuedoperations, net                     |       |                                                                | (218,106   | ) |   | (95,157 | ) |   | (3,394 | ) |
| Extraordinary loss fromearly extinguishments of debt, net |       |                                                                | (5,408     | ) |   | — |  |   | (4,744 | ) |
| Cumulative effect ofchange in accounting principle, net   |       |                                                                | (40,111    | ) |   | — |  |   | — |  |
|                                                      |       | ****                                                                |       | **** |   | **** |   |
| Net loss                                                  |       | $                                                                   | (271,461   | ) | $ | (98,614 | ) | $ | (18,728 | ) |
|                                                      |       |                                                                     |       |  |   |  |   |

**As a Percentage ofRevenues**

| ** **                                                | ** ** | **YearEnded December 31,****** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                | ** ** | ****                                | ** ** |
| ** **                                                | ** ** | **2002**                            | ** ** | **2001** | ** ** | **2000** | ** ** |
| ** **                                                | ** ** | ****                                | ** ** | **** | ** ** | **** | ** ** |
| Revenues                                                  |       | 100.0                               |            | % | 100.0 |  | % | 100.0 |  | % |
| Cost ofrevenues                                           |       | 81.1                                |            | 77.4 |  | 76.6 |  |
| Selling, general andadministrative                        |       | 12.9                                |            | 15.9 |  | 17.4 |  |
| Research anddevelopment                                   |       | 0.7                                 |            | 1.0 |  | 0.7 |  |
| Valuation allowance foraccounts receivable                |       | —                             |            | — |  | 1.2 |  |
| Gain on sale ofIPivot                                     |       | —                             |            | — |  | (0.3 | ) |
| Exit and restructuringcharges and other                   |            | 3.8                                 |            | — |  | — |  |
| Acquisition andintegration related charges and other      |       | —                             |            | 2.9 |  | 3.4 |  |
|                                                      |       | ****                                |       | **** |   | **** |   |
| Operatingprofit                                           |       | 1.5                                 |            | 2.8 |  | 1.0 |  |
| Interest expense,net                                      |       | 2.2                                 |            | 3.6 |  | 3.8 |  |
| Income tax provision(benefit)                             |       | (0.2                                | )          | 0.1 |  | (1.3 | ) |
| Minorityinterests                                         |       | —                             |            | 0.5 |  | 0.3 |  |
| Loss from discontinuedoperations, net                     |       | (15.7                               | )          | (9.7 | ) | (0.4 | ) |
| Extraordinary loss fromearly extinguishments of debt, net |       | (0.4                                | )          | — |  | (0.6 | ) |
| Cumulative effect ofchange in accounting principle, net   |            | (2.9                                | )          | — |  | — |  |
|                                                      |       | ****                                |       | **** |   | **** |   |
| Net loss                                                  |       | (19.5                               | )          | % | (10.1 | ) | % | (2.2 | ) | % |
|                                                      |       |                                     |       |  |   |  |   |

**Results ofOperations**

      Prior to thediscontinuance of operations discussed in the Overview and Outlook,the Company grouped its businesses into five business segments– Titan Systems, Titan Wireless, Software Systems (includingCayenta), Titan Technologies and the SureBeam business.  Asdiscussed above, Titan is no longer reporting the results ofoperations by these segments, however, reference may be made tothese segments in discussions of other historicalinformation.

***Fiscal Years EndedDecember 31, 2000, 2001, and 2002***

*Revenues*

      *Consolidated.*  Ourconsolidated revenues increased from $846.2 million in 2000 to$974.5 million in 2001 and from $974.5 million in 2001 to$1.4 billion in 2002.  Revenue growth in 2002 wasprimarily attributable to internal revenue growth and the impact ofthe acquisition of Jaycor, Inc. made in March 2002, and a full yearof operations generated by Datron Systems ("Datron") and BTG, Inc.("BTG"), companies acquired in the latter half of 2001, whichcontributed an aggregate of approximately $361 million to the increase in 2002.  The internal revenue growth in 2002reflects increased demand from the intelligence community andHomeland Security agencies, including systems integration servicesand cryptological equipment for U.S. and Allied intelligenceagencies, vulnerability assessments and first responder operationstraining on Homeland Security contracts, and Armed Servicestechnical services such as linguist support, specifically relatedto the war on terrorism.  Increased revenues were also drivenby the ramp up of work on Titan’s enterprise informationtechnology contract with the U.S. Special Operations Command, andwork for the Air Force’s Electronic Systems Center on avariety of technical, engineering and acquisition supportcontracts.  Revenue growth in 2001 was primarily attributableto internal revenue growth in certain of our information andintelligence solutions and logistics management businesses, as wellas to a lesser extent, the impact of the acquisitions of Datron andBTG made in 2001 which contributed approximately $34.1 millionin 2001.  In addition, revenues of approximately$16.4 million were generated in 2001 on Titan's contract withthe United States Postal Service (USPS) to provide mailsanitization systems.  The internal revenue growth in 2001reflects strong demand from the Air Force for information solutionssupport, and from the Army for acquisition and logisticsmanagement, systems engineering for intelligence agencies, softwaretest and evaluation, and a variety of other technical services, aswell as assisting the Navy in transformationinitiatives.

*Selling, General andAdministrative*

      Our SG&Aexpenses increased from $147.4 million in 2000 to$154.5 million in 2001 and from $154.5 million in 2001 to$179.6 million in 2002.  SG&A, as a percentage ofrevenues, decreased from 17.4% in 2000 to 15.9% in 2001 and from15.9% in 2001 to 12.9% in 2002.  The 2001 SG&A wasimpacted by increased goodwill amortization from $9.9 millionin 2000 to $10.0 million in 2001, and decreased deferredcompensation amortization from $5.5 million in 2000 to$4.3 million in 2001.  Excluding the goodwillamortization and deferred compensation amortization, SG&Adecreased from 15.6% in 2000 to 14.4% in 2001, due primarily tocost reductions and consolidation activities.  The 2002SG&A was impacted by amortization of purchased intangibles of$5.7 million compared to amortization of goodwill of$10.0 million in 2001, and an increase in the amortization ofdeferred compensation from $4.3 million in 2001 to$27.8 million in 2002.  The amortization of deferredcompensation in 2002 includes approximately $23.3 millionresulting from the merger of Titan’s national securitysubsidiary, Titan Systems, into Titan, which occurred on September25, 2002, and resulted in the exchange of all outstanding TitanSystems stock options for Titan Corporation stock options. The decrease in 2002 was attributable to cost reductions and otherconsolidation activities performed in early 2002, as well asoverall increased economies of scale with higherrevenues. 

*Research andDevelopment*

      Our R&Dexpenses increased from $5.7 million in 2000 to$9.3 million in 2001 and from $9.3 million in 2001 to$9.6 million in 2002.  The increased R&D expendituresin 2002 were primarily attributable to increased developmentexpenses incurred to develop software reprogrammable modems anddigital radios for military and homeland securityapplications.  The increased R&D expenditures in 2001 wereprimarily related to development of software reprogrammable modemsand network control software.

*Exit and RestructuringCharges and Other*

      Included inthe year ended December 31, 2002 is $53.3 million ofrestructuring costs related to the merger of Titan Systems intoTitan on September 25, 2002 and exit charges related to theshutdown of Cayenta’s headquarters office. Approximately $11.7 million of these exit charges are relatedto the shutdown of the Cayenta headquarters office and networkoperations center, which includes employee termination costs andother liabilities of approximately $4.5 million, leasecommitment costs of approximately $4.8 million, and non-cashasset impairment charges of approximately $2.4 millionrelating primarily to the unamortized leasehold improvements andother fixed assets at the Cayenta headquarters.  The remaininglease commitment costs are expected to be paid through futureperiods ending in January 2007.  Included in the employeetermination costs are 33 personnel reductions.

      Approximately$39.9 million of the restructuring charges were related to themerger of Titan Systems into Titan and other associatedreorganization and consolidation costs.  The costs includedapproximately $32.2 million for the consolidation of variousTitan Systems facilities into centralized locations in Virginia andCalifornia.  This charge reflects the estimated losses, net ofestimated sublease income, on future lease commitments offacilities with terms extending through year 2009.  TheCompany is actively marketing the 395,000 square feet of facilitiesfor sublease opportunities.  However, the available space isin markets adversely affected by the economy and may not besubleased at attractive rates or at all.  Included in theemployee termination costs are 19 personnel reductions.

      Approximately$7.7 million of the Titan Systems restructuring costs areprimarily related to employee termination costs, employee retentioncosts, duplicate transition costs and professional fees related toacquisitions and certain reorganization and consolidationactivities within Titan Systems.

      The remaining$1.7 million is related to direct transaction costs incurred byTitan on acquisitions that did not successfully close - primarilythe Science and Engineering Associates, Inc. proposedacquisition.

      A summary ofexit and restructuring charges and other recorded and utilizationof those accruals during the year ended December 31, 2002 are asfollows (in millions):

|                                                                                   |  | **Charges recorded in 2002** |      | **Asset Disposals** |        | **  Cash paid 2002** |  | **EndingBalance December 31, 2002** |         |
|-----------------------------------------------------------------------------------|--|------------------------------|------|---------------------|--------|---------------------------|--|-------------------------------------|---------|
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
| Titan Systemsrestructuring:                                                       |  |                              |      |                     |        |                           |  |                                     |         |  |  |  |  |
|       Estimatedfacilities consolidation costs       |  | $                            | 32.2 |                | $      | —                   |  | $                                   | 0.1     |  | $ | 32.1 |  |
|       Employeetermination/retention costs and other |  |                              | 7.7  |                |        | —                   |  |                                | 6.0     |  |   | 1.7 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  |                              | 39.9 |                     |        | —                   |  |                                     | 6.1     |  |  | 33.8 |  |
| Unsuccessful transactioncosts                                                     |  |                              | 1.7  |                |   | —                   |  |                                     | 1.1     |  |  | 0.6 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  |                              | 41.6 |                |   | —                   |  |                                     | 7.2     |  |  | 34.4 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
| Cayenta headquarters exitcosts:                                                   |  |                              |      |                |   |                           |  |                                     |         |  |  |  |  |
|       Leasecommitment costs                         |  |                              | 4.8  |                |   | —                   |  |                                     | 1.6     |  |  | 3.2 |  |
|       Assetimpairment costs                         |  |                              | 2.4  |                     |        | 2.4                       |  |                                     | — |  |  | — |  |
|       Employeetermination costs and other           |  |                              | 4.5  |                     |        | —                   |  |                                     | 4.3     |  |  | 0.2 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  |                              | 11.7 |                |   | 2.4                       |  |                                     | 5.9     |  |  | 3.4 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  | $                            | 53.3 |                | $      | 2.4                       |  | $                                   | 13.1    |  | $ | 37.8 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |

      At December31, 2002, a total of $20.9 million and $16.9 million ofliabilities remained on the accompanying consolidated balance sheetin Other Accrued Liabilities and Other Non-current Liabilities,respectively, related to exit and restructuring activitiesinitiated in 2002.  All exit and restructuring chargesrecorded in 2002 were recorded in accordance with EITF 94-3,“Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity.”  Theremaining liability balance is primarily comprised of amounts dueunder the facilities consolidation, which requires payments in 2003and 2004 for certain lease cancellation fees and other lease costs,with the remainder expected to be paid over the remaining leaseterms, which expire in 2009.

*Acquisition andIntegration Related Charges and Other*

      Acquisitionand integration related charges and other for the years endedDecember 31, 2001 and 2000 are described in more detail below witha rollforward of the accrual balances at the end of each period(amounts in millions):

|                                               |        | Charges in2000 |         | Uses 2000 |        | Ending Balance December 31, 2000 |        | Charges in2001 |         | Uses 2001 |        | Ending Balance December 31, 2001 |        | Uses 2002 |         | Ending Balance December 31, 2002 |        |
|-----------------------------------------------|--------|----------------|---------|-----------|--------|----------------------------------|--------|----------------|---------|-----------|--------|----------------------------------|--------|-----------|---------|----------------------------------|--------|
|                                               |        |                |         |           |        |                                  |        |                |         |           |        |                                  |        |           |         |                                  |        |
| Employee terminationcosts                     |        | $              | 7.7     |      | $      | 6.4                              |   | $              | 1.3     |      | $      | 6.2                              |   | $         | 7.5     |                                  | $      | — |  | $ | — |  | $ | — |   |
| Elimination of duplicatefacilities and assets |        |                | 4.1     |      |   | 1.6                              |   |           | 2.5     |      |   | 2.7                              |   |      | 3.9     |                                  |   | 1.3 |   |   | 1.3 |   |   | — |   |
| Acquisition relatedtransaction costs          |        |                | 11.6    |      |   | 11.6                             |   |           | — |      |   | —                          |   |      | — |                                  |   | — |   |   | — |   |   | — |   |
| Non-cash assetimpairments                     |        |                | 5.4     |      |   | 5.4                              |   |           | — |      |   | 16.0                             |   |      | 16.0    |                                  |   | — |   |   | — |   |   | — |   |
| Pre-acquisitioncontingencies                  |        |                | — |      |   | —                          |   |           | — |      |   | 3.0                              |   |      | 3.0     |                                  |   | — |   |   | — |   |   | — |   |
|                                               |        |                |         |           |        |                                  |        |                |         |           |        |                                  |        |           |         |                                  |        |
|                                               |        | $              | 28.8    |      | $      | 25.0                             |   | $              | 3.8     |      | $      | 27.9                             |   | $         | 30.4    |                                  | $      | 1.3 |   | $ | 1.3 |   | $ | — |   |
|                                               |   |                |    |           |   |                                  |   |                |    |           |   |                                  |   |           |    |                                  |        |

      During 2002,all remaining liabilities were paid.

*Fiscal 2001Charges*

      Acquisitionand integration related charges and other of $27.9 million in2001 included $12.2 million related to the integration of ACSand AverStar and other restructuring and realignment activities inour government business, a $5.5 million impairment charge forfixed assets associated with Cayenta’s network operationscenter and $10.0 million related to other asset impairmentsand restructuring activities associated with Cayenta’sheadquarters office, and $0.2 million related to personnelreductions in Cayenta’s federal government business, which isnow a part of Titan’s government business.

      The$12.2 million charge is primarily related to the integrationof ACS and AverStar, and a realignment of the business around themajor categories of customers of our government businesses, whichtogether resulted in a reduction in employee workforce ofapproximately 50 employees and the closing of severalfacilities.  Included in these costs is approximately$3.2 million of employee termination costs, $2.0 millionof costs to eliminate duplicate and excess facilities and assets,$1.1 million of duplicate personnel costs to transitionprocesses and functions, and $2.9 million of asset impairmentcosts of certain asset balances.  The recoverability of suchbalances was impaired due to our exit from a satellite servicesbusiness within our government business.  Approximately$3.0 million of the charge was related to another subsidiaryacquired in a prior year for contingencies arising from matterspre-existing to Titan's acquisition of the business.  Thatacquisition was accounted for as a purchase, and the matterspre-existing Titan's acquisition were resolved in 2001. Unpaid amounts of approximately $1.3 million as of December31, 2001 related to excess facilities and personnel costs were paidin 2002.

      Included inCayenta's headquarters office operating results is a charge for$15.5 million related to the restructuring of Cayenta’sheadquarters office.  As a result of reduced corporatespending on commercial information technology services ande-business software applications, the Company developed andapproved a plan to restructure the Cayenta headquarters and networkoperations center, which included a reduction in workforce ofapproximately 40 personnel, resulting in a charge of$1.7 million, and the elimination of duplicate and excessfacilities, resulting in a charge of approximately$0.8 million.  As a result of management's evaluation ofthe recoverability of all the assets of Cayenta, in accordance withStatement of Financial Accounting Standards No. 121, "Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assetsto be Disposed Of", management concluded from this evaluation thata significant impairment of long-lived assets had occurred. An impairment charge was required because the estimated fair valuewas less than the carrying value of the assets.  Theimpairment charge of $13.0 million was comprised of thefollowing: $5.5 million for fixed assets associated withCayenta's network operations center, $2.0 million for prepaidadvertising costs and $5.3 million for Cayenta's investment inSoliance, LLC, a joint venture that markets and deliversinformation technology systems and solutions to the utilityindustry, and $0.2 million for certain otherassets.

*Fiscal 2000Charges*

      Acquisitionrelated charges of $28.8 million in 2000 include costs of$20.5 million related to the ACS merger including directtransaction costs of approximately $9.2 million comprised ofaccounting, legal, investing banking, financial printing and otherdirect costs.  Also included in the ACS merger costs was awrite-down of approximately $5.4 million related to theimpairment of certain receivables, for which the realizability ofsuch assets was impaired as a result of the merger with Titan,which impacted the recoverability of certain contract costs,employee termination costs of approximately $2.1 million, and$3.8 million of costs to eliminate duplicate facilities andassets.  In addition, the Company recorded a valuationallowance of $10.0 million in connection with certain of theCompany's integration activities, particularly as they relate toconforming ACS to Titan's accounting policies and procedures, andin determining appropriate valuation allowances against unbilledreceivables which may not be realizable under normal contractreimbursement cycles.  Unpaid amounts at December 31,2000 of $3.8 million representing primarily costs for excessfacilities and personnel costs were paid by December 31,2001. 

      Included inacquisition related charges in 2002 is $8.3 million related tothe merger with AverStar.  These costs consisted ofapproximately $2.4 million of direct transaction costs,approximately $5.6 million of employee termination costs, andcosts to eliminate duplicate facilities of approximately$0.3 million. 

*Gain on Sale ofIPivot*

      On October26, 1999, the Company received approximately $41.8 million incash as a result of the acquisition by Intel Corporation of IPivot,Inc. ("IPivot"), a technology spin-off from Titan.  The cashpayment to the Company was for its ownership interest in IPivot ofapproximately 8% after the dilutive impact of IPivot stock options,warrants and other equity investments.  In addition,approximately $3 million was received in October 2000 as finalconsideration, and net of expenses, resulted in a net gain ofapproximately $2.1 million. 

*OperatingProfit*

      *Consolidated.  *Our operating profit increased from $8.3 million in 2000 to$27.7 million in 2001 and decreased from $27.7 million in2001 to $20.7 million in 2002.  Our operating profitshave been significantly impacted by a number of factors in each of2000, 2001 and 2002.  The 2000 operating results include theacquisition charges of $28.8 million noted above, as well as a$10.0 million charge for a valuation allowance for accountsreceivable balances and a $2.1 million gain on sale.  The2001 operating results include the acquisition and integrationrelated charges and other of $27.9 million noted above, andthe 2002 operating results include the exit and restructuringcharges and other of $53.3 million noted above.  Alsoimpacting the results in each year was amortization of goodwill andpurchased intangibles of $9.9 million in 2000,$10.0 million in 2001, and $5.7 million in 2002 anddeferred compensation amortization of $5.5 million in 2000,$4.3 million in 2001 and $27.8 million in 2002. Operating income in 2001 and 2002 increased primarily due to theincreased revenue volume discussed previously.

*Interest Expense,Net*

      Our netinterest expense increased from $32.4 million in 2000 to$34.9 million in 2001 and decreased from $34.9 million in2001 to $31.0 million in 2002.  The decrease in 2002 wasdue to lower interest rates on our senior credit facility. Net interest expense increased in 2001 primarily as a direct resultof the increased level of our borrowings, to primarily fundinternal growth and to fund the acquisitions made in our governmentbusinesses segment during 2000 and 2001 and in our Software Systemssegment (discontinued during the first quarter of 2002) during 2000and to fund investments made in our commercial businesses,primarily Titan Wireless.  Borrowings from our primary bankcredit facility, excluding working capital lines from acquiredcompanies, averaged $196.9 million at a weighted averageinterest rate of 10.5% during 2000, $337.3 million at aweighted average interest rate of 7.5% during 2001, and$350.2 million at a weighted average interest rate of 5.14%during 2002.  Also included in interest expense is interest onour deferred compensation plan and retiree medicalobligations.  Interest expense related to these items was$0.6 million for 2000, $0.7 million for 2001, and$0.8 million for 2002.

*IncomeTaxes*

      Consolidatedincome taxes reflect effective rates of a benefit of 47% in 2000, aprovision of 14% in 2001 reflecting a $1.0 million provisionon a pre-tax loss of $7.2 million, and a benefit of 24% in2002.  The increased provision in 2001 was primarily due tothe impact of the relationship of significant permanentnon-deductible items compared to the book loss for theperiod.  The reduced benefit rate in 2002 as compared to thestatutory tax rate reflects the effect of additional state taxesdue to separate state filings. 

*Loss From DiscontinuedOperations*

      Our loss fromdiscontinued operations includes the results of operations for ourTitan Wireless business, certain components of our Cayentabusiness, our AverCom business, our LinCom Wireless business andSureBeam (which was spun-off in August 2002).  Excluded fromthe loss from discontinued operations is a charge of $50.1 millionfor the impairment of goodwill which was recorded on January 1,2002 when the Company adopted SFAS No. 142, which has beenreflected as the cumulative effect of a change in accountingprinciple.  Following is a summary of the operating resultsfor the discontinued operations (amounts in millions).

|                                                  |            | **YearEnded December 31,** |            |
|--------------------------------------------------|------------|----------------------------|------------|
|                                                  |            | ****                       |            |
| ** **                                       | ** ** | **2002**                   | ** ** | **2001** | ** ** | **2000** |  |
| ** **                                       | ** ** | ****                       | ** ** | **** | ** ** | **** |  |
| Impairment ofgoodwill                            |       | $                          | (97.0      | ) | $ | — |  | $ | — |  |
| Impairment of fixed assetsand other              |       |                            | (162.4     | ) |  | (3.7 | ) |  | — |  |
| Exit charges                                     |       |                       | (24.5      | ) |   | (4.6 | ) |   | — |  |
| ** **                                       | ** ** | ****                       | ** ** | **** | ** ** | **** |  |
|                                                  |            |                            | (283.9     | ) |  | (8.3 | ) |  | — |  |
| Pre-tax losses beforeimpairment and exit charges |            |                            | (43.5      | ) |  | (94.7 | ) |  | 2.4 |  |
| ** **                                       | ** ** | ****                       | ** ** | **** | ** ** | **** |  |
|                                                  |            |                            | (327.4     | ) |  | (103.0 | ) |  | 2.4 |  |
| Tax provision(benefit)                           |            |                            | (109.3     | ) |  | (7.8 | ) |  | 5.8 |  |
| ** **                                       | ** ** | ****                       | ** ** | **** | ** ** | **** |  |
| Loss from discontinuedoperations, net of taxes   |            | $                          | (218.1     | ) | $ | (95.2 | ) | $ | (3.4 | ) |
| ** **                                       | ** ** | ****                       | ** ** | **** | ** ** | **** |  |

      Refer to Note6 to our consolidated financial statements for further discussionof discontinued operations.

*Net Income(Loss)*

      We reportednet loss of $18.7 million in 2000, net loss of$98.6 million in 2001, and net loss of $271.5 million in2002.  Included in net loss for 2000, 2001 and 2002 are netlosses from discontinued operations of $3.4 million,$95.2 million and $218.1 million, respectively.  Thediscontinued operations in these years include SureBeam, certaincomponents of our Cayenta business, our AverCom business, our TitanWireless business, our LinCom Wireless business, and to a lesserdegree, our access control systems business and the disposal of ourcommercial information security and assurance business, as well asoperations discontinued by certain of the companies acquired by usduring 2000.  Included in the net loss for 2002 is a charge of$40.1 million, net of tax, for the Company’s adoption ofSFAS No. 142, which is reported as a cumulative effect of a changein accounting principle, and an extraordinary loss of$5.4 million, net of tax, related to the Company’sextinguishment of its former credit facility.  Included in thenet loss for 2000 is an extraordinary loss of $4.7 million,net of tax, related to the early extinguishments of AverStar'scredit facility in the second quarter of 2000 and our creditfacility with Scotia Bank in the first quarter of 2000.  Alsoincluded in the 2000, 2001 and 2002 results are goodwill andpurchased intangibles amortization of $9.9 million,$10.0 million and $5.7 million, respectively, a deferredcompensation charge of $5.5 million, $4.3 million and$27.8 million, respectively, and exit and restructuring andacquisition and integration related charges and other of$28.8 million, $27.9 million and $53.3 million,respectively.  Also included in 2000 is a valuation allowancefor accounts receivable balances of $10.0 million. Included in the 2000 net loss is a gain from the sale of ourinterest of IPivot for $2.1 million.

**Liquidity and CapitalResources**

      We have usedour cash and cash equivalents principally to fund investments,capital expenditures and operating losses of our discontinuedoperations.  In 2002, net cash flow from our continuingoperations provided $155.7 million, primarily resulting from adecrease in accounts receivable balances of $63.5 million andan increase in accounts payable and other liabilities of $46.3million.  The decrease in accounts receivable balances,occurring while revenues increased substantially, was the result ofimproved management and resources dedicated to our billing andcollection effort in 2002.  Our discontinued operations usedcash of $134.4 million, which includes approximately$31.2 million for the SureBeam business prior to the spin-offdate of August 5, 2002.  Although SureBeam has been astand-alone public company since March 2001, Titan has consolidatedthe operating results and financial condition of SureBeam throughthe date of spin-off.  The remaining $103.2 million fordiscontinued operations was primarily related to the workingcapital requirements, investments, and funding of exit activitiesof our discontinued businesses of Titan Wireless, LinCom Wirelessand Cayenta.  We fund our cash requirements principally fromcash flows from our core government business, and to a lesserdegree, borrowings under our senior credit facility and proceedsfrom the sale of our securities. 

      Our investingactivities used cash of $17.5 million in 2002, primarily tofund capital expenditures of $26.0 million and for advances of$25 million to SureBeam Corporation under a senior securedcredit facility, offset in part by net cash received from ouracquisitions of approximately $27.4 million, primarily comprised ofour Jaycor acquisition.  The most significant single capitalexpenditure in 2002 was approximately $7 million incurred tobuild a network operations center and the purchase of the relatedsoftware licenses to support the information systems requirement ofa government agency. 

      Our financingactivities provided cash of $12.0 million, reflectingincreased borrowings of $18.3 million on our credit facilityas well as proceeds of $8.6 million from stock issuances,primarily from the exercise of Titan stock options, partiallyoffset by other debt pay downs of debt of approximately$4.6 million, and debt issuance costs of $8.9 millionrelated to our new credit facility discussed below.

      OnMay 23, 2002, the Company entered into an agreement withWachovia Bank, National Association and Wachovia Securities for a$485 million credit facility from a syndicate of commercialbanks including Wachovia Securities acting as Sole Lead Arrangerand Wachovia Bank, National Association, as Administrative Agent,The Bank of Nova Scotia and Comerica Bank as Co-Syndication Agentsand Branch Banking and Trust Company and Toronto Dominion Bank asCo-Documentation Agents and other financial institutions.  Theproceeds of the loan were used to repay outstanding indebtedness onthe Company’s $425 million credit facility arranged byCredit Suisse First Boston in February 2000.  The seniorsecured credit facility is secured by substantially all of our andour subsidiaries’ assets (other than the assets of Sakon and our foreign operations) and guaranteed by substantiallyall of our subsidiaries (except for  Sakon and our foreignsubsidiaries).  The $485 million facility is comprised ofa seven-year term loan in an aggregate principal amount of$350 million and a six-year $135 million revolving creditfacility.  Loans made under the term loan amortize at 1.0% peryear for years one through six, with the remaining 94% due in fourequal quarterly payments in year seven of the agreement. Under the term loan and the revolving facility, the Company has theoption to borrow at the bank’s rate or at adjusted LIBORplus, in each case, an applicable margin based on our total debt toEBITDA ratio (earnings before interest and taxes and depreciationand amortization).  The agreement contains financialcovenants, as defined per the senior secured credit agreement,which were comprised of the following at December 31,2002:  a maximum debt to EBITDA limit of 3.50 to 1, a minimuminterest coverage ratio of 2.75 to 1, a minimum fixed chargecoverage ratio of 1.20 to 1 and a minimum net worth of$235 million (as defined).

      At December31, 2002, total borrowings outstanding under our credit facilitywere $348.3 million at a weighted average interest rate of4.43%.  Commitments under letters of credit were$14.5 million at December 31, 2002, $14.1 million ofwhich reduce availability of our working capital line, resulting in$120.9 million of availability on our working capital line atDecember 31, 2002. Of the total borrowings, $3.5 million wasshort-term.

      OnFebruary 9, 2000, the Company and Titan Capital Trust (theTrust), our wholly owned subsidiary, issued 4 millionconvertible preferred securities (Remarketable Term IncomeDeferrable Equity Securities, or HIGH TIDES) at $50 per security,for a total of $200 million, with an over-allotment exercisedon February 16, 2000 for an additional 1 millionsecurities, for an additional $50 million.  The Trustused the proceeds from the sale of the HIGH TIDES to purchase fromthe Company 53/4% Convertible Senior Subordinated Debentures, dueFebruary 15, 2030.  The debentures have the samefinancial terms as the HIGH TIDES.  The HIGH TIDES will accruedistributions of 53/4% per annum, with quarterly distributions to be paid inarrears on February 15, May 15, August 15 andNovember 15, commencing May 15, 2000.  The Trust'sability to pay distributions on the HIGH TIDES is solely dependenton its receipt of interest payments from the Company on thedebentures.  In the event that all HIGH TIDES outstanding havenot been redeemed, approximately five years after the issuance ofthe instruments, then the remaining HIGH TIDES must be remarketed,which means that a remarketing agent will attempt to establish anew annual distribution rate, conversion price and redemptionfeatures for the HIGH TIDES that are consistent with a price perHIGH TIDES equal to 101% of its liquidation preference and also aremost favorable to the Company.  The 53/4% per annum rate will be applicablefrom the date of original issuance to, but excluding the resetdate.  The reset date is any date (a) not later thanFebruary 15, 2005, or the final reset date, or, if the day isnot a business day, the next succeeding day, and (b) notearlier than 70 business days prior to February 15, 2005, asmay be determined by the remarketing agent, in its solediscretion.  On or after the reset date, the applicable ratewill be the term rate established by the remarketing agent based onthe outcome of the remarketing.  The Company can, on one ormore occasions, defer the interest payments due on the debenturesfor up to 20 consecutive quarters unless an event of default underthe debentures has occurred and is continuing.  The holders ofthe HIGH TIDES may convert each security into shares of commonstock of Titan at the rate of 1.3553 shares (as adjusted for theSureBeam spin-off) of common stock for each HIGH TIDES (equivalentto a conversion price of $36.893 per share of common stock,compared to the initial conversion price of $49.625 per share ofcommon stock prior to the SureBeam spin-off).  The Company mayredeem the debentures in whole or in part, at any time on or afterFebruary 20, 2003 until but excluding the tender notificationdate, at a redemption price equal to 101.44% of the principalamount of the debentures, declining to 100% of the principal amountof the debentures on or after February 20, 2004, plus anyaccrued and unpaid interest; and after the reset date, inaccordance with the term call projections, if any, established inthe remarketing or, upon a failed final remarketing, on or afterthe third anniversary of the reset date at a redemption price equalto 100% of the principal amount of debentures, plus any accrued andunpaid interest.  At December 31, 2002, deferred financingcosts included in Other Assets related to this agreement wereapproximately $8.0 million and are being amortized over the term ofthe agreement.

      On December10, 1999, our wholly owned subsidiary, Titan Africa, Inc. ("TitanAfrica"), in connection with its contract to build asatellite-based telephone system for its customer, the nationaltelephone company of Benin, Africa, entered into a Loan Facilityagreement for up to 30.0 billion Francs CFA (the currency of theAfrican Financial Community), equivalent to approximately$45.0 million U.S. dollars, with a syndicate of five banks,with Africa Merchant Bank as the arranger.  This medium termfinancing is a non-recourse loan to Titan Africa which isguaranteed by the national telephone company of Benin, Africa andsecured by the national telephone company's equipment and revenuesrelated to the project.  The facility has a fixed interestrate of 9.5% and will be repaid in seven equal semi-annual paymentsfrom the net receipts of this project, or by the OPT in the eventthat such receipts are not adequate to make these payments, whichcommenced on December 31, 2000 and were scheduled to end onDecember 31, 2003.  The borrowings on this facility have beenutilized to fund the subcontractor costs incurred by Alcatel ofFrance, a major subcontractor to this project.  Thenon-Alcatel equipment provided by Titan Africa was financed througharrangement with the OPT whereby Titan Africa would be paid inseven equal semi-annual installments, which commenced on December31, 2000.  Due to the approximate six to nine month delay inthe delivery of the system, which was impacted by the expansion ofthe original project to include increased GSM lines, increasedcapacity and capability of the VSAT sites and an overall increasein lines in Benin, the Africa Merchant Bank and Titan Africa havecollectively agreed to extend the due date of the semi-annualprincipal payments until such time as the service revenues haveachieved certain levels*.*  The terms of Titan Africa'sagreement with the OPT to pay for this receivable and furtheramounts include, among other things, a revenue sharing of total netreceipts earned on this project for up to a period of 9 yearsdepending upon when the equipment has been paid for.  During2002, approximately $2.4 million was collected on thisreceivable, and approximately $3.7 million has been collectedthrough March 25, 2003.

      As ofDecember 31, 2002, approximately $40.5 million was drawn onthe Loan Facility, which has been reflected in Non-CurrentLiabilities of Discontinued Operations in the accompanyingconsolidated balance sheet.  Approximately $75.1 millionhas been reflected in Current Assets of Discontinued Operations,related to the gross carrying amount due from the OPT on thecontract.  The $40.5 million drawn on the facilityreflects the amount that has been funded by the Africa MerchantBank to cover subcontract costs.  In October 2000, wecollected an $18 million receivable from an African grouprelated to the sale of a portion of our economic interest, net ofall fixed equipment payments, in the revenue sharing of thisproject.  As of December 31, 2002, the carrying value, net ofnon-recourse debt, due on this contract was approximately$34.6 million. 

      Titan isendeavoring to divest discontinued businesses through stock andasset sales, and is currently in negotiations with a number ofpotential buyers, including buyers interested in GlobalNet. In the event that Titan is unsuccessful in its endeavors specificto sell GlobalNet, Titan may have to pay the remaining netliabilities and incur a net cash outlay of approximately$17.5 million to shut down the business.  Titan may alsoincur unforeseen liabilities if it decides to shut downGlobalNet.

      There are noTitan guarantees of debt, either directly or indirectly, associatedwith Ivoire Telecom or Sakon or any other unconsolidatedsubsidiaries other than approximately $1.4 million ofequipment financing.

      On October16, 2001, Titan adopted a definitive plan to spin off its majorityowned subsidiary SureBeam Corporation in the form of a tax-freedividend to Titan stockholders within 12 months from thatdate.  The plan involved filing a letter ruling request withthe Internal Revenue Service to obtain approval of the tax-freedistribution.  Titan received a favorable ruling in May 2002,and on August 5, 2002, Titan’s remaining ownership interestin SureBeam was spun-off to Titan stockholders as a tax freedividend.  Titan has purchased a world-wide perpetual andexclusive, non-royalty bearing license to use SureBeam'sintellectual property for all applications and fields other thanthe food, animal hide and flower markets for the followingconsideration: 1) a $50 million senior secured line of credit,with customary financial, affirmative and negative covenants, 2)the exchange of the $75 million debt owed by SureBeam to Titanfor additional shares of Class B and Class A common stock ofSureBeam, and 3) a cash payment of $8 million, with$4 million paid at September 30, 2001 and four installments of$1.0 million payable on each of March 31, 2002, June 30, 2002,September 30, 2002 and December 31, 2002.  The Company’s$50 million senior secured revolving loan commitment toSureBeam provides for borrowings up to $12.5 million in thesecond quarter of 2002, up to $17 million in the third quarterof 2002 and up to $12.5 million per quarter beginning in thefourth quarter of 2002 through the fourth quarter of 2003, subjectto the $50 million limitation on borrowing.  The amountavailable for borrowing in the second, third and fourth quarters of2003 is based upon SureBeam’s earnings before interest,taxes, depreciation and amortization (EBITDA) for the prior quarteras a percentage of the EBITDA target in its annual operatingplan.  If EBITDA is less than 25% of target EBITDA, then theamount available is $5 million, provided that no amounts areavailable unless SureBeam covenants during the current quarter tolimit its total operating expenses (defined as research anddevelopment and selling, general and administrative expenses) to$5 million.  If EBITDA is 25% of target, then the amountavailable is $6.25 million or 50% of the quarterly maximum andfor each percentage of EBITDA above 25% of target, the percentageof the quarterly maximum above 50% will be increased prorata.  To the extent SureBeam does not fully borrow themaximum amount during any quarter of 2002, the unutilized amountcan be borrowed in the subsequent quarters.  As of the end of2002, SureBeam had borrowed $25 million on thisfacility.  On February 3, 2003, SureBeam filed a Form 8-K withthe Securities and Exchange Commission wherein SureBeam stated thatthey do not anticipate borrowing additional amounts on the creditfacility during 2003 or during the remaining period that the creditfacility is outstanding. 

      In addition,Titan has guaranteed certain lease obligations of SureBeamand SureBeam is obligated to reimburse us for anypayments we make under these guarantees.  Any guaranteepayments we make reduce amounts available for future borrowingunder the credit agreement.  Some of the guaranteed leaseshave longer terms than the credit facility.  If Titan remainsa guarantor at the maturity date for the credit facility, thenSureBeam will enter into a reimbursement agreement with Titancovering the outstanding guarantees.  Inrelation to SureBeam’s strategic alliance with Hawaii Pride,Titan has guaranteed up to the greater of SureBeam’s equityinterest in Hawaii Pride (which is currently zero), or 19.9% ofHawaii Pride’s $6.8 million, 15-year loan from its lender,Web Bank.  As of December 31, 2002, Titan has guaranteedapproximately $1.4 million, or 19.9% of the loan balance.  Inthe event Hawaii Pride defaults on the loan, Titan may be obligatedto cover any defaults on the entire outstanding balance of theloan.  In March 2003, SureBeam and Titan entered into anagreement amending the credit agreement.  That amendmentwaived, subject to certain conditions, SureBeam’s obligationto use net proceeds from the sale of its equity securities to makemandatory payments under the credit agreement during the period ofMarch 2003 through September 2004.  In connection therewith,SureBeam agreed to provide for certain change orders and thefurnishing of maintenance services under the Equipment ServicesAgreement between Titan and SureBeam executed in February2002.

Titan and SureBeam haveentered into an exclusive contract for the purchase and sale ofelectronic beam accelerators through December 31, 2003 and relatedintegration services through December 31, 2002 unless SureBeam doesnot offer competitive pricing.

    OnJuly 26, 2001, we sold 8,048,685 shares of our common stock in apublic offering, which included an over-allotment of 1,125,000shares, at a price of $18.00 per share.  We receivedapproximate aggregate proceeds from the offering of$137.6 million, net of underwriters' commissions, in July2001.  Transaction expenses related to the offering wereapproximately $1.4 million.  We used the net proceedsfrom this offering to fund acquisitions, capital expenditures andother investments.  In addition, certain Titan stockholderssold 576,315 shares, including 489,972 shares from the exercise ofoptions, from which we received proceeds of$3.0 million.

      Our strategicgoals include the continued funding of acquisitions and capitalexpenditures.  We plan to finance these requirements from acombination of sources, which include cash generation from our corebusinesses, our credit facility and potential cash generated fromthe disposal of discontinued businesses.  Management believesthat the combination of our existing cash, amounts available underour credit facility and cash flow expected to be generated from ouroperations will be sufficient to fund planned investments andworking capital requirements for at least the next twelvemonths.  However, we could elect, or we could be required, toraise additional funds during that period and we may need to raiseadditional capital in the future.  Additional capital may notbe available at all, or may not be available on terms favorable tous.  Any additional issuance of equity or equity-linkedsecurities may result in substantial dilution to ourstockholders.  Management is continually monitoring andreevaluating its level of investment in all of its operations andthe financing sources available to achieve our goals.

**Long-Term Debt andOther Commitments**

      Ourcontractual cash obligations as of December 31, 2002, includingprincipal maturities of long-term debt and other commitments, wereas follows, excluding non-recourse debt, contingent obligations andinterest:

|                                                     |                   |   | **2003** |  |   | **2004** |  |   | **2005** |  |   | **2006** |  |   | **2007** |  |   | **Thereafter** |  |   | **Total** |  |
|----------------------------------------------------------|-------------------|---|----------|--|---|----------|--|---|----------|--|---|----------|--|---|----------|--|---|----------------|--|---|-----------|--|
|                                                     |                   |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |                |  |   |           |  |
|                                                     | **(inthousands)** |
| Long-term debt:    Senior credit facility |                   | $ | 3,500    |  | $ | 3,500    |  | $ | 3,500    |  | $ | 3,500    |  | $ | 3,500    |  | $ | 330,750        |  | $ | 348,250   |  |
|    Other                                  |                   |   | 847      |  |   | 857      |  |   | 307      |  |   | 429      |  |   | 41       |  |   | 411            |  |   | 2,892     |  |
| HIGH TIDES (1)                                           |                   |   | —  |  |   | —  |  |   | —  |  |   | —  |  |   | —  |  |   | 250,000        |  |   | 250,000   |  |
|                                                          |                   |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |                |  |   |           |  |
| Other commitments:    Operating leases    |                   |   | 38,980   |  |   | 36,821   |  |   | 30,198   |  |   | 26,874   |  |   | 18,600   |  |   | 41,421         |  |   | 192,894   |  |
|    Capitalleases                          |                   |   | 252      |  |   | 679      |  |   | —  |  |   | —  |  |   | —  |  |   | —        |  |   | 931       |  |
|                                                          |                   |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |                |  |   |           |  |
| Total contractualcash  obligations                  |                   | $ | 43,579   |  | $ | 41,857   |  | $ | 34,005   |  | $ | 30,803   |  | $ | 22,141   |  | $ | 622,582        |  | $ | 794,967   |  |
|                                                          |                   |   |          |  |   |          |  |   |          |  |   |          |  |   |          |  |   |                |  |   |           |  |

(1)  The HIGHTIDES has a remarketing feature beginning approximately five yearsafter the date of issuance.  See Note 9 to the accompanyingconsolidated financial statements for detailed information on theterms of this financial instrument.

**Critical AccountingPolicies**

*Use ofEstimates*

      Thepreparation of financial statements in conformity with accountingprinciples generally accepted in the United States requiresmanagement to make estimates and assumptions that affect thereported amounts of assets and liabilities and disclosures ofcontingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses duringthe reporting period.  Actual results could differ from thoseestimates.  Specifically, management must make estimates inthe following areas:

      *Allowancefor doubtful accounts.*  We provide a reserve againstour receivables for estimated losses that may result from ourcustomers' inability to pay.  These reserves are based onpotential uncollectible accounts, aged receivables, historicallosses, our customers' credit-worthiness, changes in governmentfunding on certain of our contracts and adjustments that may arisefrom audits by the Defense Contract Audit Agency ("DCAA") ofcertain of our government contracts. Should a customer's accountbecome past due, we generally will place a hold on the account anddiscontinue further shipments and/or services provided to thatcustomer, minimizing further risk of loss.  The likelihood ofa material loss to Titan on an uncollectible account in ourdiscontinued operations would be principally dependent on adeterioration in economic and/or political conditions in aparticular country, such as Benin, Africa, in which our receivablesdue from the government controlled phone company of Benin may beimpacted by such an event, or in the Middle East, in which ourreceivables due from a government agency in the Middle East, may beimpacted by political conditions. 

      Our accountsreceivable balances include unbilled receivables which arecomprised of work-in-process which will be billed in accordancewith contract terms and delivery schedules, as well as amountsbillable upon final execution of contracts, contract completion,milestones or completion of rate negotiations.  Payments to usfor performance on certain of our U.S. Government contracts aresubject to audit by the DCAA, and are subject to governmentfunding.  We provide a reserve against our receivables forestimated losses that may result from rate negotiations, auditadjustments, and/or government funding availability.  To theextent that actual adjustments due to rate negotiations, auditadjustments, or government funding availability differ from ourestimates, our provisions for doubtful accounts may beimpacted.  Due to a high degree of diversification in ourgovernment business, where any one contract accounts for no morethan 1.9 percent of our total annual revenues, the likelihood of amaterial loss to Titan on an uncollectible account from thisactivity is not probable.

      *Inventory.*  Inventoriesare stated at lower of cost or market.  We review thecomponents of our inventory on a regular basis for excess, obsoleteand impaired inventory based on estimated future usage andsales.  The likelihood of any material inventory write-downsis dependent on changes in competitive conditions, new productintroductions by us or our competitors, or rapid changes incustomer demand.

*      DeterminingImpairment Losses on Non-Marketable Securities. * Weevaluate our investment in non-marketable securities taking intoconsideration the financial condition of the investee, thenear-term prospects of the investee, including the opportunities inthe region and industry of the investee, changes in technology, andthe progress of the investee in achieving operational milestonesaccording to its operating plan.  We also evaluate variousalternatives relative to realizing the value of ourinvestment.  Factors that would influence the likelihood of amaterial change in our evaluation of whether there is a declineother than temporary include significant changes in theinvestee’s ability to generate positive cash flow, asignificant change in technology, loss of legal ownership or titleto the asset or a significant decline in the economic andcompetitive environment on which the investee depends.

      *Valuationof goodwill, intangible and other long-livedassets.*  We use assumptions in establishing thecarrying value, fair value and estimated lives of our long-livedassets and goodwill.  The criteria used for these evaluationsinclude management's estimate of the asset's continuing ability togenerate positive income from operations and positive cash flow infuture periods compared to the carrying value of the asset, as wellas the strategic significance of any identifiable intangible assetin our business objectives.  If assets are considered to beimpaired, the impairment recognized is the amount by which thecarrying value of the assets exceeds the fair value of theassets.  Useful lives and related amortization or depreciationexpense are based on our estimate of the period that the assetswill generate revenues or otherwise be used by the Company. Factors that would influence the likelihood of a material change inour reported results include significant changes in the asset'sability to generate positive cash flow, loss of legal ownership ortitle to the asset, a significant decline in the economic andcompetitive environment on which the asset depends, significantchanges in our strategic business objectives, utilization of theasset, and a significant change in the economic and/or politicalconditions, particularly in which we have investments.

      *Benefitplans.*  We provide for limited postretirement medicalbenefit obligations of operations discontinued in prior years forformer employees and for certain current senior executiveofficers.  Accounting and reporting for the pension plansrequires the use of assumptions for discount rates, expectedmortality rates and estimated growth rates in medical andhealthcare costs - all assumptions our actuaries rely upon inpreparing their estimates for us.  Any materially differentvaluations for actuarial assumptions that are different from ourcurrent expectations could impact our accruals for thesepostretirement benefit obligations.  As the population thatparticipates in these plans is limited, we do not believe changesin valuations would have a material impact on our provisions forthese postretirement obligations.

      *Valuationof deferred income taxes.*  Valuation allowances areestablished, when necessary, to reduce deferred tax assets to theamount expected to be realized.  The likelihood of a materialchange in our expected realization of these assets is dependent onfuture taxable income, our ability to deduct tax loss carryforwardsagainst future taxable income, the effectiveness of our taxplanning and strategies among the various tax jurisdictions that weoperate in, and any significant changes in the tax treatmentreceived on our business combinations.

      *Revenuerecognition.*  We recognize a portion of our revenueusing the percentage-of-completion method, which includes revenuesrecognized as units are delivered, in accordance with Statement ofPosition (SOP) 81-1.  Total estimated costs are based onmanagement's assessment of costs to complete the project based uponevaluation of the level of work achieved and costs expended todate.  To the extent that our estimated costs materiallychange, our revenues recorded under such contracts could materiallybe affected and could have a material adverse effect on ouroperations in the future periods.  In 2002, approximately21.1% of our revenues were generated by fixed-price contracts,which are generally recognized using the percentage-of-completionmethod.  The remaining 78.9% of our revenues in 2002 weregenerated by cost plus fixed fee contracts and time and materialcontracts, for which percentage-of-completion is not used, andrevenues are generally recognized as work is performed and billedto the customer.

      Titancontracts with its government customers using various cost-typecontracts.  They include cost-plus fixed fee, cost-plus awardfee, cost-plus incentive fee with incentives based upon both costand/or performance, cost-with no fee, and cost sharingcontracts.  Revenues and profits are recognized in accordancewith Accounting Research Bulletin No. 45 and SOP 81‐1. For award and incentive fee type contracts, we recognize theexpected fee to be awarded by the customer at the time such fee canbe reasonably estimated, based on factors such as our prior awardexperience and communications with the customer regarding ourperformance, including any interim performance evaluations renderedby the customer.  Revenues are recognized under fixed pricecontracts based on the percentage-of-completion basis, using thecost-to-cost or units-of-delivery methods.

      *Accountingfor business combinations.*  Since February of 2000,we have acquired two companies (ACS and AverStar), that have beenaccounted for under the pooling of interests method ofaccounting.  To qualify for the pooling of interests method,criteria relating to the attributes of the combining companiesprior to the combination, the manner of combining the companies andthe absence of certain planned transactions after the combinationmust be met.  Under the pooling of interests method, the valueof the assets and liabilities of the combined companies are carriedforward at their recorded amounts and the reported income for allperiods prior to the combination are combined and restated as ifthe combination had occurred at the beginning of the periodpresented.

      If thecriteria for pooling of interests accounting treatment are not met,then the purchase method of accounting would have beenapplied.  Under the purchase method of accounting, all assetsand liabilities acquired are recorded at their fair values at thedate of the acquisition and results of operations are included inthe consolidated financial statements from the date ofacquisition.  Accounting for these two acquisitions under thepurchase method of accounting would have resulted in materiallydifferent reported results.

      In relationto our allocation of purchase price to the fair value of assetsacquired and contingencies assumed in acquisitions accounted for aspurchase transactions, management makes estimates of such amountsas the fair value of assets and contingencies assumed.  To theextent that the actual values or contingencies may differ from theestimates used, our allocation of purchase price may differ, whichmay result in a change to the amount of goodwill and/or purchasedintangibles.

      *Principlesof consolidation.*  Management evaluates itsinvestment in each joint venture and investment on an individualbasis for purposes of determining whether consolidation or the costor equity method is appropriate, based upon management's evaluationof the level of our ability to retain and exercise control throughdecision-making ability and exercise significant influence, as wellas our equity ownership interest.  In the event that ourability to obtain control and exercise significant influencechanges materially from management's evaluation in determiningwhether consolidation should occur, or whether or not the cost orequity method is appropriate, then our operating results could bematerially impacted, either positively or negatively.

**New AccountingStandards**

      In December2002, the Financial Accounting Standards Board (“FASB”)issued Statement of Financial Accounting Standards(“SFAS”) No. 148, “Accounting for Stock-BasedCompensation – Transition and Disclosure”, which amendsSFAS No. 123, “Accounting for Stock-Based Compensation”to provide alternative methods of transition for a voluntary changeto the fair value based method of accounting for stock-basedemployee compensation.  In addition, this statement alsoamends the disclosure requirements of SFAS No. 123 to requireprominent disclosures in both annual and interim financialstatements.  Certain of the disclosure modifications arerequired for fiscal years ending after December 15, 2002 and areincluded in the notes to the consolidated financialstatements.

      In January2003, the FASB issued Interpretation No. 46, “Consolidationof Variable Interest Entities, an interpretation of ARB No.51.” This Interpretation addresses the consolidation bybusiness enterprises of variable interest entities as defined inthe Interpretation. The Interpretation applies immediately tovariable interests in variable interest entities created afterJanuary 31, 2003, and to variable interests in variable interestentities obtained after January 31, 2003.  The application ofthis Interpretation is not expected to have a material effect onthe Company’s financial statements.  The Interpretationrequires certain disclosures in financial statements issued afterJanuary 31, 2003 if it is reasonably possible that the Company willconsolidate or disclose information about variable interestentities when the Interpretation becomes effective.

      In November2002, the FASB issued Interpretation No. 45,“Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness toOthers, an interpretation of FASB Statements No. 5, 57 and 107 anda rescission of FASB Interpretation No. 34.”  ThisInterpretation elaborates on the disclosures to be made by aguarantor in its interim and annual financial statements about itsobligations under guarantees issued.  The Interpretation alsoclarifies that a guarantor is required to recognize, at inceptionof a guarantee, a liability for the fair value of the obligationundertaken. The initial recognition and measurement provisions ofthe Interpretation are applicable to guarantees issued or modifiedafter December 31, 2002 and are not expected to have a materialeffect on the Company’s financial statements.  Thedisclosure requirements are effective for financial statements ofinterim or annual periods ending after December 15,2002. 

      InAugust 2001, the FASB issued SFAS No. 143, "Accountingfor Asset Retirement Obligations".  This statement addressesfinancial accounting and reporting for obligations associated withthe retirement of tangible long-lived assets and the associatedasset retirement costs.  It applies to (a) all entitiesand (b) legal obligations associated with the retirement oflong-lived assets that result from the acquisition, construction,development and/or normal operation of long-lived assets, exceptfor certain obligations of lessees.  This statement amendsSFAS No. 19, "Financial Accounting and Reporting by Oil andGas Producing Companies," and is effective for financial statementsissued for fiscal years beginning after June 15, 2002. Management does not believe that the adoption of this statementwill have a material impact on its consolidated financial positionor results of operations.

      The FASBissued SFAS No. 145, Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections as of April 2002, which is effective for fiscalyears beginning after May 15, 2002. SFAS No. 145 rescindsSFAS No. 4 and SFAS No. 64, which required that all gainsand losses from extinguishment of debt be aggregated, and ifmaterial, classified as an extraordinary item. As a result ofchanges in the criteria, gains and losses from debt extinguishmentare to be classified as extraordinary only if they meet thecriteria set forth in APB Opinion No. 30, “Reporting theResults of Operations—Reporting the Effects of Disposal of aSegment of a Business, and Extraordinary, Unusual and InfrequentlyOccurring Events and Transactions.”  SFAS No. 145also requires that sale-leaseback accounting be used for capitallease modifications with economic effects similar to sale-leasebacktransactions.  The Company does not expect implementation tohave a significant effect on its results of operations. However, the loss from the extinguishment of the Company’scredit facility of $5.4 million, which was appropriatelyrecorded as an extraordinary item in accordance with APBNo. 30, will be reclassified to income from continuingoperations in 2003 when the Company adopts SFASNo. 145.

      In June 2002, theFASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities.”  SFASNo. 146 applies to costs associated with an exit activity(including restructuring) or with a disposal of long-lived assets.Those activities can include eliminating or reducing product lines,terminating employees and contracts, and relocating plantfacilities or personnel. Under SFAS No. 146, a company willrecord a liability for a cost associated with an exit or disposalactivity when that liability is incurred and can be measured atfair value.  Under current rules, companies can record aliability for restructuring costs when a commitment to a plan ofaction is made.  SFAS No. 146 will require a company todisclose information about its exit and disposal activities, therelated costs, and changes in those costs in the notes to theinterim and annual financial statements that include the period inwhich an exit activity is initiated and in any subsequent perioduntil the activity is completed. SFAS No. 146 is effectiveprospectively for exit or disposal activities initiated afterDecember 31, 2002, with earlier adoption encouraged. UnderSFAS No. 146, a company may not restate its previouslyissued financial statements, and the new statement grandfathers theaccounting for liabilities that a company had previously recordedunder Emerging Issues Task Force Issue 94-3.  Titan does notintend to adopt SFAS No. 146 until after December 31,2002.

***Risks Relating toOur Business***

***Titan depends ongovernment contracts for most of its revenues and the loss ofgovernment contracts or a decline in funding of existing or futuregovernment contracts could adversely affect Titan's revenues andcash flows and Titan's ability to fund itsgrowth.***

      Titan'srevenues from U.S. government business represented approximately90% of Titan's total revenues in 2000, approximately 93% of Titan'stotal revenues in 2001 and approximately 95% of Titan's totalrevenues in 2002. Titan's U.S. government contracts are only fundedon an annual basis, and the U.S. government may cancel thesecontracts at any time without penalty or may change itsrequirements, programs or contract budget or decline to exerciseoption periods, any of which could reduce Titan's revenues and cashflows from U.S. government contracts. Titan's revenues and cashflow from U.S. government contracts could also be reduced bydeclines in U.S. defense, homeland security and other federalagency budgets.

      Approximately52% of Titan's revenue in 2002 was for products and services undercontracts with various parts of the U.S. Navy, U.S. Air Force orU.S. Army or with prime contractors to the U.S. Navy, U.S. AirForce or U.S. Army. Although these various parts of the U.S. Navy,U.S. Air Force or U.S. Army are subject to common budgetarypressures and other factors, Titan's various U.S. Navy, U.S. AirForce or U.S. Army customers exercise independent purchasingdecisions. However, because of such concentration of Titan'scontracts, Titan is vulnerable to adverse changes in its revenuesand cash flows if a significant number of Titan's U.S. Navy, U.S.Air Force or U.S. Army contracts and subcontracts aresimultaneously delayed or canceled for budgetary or otherreasons.

      In additionto contract cancellations and declines in agency budgets, Titan maybe adversely affected by:
|        | ·       | curtailment of the U.Sgovernment's use of technology services and productsproviders;     |
|--------------------------------------|----------------------------------------------|------------------------------------------------------------------------------------------|
|        |                |                                                                                          |
|        | ·       | technological developmentsthat impact purchasing decisions or Titan's competiveposition. |

      These orother factors could cause U.S. defense and other federal agenciesto reduce their purchases under contracts, to exercise their rightto terminate contracts or not to exercise options to renewcontracts or limit Titan's ability to obtain new contract awards.Any of these actions or any of the other actions described abovecould reduce Titan's revenues and cash flows.

***Government audits ofTitan's government contracts could result in a material charge toTitan's earnings and have a negative effect on Titan's cashposition following an audit adjustment.***

      Titan'sgovernment contracts are subject to cost audits by the government.These audits may occur several years after the period to which theaudits relate. If a cost audit were to identify significantunallowable costs, Titan could have a material charge to itsearnings or reduction in its cash position as a result of an audit,including an audit of one of the companies Titan has acquired. Someof Titan's acquired companies did not historically impose internalcontrols as rigorous as those Titan imposes on the governmentcontracts Titan performs, which may increase the likelihood that anaudit of their government contracts could cause a charge to Titan'searnings or reduction in Titan's cash position.

***Titan's operatingmargins may decline under its fixed‐price contracts if Titanfails to estimate accurately the time and resources necessary tosatisfy Titan's obligations.***

      Some ofTitan's contracts are fixed‐price contracts under which Titanbears the risk of any cost overruns. Titan's profits are adverselyaffected if its costs under these contracts exceed the assumptionsTitan used in bidding for the contract. In 2002, approximately 21%of Titan's revenues were derived from fixed‐price contractsfor both defense and non-defense related governmentcontracts.  Often, Titan is required to fix the price for acontract before Titan finalizes the project specifications, whichincreases the risk that Titan will mis-price these contracts. Thecomplexity of many of Titan's engagements makes accuratelyestimating Titan's time and resources more difficult.

***If Titan is not ableto retain its contracts with the U.S. government and subcontractsunder U.S. government prime contracts in the competitive rebiddingprocess, Titan's revenues may suffer.***

      Uponexpiration of a U.S. government contract or subcontract under aU.S. government prime contract, if the government customer requiresfurther services of the type provided in the contract, there isfrequently a competitive rebidding process. Titan cannot guaranteethat Titan, or if Titan is a subcontractor that the primecontractor, will win any particular bid, or that Titan will be ableto replace business lost upon expiration or completion of acontract. Further, all U.S. government contracts are subject toprotest by competitors. The termination of several of Titan'ssignificant contracts or nonrenewal of several of Titan'ssignificant contracts could result in significant revenueshortfalls.

***Titan may be liablefor penalties under a variety of procurement rules and regulations,and changes in government regulations could adversely impactTitan's revenues, operating expenses andprofitability.***

      Titan'sdefense and commercial businesses must comply with and are affectedby various government regulations that impact Titan's operatingcosts, profit margins and its internal organization and operationof its businesses. These regulations affect how Titan's customersand Titan do business and, in some instances, impose added costs onTitan's businesses. Any changes in applicable laws could adverselyaffect the financial performance of the business affected by thechanged regulations. With respect to U.S. government contracts, anyfailure to comply with applicable laws could result in contracttermination, price or fee reductions or suspension or debarmentfrom contracting with the U.S. government. Among the mostsignificant regulations are the following:
|        | ·       | the U.S. FederalAcquisition Regulations, which comprehensively regulate theformation, administration and performance of governmentcontracts;                    |
|--------------------------------------|----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                |                                                                                                                                                                 |
|        | ·       | the U.S. Truth inNegotiations Act, which requires certification and disclosure ofall cost and pricing data in connection with contract negotiations;and         |
|        |                |                                                                                                                                                                 |
|        | ·       | the U.S. Cost AccountingStandards, which impose accounting requirements that govern Titan'sright to reimbursement under certain cost-based governmentcontracts. |

***Titan has extendedcredit to its former subsidiary, SureBeam Corporation, that it maylose if SureBeam is not successful in establishing a market forirradiated food or otherwise experiences liquidityproblems.***

      Titanpreviously funded its spun‐off subsidiary, SureBeamCorporation (Nasdaq SURE), through a $75 million subordinatedpromissory note which it exchanged for equity of SureBeam prior tothe spin‐off. Titan completed the spin‐off of SureBeamon August 5, 2002. In connection with the spin‐off and atransfer of intellectual property, Titan extended a$50 million senior secured revolving line of credit toSureBeam that matures on December 31, 2005. The creditfacility is secured by substantially all of the assets of SureBeam.Titan no longer has any influence or control over the management ofSureBeam.  If SureBeam does not become profitable or is unableto service its debt for any reason, Titan may be required to writeoff some or all of any amounts loaned to SureBeam under this creditfacility. In addition, Titan has guaranteed certain facility leasesfor SureBeam, aggregating approximately $23.1 million forlease terms through 2020 and guaranteed a bank loan in an amount upto the greater of SureBeam's equity interest in SureBeam'sstrategic alliance, Hawaii Pride, or 19.9% of Hawaii Pride's$6.8 million bank loan.  At December 31, 2002, Titanhad guaranteed approximately $1.4 million, or 19.9% of theloan balance.  In the event that Hawaii Pride defaults on theloan, Titan may be obligated to cover any defaults on the entireoutstanding balance of the loan.  In March 2003, SureBeam andTitan entered into an agreement amending the creditagreement.  That amendment waived, subject to certainconditions, SureBeam’s obligation to use net proceeds fromthe sale of its equity securities to make mandatory payments underthe credit agreement during the period of March 2003 throughSeptember 2004.  In connection therewith, SureBeam agreed toprovide for certain change orders and the furnishing of maintenanceservices under the Equipment Services Agreement.  Titanalso subleases to SureBeam approximately 70,522 square feet usedfor a service center in Sioux City, Iowa as well as facilities inDublin, California, Omaha, Nebraska and Saudi Arabia. If SureBeamis unable to pay its lease obligations as they become due, Titanmay be using its cash to satisfy these obligations and may incurlosses.

***Titan may not beable to recoup the net book value of its discontinued commercialbusinesses, including Titan Wireless and Cayenta, throughdivestitures and may incur exit costs in excess of its accruals inconnection with the divestiture or shut down of some or all ofthese businesses.***

      Titan hasdecided to exit substantially all of its remaining commercialbusinesses, including Titan Wireless and Cayenta, and to focus inthe foreseeable future on its national security and civilgovernment businesses. At December 31, 2002, the total net bookvalue of its discontinued businesses was $16.5 million,including $15.9 million in Titan Wireless net assets,primarily relating to receivables on its contract with the OPT ofBenin of $34.6 million and a receivable from a customer inNigeria for $15.5 million, and its investment in GlobalNet,which is a net liability of approximately $17.5 million. Titan is endeavoring to divest these businesses through stock andasset sales but may not be successful in recouping the book valueof these assets.  To the extent that it is unsuccessful inselling the GlobalNet business, Titan may have to pay the remainingnet liability and incur a net cash outlay of approximately$17.5 million as well as potential unforeseen liabilities toshut down the business.* * In 2002, Titan accruedapproximately $24.5** ** million in exit charges foremployment termination costs, contract and lease termination costsand other direct costs expected to be incurred in connection withthe exit of these businesses.  As of December 31, 2002, thereis approximately $10.1 million remaining to be paid in 2003and 2004.  Titan may incur cash expenses in excess of its exitcharge accruals in connection with the divestiture or shut down ofbusinesses of Titan Wireless, AverCom and LinComWireless.

***Titan's failure toidentify, attract and retain qualified technical and managementpersonnel could adversely affect its existingbusinesses.***

      Titan cannotguarantee that it will be able to attract and retain the highlyqualified technical personnel, including engineers, computerprogrammers and personnel with security clearances required forclassified work, or management personnel to supervise suchactivities that are necessary for maintaining and growing Titan'sexisting businesses. 

***Titan competesprimarily for government contracts against many companies that arelarger, better financed and better known than Titan. If Titan isunable to compete effectively, Titan's business and prospects willbe adversely affected.***

      Titan'sbusinesses operate in highly competitive markets. Many of itscompetitors are larger, better financed and better known companieswho may compete more effectively than Titan can. In order to remaincompetitive, Titan must invest to keep its products and servicescapabilities technically advanced and compete on price and on valueadded to Titan's customers. Titan's ability to compete may beadversely affected by limits on Titan's capital resources andTitan's ability to invest in maintaining and expanding its marketshare.

***Titan has completednumerous strategic acquisitions and may complete others, whichcould increase Titan's costs or liabilities or bedisruptive.***

      SinceJanuary 1, 1998, Titan has acquired 18 government informationtechnology businesses as part of Titan's strategy of consolidatinggovernment information technology businesses. Several of thebusinesses that Titan acquired had themselves acquired otherbusinesses prior to their acquisition by Titan. Titan may not beable to integrate successfully any acquired businesses withoutsubstantial expense, delay or other operational or financialproblems. The acquisition and integration of new businessesinvolves risk. The integration of acquired businesses may be costlyand may result in a decrease in the value of Titan's common stockfor the following reasons, among others:
|        | ·       | Titan may need to divertmore management resources to integration than Titan planned, whichmay adversely affect Titan's ability to pursue other moreprofitable activities;                                                   |
|--------------------------------------|----------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                |                                                                                                                                                                                                                             |
|        | ·       | the difficulties ofintegration may be increased by the necessity of coordinatinggeographically separated organizations, integrating personnel withdisparate business backgrounds and combining different corporatecultures; |
|        |                |                                                                                                                                                                                                                             |
|        | ·       | Titan may not eliminate asmany redundant costs as Titan anticipated in selecting itsacquisition candidates; and                                                                                                             |
|        |                |                                                                                                                                                                                                                             |
|        | ·       | one or more of Titan'sacquisition candidates also may have liabilities or adverseoperating issues that Titan failed to discover through its duediligence prior to the acquisition.                                          |

      Titan intendsto continue to look for additional strategic acquisitions.Instability in the U.S. securities markets and volatility inTitan's common stock price may make acquisitions with Titan'scommon stock more expensive.

***Titan may incursignificant costs in protecting Titan's intellectual property whichcould adversely affect Titan's profit margins. Titan's inability toprotect its patents and proprietary rights in the U.S. and foreigncountries could adversely affect Titan's businesses' prospects andcompetitive positions.***

      As part ofTitan's strategy, Titan seeks to protect its proprietary technologyand inventions through patents and other proprietary‐rightprotection in the U.S. and other countries. The laws of someforeign countries do not protect proprietary rights to the sameextent as the laws of the U.S. If Titan is unable to obtain ormaintain these protections, Titan may not be able to prevent thirdparties from using its proprietary rights. In addition, Titan mayincur significant expense both in protecting its intellectualproperty and in defending or assessing claims with respect tointellectual property owned by others.

      Titanassesses the strength of its patent and intellectual propertyprotection for its technologies and products. Despite Titan'sassessments and Titan's belief in the strength of its patentprotection for particular technologies or products, Titan's patentsmay not provide effective barriers to entry against competitors inthe markets targeted by particular technologies and productsbecause Titan's competitors may develop competing technologies andproducts that do not infringe upon Titan's patents. Titan alsocould choose to modify or abandon one or more planned or currentproducts because of these assessments or actual or threatenedclaims by other companies. Titan is not certain that its pendingpatent applications will be issued.

      Titan alsorelies on trade secrets, proprietary know-how and continuingtechnological innovation to remain competitive. Titan has takenmeasures to protect its trade secrets and know-how, including theuse of confidentiality agreements with Titan's employees,consultants and advisors. It is possible that these agreements maybe breached and that any remedies for a breach will not besufficient to compensate Titan for damages incurred. Titangenerally controls and limits access to, and the distribution of,its product documentation and other proprietary information. Titanalso cannot guarantee that other parties will not independentlydevelop Titan's know-how or otherwise obtain access to Titan'stechnology.

***The covenants inTitan's credit facility restrict Titan's financial and operationalflexibility, including its ability to complete additionalacquisitions, invest in new business opportunities, or pay downcertain indebtedness.***

      Titan'scredit facility contains covenants that restrict, among otherthings, Titan's ability to borrow money, make particular types ofinvestments, including investments in Titan's subsidiaries, makeother restricted payments, limits the ability to pay down HIGHTIDES, swap or sell assets, merge or consolidate, or makeacquisitions. An event of default under Titan's credit facilitycould allow the lenders to declare all amounts outstanding to beimmediately due and payable. Titan has pledged substantially all ofits consolidated assets and the stock of Titan's subsidiaries tosecure the debt under Titan's credit facility, excluding Titan'sforeign affiliates. If the amounts outstanding under the creditfacility were accelerated, the lenders could proceed against thoseconsolidated assets and the stock of Titan's subsidiaries. Any event of default, therefore, could have a material adverseeffect on Titan's business. Titan's credit facility also requiresTitan to maintain specified financial ratios. Titan's ability tomeet these financial ratios can be affected by events beyondTitan's control, and Titan cannot assure you that Titan will meetthose ratios. Titan also may incur future debt obligations thatmight subject Titan to restrictive covenants that could affectTitan's financial and operational flexibility or subject Titan toother events of default.

***Titan's revenuescould be less than expected if Titan is not able to delivercomponents of systems or products as scheduled due to disruptionsin its supply of products and components orservices.***

      BecauseTitan's internal manufacturing capacity is limited, Titan usescontract manufacturers. While Titan uses care in selecting itsmanufacturers, this arrangement gives Titan less control over thereliability of supply, quality and price of products or componentsthan if Titan manufactured them itself. In some cases, Titanobtains products from a sole supplier or a limited group ofsuppliers. For example, Titan currently relies upon SureBeam as anexclusive supplier of linear accelerators for its medicalsterilization business, and SureBeam, in turn, relies on onesupplier for some of the key components used to manufactureSureBeam's linear accelerators. Consequently, Titan risksdisruptions in its supply of key products and components if Titan'ssuppliers fail or are unable to perform because of strikes, naturaldisasters, financial condition or other factors. Any materialsupply disruptions could adversely affect Titan's ability toperform its obligations under its contracts and could result incancellation of contracts or purchase orders, delays in realizingrevenues, payment delays as well as adversely affect Titan'songoing product cost structure.

***Titan's business issubject to significant environmental regulation. Compliance costs,or any future violations or liability under environmental laws,could harm Titan's business.***

      Titan issubject to environmental and safety laws and regulations governingthe use, storage and disposal of hazardous substances or wastes andimposing liability for the cleanup of contamination from thesesubstances. Titan cannot completely eliminate the risk ofcontamination or injury from these substances or wastes, and, inthe event of such an incident, Titan could be held liable for anydamages that result. From time to time, Titan has been notified ofviolations of government and environmental regulations. Titanattempts to correct these violations promptly without any materialimpact on Titan's operations. In addition, Titan may be required toincur significant additional costs to comply with environmentallaws and regulations in the future. These costs, and any futureviolations or liability under environmental laws or regulations,could have a material adverse effect on Titan'sbusiness.

***Titan's results ofoperations have historically fluctuated and may continue tofluctuate significantly in the future, which could adversely affectthe market price of its common stock.***

      Titan'srevenues are affected by factors such as the unpredictability ofsales and contracts awards due to the long procurement process formost of its products and services, the potential fluctuation ofdefense, intelligence and civil agency budgets, the time it takesfor the new markets Titan targets to develop and for Titan todevelop and provide products and services for those markets,competition and general economic conditions. Titan's contracttype/product mix and unit volume, its ability to keep expenseswithin budgets, and its pricing affect its gross margins. Thesefactors and other risk factors described herein may adverselyaffect Titan's results of operations within a period and causeTitan's financial results to fluctuate significantly on a quarterlyor annual basis. Consequently, Titan does not believe thatcomparison of its results of operations from period to period isnecessarily meaningful or predictive of its likely future resultsof operations. It is possible that in some future quarter orquarters Titan's operating results will be below the expectationsof public market analysts or investors. If so, the market price ofTitan's common stock may decline significantly.

***Anti-takeoverprovisions in Titan's certificate of incorporation, bylaws andDelaware law, as well as Titan's shareholder rights plan, coulddiscourage, delay or prevent a change of control that Titan'sstockholders may favor.***

      Provisions inTitan's certificate of incorporation, Titan's bylaws and Delawarelaw could make it difficult and expensive for a third party topursue a takeover attempt that Titan opposes even if a change incontrol of Titan would be beneficial to the interests of itsstockholders. These provisions could discourage potential takeoverattempts and could adversely affect the market price of Titan'scommon stock. These provisions:
|        | ·       | permit Titan'sstockholders to take action by written consent instead of at ameeting and to nominate directors or bring other business beforestockholder meetings only if they comply with advance notice andother procedural requirements in Titan's bylaws;                  |
|--------------------------------------|----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |                |                                                                                                                                                                                                                                                                               |
|        | ·       | authorize Titan's board ofdirectors, without stockholder approval, to issue up to 2,931,898shares of blank check preferred stock that could be issued byTitan's board of directors to increase the number of outstandingshares and prevent a takeover attempt; and            |
|        |                |                                                                                                                                                                                                                                                                               |
|        | ·       | prohibit Titan fromengaging in mergers and other business combinations withstockholders that beneficially own 15% or more of Titan's votingstock, or with their affiliates, unless Titan's directors orstockholders approve the business combination in the prescribedmanner. |

      In additionto the provisions described above, in 1995 Titan's board ofdirectors adopted apoison pill shareholderrights plan, which may further discourage a third party from makinga proposal to acquire Titan which Titan has not solicited or doesnot approve, even if the acquisition would be beneficial to Titan'sstockholders. As a result, Titan's stockholders who wish toparticipate in such a transaction may not have an opportunity to doso. Under Titan's rights plan, preferred share purchase rights,which are attached to Titan's common stock, generally will betriggered upon the acquisition, or actions that would result in theacquisition, of 15% or more of Titan's common stock by any personor group. If triggered, these rights would entitle Titan'sstockholders other than the acquiror to purchase, for the exerciseprice, shares of Titan's common stock having a market value of twotimes the exercise price. In addition, if a company acquires Titanin a merger or other business combination not approved by the boardof directors, these rights will entitle Titan's stockholders otherthan the acquiror to purchase, for the exercise price, shares ofthe common stock of the acquiring company having a market value oftwo times the exercise price.

***There may bevolatility in the price of Titan's common stock that impacts theprice a stockholder may realize upon a sale of the commonstock.***

      Stock pricesof many companies have experienced wide fluctuations that haveoften been unrelated to the operating performance of thesecompanies. The market price of Titan's common stock may vary widelyas a result of several factors, including:
|        | ·       | United States government'sinformation technology, defense and civil budgets and strategicpriorities;                               |
|--------------------------------------|----------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------|
|        |                |                                                                                                                                    |
|        | ·       | budgetary constraintsaffecting U.S. government spending generally, changes in fiscalpolicy, and government regulatory initiatives; |
|        |                |                                                                                                                                    |
|        | ·       | announcements oftechnological innovations or new products by Titan or itscompetitors;                                              |
|        |                |                                                                                                                                    |
|        | ·       | patent or proprietaryrights developments; and                                                                                      |
|        |                |                                                                                                                                    |
|        | ·       | general marketconditions.                                                                                                          |

      These factorscould lead to a significant decrease in the market price of Titan'scommon stock. In 2002, the market price of Titan's common stock hasranged from a high of $25.10 (before adjustment for the tax-freespin-off of SureBeam) per share to a low of $8.86 (after thetax-free spin) per share.

**Forward LookingInformation: Certain Cautionary Statements: "Safe Harbor" Statementunder the Private Securities Litigation Reform Act of1995:**

      Statementscontained in this Management's Discussion and Analysis of FinancialCondition and Results of Operations which are not historical factsare forward looking statements within the meaning ofSection 27A of the Securities Act of 1933 and Section 21Eof the Securities Exchange Act of 1934.  Examples of suchforward looking statements include our belief that the Company iswell positioned to grow its core operations or take advantage ofnew opportunities, that it will continue to focus on strengtheningand growing its businesses, building its patent portfolio andcommercializing new innovative technologies, that it is wellpositioned to capitalize on increases in defense and homelandsecurity spending by the U.S. Government, that it will build uponits competitive strengths to bid on larger, more comprehensivecontracts, that it will improve profitability, that it willcontinue to maintain diversification in its customer and contractmix, that its business mix is expected to gradually change in orderto derive a greater portion of revenue from higher margin productsand systems, that it will increase the percentage of revenues fromtime and materials and fixed-price contracts, that it expects to bea key provider of the Joint Range Extension System, that theX-Craft will be in the water in the summer of 2004, and that itexpects to complete the sales of the businesses of Titan Wirelesswithin one year.  Actual results may differ materially fromthose stated or implied in the forward looking statements. Further, certain forward looking statements are based uponassumptions of future events which may not prove to be accurate andare subject to risks and uncertainties that could cause actualresults to differ materially from those set forth in or implied byforward looking statements.  These risks and uncertaintiesinclude the risks associated with the Company's dependence oncontinued funding of U.S. Department of Defense and federalcivilian agency programs, contract termination risks, and risksassociated with acquiring other companies, including integrationrisks.

**Item 7A.  Quantitativeand Qualitative Disclosures About Market Risk**

*MarketRisk*

      The principalobjectives of our asset/liability management activities are tominimize debt and maximize net investment income, while maintainingacceptable levels of interest rate risk and facilitating ourfunding needs.  Our net investment income and interest expenseare subject to the risk of interest rate fluctuations.  Tomitigate the impact of fluctuations in interest rates, we managethe structure of the maturity of debt and investments.  As ofDecember 31, 2002, we did not hold any material amounts ofmarketable securities.  The amount of marketable securities wehold fluctuates based upon our cash needs, including the use of ouravailable cash resources to fund acquisitions.  As a policymatter, we invest cash in excess of our cash needs for limitedperiods in cash equivalents and available-for-saleinvestments.

      The followingtable provides information about our financial instruments that aresensitive to changes in interest rates as of December 31,2002.  For debt obligations, the table presents principal cashflows and related weighted average interest rates by expectedmaturity dates.  For terms relating to our long-term debt, seeNote 9 of the notes to the accompanying consolidated financialstatements.

|                                                                                                                  |                                       |   | **2003** |   |   | **2004** |   |   | **2005** |   |   | **2006** |   |   | **2007** |   |   | **Beyond** |   |   | **Total** |   |   | **Fair Value** |   |
|-----------------------------------------------------------------------------------------------------------------------|---------------------------------------|---|----------|---|---|----------|---|---|----------|---|---|----------|---|---|----------|---|---|------------|---|---|-----------|---|---|----------------|---|
|                                                                                                                  |                                       |   |          |   |   |          |   |   |          |   |   |          |   |   |          |   |   |            |   |   |           |   |   |                |   |
|                                                                                                                  | **(inthousands, except percentages)** |   |
| Assets:  None Liabilities: Long-term debt including debt      due within one year: |                                  |   |
| Fixed rate                                                                                                            |                                       | $ | 847      |   | $ | 857      |   | $ | 307      |   | $ | 429      |   | $ | 41       |   | $ | 411        |   | $ | 2,892     |   | $ | 2,892          |   |
| Average interestrate                                                                                                  |                                       |   | 8.57     | % |   | 8.57     | % |   | 8.73     | % |   | 8.89     | % |   | 8.58     | % |   | 8.58       | % |   | 8.64      | % |   | 8.64           | % |
| Variable rate(1)                                                                                                      |                                       | $ | 3,500    |   | $ | 3,500    |   | $ | 3,500    |   | $ | 3,500    |   | $ | 3,500    |   | $ | 330,750    |   | $ | 348,250   |   | $ | 348,250        |   |
| Average interestrate                                                                                                  |                                       |   | 4.43     | % |   | 4.43     | % |   | 4.43     | % |   | 4.43     | % |   | 4.43     | % |   | 4.43       | % |   | 4.43      | % |   | 4.43           | % |
| HIGH TIDES (2)                                                                                                        |                                       | $ | —  |   | $ | —  |   | $ | —  |   | $ | —  |   | $ | —  |   | $ | 250,000    |   | $ | 250,000   |   | $ | 250,000        |   |
| Fixed rate                                                                                                            |                                       |   | —  | % |   | —  | % |   | —  | % |   | —  | % |   | —  | % |   | 5.75       | % |   | 5.75      | % |   | 5.75           | % |

(1)  Maturitiesassume extension of the revolving portion of the Company's seniorcredit agreement to the end of the term loan maturities.  SeeNote 9 in the notes to the accompanying consolidated financialstatements for detailed information on the terms of thisagreement.

(2)  The HIGHTIDES has a remarketing feature beginning approximately five yearsafter the date of issuance.  See Note 9 to the accompanyingconsolidated financial statements for detailed information on theterms of this financial instrument.

**Item 8.  FinancialStatements and Supplementary Data**

**Index to FinancialStatements and Financial Statement Schedule**

|                                                                                                                   |            | **Page** |
|-------------------------------------------------------------------------------------------------------------------|------------|----------|
| ** **                                                                                                        | ** ** |          |
| Report of IndependentAuditors                                                                                     |       | 46       |
| FinancialStatements:                                                                                              |       |          |
|    Consolidated Statements ofOperations                                                            |       | 47       |
|    Consolidated BalanceSheets                                                                      |       | 48       |
|    Consolidated Statements of CashFlows                                                            |       | 49       |
|    Consolidated Statements ofStockholders' Equity                                                  |       | 50       |
|    Notes toConsolidated Financial Statements                                                       |       | 51-91    |
| Supporting Financial Statement Schedule Covered by theForegoing    Report of Independent Auditors: |       |          |
| Schedule II —Valuation and Qualifying Accounts                                                         |       | 102      |

****

**Report of IndependentAuditors**

The Board ofDirectors and StockholdersThe Titan Corporation:

We have audited theaccompanying consolidated balance sheets of The Titan Corporationand subsidiaries as of December 31, 2002 and 2001, and the relatedconsolidated statements of operations, stockholders’ equityand cash flows for each of the years in the three-year period endedDecember 31, 2002.  In connection with our audits of theconsolidated financial statements, we also have audited thefinancial statement schedule as listed in the accompanyingindex.  These consolidated financial statements and financialstatement schedule are the responsibility of the Company’smanagement.  Our responsibility is to express an opinion onthese consolidated financial statements and financial statementschedule based on our audits.  We did not audit the financialstatements of SureBeam Corporation, which financial statementsreflect total assets constituting 8 percent and 6 percent of theCompany’s total assets as of December 31, 2001 and 2000,respectively, and net income (loss) from discontinued operationsconstituting 80 percent and 12 percent for each of the years in thetwo-year period ended December 31, 2001, respectively, of therelated consolidated totals.  Those financial statements wereaudited by other auditors who have ceased operations. Thoseauditors expressed an unqualified opinion on those financialstatements in their report dated February 11, 2002. Our opinion,insofar as it relates to the amounts included for SureBeamCorporation, is based solely on the report of the otherauditors.

We conducted our audits inaccordance with auditing standards generally accepted in the UnitedStates of America.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  Anaudit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An auditalso includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating theoverall financial statement presentation.   We believe thatour audits and the report of the other auditors provide areasonable basis for our opinion.

In our opinion, based onour audits and the report of the other auditors, the consolidatedfinancial statements referred to above present fairly, in allmaterial respects, the financial position of The Titan Corporationand subsidiaries as of December 31, 2002 and 2001, and the resultsof their operations and their cash flows for each of the years inthe three-year period ended December 31, 2002, in conformity withaccounting principles generally accepted in the United States ofAmerica.  Also in our opinion, based on our audits and thereport of other auditors, the related financial statement schedule,when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all materialrespects, the information set forth therein.

As discussed in Note 2 tothe consolidated financial statements, the Company has adopted theprovisions of SFAS No. 142 “Accounting for Goodwill and OtherIntangible Assets,” and, accordingly, has changed its methodof accounting for goodwill.

/s/ KPMGLLP

San Diego,CaliforniaFebruary 25, 2003

**THE TITAN CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS  (In thousands, except per share data)**

| ** **                                                                                                                                                           | ** ** | **For theYears Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
|                                                                                                                                                                      |            |                                          |            |
|                                                                                                                                                                      |            | **2002**                                 |            | **2001** |  | **2000** |  |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Revenues                                                                                                                                                             |       | $                                        | 1,392,160  |   | $ | 974,497 |   | $ | 846,208 |   |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Costs andexpenses:                                                                                                                                                   |       |                                     |            |   |   |  |   |   |  |   |
|    Cost ofrevenues                                                                                                                                    |       |                                     | 1,129,061  |   |   | 755,115 |  |   | 648,080 |   |
|    Selling,general and administrative                                                                                                                 |       |                                     | 179,559    |   |   | 154,514 |  |   | 147,401 |   |
|    Researchand development                                                                                                                            |       |                                     | 9,555      |   |   | 9,310 |  |   | 5,701 |   |
|    Valuation allowance foraccounts receivable                                                                                                         |       |                                     | —    |   |   | — |  |   | 10,000 |   |
|    Gain onsale of IPivot                                                                                                                              |       |                                     | —    |   |   | — |  |   | (2,140 | ) |
|    Exit andrestructuring charges and other (Note 4)                                                                                                   |            |                                          | 53,317     |  |  | — |  |  | — |  |
|    Acquisition and integrationrelated charges and other (Note 5)                                                                                      |       |                                     | —    |   |   | 27,847 |  |   | 28,820 |  |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
|       Total costsand expenses                                                                                                          |       |                                     | 1,371,492  |   |   | 946,786 |   |   | 837,862 |   |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Operatingprofit                                                                                                                                                      |       |                                     | 20,668     |   |   | 27,711 |  |   | 8,346 |   |
| Interestexpense                                                                                                                                                      |       |                                     | (32,664    | ) |   | (36,669 | ) |   | (35,672 | ) |
| Interest income                                                                                                                                                      |       |                                     | 1,708      |   |   | 1,779 |  |   | 3,272 |   |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Loss from continuingoperations before income taxes, minority interests,    extraordinary loss and cumulative effect ofchange in accounting principle  |       |                                     | (10,288    | ) |   | (7,179 | ) |   | (24,054 | ) |
| Income tax provision(benefit)                                                                                                                                        |       |                                     | (2,452     | ) |   | 1,007 |  |   | (11,308 | ) |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Loss from continuingoperations before minority interests, extraordinary    loss and cumulative effect of change inaccounting principle                |       |                                     | (7,836     | ) |   | (8,186 | ) |   | (12,746 | ) |
| Minorityinterests                                                                                                                                                    |       |                                     | —    |  |   | 4,729 |   |   | 2,156 |   |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Loss from continuingoperations before extraordinary loss and cumulative    effect of change in accountingprinciple                                    |       |                                     | (7,836     | ) |   | (3,457 | ) |   | (10,590 | ) |
| Loss from discontinuedoperations, net of taxes (benefit) of    $(109,250), $(7,792) and $5,805 (Note6)                                                |       |                                     | (218,106   | ) |   | (95,157 | ) |   | (3,394 | ) |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Loss before extraordinaryloss and cumulative effect of change in accountingprinciple                                                                                 |       |                                     | (225,942   | ) |   | (98,614 | ) |   | (13,984 | ) |
| Extraordinary loss fromearly extinguishments of debt, net of tax benefit of    $4,027 and $1,541                                                      |            |                                          | (5,408     | ) |  | — |  |   | (4,744 | ) |
| Cumulative effect ofchange in accounting principle, net of tax benefit (Notes 2 and6)                                                                                |       |                                     | (40,111    | ) |   | — |  |  | — |  |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Net loss                                                                                                                                                             |       |                                     | (271,461   | ) |   | (98,614 | ) |   | (18,728 | ) |
| Dividend requirements onpreferred stock                                                                                                                              |       |                                     | (689       | ) |   | (690 | ) |   | (692 | ) |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Net loss applicable tocommon stock                                                                                                                                   |       | $                                        | (272,150   | ) | $ | (99,304 | ) | $ | (19,420 | ) |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Basic earnings (loss) pershare:                                                                                                                                      |       |                                     |       |   |   |   |   |   |   |   |
|    Lossfrom continuing operations before extraordinary loss andcumulative       effect of change in accountingprinciple |       | $                                        | (0.11      | ) | $ | (0.13 | ) | $ | (0.25 | ) |
|    Lossfrom discontinued operations, net of taxes                                                                                                     |       |                                     | (2.87      | ) |   | (1.63 | ) |   | (0.09 | ) |
|    Extraordinary loss from earlyextinguishments of debt, net of taxes                                                                                 |       |                                     | (0.07      | ) |   | — |  |   | (0.09 | ) |
|    Cumulative effect of change inaccounting principle, net of taxes                                                                                   |       |                                     | (0.53      | ) |   | — |  |   | — |  |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
|    Netloss                                                                                                                                            |       | $                                        | (3.58      | ) | $ | (1.76 | ) | $ | (0.43 | ) |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
|    Weightedaverage shares                                                                                                                             |       |                                     | 75,988     |  |   | 58,793 |   |   | 52,717 |   |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
| Diluted earnings (loss)per share:                                                                                                                                    |       |                                     |       |   |   |   |   |   |   |   |
|    Lossfrom continuing operations before extraordinary loss andcumulative       effect of change in accountingprinciple |       | $                                        | (0.11      | ) | $ | (0.13 | ) | $ | (0.25 | ) |
|    Lossfrom discontinued operations, net of taxes                                                                                                     |       |                                     | (2.87      | ) |   | (1.63 | ) |   | (0.10 | ) |
|    Extraordinary loss from earlyextinguishments of debt, net of taxes                                                                                 |       |                                     | (0.07      | ) |   | — |  |   | (0.09 | ) |
|    Cumulative effect of change inaccounting principle, net of taxes                                                                                   |       |                                     | (0.53      | ) |   | — |  |   | — |  |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
|    Netloss                                                                                                                                            |       | $                                        | (3.58      | ) | $ | (1.76 | ) | $ | (0.44 | ) |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |
|    Weightedaverage shares                                                                                                                             |       |                                     | 75,988     |  |   | 58,793 |   |   | 52,717 |   |
|                                                                                                                                                                      |            |                                          |            |  |  |  |  |

Theaccompanying notes are an integral part of these consolidatedfinancial statements.

**THE TITAN CORPORATIONCONSOLIDATED BALANCE SHEETS  (In thousands, except share and per sharedata)**

| ** **                                                                                                                                                                             | ** ** | **As ofDecember 31,****** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |
| ** **                                                                                                                                                                             | ** ** | **2002**                       |            | **2001** | ** ** |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| **Assets**                                                                                                                                                                             |       |
| Current Assets:                                                                                                                                                                        |       |                           |       |   |   |   |   |
|    Cash andcash equivalents                                                                                                                                             |       | $                              | 34,123     |   | $ | 18,621 |   |
|    Restricted cash                                                                                                                                                      |            |                                | 394        |  |  | — |  |
|    Accountsreceivable — net                                                                                                                                  |       |                           | 314,363    |   |   | 347,507 |   |
|    Inventories                                                                                                                                                          |       |                           | 31,280     |   |   | 23,922 |   |
|    Prepaidexpenses and other                                                                                                                                            |       |                           | 19,441     |   |   | 15,198 |   |
|    Deferredincome taxes                                                                                                                                                 |       |                           | 108,046    |   |   | 60,347 |   |
|    Currentassets of discontinued operations                                                                                                                             |       |                           | 103,871    |   |   | 99,669 |   |
| ** **                                                                                                                                                                             | ** ** |                                |            |  | ** ** |
|       Total currentassets                                                                                                                                |       |                           | 611,518    |   |   | 565,264 |   |
|                                                                                                                                                                                        |       |                           |            |   |   |  |   |
| Property andequipment — net                                                                                                                                                 |       |                           | 63,705     |   |   | 61,440 |   |
| Goodwill                                                                                                                                                                               |       |                           | 462,719    |   |   | 414,121 |   |
| Other assets —net                                                                                                                                                           |       |                           | 99,903     |   |   | 64,956 |   |
| Deferred incometaxes                                                                                                                                                                   |            |                                | 53,015     |  |  | — |  |
| Non-current assets ofdiscontinued operations                                                                                                                                           |       |                           | 6,582      |   |   | 346,138 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
|       Totalassets                                                                                                                                        |       | $                              | 1,297,442  |   | $ | 1,451,919 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| **Liabilities and Stockholders'Equity**                                                                                                                                                |       |
| CurrentLiabilities:                                                                                                                                                                    |       |                           |       |   |   |   |   |
|    Currentportion of amounts outstanding under line of credit                                                                                                           |       | $                              | 3,500      |   | $ | 12,813 |   |
|    Accountspayable                                                                                                                                                      |       |                           | 81,376     |   |   | 68,648 |   |
|    Acquisition debt                                                                                                                                                     |       |                           | —    |   |   | 2,000 |   |
|    Currentportion of long-term debt                                                                                                                                     |       |                           | 847        |   |   | 1,275 |   |
|    Accruedcompensation and benefits                                                                                                                                     |       |                           | 66,639     |   |   | 66,473 |   |
|    Otheraccrued liabilities                                                                                                                                             |       |                           | 87,602     |   |   | 65,309 |   |
|    Incometaxes payable                                                                                                                                                  |       |                           | —    |   |   | 1,174 |   |
|    Currentliabilities of discontinued operations                                                                                                                        |       |                           | 49,143     |   |   | 68,960 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
|       Total currentliabilities                                                                                                                           |       |                           | 289,107    |   |   | 286,652 |   |
| ** **                                                                                                                                                                             | ** ** |                                |            |  | ** ** |
| Long-term portion ofamounts outstanding under line of credit                                                                                                                           |       |                           | 344,750    |   |   | 317,187 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Other long-termdebt                                                                                                                                                                    |       |                           | 2,045      |   |   | 5,612 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Other non-currentliabilities                                                                                                                                                           |       |                           | 54,401     |   |   | 44,462 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Non-current liabilities ofdiscontinued operations                                                                                                                                      |       |                           | 44,826     |   |   | 51,025 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Commitments andcontingencies (Notes 3, 4 and 10)                                                                                                                                       |       |                           |       |   |   |   |   |
| Company obligatedmandatory redeemable convertible preferred securities of asubsidiary trust    whose sole assets are senior subordinatedconvertible debentures of Titan |       |                           | 250,000    |   |   | 250,000 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Minorityinterests                                                                                                                                                                      |       |                           | —    |   |   | 23 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Stockholders'Equity:                                                                                                                                                                   |       |                           |       |   |   |   |   |
|    Preferred stock: $1 par value,authorized 5,000,000 shares:                                                                                                           |       |                           |       |   |   |   |   |
|       Cumulativeconvertible, $13,800 liquidation preference, designated 1,068,102shares:                                                                 |       |                           |       |   |   |   |   |
|          688,129and 689,678 shares issued and outstanding                                                                                 |       |                           | 688        |  |   | 690 |   |
|       Series Ajunior participating, designated 1,000,000 authorizedshares:  None issued                                                   |       |                           | —    |  |   | — |   |
|    Commonstock: $.01 par value, authorized 200,000,000 shares:         78,344,550 and 70,128,582shares issued and outstanding   |       |                           | 783        |  |   | 701 |   |
|    Capitalin excess of par value                                                                                                                                        |       |                           | 647,752    |  |   | 586,802 |   |
|    Deferredcompensation                                                                                                                                                 |       |                           | (8,791     | ) |   | (34,519 | ) |
|    Retainedearnings (deficit)                                                                                                                                           |       |                           | (327,318   | ) |   | (55,857 | ) |
|    Accumulated other comprehensiveincome (loss)                                                                                                                         |       |                           | (132       | ) |   | 128 |   |
|    Treasurystock (245,750 and 372,050 shares), at cost                                                                                                                  |       |                           | (669       | )  |  | (987 | ) |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
|       Totalstockholders' equity                                                                                                                          |       |                           | 312,313    |   |   | 496,958 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |
| Total liabilities andstockholders' equity                                                                                                                                              |       | $                              | 1,297,442  |   | $ | 1,451,919 |   |
| ** **                                                                                                                                                                             | ** ** |                                | ** ** |  | ** ** |

Theaccompanying notes are an integral part of these consolidatedfinancial statements.**THETITAN CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS  (In thousands of dollars)**
| ** **                                                                                                                                                                | ** ** | **For theYears Ended December 31,****** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                                                                                | ** ** |                                              | ** ** |
|                                                                                                                                                                           |            | **2002**                                     |            | **2001** |  | **2000** |  |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| **Cash Flows fromOperating Activities:**                                                                                                                                  |       |                                         |       |   |   |   |   |   |   |   |
| Loss from continuingoperations                                                                                                                                            |       | $                                            | (7,836     | ) | $ | (3,457 | ) | $ | (10,590 | ) |
| Adjustments to reconcileloss from continuing operations to net cash provided by    (used for) continuing operations, net of effectsof businesses acquired: |       |                                         |            |  |   |  |   |   |  |   |
|       Depreciationand amortization                                                                                                          |       |                                         | 21,705     |  |   | 21,971 |   |   | 20,965 |   |
|       Write-offsdue to asset impairments                                                                                                    |       |                                         | —    |  |   | 14,640 |   |   | — |   |
|       Deferredincome taxes and other                                                                                                        |       |                                         | 24,322     |  |   | 1,314 |  |   | (6,157 | ) |
|       Minorityinterests                                                                                                                     |       |                                         | —    |  |   | (5,119 | ) |   | (2,566 | ) |
|       Poolings ofinterests                                                                                                                  |       |                                         | —    |  |   | — |   |   | 1,352 |   |
|       Deferredcompensation charges                                                                                                          |       |                                         | 27,835     |  |   | 4,282 |   |   | 5,538 |   |
|       Changes inoperating assets and liabilities, net of effects of businessesacquired:                                                     |       |                                         |            |  |   |   |   |   |   |   |
|          Accountsreceivable                                                                                                  |       |                                         | 63,480     |  |   | (23,216 | ) |   | (4,790 | ) |
|          Inventories                                                                                                         |       |                                         | (6,913     | ) |   | (5,276 | ) |   | 39 |  |
|          Prepaidexpenses and other assets                                                                                    |       |                                         | (6,980     | ) |   | 3,191 |  |   | (10,894 | ) |
|          Accountspayable                                                                                                     |       |                                         | 9,166      |  |   | 8,333 |   |   | 2,016 |   |
|          Incometaxes payable/refundable                                                                                      |       |                                         | (1,187     | ) |   | (37 | ) |   | (10,505 | ) |
|          Accruedcompensation and benefits                                                                                    |       |                                         | (5,005     | ) |   | 6,133 |   |   | (855 | ) |
|          Otherliabilities                                                                                                    |       |                                         | 37,130     |  |   | (12,417 | ) |   | (5,182 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Net cash provided by (usedfor) continuing operations                                                                                                                      |       |                                         | 155,717    |  |   | 10,342 |  |   | (21,629 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Loss from discontinuedoperations                                                                                                                                          |       |                                         | (218,106   | ) |   | (95,157 | ) |   | (3,394 | ) |
| Deferred compensationcharge attributable to discontinued operations                                                                                                       |       |                                         | 7,780      |  |   | 54,270 |   |   | 649 |   |
| Issuance of stock insubsidiaries                                                                                                                                          |       |                                         | 172        |  |   | 61,327 |   |   | — |   |
| Minority interestattributable to discontinued operations                                                                                                                  |       |                                         | (130       | ) |   | (11,872 | ) |   | (1,561 | ) |
| Changes in net assets andliabilities of discontinued operations                                                                                                           |       |                                         | 75,892     |  |   | (122,917 | ) |   | (139,903 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Net cash used fordiscontinued operations                                                                                                                                  |       |                                         | (134,392   | ) |   | (114,349 | ) |   | (144,209 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Net cash provided by (usedfor) operating activities                                                                                                                       |       |                                         | 21,325     |  |   | (104,007 | ) |   | (165,838 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| **Cash Flows fromInvesting Activities:**                                                                                                                                  |       |                                         |       |   |   |   |   |   |   |   |
| Capitalexpenditures                                                                                                                                                       |       |                                         | (26,002    | ) |   | (14,237 | ) |   | (26,334 | ) |
| Acquisition of businesses,net of cash acquired                                                                                                                            |       |                                         | 27,409     |  |   | (34,171 | ) |   | (72,718 | ) |
| Capitalized softwaredevelopment costs                                                                                                                                     |       |                                         | (1,586     | ) |   | (4 | ) |   | (719 | ) |
| Proceeds from sales ofinvestments                                                                                                                                         |       |                                         | 6,917      |  |   | 3,217 |   |   | — |   |
| Advances to SureBeam online of credit                                                                                                                                     |            |                                              | (25,000    | ) |  | — |  |  | — |  |
| Otherinvestments                                                                                                                                                          |       |                                         | (6,851     | ) |   | (12,546 | ) |   | (2,775 | ) |
| Other                                                                                                                                                                     |       |                                         | 7,594      |  |   | (206 | ) |   | 1,511 |   |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Net cash used forinvesting activities                                                                                                                                     |       |                                         | (17,519    | ) |   | (57,947 | ) |   | (101,035 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| **Cash Flows fromFinancing Activities:**                                                                                                                                  |       |                                         |       |   |   |   |   |   |   |   |
| Issuance of redeemableconvertible preferred securities                                                                                                                    |       |                                         | —    |  |   | — |   |   | 250,000 |   |
| Additions todebt                                                                                                                                                          |       |                                         | 18,250     |  |   | 66,875 |   |   | 123,903 |   |
| Retirements ofdebt                                                                                                                                                        |       |                                         | (4,647     | ) |   | (38,100 | ) |   | (104,426 | ) |
| Deferred debt issuancecosts                                                                                                                                               |       |                                         | (8,908     | ) |   | (1,600 | ) |   | (19,351 | ) |
| Proceeds from stockissuances                                                                                                                                              |       |                                         | 8,566      |  |   | 147,579 |   |   | 5,413 |   |
| Issuance of stock bysubsidiaries                                                                                                                                          |       |                                         | 19         |  |   | 42 |   |   | 6,373 |   |
| Dividends paid                                                                                                                                                            |       |                                         | (689       | ) |   | (690 | ) |   | (692 | ) |
| Increase in restrictedcash                                                                                                                                                |            |                                              | (394       | ) |  | — |  |  | — |  |
| Purchase ofstock                                                                                                                                                          |       |                                         | —    |  |   | — |  |   | (173 | ) |
| Other                                                                                                                                                                     |       |                                         | (241       | ) |   | 2 |  |   | (838 | ) |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Net cash provided byfinancing activities                                                                                                                                  |       |                                         | 11,956     |  |   | 174,108 |   |   | 260,209 |   |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Effect of exchange ratechanges on cash                                                                                                                                    |       |                                         | (260       | ) |   | 20 |   |   | 141 |  |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Net increase (decrease) incash and cash equivalents                                                                                                                       |       |                                         | 15,502     |  |   | 12,174 |   |   | (6,523 | ) |
| Cash and cash equivalentsat beginning of year                                                                                                                             |       |                                         | 18,621     |  |   | 6,447 |   |   | 12,970 |  |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |
| Cash and cash equivalentsat end of year                                                                                                                                   |       | $                                            | 34,123     |  | $ | 18,621 |   | $ | 6,447 |   |
|                                                                                                                                                                           |            |                                              |            |  |  |  |  |

Theaccompanying notes are an integral part of these consolidatedfinancial statements.

**THE TITAN CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYFOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000(In thousands of dollars, except per share data)**

|                                                                                          |   |        | **Cumulative   Convertible   Preferred Stock** |   |        | **Common Stock** |   |        | **Capitalin Excess of Par Value** |   |        | **DeferredCompen- sation** |   |        | **Retained Earnings   (Deficit)** |   |        | **Accumulated   Other Comprehensive   Income (Loss)** |   |        | **Treasury   Stock** |   |        | **Total** |   |
|-----------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------|--------|--------|------------------|--------|--------|-----------------------------------|--------|--------|----------------------------|--------|--------|----------------------------------------|--------|--------|-----------------------------------------------------------------|--------|--------|---------------------------|--------|--------|-----------|--------|
|                                                                                               |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        |                                        |        |        |
| Balances at December 31, 1999                                                            |   | $      | 695                                                      |   | $      | 525              |   | $      | 163,252                           |   | $      | (738                       | )      | $      | 5,283                                  |   | $      | (33                                                             | )      | $      | (2,636                    | )      | $      | 166,348   |   |
| Poolingadjustments                                                                            |   |   |                                                     |   |   |             |   |   |                              |   |   |                       |   |   | 1,352                                  |   |   |                                                            |   |   |                      |   |   | 1,352     |   |
| Exercise of stock optionsand other                                                            |   |   |                                                     |   |   | 16               |   |   | 3,577                             |   |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 3,593     |   |
| Proceeds from stockissuances                                                                  |   |   |                                                     |   |   |             |   |   | 1,820                             |   |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 1,820     |   |
| Issuance of stock forequity interest                                                          |   |   |                                                     |   |   |             |   |   | 900                               |   |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 900       |   |
| Deferred compensation,related to the    issuance of  stock options        |   |   |                                                     |   |   |             |   |   | 19,331                            |   |   | (19,331                    | )      |   |                                   |   |   |                                                            |   |   |                      |   |   | —   |   |
| Amortization of deferredcompensation                                                          |   |   |                                                     |   |   |             |   |   |                              |   |   | 6,187                      |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 6,187     |   |
| Purchase of treasurystock                                                                     |   |   |                                                     |   |   |             |   |   | (173                              | )      |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | (173      | )      |
| Shares contributed toemployee benefit plans                                                   |   |   |                                                     |   |   |             |   |   | 1,167                             |   |   |                       |   |   |                                   |   |   |                                                            |   |   | 1,197                     |   |   | 2,364     |   |
| Foreign currencytranslation adjustment                                                        |   |   |                                                     |   |   |             |   |   |                              |   |   |                       |   |   |                                   |   |   | 141                                                             |   |   |                      |   |   | 141       |   |
| Conversion of preferredstock                                                                  |   |   | (5                                                       | )      |   |             |   |   | 5                                 |   |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | —   |   |
| Income tax benefit fromemployee stock    transactions                          |   |   |                                                     |   |   |             |   |   | 1,479                             |   |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 1,479     |   |
| Gain related to issuanceof stock in subsidiary                                                |   |   |                                                     |   |   |             |   |   |                              |   |   |                       |   |   | 2,825                                  |   |   |                                                            |   |   |                      |   |   | 2,825     |   |
| Dividends on preferredstock — Cumulative    Convertible, $1.00 per share |   |   |                                                     |   |   |             |   |   | (692                              | )      |   |                       |   |   |                                        |        |   |                                                            |   |   |                      |   |   | (692      | )      |
| Net loss                                                                                      |   |   |                                                     |   |   |             |   |   |                              |   |   |                       |   |   | (18,728                                | )      |   |                                                            |   |   |                      |   |   | (18,728   | )      |
|                                                                                               |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        |                                        |        |        |
| Balances at December 31, 2000                                                                 |        |        | 690                                                      |        |        | 541              |        |        | 190,666                           |        |        | (13,882                    | )      |        | (9,268                                 | )      |        | 108                                                             |        |        | (1,439                    | )      |        | 167,416   |        |
| Proceeds from issuance ofstock                                                                |        |        |                                                     |        |        | 80               |        |        | 136,102                           |        |        |                       |        |        |                                        |        |        |                                                                 |        |        |                      |        |        | 136,182   |        |
| Issuance of stock foracquisitions                                                             |        |        |                                                     |        |        | 40               |        |        | 144,724                           |        |        |                       |        |        |                                        |        |        |                                                                 |        |        |                      |        |        | 144,764   |        |
| Exercise of stock optionsand other                                                            |        |        |                                                     |        |        | 40               |        |        | 11,749                            |        |        |                       |        |        |                                        |        |        |                                                                 |        |        | (392                      | )      |        | 11,397    |        |
| Deferred compensation,related to the    issuance of stock options              |        |        |                                                     |        |        |                  |        |        | 78,725                            |        |        | (78,725                    | )      |        |                                        |        |        |                                                                 |        |        |                           |        |        | —   |        |
| Amortization of deferredcompensation                                                          |        |        |                                                     |        |        |             |        |        |                                   |        |        | 58,552                     |        |        |                                        |        |        |                                                                 |        |        |                           |        |        | 58,552    |        |
| Foreign currencytranslation adjustment                                                        |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        |                                        |        |        | 20                                                              |        |        |                           |        |        | 20        |        |
| Valuation of optionsassumed in acquisitions                                                   |        |        |                                                          |        |        |                  |        |        | 16,272                            |        |        | (464                       | )      |        |                                        |        |        |                                                                 |        |        |                           |        |        | 15,808    |        |
| Income tax benefit fromemployee stock    transactions                          |        |        |                                                          |        |        |                  |        |        | 5,157                             |        |        |                            |        |        |                                        |        |        |                                                                 |        |        |                           |        |        | 5,157     |        |
| Gain related to issuanceof stock in subsidiary                                                |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        | 52,025                                 |        |        |                                                                 |        |        |                           |        |        | 52,025    |        |
| Shares contributed toemployee benefit plans                                                   |        |        |                                                          |        |        |                  |        |        | 4,097                             |        |        |                            |        |        |                                        |        |        |                                                                 |        |        | 844                       |        |        | 4,941     |        |
| Dividends on preferredstock — Cumulative    Convertible, $1.00 per share |        |        |                                                          |        |        |                  |        |        | (690                              | )      |        |                            |        |        |                                        |        |        |                                                                 |        |        |                           |        |        | (690      | )      |
| Net loss                                                                                      |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        | (98,614                                | )      |        |                                                                 |        |        |                           |        |        | (98,614   | )      |
|                                                                                               |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        |                                        |        |        |
| Balances at December 31, 2001                                                                 |        |        | 690                                                      |        |        | 701              |        |        | 586,802                           |        |        | (34,519                    | )      |        | (55,857                                | )      |        | 128                                                             |        |        | (987                      | )      |        | 496,958   |        |
| Spin-off ofSureBeam                                                                           |        |        |                                                          |        |        |                  |        |        | (124,722                          | )      |        | 19,318                     |        |        |                                        |        |        |                                                                 |        |        |                           |        |        | (105,404  | )      |
| Stock issued foracquisitions                                                                  |   |   |                                                     |   |   | 68               |   |   | 137,431                           |        |   |                       |   |   |                                   |   |   |                                                            |   |   | 312                       |        |   | 137,811   |        |
| Exercise of stock optionsand other                                                            |   |   |                                                          |        |   | 10               |   |   | 8,556                             |        |   |                       |   |   |                                   |   |   |                                                            |   |   |                           |        |   | 8,566     |        |
| Shares contributed toemployee benefit plans                                                   |   |   |                                                     |   |   | 4                |        |   | 7,519                             |        |   |                       |   |   |                                   |   |   |                                                            |   |   | 6                         |   |   | 7,529     |        |
| Conversion of preferredstock                                                                  |        |        | (2                                                       | )      |        |                  |        |        | 2                                 |        |        |                            |        |        |                                        |        |        |                                                                 |        |        |                           |        |        | —   |        |
| Deferred compensation,related to the    issuance of stock options         |   |   |                                                     |   |   |             |   |   | 29,834                            |        |   | (29,834                    | )      |   |                                   |   |   |                                                            |   |   |                      |   |   | —   |        |
| Write-off of deferredcompensation related to    discontinued operations        |   |   |                                                     |   |   |             |   |   | (629                              | )      |   | 629                   |   |   |                                   |   |   |                                                            |   |   |                      |   |   | —   |        |
| Amortization of deferredcompensation                                                          |   |   |                                                     |   |   |             |   |   |                                   |        |   | 35,615                     |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 35,615    |        |
| Income tax benefit fromemployee stock    transactions                          |   |   |                                                     |   |   |             |   |   | 3,648                             |        |   |                       |   |   |                                   |   |   |                                                            |   |   |                      |   |   | 3,648     |        |
| Dividends on preferredstock — Cumulative    Convertible, $1.00 per share |   |   |                                                     |   |   |             |   |   | (689                              | )      |   |                       |   |   |                                        |        |   |                                                            |   |   |                      |   |   | (689      | )      |
| Foreign currencytranslation adjustment                                                        |   |   |                                                     |   |   |             |   |   |                              |   |   |                       |   |   |                                        |        |   | (260                                                            | )      |   |                      |   |   | (260      | )      |
| Net loss                                                                                      |   |   |                                                     |   |   |             |   |   |                              |   |   |                       |   |   | (271,461                               | )      |   |                                                            |   |   |                      |   |   | (271,461  | )      |
|                                                                                               |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        |                                        |        |        |
| Balances at December 31, 2002                                                                 |        | $      | 688                                                      |        | $      | 783              |        | $      | 647,752                           |        | $      | (8,791                     | )      | $      | (327,318                               | )      | $      | (132                                                            | )      | $      | (669                      | )      | $      | 312,313   |        |
|                                                                                               |        |        |                                                          |        |        |                  |        |        |                                   |        |        |                            |        |        |                                        |        |        |

Theaccompanying notes are an integral part of these consolidatedfinancial statements.

**THE TITAN CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in thousands, except share and per share data, or as otherwisenoted)**

**Note 1.  Nature ofOperations**

      The TitanCorporation (the “Company” or “Titan”) is aleading technology developer and systems integrator for theDepartment of Defense, the Department of Homeland Security, andintelligence and other key government agencies.  The Companyprovides a range of services and systems solutions,.  Thesesolutions and services include research and development, design,installation, integration, test, logistics support, maintenance andtraining.  The Company also provides services and solutions togovernment agencies with sophisticated information systems. These include information processing, information fusion, datamanagement, and communication systems.  In addition, theCompany also develops and produces digital imaging products,sensors, lasers, electro-optical systems, threatsimulation/training systems, intelligence electronic hardware,signal intercept systems, and complex military specificsystems.

      The Companyfocuses on the following four markets:  C4ISR (Command,Control, Communications, Computers, Intelligence, Surveillance andReconnaissance), Transformational Programs, Enterprise IT, and theWar on Terrorism/Homeland Security.

      Prior to therecent developments discussed below, the Company grouped itsbusinesses into five business segments – Titan Systems, TitanWireless, Software Systems (including Cayenta), Titan Technologiesand the SureBeam business.  As discussed below, Titan is nolonger reporting the results of operations by these segments,however, reference may be made to these segments in discussions ofother historical information.  In accordance with SFAS No.131, “Disclosures about Segments of an Enterprise and RelatedInformation,” substantially all of the Company’soperations are aggregated into one reportable segment given thesimilarities of economic characteristics between the operations andthe common nature of the products, services, andcustomers.

**RecentDevelopments**

      InAugust 2002, the Company’s board of directors made thedecision to sell or otherwise divest its LinCom Wireless businessand to sell a remaining commercial information technology business,both of which were previously reported in the Company’s TitanTechnologies segment.  Accordingly, Titan has reflected bothoperations as discontinued in accordance with Statement ofFinancial Accounting Standards (“SFAS”) No. 144(see Note 6).

      InJuly 2002, the Company’s board of directors made thedecision to exit all of its international telecommunicationsbusiness through a combination of selling its operations within itsTitan Wireless segment.  Titan began implementing theseactions immediately and expects to complete these actions during2003.  The Company has reported this exit of the TitanWireless segment as a discontinued operation in accordance withSFAS No. 144 (see Note 6).

      During thefirst quarter of 2002, the Company’s board of directors madethe decision to sell certain of its commercial informationtechnology operations within its Cayenta segment and the AverCombusiness within the Titan Technologies segment.  In accordancewith SFAS No. 144, all commercial operations that have beensold or that are held for sale have been reflected as discontinuedoperations for all periods presented in Titan’s consolidatedfinancial statements (see Note 6).

      As a resultof Titan’s decision in the third quarter of 2002 to exitsubstantially all of its remaining commercial businesses andbecause most of Titan’s remaining operations are itsgovernment businesses, Titan is no longer reporting the results ofoperations by segments in accordance with SFAS No. 131,“Disclosures about Segments of an Enterprise and RelatedInformation.”  Also, as a result of these decisions, theCompany merged its Titan Systems Corporation subsidiary, whichencompassed its primary government businesses, into The TitanCorporation on September 25, 2002.  As a result of thismerger, outstanding stock options held by employees of TitanSystems Corporation were exchanged using an exchange ratio of..8371, for approximately 5.2 million stock options in TheTitan Corporation.  The exchange ratio was determined by Titanusing a valuation of Titan Systems Corporation, as determined by anindependent valuation firm, and the average Titan Corporationclosing stock price for the 20 trading days ending on the daybefore the merger (see Note 6).

      OnMarch 16, 2001, SureBeam Corporation, Titan's subsidiary thatprovides electronic food irradiation systems and services,completed an initial public offering ("IPO") of 6,700,000 shares ofClass A common stock at a price of $10 per share.  OnOctober 16, 2001, Titan adopted a definitive plan to spin offSureBeam in the form of a tax-free dividend to Titan stockholderswithin the next 12 months from that date.  The plan involvedfiling a letter ruling request with the Internal Revenue Service("IRS") to obtain approval of the tax-free distribution. Titan received a favorable ruling in May 2002, and on August 5,2002, Titan’s remaining ownership interest in SureBeam wasspun-off to Titan stockholders as a tax-free dividend.  Titanhas historically reported the SureBeam business as a separatesegment.  In accordance with Accounting Principles BoardOpinion No. 30, "Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment ofa Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions," the consolidated financial statements ofTitan have been restated to reflect SureBeam as a discontinuedbusiness.

**Note 2.  Significant AccountingPolicies**

***      Principles ofConsolidation.***  Theconsolidated financial statements include the accounts of Titan andits subsidiaries.  All significant intercompany transactionsand balances have been eliminated.  From time to time, theCompany makes investments in joint ventures which may involveinternational locations and operations.  Management evaluatesits investment in each joint venture on an individual basis forpurposes of determining whether or not consolidation isappropriate.  Investments in such ventures are generallyconsolidated in instances where the Company retains control throughdecision-making ability and generally a greater than 50% ownershipinterest.  In the absence of such factors, the Companygenerally accounts for these investments under the cost or equitymethod, depending upon management's evaluation of the Company'sability to exercise significant influence or control.

      ***Reclassifications***.  Certainreclassifications have been made to prior year presentations toconform to the 2002 presentation.

***      MinorityInterest in Subsidiaries.***  Minority interest in subsidiaries consistsprimarily of equity securities issued in 2000 by the Company'ssubsidiary, Cayenta, Inc., which was the operations of the SoftwareSystems business, which included certain components which werediscontinued in March 2002, as well as certain components which arecontinuing businesses, and equity securities issued in 2000 and2001 by the Company's SureBeam subsidiary.  The Company ownedsubstantially all of the voting equity of Cayenta and SureBeam bothbefore and after the transactions.  The Company recordsminority interest to reflect the portion of the earnings or lossesof majority-owned operations which are applicable to the minorityinterest partners.  The minority interest percentages ofCayenta and SureBeam were approximately 24.3% and 19.9%,respectively, as of December 31, 2001 and 23% and 0% as of December31, 2002, respectively.  The minority interest portion ofSureBeam's and Cayenta’s losses from the discontinuedcomponents are reflected in the loss from discontinuedoperations.  In addition, the minority interest portion of thecontinuing components of Cayenta are reflected in continuingoperations.

***      ForeignCurrency Translation.***  Thefinancial statements of certain of the Company's foreignsubsidiaries are measured using the local functionalcurrency.  Assets and liabilities of these subsidiaries aretranslated at exchange rates in effect as of the balance sheetdate.  Revenues and expenses are translated at average ratesof exchange in effect during the year.  The resultingcumulative translation adjustments have been recorded in othercomprehensive income within stockholders' equity.  Foreigncurrency transaction gains and losses are included in consolidatednet income.

***      Use ofEstimates.***  The preparationof financial statements in conformity with generally acceptedaccounting principles in the U.S. requires management to makeestimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reportingperiod.  Actual results could differ from thoseestimates. 

***      RevenueRecognition.***  A majority ofthe Company's revenue, both government and commercial, is derivedfrom products manufactured and services performed undercost-reimbursement, time-and-materials, and fixed-pricecontracts.  Cost reimbursement contracts for the governmentprovide for reimbursement of costs plus the payment of a fee. Under fixed-price contracts, we agree to perform certain work for afixed price.  Under time and materials contracts, we arereimbursed for labor hours at negotiated hourly billing rates andare reimbursed for travel and other direct expenses at actual costsplus applied general and administrative expense. Titan’s contracts with its government customers may usevarious cost-type contracts.  They include cost-plus fixedfee, cost-plus award fee, cost-plus incentive fee with incentivesbased upon both cost and/or performance, cost-with no fee, and costsharing contracts.  Under fixed-price contracts, revenues aregenerally recognized as services are performed, using thepercentage-of-completion method, in accordance with AccountingResearch Bulletin No. 45 and AICPA Statement of Position 81-1"Accounting for Performance of Construction-Type and CertainProduction-Type Contracts ("SOP 81-1").  Total estimated costsare based on management's assessment of costs to complete theproject based upon evaluation of the level of work achieved andcosts expended to date.  Estimated contract losses are fullycharged to operations when identified.  Revenues arerecognized under fixed-price contracts based on thepercentage-of-completion basis, using the cost-to-cost orunits-of-delivery methods.  Billings in excess of costincurred are recorded as reductions in accounts receivable in theaccompanying consolidated balance sheet.  Deferred revenuesare included in current liabilities.  For award and incentivefee type contracts, we recognize the expected fee to be awarded bythe customer at the time such fee can be reasonably estimated,based on factors such as our prior award experience andcommunications with the customer regarding our performance,including any interim performance evaluations rendered by thecustomer. 

      Revenues fromsoftware license agreements are recognized currently, provided thatall of the following conditions are met:  anoncancellable license agreement has been signed, the software hasbeen delivered, there are no material uncertainties regardingcustomer acceptance, collection of the resulting receivable isdeemed probable and the risk of concession is deemed remote, and noother significant vendor obligations exist.  Revenues frommaintenance services are recognized ratably over the term of themaintenance period, generally one year.  Maintenance revenueswhich are bundled with license agreements are unbundled usingvendor-specific objective evidence.

      As most ofthe Company's revenue recognition practices are in accordance withSOP 81‐1 and AICPA Statement of Position 97-2 "SoftwareRevenue Recognition" ("SOP 97-2"), the adoption of Securities andExchange Commission ("SEC") Staff Accounting Bulletin ("SAB")No. 101, "Revenue Recognition in Financial Statements" in 2000had no material impact on the Company's consolidated financialstatements.

      In softwareagreements that include rights to multiple software products,maintenance or services, the Company allocates the total revenuebetween each deliverable using the relative fair value of each ofthe deliverables determined using vendor-specific objectiveevidence.  Vendor-specific objective evidence of fair value isdetermined using the price charged when the element is soldseparately.

***      DeferredRevenues.***  Included inother accrued liabilities are deferred revenues which consistprincipally of customer deposits and payments for softwaremaintenance agreements with customers whereby the Company receivespayment in advance of performing the service.  Revenue fromthese contracts is recognized ratably over the contractperiod.

***      CashEquivalents.***  All highlyliquid investments purchased with an original maturity of threemonths or less are classified as cash equivalents.

***      UnbilledAccounts Receivable.***  Unbilled accounts receivable are included inaccounts receivable and include work-in-process which will bebilled in accordance with contract terms and delivery schedules, aswell as amounts billable upon final execution of contracts,contract completion, milestones or completion of ratenegotiations.  Generally, unbilled accounts receivable areexpected to be billed and collected within one year.  Paymentsto the Company for performance on certain U.S. government contractsare subject to audit by the Defense Contract Audit Agency. Revenues have been recorded at amounts expected to be realized uponfinal settlement.

***      Concentrationof Risk.***  As the Companyexpanded its business into international markets and developingcountries during 2000 and 2001, certain accounts receivable mayhave been exposed to credit risk due to political and/or economicinstability in these areas.  To mitigate credit risk inforeign countries, the Company has generally denominated itsforeign contracts in U.S. dollars and required payment primarily inthe form of stand-by letters of credit, advance deposits, or wiretransfer, prior to shipment.  Sales to the U.S. government,including both defense and non-defense agencies, and sales as asubcontractor as well as direct sales, aggregated approximately$1,320.0 million in 2002, $905.3 million in 2001, and$763.3 million in 2000.  Substantially all of theCompany's operations are located in the United States.  Exportand foreign revenues amounted to approximately $29.6 million,$21.4 million, and $13.6 million in 2002, 2001, and 2000,respectively, primarily to countries in Europe, Asia, Africa andSouth America.  Substantially all international sales aredenominated in U.S. dollars. 

      A majority ofthe Company's total revenues are from U.S. governmentcontracts.  Any cancellations or modifications of oursignificant contracts or subcontracts, or failure by the U.S.government to exercise an option period relating to those contractsor subcontracts, could adversely affect the Company's financialcondition and results of operations in the short- andlong-term.  A significant and continuing decline in U.S.defense and other federal agency budgets also may negatively impactour business.  Although we bid for and are awarded long-termU.S. government contracts and subcontracts, the U.S. governmentonly funds these contracts on an annual basis, and many of theCompany's contracts and subcontracts include option years. The U.S. government may cancel these contracts at any time withoutpenalty or may change its requirements, programs or contractbudget, and generally has the right not to exercise optionperiods.  The U.S. Congress may decline to appropriate fundsneeded to complete the contracts awarded to us or the primecontractor.  On our subcontracts, we generally do not controlthe prime contractor's allocation of resources.  We alsodepend upon the prime contractor to perform its obligations on theprimary government contract.  In addition to contractcancellations and declines in agency budgets, the Company'sfinancial condition and results of operations may be adverselyaffected by:
|        | ·       | budgetary constraintsaffecting U.S. government spending generally, and changes in fiscalpolicy or available funding; |
|--------------------------------------|----------------------------------------------|----------------------------------------------------------------------------------------------------------------------|
|        |                |                                                                                        |
|        | ·       | curtailment of the U.S.government's use of technology services providers;                                            |
|        |                |                                                                                        |
|        | ·       | the adoption of new lawsor regulations;                                                                              |
|        |                |                                                                                        |
|        | ·       | U.S. government shutdowns,such as that which occurred during the U.S. government's 1996fiscal year;                  |
|        |                |                                                                                        |
|        | ·       | competition andconsolidation in our business areas; and                                                              |
|        |                |                                                                                        |
|        | ·       | general economicconditions.                                                                                          |

      These orother factors could cause government agencies to reduce theirpurchases under contracts, to exercise their right to terminatecontracts or not to exercise options to renew contracts.  Anyof these actions could have a material adverse effect on ourbusiness, financial condition and results of operations.

***      Inventories.***  Inventories include the cost of material,labor and overhead, and are stated at the lower of cost, determinedon the first-in, first-out (FIFO) and weighted average methods, ormarket.  The Company periodically evaluates its on-hand stockand makes appropriate disposition of any stock deemed excess orobsolete. 

***      Property andEquipment.***  Property andequipment are stated at cost.  Depreciation is provided usingthe straight-line method, with estimated useful lives of 5 to 30years for buildings, 3 to 15 years for leasehold improvements,representing the lesser of the useful life of the improvement orthe lease term, and 3 to 15 years for machinery and equipment andfurniture and fixtures.  Certain machinery and equipment inthe Company's medical sterilization and food irradiation businessesis depreciated based on units of production. 

      ***Goodwilland Other Intangible Assets.***  Goodwill representsthe excess of costs over fair value of assets of businessesacquired. The Company adopted the provisions of SFAS No. 142,“Goodwill and Other Intangible Assets,” as ofJanuary 1, 2002. Goodwill and intangible assets acquired in apurchase business combination and determined to have an indefiniteuseful life are not amortized, but instead tested for impairment atleast annually in accordance with the provisions of SFASNo. 142. SFAS No. 142 also requires that intangibleassets with estimable useful lives be amortized over theirrespective estimated useful lives to their estimated residualvalues, and reviewed for impairment in accordance with SFASNo. 144, “Accounting for Impairment or Disposal ofLong-Lived Assets.”  

      SFASNo. 142 requires that goodwill be tested for impairment at thereporting unit level at adoption and at least annually thereafter,utilizing a two step methodology.  The initial step requiresthe Company to assess whether indications of impairmentexist.  If indications of impairment are determined to exist,the second step of measuring impairment is performed, wherein thefair value of the relevant reporting unit is compared to thecarrying value, including goodwill, of such unit.  If the fairvalue exceeds the carrying value, no impairment loss isrecognized.  However,if the carryingvalue of the reporting unit exceeds its fair value, the goodwill ofthe reporting unit is impaired. 

*InitialAdoption*

      In connectionwith adopting this standard as ofJanuary 1, 2002, during the firstquarter of 2002, the Company’s independent valuationconsultant, Bearing Point (formerly KPMG Consulting, Inc.),completed step one of the test for impairment, which indicated thatthe carrying values of certain reporting units exceeded theirestimated fair values, as determined utilizing various evaluationtechniques including discounted cash flow and comparative marketanalysis.  Thereafter, given the indication of a potentialimpairment, the Company completed step two of the test.  Basedon that analysis, a transitional impairment loss of$40.1 million, which was net of a $10.0 million taxbenefit, was recognized in the first quarter of 2002 as thecumulative effect of an accounting change.  The impairmentcharge resulted from a change in the criteria for themeasurement of the impairment loss from an undiscountedcash flow method, as required by SFAS No. 121, "Accounting forthe Impairment of Long-Lived Assets and for Long-Lived Assets to BeDisposed Of," to an estimated fair value analysis as required bySFAS No. 142.  The gross$50.1 million impairment charge recorded in the first quarterof 2002 was comprised of approximately $27.5 million incertain components of our Cayenta business, approximately$14.9 million in our AverCom business, which was previouslyreported in our Titan Technologies segment, both attributable tolower valuations and weakened outlook in commercial IT services,and approximately $7.7 million in our Titan Wirelessbusiness.  The entire $50.1 million charge was related todiscontinued businesses; approximately $42.4 million of thischarge pertained to businesses that were discontinued by theCompany on March 1, 2002 with the remaining charge of$7.7 million related to the Company’s long distancetelecommunications business that was discontinued in the thirdquarter of 2002.

      Prior to theadoption of SFAS No. 142, goodwill was amortized on astraight‐line basis over the expected periods to bebenefited, generally 1 to 40 years, and assessed forrecoverability by determining whether the amortization of thegoodwill balance over its remaining life could be recovered throughundiscounted future operating cash flows of the acquired operation.All other intangible assets were amortized on a straight‐linebasis from 1 to 5 years.  The amount of goodwill andother intangible asset impairment, if any, was measured based onprojected discounted future operating cash flows using a discountrate reflecting the Company’s average cost offunds.

*Impairment Subsequentto Initial Adoption*

      As a resultof Titan’s board of directors’ decision inJuly 2002 to exit its long distance telecommunicationsbusiness, and the deterioration in pricing and valuations in thetelecommunications industry, Titan recorded an additionalimpairment charge of $74.9 million of goodwill in itsinternational telecommunications business, Titan Wireless, basedupon recent indications of fair value as determined by recent salesoffers from potential buyers.

      In connectionwith Titan’s board of directors’ decision in the thirdquarter of 2002 to divest its LinCom Wireless business, Titanrecorded a $2.7 million impairment of goodwill based uponrecent indications of fair value as determined by offers frompotential buyers.  In October 2002, Titan shut down theoperations of LinCom Wireless.

      In addition,approximately $19.4 million of additional goodwill wasdetermined to be impaired related to previously discontinuedcomponents of Cayenta, AverCom and other commercial informationtechnology businesses, which impairment was recorded based uponestimates of fair value.

      Allimpairment charges recognized subsequent to the Company’sinitial adoption of SFAS No. 142 have been reported in the lossfrom discontinued operations, as all impairments were incurred inbusinesses held for sale or disposed of during 2002 (see Note6).

      Theadjustment of previously reported net income (loss) and earnings(loss) per share below represents the elimination of recordedamortization of goodwill.  The impact on net income (loss),and basic and diluted net earnings (loss) per share for the yearsended December 31, 2002, 2001 and 2000 is set forthbelow:

Reconciliation of NetIncome (Loss) and Earnings (Loss) Per Share:

| ** **                                                                                                                                           | ** ** | **YearsEnded December 31,****** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                                                           | ** ** |                                      | ** ** |
|                                                                                                                                                      |            | **2002**                             |            | **2001** |  | **2000** |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
| Income (loss) fromcontinuing operations before extraordinary loss and cumulativeeffect of change in accounting principle                             |       | $                                    | (7,836     | ) | $ | (3,457 | ) | $ | (10,590 | ) |
| Add back amortization ofgoodwill, net of tax                                                                                                         |       |                                 | —    |  |   | 11,424 |   |   | 5,244 |   |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
| Adjusted income (loss)from continuing operations before extraordinaryloss and cumulative effect of change in accounting    principle  |       |                                 | (7,836     | ) |   | 7,967 |   |   | (5,346 | )  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
| Loss from discontinuedoperations, net of tax                                                                                                         |       |                                 | (218,106   | ) |   | (95,157 | ) |   | (3,394 | ) |
|       Add backamortization of goodwill, net of tax                                                                     |       |                                 | —    |  |   | 16,641 |  |   | 13,886 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
| Adjusted income (loss)from discontinued operations                                                                                                   |       |                                 | (218,106   | ) |   | (78,516 | ) |   | 10,492 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
| Extraordinary loss fromearly extinguishments of debt, net of tax                                                                                     |            |                                      | (5,408     | ) |  | — |  |  | (4,744 | ) |
| Cumulative effect ofchange in accounting principle                                                                                                   |       |                                 | (40,111    | ) |   | — |  |   | — |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
| Net income(loss)                                                                                                                                     |       |                                 | (271,461   | ) |   | (70,549 | ) |   | 402 |  |
| Dividend requirements onpreferred stock                                                                                                              |       |                                 | (689       | ) |   | (690 | ) |   | (692 | ) |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
| Net loss applicable tocommon stock                                                                                                                   |       | $                                    | (272,150   | ) | $ | (71,239 | ) | $ | (290 | )  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
| Basic earnings (loss) pershare:                                                                                                                      |       |                                 |            |  |   |  |  |   |  |  |
|       Loss fromcontinuing operations before extraordinary loss and cumulativeeffect of change in accounting principle  |       | $                                    | (0.11      | ) | $ | (0.12 | ) | $ | (0.25 | ) |
|       Add backamortization of goodwill, net of tax                                                                     |       |                                      | —    |  |  | 0.19 |  |  | 0.10 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Adjustedincome (loss) from continuing operations before extraordinaryitem                                        |       |                                      | (0.11      | ) |  | 0.07 |   |  | (0.15 | ) |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
|       Loss fromdiscontinued operations, net of tax                                                                     |       |                                      | (2.87      | ) |  | (1.63 | ) |  | (0.09 | ) |
|       Add backamortization of goodwill, net of tax                                                                     |       |                                 | —    |  |   | 0.28 |   |   | 0.26 |   |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Adjustedincome (loss) from discontinued operations                                                               |       |                                      | (2.87      | ) |  | (1.35 | ) |  | 0.17 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
|       Extraordinaryloss from early extinguishments of debt, net of tax                                                 |       |                                 | (0.07      | ) |   | — |  |   | (0.09 | ) |
|       Cumulativeeffect of change in accounting principle                                                               |            |                                      | (0.53      | ) |  | — |  |  | — |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Net loss                                                                                                         |       | $                                    | (3.58      | ) | $ | (1.28 | ) | $ | (0.07 | ) |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
|       Weighted average shares                                                                                          |       |                                 | 75,988     |  |   | 58,793 |   |   | 52,717 |   |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
| Diluted earnings (loss)per share:                                                                                                                    |            |                                      |            |  |  |  |  |  |  |  |
|       Loss from continuing operations before extraordinary lossand cumulative effect of change in accounting principle |            | $                                    | (0.11      | ) | $ | (0.12 | ) | $ | (0.25 | ) |
|       Add back amortization of goodwill, net of tax                                                                    |            |                                      | —    |  |  | 0.19 |  |  | 0.10 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Adjusted income (loss) from continuing operations beforeextraordinary item                                       |            |                                      | (0.11      | ) |  | 0.07 |  |  | (0.15 | ) |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
|       Loss from discontinued operations, net of tax                                                                    |            |                                      | (2.87      | ) |  | (1.63 | ) |  | (0.10 | ) |
|       Add back amortization of goodwill, net of tax                                                                    |            |                                      | —    |  |  | 0.28 |  |  | 0.26 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Adjusted loss from discontinued operations                                                                       |            |                                      | (2.87      | ) |  | (1.35 | ) |  | 0.16 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |  |  |  |
|       Extraordinary loss from early extinguishments of debt, netof tax                                                 |            |                                      | (0.07      | ) |  | — |  |  | (0.09 | ) |
|       Cumulativeeffect of change in accounting principle                                                               |            |                                      | (0.53      | ) |  | — |  |  | — |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Net loss                                                                                                         |            | $                                    | (3.58      | ) | $ | (1.28 | ) | $ | (0.08 | ) |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |
|       Weighted average shares                                                                                          |            |                                      | 75,988     |  |  | 58,793 |  |  | 52,717 |  |
|                                                                                                                                                      |            |                                      |            |  |  |  |  |

***      Impairment ofInvestments in Non-marketable Securities.***  Periodically, the Companyreviews for possible impairments its non-marketable securities,which include the Company’s investments in emergingbusinesses, which are accounted for under the cost method. Whenever events or changes in circumstances indicate that thecarrying amount of an asset is other than temporarily impaired,asset values are adjusted accordingly based on a write down of costto estimated fair value.  In evaluating whether a loss in thecarrying value of the Company’s investment is other thantemporary, the Company evaluates the financial condition andnear-term prospects of the investee and the region and industry ofthe investee, including any specific events which may influence theoperations of the investee such as changes in technology, and theCompany’s overall investment intent.  The Company willgenerally deem an impairment to be other than temporary if its costbasis has exceeded its fair value for a period of six to ninemonths.  If a loss in the carrying value of theCompany’s investment is deemed to be other than temporary,the Company recognizes such loss based on a write down of cost torealizable value.

      ***Impairmentof Long‐Lived Assets.***  SFAS No. 144provides a single accounting model for long‐lived assets tobe disposed of. SFAS No. 144 also changes the criteria forclassifying an asset as held for sale, broadens the scope ofbusinesses to be disposed of that qualify for reporting asdiscontinued operations and changes the timing of recognizinglosses on such operations. The Company adopted SFAS No. 144 onJanuary 1, 2002. The adoption of SFAS No. 144 did notaffect the Company’s consolidated financialstatements.

      In accordancewith SFAS No. 144, long‐lived assets, such as property,plant, and equipment, and purchased intangibles subject toamortization, are reviewed for impairment whenever events orchanges in circumstances indicate that the carrying amount of anasset may not be recoverable. Recoverability of assets to be heldand used is measured by a comparison of the carrying amount of anasset to estimated undiscounted future cash flows expected to begenerated by the asset. If the carrying amount of an asset exceedsits estimated future cash flows, an impairment charge is recognizedby the amount by which the carrying amount of the asset exceeds thefair value of the asset. Assets to be disposed of would beseparately presented in the balance sheet and reported at the lowerof the carrying amount or fair value less costs to sell, and are nolonger depreciated.  The assets and liabilities of a disposedgroup classified as held for sale would be presented separately inthe appropriate asset and liability sections of the balancesheet.

      Goodwill andintangible assets not subject to amortization are tested annuallyfor impairment, and are tested for impairment more frequently ifevents and circumstances indicate that the asset might beimpaired.  An impairment loss is recognized to the extent thatthe carrying amount exceeds the asset’s fairvalue.

      Prior to theadoption of SFAS No. 144, the Company accounted forlong‐lived assets in accordance with SFAS No. 121,“Accounting for Impairment of Long‐Lived Assets and forLong‐Lived Assets to Be Disposed Of.”

***      Stock-BasedCompensation.***  The Companyhas elected to adopt the disclosure only provisions of SFAS No.123, "Accounting for Stock-Based Compensation".  Accordingly,the Company will continue to account for its stock-basedcompensation plans under the provisions of APB No. 25.  TheCompany also follows the disclosure requirements of SFAS No. 148,“Accounting for Stock-Based Compensation – Transitionand Disclosure,” which amends SFAS No. 123.

      As allowed bySFAS No. 123, the Company has elected to continue to apply theintrinsic value based method of accounting described in APB No. 25and has adopted the disclosure only provisions of SFAS No.123.  Compensation cost, if any, is measured as the excess ofthe quoted market price of the Company's stock on the date of grantover the exercise price of the grant.  Had compensation costfor the Company's stock-based compensation plans been determinedbased on the fair value at the grant dates for awards under thoseplans consistent with the method of SFAS No. 123, the Company'sresults of operations would have been reduced to the pro formaamounts indicated below:

| ** **                                                                                                                                                                                                                                                                     | ** ** | ** ** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                                                                                                                                                     | ** ** | ** ** | ** ** | ****     | ** ** | ****     | ** ** | ****     | ** ** |
| Net loss, asreported                                                                                                                                                                                                                                                           |       | $          | (271,461   | )        | $          | (98,614  | )          | $        | (18,728    | ) |
| Less:  Additional stock-based employeecompensation           expensedetermined under fair value based method for           allawards, net of related tax effects |            |            | (5,575     | )        |            | (9,123   | )          |          | (3,620     | ) |
| ** **                                                                                                                                                                                                                                                                     | ** ** | ** ** | ** ** | ****     | ** ** | ****     | ** ** | ****     | ** ** |
| Net loss, proforma                                                                                                                                                                                                                                                             |       |            |       | $        | (277,036   | )        | $          | (107,737 | )          | $ | (22,348 | ) |
|                                                                                                                                                                                                                                                                                |            | ****       |            | ****     |            | ****     |            |
| Earnings pershare:                                                                                                                                                                                                                                                             |       |            |            |          |            |          |            |          |            |  |
|       Basic asreported                                                                                                                                                                                                                           |            |            |            | $        | (3.58      | )        | $          | (1.76    | )          | $ | (.43 | ) |
|       Basic proforma                                                                                                                                                                                                                             |       |            |       | $        | (3.66      | )        | $          | (1.92    | )          | $ | (.51 | ) |
|                                                                                                                                                                                                                                                                                |            |            |            |          |            |          |            |          |            |  |
|       Diluted asreported                                                                                                                                                                                                                         |       | $          | (3.58      | )        | $          | (1.76    | )          | $        | (.44       | ) |
|       Diluted proforma                                                                                                                                                                                                                           |       |            |       | $        | (3.66      | )        | $          | (1.92    | )          | $ | (.51 | ) |

***      IncomeTaxes.***  The Companyaccounts for income taxes under SFAS No. 109, "Accounting forIncome Taxes," which requires the use of the liability method ofaccounting for deferred income taxes.  Under this method,deferred income taxes are recorded to reflect the tax consequenceson future years of differences between the tax bases of assets andliabilities and their financial reporting amounts at eachyear-end.  If it is more likely than not that some portion orall of a deferred tax asset will not be realized, a valuationallowance is recognized.

***      CapitalizedSoftware.***  The Companycapitalizes certain software costs, in accordance with SFAS No. 86,"Accounting for the Costs of Computer Software to Be Sold, Leased,or Otherwise Marketed," after technological feasibility has beenestablished based on a detailed program design.  Capitalizedcosts are amortized based on current and future revenue for eachproduct with an annual minimum equal to the straight-lineamortization over the remaining estimated economic life of theproduct, which is estimated to be 3 to 5 years.  As ofDecember 31, 2002, capitalized software, net of accumulatedamortization was approximately $1.4 million. Amortization for each of the years ended December 31, 2002, 2001and 2000, was less than $0.1 million.

***      Per ShareInformation.***  The Companycomputes earnings per share based on the provisions of SFAS No.128, "Earnings Per Share."

      The followingdata summarize information relating to the per share computationsfor continuing operations before extraordinary loss and cumulativeeffect of change in accounting principle:

| ** **                                                                                                                                                                           | ** ** | **For theYear Ended December 31, 2002****** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                                                                                           | ** ** | ****                                             | ** ** |
| ****** **                                                                                                                                                                       | ** ** | **Income(Loss) (Numerator)******                 | ** ** | **Shares(000's) (Denominator)****** | ** ** | **Per-Share Amounts****** | ** ** |
| ** **                                                                                                                                                                           |            | ****                                             |            | **** |  | **** |  |
| Loss from continuingoperations before extraordinary loss and    cumulative effect of change in accountingprinciple                                                    |       | $                                                | (7,836     | ) |   |   |   |   |   |
| Less preferred stockdividends                                                                                                                                                        |       |                                             | (689       | ) |   |   |   |   |   |
|                                                                                                                                                                                 |       | ****                                             |       |   |   |   |   |   |
| Basic and DilutedEPS:                                                                                                                                                                |       |                                             |       |   |   |   |   |   |   |
| Loss from continuingoperations before extraordinary loss and    cumulative effect of change in accountingprinciple available to    common stockholders |       | $                                                | (8,525     | ) | 75,988 |  | $ | (0.11 | ) |
|                                                                                                                                                                                 |       |                                                  |       |  |   |  |   |
|                                                                                                                                                                                      |            |                                                  |            |  |
|                                                                                                                                                                                 |       |                                             |       |   |   |   |   |   |   |
| ** **                                                                                                                                                                           | ** ** | **For theYear Ended December 31, 2001****** | ** ** |
| ** **                                                                                                                                                                           | ** ** | ****                                             | ** ** |
| ** **                                                                                                                                                                           | ** ** | **Income(Loss) (Numerator)******                 | ** ** | **Shares(000's) (Denominator)****** | ** ** | **Per-Share Amounts****** | ** ** |
| ** **                                                                                                                                                                           | ** ** | ****                                             | ** ** | **** | ** ** | **** | ** ** |
| Loss from continuingoperations                                                                                                                                                       |       | $                                                | (3,457     | ) |   |   |   |   |   |
| Less preferred stockdividends                                                                                                                                                        |       |                                             | (690       | ) |   |   |   |   |   |
| Effect of minorityinterests                                                                                                                                                          |       |                                             | (3,228     | ) |   |   |   |   |   |
|                                                                                                                                                                                 |       | ****                                             |       |   |   |   |   |   |
| Basic and DilutedEPS:                                                                                                                                                                |       |                                             |       |   |   |   |   |   |   |
| Loss from continuingoperations available to common stockholders                                                                                                                      |       | $                                                | (7,375     | ) | 58,793 |   | $ | (0.13 | ) |
|                                                                                                                                                                                 |       |                                                  |       |  |   |  |   |
|                                                                                                                                                                                      |            |                                                  |            |  |
|                                                                                                                                                                                 |       |                                             |       |   |   |   |   |   |   |
| ** **                                                                                                                                                                           | ** ** | **For theYear Ended December 31, 2000****** | ** ** |
| ** **                                                                                                                                                                           | ** ** | ****                                             | ** ** |
| ** **                                                                                                                                                                           | ** ** | **Income(Loss) (Numerator)******                 | ** ** | **Shares(000's) (Denominator)****** | ** ** | **Per-Share Amounts****** | ** ** |
| ** **                                                                                                                                                                           | ** ** | ****                                             | ** ** | **** | ** ** | **** | ** ** |
| Loss from continuingoperations before extraordinary loss                                                                                                                             |       | $                                                | (10,590    | ) |   |   |   |   |   |
| Less preferred stockdividends                                                                                                                                                        |       |                                             | (692       | ) |   |   |   |   |   |
| Effect of minorityinterests                                                                                                                                                          |       |                                             | (1,867     | ) |   |   |   |   |   |
|                                                                                                                                                                                 |       | ****                                             |       |   |   |   |   |   |
| Basic and DilutedEPS:                                                                                                                                                                |       |                                             |       |   |   |   |   |   |   |
| Loss from continuingoperations before extraordinary loss available to    common stockholders                                                                          |       | $                                                | (13,149    | ) | 52,717 |   | $ | (0.25 | ) |
|                                                                                                                                                                                 |       |                                                  |       |  |   |  |   |
|                                                                                                                                                                                      |            |                                                  |            |  |

      In the yearended December 31, 2002, options to purchase approximately3,357,700 shares of common stock at exercise prices ranging from$1.04 to $13.09 per share were not included in the computation ofdiluted EPS, as the effect would have been anti-dilutive due to theloss from continuing operations before extraordinary item andcumulative effect of change in accounting principle.  In theyears ended December 31, 2001 and 2000, respectively, options topurchase approximately 2,074,600 and 3,260,000 shares of commonstock at exercise prices ranging from $1.12 to $20.04 and $.40 to$29.00 per share were not included in the computation of dilutedEPS, as the effect would have been anti-dilutive due to the lossfrom continuing operations before extraordinary item.  In theyear ended December 31, 2002, options to purchase approximately3,963,900 shares of common stock at prices ranging from $13.18 to$29.74 were not included in the computation of diluted EPS becausethe options’ exercise price was greater than the averagemarket price of the common shares.  In the years endedDecember 31, 2001 and 2000, respectively, options to purchaseapproximately 1,206,800 and 170,900 shares of common stock atexercise prices ranging from $20.70 to $47.50 and $32.00 to $47.50per share were not included in the computation of diluted EPSbecause the options' exercise price was greater than the averagemarket price of the common shares.

      In 2002,2001, and 2000, approximately 538,400, 459,900, and 461,200 sharesof common stock, respectively, that could result from theconversion of cumulative convertible preferred stock were notincluded in the computation of dilutive EPS, as the effect wouldhave been anti-dilutive on the results of continuingoperations.  Similarly, in 2002, approximately 6,776,500shares, and in 2001 and 2000 approximately 5,038,000 sharesthat could result from the conversion of the remarketable termincome deferrable equity securities (HIGH TIDES) were not includedin the computation of diluted EPS.

***      ComprehensiveIncome.***  Comprehensiveincome represents all changes in equity of an enterprise thatresult from transactions and other economic events of the periodother than transactions with owners.  Comprehensive income isthe total of net income and all other nonowner changes inequity.

      During theyears ended December 31, 2002, 2001, and 2000, the Company'sonly element of other comprehensive income resulted from foreigncurrency translation adjustments, which are reflected in theconsolidated statements of changes in stockholders' equity asforeign currency translation adjustments within accumulated othercomprehensive income.

***      Gain onIssuance of Stock in Subsidiary.***  In 2000, the Company became subject to theprovisions of SEC Staff Accounting Bulletin No. 51("SAB 51") to reflect the issuance of approximately 5% ofCayenta Class A Common Stock in connection with anacquisition.  In accordance with the provisions ofSAB 51, the transaction is reflected as an equity transaction,and the net effect of the transaction is reflected in theaccompanying Consolidated Statement of Stockholders' Equity as"Gain related to issuance of stock in subsidiary." In 2001, as aresult of the SureBeam initial public offering and in accordancewith SAB 51, Titan recorded a gain of $52.0 million related toits equity interest in SureBeam reflected in the accompanyingConsolidated Statement of Stockholders' Equity as "Gain related toissuance of stock in subsidiary".

      ***Gain onSale of Investments***.  The Company records gainsin income from continuing operations on sales of its interestsrelated to technology that it has developed internally, the costsof which have been reflected in operating expenses in theCompany’s consolidated financial statements.

***      NewAccounting Standards.***  InDecember 2002, the Financial Accounting Standards Board(“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 148, “Accounting forStock-Based Compensation – Transition and Disclosure”,which amends SFAS No. 123, “Accounting for Stock-BasedCompensation” to provide alternative methods of transitionfor a voluntary change to the fair value based method of accountingfor stock-based employee compensation.  In addition, thisstatement also amends the disclosure requirements of SFAS No. 123to require prominent disclosures in both annual and interimfinancial statements.  Certain of the disclosure modificationsare required for fiscal years ending after December 15, 2002 andare included in the notes to these consolidated financialstatements.

      EffectiveJanuary 1, 2002, the Company adopted SFAS No. 142,"Goodwill and Other Intangible Assets," which establishes financialaccounting and reporting for acquired goodwill and other intangibleassets andsupersedes APB OpinionNo. 17, "Intangible Assets".  Under SFAS No. 142,goodwill and indefinite-lived intangible assets are no longeramortized but are reviewed at least annually for impairment. Separable intangible assets that have finite useful lives willcontinue to be amortized over their useful lives.  SFASNo. 142 requires that goodwill be tested for impairment at thereporting unit level at adoption and at least annually thereafter,utilizing a two step methodology.  The initial step requiresthe Company to assess whether indications of impairmentexist.  If indications of impairment are determined to exist,the second step of measuring impairment is performed, wherein thefair value of the relevant reporting unit is compared to thecarrying value, including goodwill, of such unit.  If the fairvalue exceeds the carrying value, no impairment loss isrecognized.  However,if the carryingvalue of the reporting unit exceeds its fair value, the goodwill ofthe reporting unit is impaired. 

      In January2003, the FASB issued Interpretation No. 46, “Consolidationof Variable Interest Entities, an interpretation of ARB No.51.” This Interpretation addresses the consolidation bybusiness enterprises of variable interest entities as defined inthe Interpretation. The Interpretation applies immediately tovariable interests in variable interest entities created afterJanuary 31, 2003, and to variable interests in variable interestentities obtained after January 31, 2003.  The application ofthis Interpretation is not expected to have a material effect onthe Company’s financial statements.  The Interpretationrequires certain disclosures in financial statements issued afterJanuary 31, 2003 if it is reasonably possible that the Company willconsolidate or disclose information about variable interestentities when the Interpretation becomes effective.

      In November2002, the FASB issued Interpretation No. 45,“Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness toOthers, an interpretation of FASB Statements No. 5, 57 and 107 anda rescission of FASB Interpretation No. 34.”  ThisInterpretation elaborates on the disclosures to be made by aguarantor in its interim and annual financial statements about itsobligations under guarantees issued.  The Interpretation alsoclarifies that a guarantor is required to recognize, at inceptionof a guarantee, a liability for the fair value of the obligationundertaken. The initial recognition and measurement provisions ofthe Interpretation are applicable to guarantees issued or modifiedafter December 31, 2002 and are not expected to have a materialeffect on the Company’s consolidated financialstatements.  The disclosure requirements are effective forfinancial statements of interim or annual periods ending afterDecember 15, 2002. 

      InAugust 2001, the FASB issued SFAS No. 143, "Accountingfor Asset Retirement Obligations".  This statement addressesfinancial accounting and reporting for obligations associated withthe retirement of tangible long-lived assets and the associatedasset retirement costs.  It applies to (a) all entitiesand (b) legal obligations associated with the retirement oflong-lived assets that result from the acquisition, construction,development and/or normal operation of long-lived assets, exceptfor certain obligations of lessees.  This statement amendsSFAS No. 19, "Financial Accounting and Reporting by Oil andGas Producing Companies," and is effective for financial statementsissued for fiscal years beginning after June 15, 2002. Management does not believe that the adoption of this statementwill have a material impact on its consolidated financial positionor results of operations.

      Also inAugust 2001, the FASB issued SFAS No. 144, "Accountingfor the Impairment or Disposal of Long-Lived Assets." SFASNo. 144 addresses financial accounting and reporting for theimpairment or disposal of long-lived assets and supersedes SFASNo. 121, "Accounting for the Impairment of Long-Lived Assetsand for Long-Lived Assets to Be Disposed Of," and the accountingand reporting provisions of Accounting Principles Board(“APB”) Opinion No. 30, "Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment ofa Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions," for the disposal of a segment of abusiness (as previously defined in that Opinion).  Theprovisions of SFAS No. 144 are effective for financialstatements issued for fiscal years beginning afterDecember 15, 2001.  The Company adopted SFAS No. 144in the first quarter of 2002.  As a result of the timing ofthe effective date of SFAS No. 144, the Company has reportedthe discontinuance of its SureBeam segment under the provisions ofAPB No. 30 and the discontinuance of certain componentsdiscussed in Note 6 in accordance with SFAS No. 144 as ofJanuary 1, 2002.

      The FASBissued SFAS No. 145, Rescission of FASB Statements No. 4,44, and 64, Amendment of FASB Statement No. 13, and TechnicalCorrections as of April 2002, which is effective for fiscalyears beginning after May 15, 2002. SFAS No. 145 rescindsSFAS No. 4 and SFAS No. 64, which required that all gainsand losses from extinguishment of debt be aggregated, and ifmaterial, classified as an extraordinary item. As a result ofchanges in the criteria, gains and losses from debt extinguishmentare to be classified as extraordinary only if they meet thecriteria set forth in APB Opinion No. 30, “Reporting theResults of Operations—Reporting the Effects of Disposal of aSegment of a Business, and Extraordinary, Unusual and InfrequentlyOccurring Events and Transactions.”  SFAS No. 145also requires that sale-leaseback accounting be used for capitallease modifications with economic effects similar to sale-leasebacktransactions.  The Company does not expect implementation tohave a significant effect on its results of operations. However, the loss from the current extinguishment of theCompany’s credit facility, which was appropriately recordedas an extraordinary item in accordance with APB No. 30, willbe reclassified to income from continuing operations in 2003 whenthe Company adopts SFAS No. 145.

      In June 2002, theFASB issued SFAS No. 146, “Accounting for CostsAssociated with Exit or Disposal Activities.”  SFASNo. 146 applies to costs associated with an exit activity(including restructuring) or with a disposal of long-lived assets.Those activities can include eliminating or reducing product lines,terminating employees and contracts, and relocating plantfacilities or personnel. Under SFAS No. 146, a company willrecord a liability for a cost associated with an exit or disposalactivity when that liability is incurred and can be measured atfair value.  Under current rules, companies can record aliability for restructuring costs when a commitment to a plan ofaction is made.  SFAS No. 146 will require a company todisclose information about its exit and disposal activities, therelated costs, and changes in those costs in the notes to theinterim and annual financial statements that include the period inwhich an exit activity is initiated and in any subsequent perioduntil the activity is completed. SFAS No. 146 is effectiveprospectively for exit or disposal activities initiated afterDecember 31, 2002, with earlier adoption encouraged. UnderSFAS No. 146, a company may not restate its previouslyissued financial statements, and the new statement grandfathers theaccounting for liabilities that a company had previously recordedunder Emerging Issues Task Force Issue 94-3.  Titan does notintend to adopt SFAS No. 146 until after December 31,2002.

**Note 3.  Acquisitions**

      In January2003, the Companyannouncedthat the agreement to acquire Science & Engineering Associates,Inc. (“SEA”), a privately held provider of engineeringand information technology services, had expired and that Titan andSEA mutually agreed not to extend the purchase agreement at thattime.  Direct costs of $1.2 million related to thistransaction were included in exit and restructuring charges andother in 2002 (see Note 4).

      OnSeptember 12, 2002, the Company completed the acquisition of100% of the outstanding shares of Wave Science, Inc. (“WaveScience”), a privately held designer of radio components andcommunication systems, for a purchase price of approximately$8.5 million in cash, subject to post-closing adjustments andindemnification obligations.  Also, additional considerationof up to $3.0 million may be paid based on achievingcertain revenue and profit margin targets for the two-year periodbeginning January 1, 2002 through December 31, 2003, andadditional consideration of up to $1.0 million may bepaid based on the receipt of certain contract awards throughDecember 31, 2004.  The acquisition was to furtherTitan’s goal of acquiring government information technologycompanies which fit strategically with its government business,particularly the addition of Wave Science’s experiencedengineering team.  The transaction was accounted for as apurchase.  The excess of the purchase price over the estimatedfair market value of the net assets acquired was approximately$8.2 million, and has been recorded as goodwill. Operating results of Wave Science are reported in operating resultsfrom September 13, 2002.  As the total consideration forthe acquisition of Wave Science may change based upon theattainment of certain revenue and profit margin targets throughDecember 31, 2003 and based upon the receipt of contract awardsthrough December 31, 2004, goodwill may change to reflect any suchadditional consideration.

      OnMarch 21, 2002, Titan completed the acquisition of Jaycor,Inc. ("Jaycor"), a San Diego, California, based provider ofinformation technology services and specialized communications andsensor products to further Titan’s goal of acquiringgovernment information technology companies which fit strategicallywith its government business.  At the closing, Titan issuedapproximately 4,919,500 shares of Titan common stock for all theoutstanding shares of common stock of Jaycor, based on an exchangeratio of 0.50160 shares of Titan common stock for each shareof Jaycor common stock at an aggregate value of $99.6 million,based on $20.24 per Titan share, the average trading price endingMarch 20, 2002, the date on which the formula for the purchaseconsideration became fixed.  Jaycor's operations are reportedin our operating results from March 22, 2002.  The excessof the $99.6 million purchase price over the estimated fairmarket value of the net assets acquired ($57.6 million) wasapproximately $42.0 million.  The transaction wasaccounted for as a purchase.  In April 2002, the Companyobtained an independent valuation completed by Bearing Point(formerly KPMG Consulting, Inc.) to assist management in itspurchase price allocation for the Jaycor acquisition.  Theindependent valuation was used by the Company to allocate$38.1 million to goodwill and $3.9 million to intangibleassets.  The intangible assets consist of backlog, customerrelationships and trade name of $0.7 million,$1.3 million, and $1.9 million, respectively, which arebeing amortized over the estimated useful lives of 1 year, 1 to 3years and 5 years, respectively.  At December 31, 2002,the unamortized balance of purchased intangibles was$2.7 million included in Other Assets in the consolidatedbalance sheet. The transaction value was increased by approximately$3.9 million to an aggregate total of $103.5 million toreflect an additional 173,099 shares issued in July to covercertain costs of the shareholders of Jaycor, and an additional20,948 shares issued in July and August 2002 related tocertain working capital adjustments.  The additional purchaseprice of $3.9 million was accounted for as an increase togoodwill resulting in goodwill of $42.0 million at December31, 2002.  As the allocations of purchased assets andliabilities of Jaycor are finally determined, goodwill may changeto reflect any such adjustments.

      Following isunaudited condensed balance sheet information for Jaycor at thedate of acquisition (amounts in millions):

| ** **                   |  | **Jaycor** |      |
|------------------------------|--|------------|------|
| ** **                   |  | ****       |      |
| Cash                         |  | $          | 36.0 |  |
| Accountsreceivable           |  |            | 28.4 |  |
| Other currentassets          |  |            | 2.2  |  |
| Property, plant andequipment |  |            | 4.0  |  |
| Non-currentassets            |  |            | 1.1  |  |
| ** **                   |  | ****       |      |
| Total assets                 |  |            | 71.7 |  |
| ** **                   |  | ****       |      |
| Accounts payable             |  |            | 3.2  |  |
| Other currentliabilities     |  |            | 10.6 |  |
| Non-currentliabilities       |  |            | 0.3  |  |
| ** **                   |  | ****       |      |
| Totalliabilities             |  |            | 14.1 |  |
| ** **                   |  | ****       |      |
| Net assets                   |  | $          | 57.6 |  |
| ** **                   |  | ****       |      |

      OnFebruary 22, 2002, Titan completed the acquisition ofInternational Systems, LLC (“International Systems”),which designs and builds low-cost combat systems for the Departmentof Defense (DoD) and agencies of the DoD, to further Titan’sgoal of acquiring government information technology companies whichfit strategically with its government business.  The purchaseprice, which aggregated approximately $1.8 million, wascomprised of approximately 100,000 shares of Titan common stock,subject to post-closing adjustments and indemnificationobligations.  Also, additional consideration may be paidbased on the receipt of certain contract awards and the achievementof defined earnings levels on all contracts generated byInternational Systems, which consideration may be satisfiedwith cash or Titan common stock.  In July 2002,100,000 shares of Titan stock valued at $1.2 million wereissued based on the receipt of certain of these contractawards.  The value of the shares was recorded as an increaseto goodwill.  Up to an aggregate maximum of 350,000 additionalshares of common stock may be issued as additionalconsideration based on the receipt of future contract awards. In October 2002, under the provisions of the original purchaseagreement, Titan advanced $0.8 million to a former principalshareholder and current employee of International Systems. Such advance is evidenced by a promissory note which is secured bythe shareholder’s purchase consideration of Titan shares andshares issuable upon achievement of certain milestones as providedunder the original purchase agreement.  The note bearsinterest at 6 percent per annum, commencing inOctober 2003.  This note is reflected as an Other CurrentAsset on the consolidated balance sheet at December 31, 2002. The operations of International Systems are reported in ouroperating results from February 23, 2002.  Thetransaction was accounted for as a purchase, and goodwill of$3.5 million has been recorded.  As the totalconsideration for the acquisition of International Systems maychange based upon the receipt of future contract awards and theachievement of defined earnings levels, goodwill may change toreflect any such additional consideration.

      On November27, 2001, we completed the acquisition of BTG, Inc. ("BTG"), aprovider of information technology solutions and services primarilyto the U.S. military and other government agencies, for $13.35 perBTG share.  The acquisition was to further our goal ofacquiring government information technology companies which fitstrategically with us.  We issued approximately 4,024,100shares of Titan common stock at an aggregate value of$99.9 million, based on $24.814 per Titan share, the averagetrading price ending November 19, 2001, the date on which theformula for consideration became fixed, and paid cash of$23.4 million for all the outstanding shares of BTG commonstock and assumed BTG stock options representing approximately734,200 shares of Titan common stock at an aggregate value of$12.2 million, based on an exchange ratio of approximately0.5380 shares of Titan stock for each share of BTG commonstock.  We also paid off $37.1 million of BTG'soutstanding debt as of the closing date.  The transaction wasaccounted for as a purchase, and the excess of purchase price overthe estimated fair value of the net assets acquired was recorded asgoodwill of $139.2 million, intangible assets of$8.2 million and deferred compensation of $0.5 millionrelated to unvested options assumed.  The intangible assetsconsist of backlog, customer relationships and a strategicrelationship of $1.7 million, $5.5 million and$1.0 million, respectively, which are being amortized over theestimated useful lives of 1 year, 2 to 5 years and 2 years,respectively.  At December 31, 2002, the unamortized balanceof purchased intangibles was $4.9 million included in OtherAssets in the consolidated balance sheet.  The deferredcompensation will be amortized over the remaining vesting period ofthe assumed options.

      On September28, 2001, we completed the acquisition of the remaining shares ofDatron Systems Incorporated ("Datron"), a provider of radio andsatellite-based communication systems and broadband communicationproducts for government and commercial markets, that were acquiredthrough a stock for stock exchange tender offer that closed inAugust 2001.  The acquisition was to further our goal ofacquiring government information technology companies which fitstrategically with us.  We issued approximately2.3 million shares of Titan common stock for all theoutstanding shares of Datron common stock at an aggregate value of$44.9 million, based on $19.544 per Titan share, the averagetrading price ending July 27, 2001, the date on which the formulafor consideration became fixed, and assumed Datron stock optionsrepresenting approximately 437,000 shares of Titan common stock atan aggregate value of $4.0 million, based on an exchange ratioof approximately .81919 shares of Titan common stock for each shareof Datron common stock.  The transaction was accounted for asa purchase, and the excess of the purchase price over the estimatedfair market value of the net assets acquired was recorded asgoodwill of $22.7 million and intangible assets of$5.8 million.  The intangible assets consist of backlog,customer relationships and trademarks and patents of$1.0 million, $3.2 million and $1.6 million,respectively, which are being amortized over the estimated usefullives of 1 to 2 years, 10 years and 5 years, respectively.  AtDecember 31, 2002, the unamortized balance of purchased intangibleswas $4.6 million included in Other Assets in the consolidatedbalance sheet.

      OnMarch 23, 2001, our subsidiary, Titan Systems Corporation,consummated an agreement to purchase certain assets from MaxwellTechnologies Systems Division, Inc., a subsidiary of MaxwellTechnologies, Inc., which specializes in research, developmentand technical services primarily for military applications. The purchase price was approximately $11.5 million in cash,subject to post-closing adjustments and indemnificationobligations, less a $1.7 million holdback, due 180 daysfrom the date of closing.  The initial $9.8 million ofthe purchase price was paid on April 2, 2001.  Wereceived approximately $0.6 million in July 2001 fromMaxwell Technologies, Inc. resulting from the resolution ofpost-closing working capital adjustments.  Under theagreement, we had full recourse to the seller for all accountsreceivable not collected within 180 days of the closing date. In October 2001, we paid approximately $1.5 million in fullsatisfaction of the $1.7 million holdback, as adjusted foruncollected accounts receivable.  The transaction wasaccounted for as a purchase, and the excess of the purchase priceover the estimated fair market value of the net assets acquired,was amortized on a straight line basis over 30 years until theadoption of SFAS No. 142 on January 1, 2002.  The remainingunamortized balance of approximately $6.8 million at December31, 2002, was reflected as goodwill in the accompanyingconsolidated balance sheet.

      For allacquisitions accounted for as purchases, the acquiredcompany’s results of operations are consolidated with theCompany's results of operations immediately subsequent to theacquisition date.  Unaudited pro forma data giving effect tothe purchase of Jaycor, BTG and Datron as if they had been acquiredat the beginning of 2001 are shown below.  Pro formainformation related to the Wave Science, International Systems andMaxwell acquisitions is not included, because the effect is notsignificant.

| ** **                                                                                                                                                            | ** ** | **Twelvemonths ended December 31,****** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                                                                                                                            | ** ** | ****                                         |       |
| ** **                                                                                                                                                            | ** ** | **2002**                                     | ** ** | **2001****** |   |
| ** **                                                                                                                                                            | ** ** | ****                                         | ** ** | **** |   |
|                                                                                                                                                                       |            | **(unaudited)**                              |       |
| Revenues                                                                                                                                                              |       | $                                            | 1,408,395  |  | $ | 1,301,596 |  |
| Loss from continuingoperations before extraordinary loss and    cumulative effect of change in accountingprinciple                                     |       |                                         | (8,327     | ) |   | (16,372 | ) |
| Net loss                                                                                                                                                              |       |                                         | (271,952   | ) |   | (111,529 | ) |
| Basic earnings (loss) per share:                                                                                                                                      |       |                                         |            |  |   |  |  |
|    Lossfrom continuing operations before extraordinary loss and       cumulative effect of change inaccounting principle |       | $                                            | (0.12      | ) | $ | (0.38 | ) |
|    Netloss                                                                                                                                             |       |                                         | (3.59      | ) |   | (2.01 | ) |
| Diluted earnings (loss) per share:                                                                                                                                    |       |                                         |            |  |   |  |  |
|    Lossfrom continuing operations before extraordinary loss and       cumulative effect of change inaccounting principle |       | $                                            | (0.12      | ) | $ | (0.38 | ) |
|    Netloss                                                                                                                                             |       |                                         | (3.59      | ) |   | (2.01 | ) |

      OnJune 26, 2000, the Company acquired AverStar in astock-for-stock transaction.  AverStar provides services andsoftware focused on the areas of information technology assurance,information technology development and information technologymanagement and operations for the mission-critical systems ofcivilian and defense agencies of the U.S. government.  Titanissued approximately 2,850,000 shares of common stock for all theoutstanding shares of AverStar common stock, subject to a holdbackof 180,045 shares held in escrow to cover certain indemnificationobligations, and assumed AverStar stock options representingapproximately 551,000 shares of Titan common stock, based on anexchange ratio of approximately .41415 shares of Titan common stockfor each share of AverStar common stock.  InSeptember 2000, 171,645 shares were released from escrowto AverStar shareholders in fulfillment of the Company'sobligations.  The remaining 8,400 shares were released fromescrow to AverStar shareholders in November 2000.  Theacquisition constituted a tax-free reorganization and has beenaccounted for as a pooling of interests.

      OnFebruary 25, 2000, the Company acquired Advanced CommunicationSystems, Inc. (ACS), a government information technologyservices company, in a stock-for-stock transaction.  Titanissued approximately 5,082,000 shares of common stock for all theoutstanding shares of ACS common stock and assumed ACS stockoptions representing approximately 263,000 shares of Titan commonstock, based on an exchange ratio of approximately .57 sharesof Titan common stock for each share of ACS common stock.  Theacquisition constituted a tax-free reorganization and has beenaccounted for as a pooling of interests. 

      EffectiveJanuary 1, 2000, ACS' September 30 fiscal year-end was changed tocoincide with the Company's year-end.  A pooling of interestsadjustment has been made in the consolidated statement of cashflows and consolidated statement of stockholders' equity for theyear ended December 31, 2000, to reflect the activity for ACSin the quarter ended December 31, 1999, as reported in ACS'Form 10-Q for the fiscal quarter ended December 31,1999.  For the quarter ended December 31, 1999, ACS'revenues were $46.3 million and net income was$1.4 million.

      During 2002,approximately $2.0 million was paid in satisfaction ofpurchase price holdbacks for the SenCom Corporation acquisitionmade in 2000 and approximately $2.7 million was paid insatisfaction of purchase price holdbacks for the System ResourcesCorporation acquisition made in 1999.  Each of these amountshad been recorded as liabilities in periods prior toJanuary 1, 2002.

      In 1999, theCompany’s subsidiary, Titan Systems Corporation, acquiredAtlantic Aerospace Corporation ("AAEC").  The terms of theacquisition provided for up to an additional $3 million incontingent consideration payable based upon the award of futurecontracts.  During 2001, approximately $1.2 million ofcontingent consideration was paid upon the award of certaincontracts.  An additional potential $2.2 millionincluding interest, may be paid in 2003, either in whole or part,based upon final resolution of measuring the potential contingentconsideration earned during 2002 with the AAEC stockholderrepresentative.

      In connectionwith the determination of the fair value of assets acquired inconnection with acquisitions in 2001, 2000 and 1999, and pursuantto the provisions of SFAS No. 141, the Company has valued acquiredcontracts in process at contract price, minus the estimated coststo complete and an allowance for the normal industry profit on itseffort to complete such contracts.  This adjustment has beenreflected in the accompanying consolidated balance sheet as anincrease to goodwill and a corresponding increase to deferredprofit.  The Company recognized approximately$2.3 million, $2.8 million, and $6.9 million as areduction of costs against the deferred profit in 2002, 2001, and2000, respectively.  The remaining amount of $0.8 millionat December 31, 2002 is estimated to reduce costs through2007.

**Note 4.  Exit andRestructuring Charges and Other**

      Included inthe year ended December 31, 2002 is $53.3 million ofrestructuring costs related to the merger of Titan Systems intoTitan on September 25, 2002 and exit charges related to theshutdown of Cayenta’s headquarters office. Approximately $11.7 million of these exit charges are relatedto the shutdown of the Cayenta headquarters office and networkoperations center, which includes employee termination costs andother liabilities of approximately $4.5 million, leasecommitment costs of approximately $4.8 million, and non-cashasset impairment charges of approximately $2.4 millionrelating primarily to the unamortized leasehold improvements andother fixed assets at the Cayenta headquarters.  The remaininglease commitment costs are expected to be paid through futureperiods ending in January 2007.  Included in the employeetermination costs are 33 personnel reductions. 

      Approximately$39.9 million of the restructuring charges were related to themerger of Titan Systems into Titan and other associatedreorganization and consolidation costs.  The costs includedapproximately $32.2 million for the consolidation of variousTitan Systems facilities into centralized locations in Virginia andCalifornia.  This charge reflects the estimated losses, net ofestimated sublease income, on future lease commitments offacilities with terms extending through year 2009.  TheCompany intends to actively market the facilities for subleaseopportunities.  However, the available space is in marketsadversely affected by the economy and may not be subleased atattractive rates or at all.  Included in the employeetermination costs are 19 personnel reductions. 

      Approximately$7.7 million of the Titan Systems restructuring costs areprimarily related to employee termination costs, employee retentioncosts, duplicate transition costs and professional fees related toacquisitions and certain reorganization and consolidationactivities within Titan Systems.

      The remaining$1.7 million is related to direct transaction costs incurred byTitan on acquisitions that did not successfully close, primarilythe Science and Engineering Associates, Inc. proposedacquisition.

      A summary ofexit and restructuring charges and other recorded and utilizationof those accruals during the year ended December 31, 2002 are asfollows (in millions):

|                                                                                   |  | **Charges recorded in 2002** |      | **Asset Disposals** |        | **  Cash paid 2002** |  | **EndingBalance December 31, 2002** |         |
|-----------------------------------------------------------------------------------|--|------------------------------|------|---------------------|--------|---------------------------|--|-------------------------------------|---------|
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
| Titan Systemsrestructuring:                                                       |  |                              |      |                     |        |                           |  |                                     |         |  |  |  |  |
|       Estimatedfacilities consolidation costs       |  | $                            | 32.2 |                | $      | —                   |  | $                                   | 0.1     |  | $ | 32.1 |  |
|       Employeetermination/retention costs and other |  |                              | 7.7  |                |        | —                   |  |                                | 6.0     |  |   | 1.7 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  |                              | 39.9 |                     |        | —                   |  |                                     | 6.1     |  |  | 33.8 |  |
| Unsuccessful transactioncosts                                                     |  |                              | 1.7  |                |   | —                   |  |                                     | 1.1     |  |  | 0.6 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  |                              | 41.6 |                |   | —                   |  |                                     | 7.2     |  |  | 34.4 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
| Cayenta headquarters exitcosts:                                                   |  |                              |      |                |   |                           |  |                                     |         |  |  |  |  |
|       Leasecommitment costs                         |  |                              | 4.8  |                |   | —                   |  |                                     | 1.6     |  |  | 3.2 |  |
|       Assetimpairment costs                         |  |                              | 2.4  |                     |        | 2.4                       |  |                                     | — |  |  | — |  |
|       Employeetermination costs and other           |  |                              | 4.5  |                     |        | —                   |  |                                     | 4.3     |  |  | 0.2 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  |                              | 11.7 |                |   | 2.4                       |  |                                     | 5.9     |  |  | 3.4 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |
|                                                                                   |  | $                            | 53.3 |                | $      | 2.4                       |  | $                                   | 13.1    |  | $ | 37.8 |  |
|                                                                                   |  |                              |      |                     |        |                           |  |                                     |         |

      At December31, 2002, a total of $20.9 million and $16.9 million ofliabilities remained on the accompanying consolidated balance sheetin Other Accrued Liabilities and Other Non-current Liabilities,respectively, related to exit and restructuring activitiesinitiated in 2002.  All exit and restructuring chargesrecorded in 2002 were recorded in accordance with EITF 94-3,“Liability Recognition for Certain Employee TerminationBenefits and Other Costs to Exit an Activity.”  Theremaining liability balance is primarily comprised of amounts dueunder the facilities consolidation, which requires payments in 2003and 2004 for certain lease cancellation fees and other lease costs,with the remainder expected to be paid over the remaining leaseterms, which expire in 2009.

**Note 5.  Acquisition andIntegration Related Charges and Other**

      Acquisitionand integration related charges and other for the years endedDecember 31, 2001 and 2000 are described in more detail below witha rollforward of the accrual balances at the end of each period(amounts in millions):

|                                               |        | Charges in2000 |         | Uses 2000 |        | Ending Balance December 31, 2000 |        | Charges in2001 |         | Uses 2001 |        | Ending Balance December 31, 2001 |        | Uses 2002 |         | Ending Balance December 31, 2002 |        |
|-----------------------------------------------|--------|----------------|---------|-----------|--------|----------------------------------|--------|----------------|---------|-----------|--------|----------------------------------|--------|-----------|---------|----------------------------------|--------|
|                                               |        |                |         |           |        |                                  |        |                |         |           |        |                                  |        |           |         |                                  |        |
| Employee terminationcosts                     |        | $              | 7.7     |      | $      | 6.4                              |   | $              | 1.3     |      | $      | 6.2                              |   | $         | 7.5     |                                  | $      | — |  | $ | — |  | $ | — |   |
| Elimination of duplicatefacilities and assets |        |                | 4.1     |      |   | 1.6                              |   |           | 2.5     |      |   | 2.7                              |   |      | 3.9     |                                  |   | 1.3 |   |   | 1.3 |   |   | — |   |
| Acquisition relatedtransaction costs          |        |                | 11.6    |      |   | 11.6                             |   |           | — |      |   | —                          |   |      | — |                                  |   | — |   |   | — |   |   | — |   |
| Non-cash assetimpairments                     |        |                | 5.4     |      |   | 5.4                              |   |           | — |      |   | 16.0                             |   |      | 16.0    |                                  |   | — |   |   | — |   |   | — |   |
| Pre-acquisitioncontingencies                  |        |                | — |      |   | —                          |   |           | — |      |   | 3.0                              |   |      | 3.0     |                                  |   | — |   |   | — |   |   | — |   |
|                                               |        |                |         |           |        |                                  |        |                |         |           |        |                                  |        |           |         |                                  |        |
|                                               |        | $              | 28.8    |      | $      | 25.0                             |   | $              | 3.8     |      | $      | 27.9                             |   | $         | 30.4    |                                  | $      | 1.3 |   | $ | 1.3 |   | $ | — |   |
|                                               |   |                |    |           |   |                                  |   |                |    |           |   |                                  |   |           |    |                                  |        |

      During 2002,all remaining liabilities were paid.

*Fiscal 2001Charges*

      Acquisitionand integration related charges and other of $27.9 million in2001 included $12.2 million related to the integration of ACSand AverStar and other restructuring and realignment activities inour government business, a $5.5 million impairment charge forfixed assets associated with Cayenta’s network operationscenter and $10.0 million related to other asset impairmentsand restructuring activities associated with Cayenta’sheadquarters office, and $0.2 million related to personnelreductions in Cayenta’s federal government business, which isnow a part of Titan’s core government business.

      The$12.2 million charge is primarily related to the integrationof ACS and AverStar, and a realignment of the business around themajor categories of customers of our government businesses, whichtogether resulted in a reduction in employee workforce ofapproximately 50 employees and the closing of severalfacilities.  Included in these costs is approximately$3.2 million of employee termination costs, $2.0 millionof costs to eliminate duplicate and excess facilities and assets,$1.1 million of duplicate personnel costs to transitionprocesses and functions, and $2.9 million of asset impairmentcosts of certain asset balances.  The recoverability of suchbalances was impaired due to our exit from a satellite servicesbusiness within our government business.  Approximately$3.0 million of the charge was related to another subsidiaryacquired in a prior year for contingencies arising from matterspre-existing to Titan's acquisition of the business.  Thatacquisition was accounted for as a purchase, and the matterspre-existing Titan's acquisition were resolved in 2001. Unpaid amounts of approximately $1.3 million as of December31, 2001 related to excess facilities and personnel costs were paidin 2002.

      Included inCayenta's headquarters office operating results is a charge for$15.5 million related to the restructuring of Cayenta’sheadquarters office.  As a result of reduced corporatespending on commercial information technology services ande-business software applications, the Company developed andapproved a plan to restructure the Cayenta headquarters and networkoperations center, which included a reduction in workforce ofapproximately 40 personnel, resulting in a charge of$1.7 million, and the elimination of duplicate and excessfacilities, resulting in a charge of approximately$0.8 million.  As a result of management's evaluation ofthe recoverability of all the assets of Cayenta, in accordance withStatement of Financial Accounting Standards No. 121, "Accountingfor the Impairment of Long-Lived Assets and for Long-Lived Assetsto Be Disposed Of", management concluded from this evaluation thata significant impairment of intangible as well as long-lived assetshad occurred.  An impairment charge was required because theestimated fair value was less than the carrying value of theassets.  The impairment charge of $13.0 million wascomprised of the following: $5.5 million for fixed assetsassociated with Cayenta's network operations center,$2.0 million for prepaid advertising costs and$5.3 million for Cayenta's investment in Soliance, LLC, ajoint venture that markets and delivers information technologysystems and solutions to the utility industry, and$0.2 million for certain other assets.

*Fiscal 2000Charges*

      Acquisitionrelated charges of $28.8** ** million in 2000 include costsof $20.5 million related to the ACS merger including directtransaction costs of approximately $9.2 million comprised ofaccounting, legal, investment banking, financial printing and otherdirect costs.  Also included in the ACS merger costs was awrite-down of approximately $5.4 million related to theimpairment of certain receivables, for which the realizability ofsuch assets was impaired as a result of the merger with Titan,which impacted the recoverability of certain contract costs,employee termination costs of approximately $2.1 million, and$3.8 million of costs to eliminate duplicate facilities andassets.  In addition, the Company recorded a valuationallowance of $10.0 million provided in connection with certainof the Company's integration activities, particularly as theyrelate to conforming ACS to Titan's accounting policies andprocedures, and in determining appropriate valuation allowancesagainst unbilled receivables which may not be realizable undernormal contract reimbursement cycles.  Unpaid amounts atDecember 31, 2000 of $3.8 million representing primarilycosts for excess facilities and personnel costs were paid byDecember 31, 2001. 

      Included inacquisition related charges in 2000 is $8.3 million related tothe merger with AverStar.  These costs consisted ofapproximately $2.4 million of direct transaction costs,approximately $5.6 million of employee termination costs, andcosts to eliminate duplicate facilities of approximately$0.3 million. 

*Gain on Sale ofIPivot*

      OnOctober 26, 1999, the Company received approximately$41.8 million in cash as a result of the acquisition by IntelCorporation of IPivot, Inc. ("IPivot"), a technology spin-offfrom Titan.  The cash payment to the Company was for itsownership interest in IPivot of approximately 8% after the dilutiveimpact of IPivot stock options, warrants and other equityinvestments.  In addition, approximately $3 million wasreceived in October 2000 as final consideration, and net ofexpenses, resulted in a net gain of approximately $2.1 millionin the year ended December 31, 2000.

**Note 6.  DiscontinuedOperations**

***2002 DiscontinuedOperations***

      InAugust 2002, the Company’s board of directors made thedecision to sell or otherwise divest its LinCom Wireless businessand to sell a remaining commercial information technology business,both of which were previously reported in the Company’s TitanTechnologies segment.  Accordingly, Titan has reflected bothoperations as discontinued in accordance with SFASNo. 144.

      In July 2002,the Company’s board of directors made the decision to exitits international telecommunications business through a combinationof selling and winding down its operations within its TitanWireless segment.  Titan began implementing these actionsimmediately and expects to complete these actions during2003*. * The Company has reported this exit of the TitanWireless segment as a discontinued operation in accordance withSFAS No. 144.

      During thefirst quarter of 2002, the Company’s board of directors madethe decision to sell certain of its commercial informationtechnology operations within its Cayenta segment and the AverCombusiness within the Titan Technologies segment.  In accordancewith SFAS No. 144, all commercial operations that have beensold or are held for sale have been reflected as discontinuedoperations for all periods presented in Titan’s consolidatedfinancial statements.

*TitanWireless*

Overview

      OnJuly 11, 2002, Titan announced it would exit all of itsinternational telecommunications business, directly as a result ofan increasingly deteriorating market, particularly in the wholesalelong distance business.  Notably, the bankruptcies of GlobalCrossing, Ltd., WorldCom, Inc. and Phone1Globalwide Corporation(formerly Globaltron Corporation), and the dire financial conditionof other providers, such as Ibasis, had imposed a rapid and suddendeterioration in wholesale prices in 2002.  As a direct resultof decreasing wholesale margins, and the difficulty of providers toobtain financing to invest in new projects globally, Titan’stelecommunications business operating results declinedsubstantially beginning in the second quarter of 2002.  Thelosses in the second quarter of 2002 and the bleak outlook of thetelecommunications market globally led to the July 2002 Titanboard of directors decision to exit these markets.  TheCompany is in the process of attempting to sell all of itsoperations within Titan Wireless, including all of the operationsdiscussed below.

Acquisitions andInvestments

      OnMarch 21, 2002, Titan completed the acquisition of GlobalNet,Inc. ("GlobalNet"), a provider of international voice, data, andInternet services.  Titan issued approximately 1,452,800shares of common stock for all the common stock of GlobalNet at anaggregate value of $28.6 million, based on $19.67 perTitan share, the average trading price ending March 15, 2002,the date on which the formula for consideration became fixed, andassumed stock options and warrants representing approximately77,900 shares of Titan common stock at an aggregate value of$0.8 million, based on an exchange ratio of 0.3853 sharesof Titan common stock for each share of GlobalNet commonstock.  GlobalNet's operations from March 22, 2002 arereported in our Titan Wireless business, which was discontinued inthe third quarter of 2002.  The transaction was accounted foras a purchase.  The excess of the purchase price of$29.4 million over the estimated fair market value of the netliabilities acquired of approximately $26.4 million wasapproximately $55.8 million.  In April 2002, theCompany obtained an independent valuation completed by independentvaluation specialists Bearing Point (formerly KPMG Consulting,Inc.) to assist in its purchase price allocation of the GlobalNetacquisition.  The independent valuation was used by theCompany to allocate $55.8 million to goodwill and $0 tointangible assets as of March 31, 2002.

      As a resultof Titan’s decision on July 11, 2002, to exit itstelecommunications business and to sell certain of thesebusinesses, Titan determined in the third quarter of 2002 thatthere was an impairment of the carrying value of GlobalNet’sgoodwill of approximately $55.8 million in accordance withSFAS No. 142.  The measurement of this impairment wasevident based upon estimates of fair value, as determined by recentoffers from potential buyers, compared to the carrying value of theasset.

      On June 28, 2000, Titan Wireless Afripa Holding, Inc., asubsidiary of Titan Wireless, made a $5 million investment toacquire 80% of the outstanding equity interests in Ivoire TelecomS.A., a Luxembourg-chartered company that intended to engage,through various majority-owned local subsidiaries, in a wirelesstelecommunications business in Africa using a satellite uplinkthrough France.  Titan’s primary long-term investmentobjective was to acquire through the various majority-owned localsubsidiaries of Ivoire Telecom what Titan considered to bepotentially valuable telecommunications licenses in Africancountries, build out a supporting network and backbone system tocarry traffic in these countries and then, ultimately, to realizeits investment by sale of the fully operationalbusiness.

      At the timeof the initial equity investment, Titan also advanced an additional$5.5 million to Ivoire Telecom for working capital in exchangefor a promissory note.  In addition, Titan agreed to lendIvoire Telecom up to $35 million in additional funds pursuantto a line of credit agreement.  Such funds were to be used forcapital and other expenditures necessary to acquire licenses, fundoperations and construct and build out the necessary infrastructureof Ivoire Telecom’s telecom network in Africa.  To thatend, Titan also contributed equipment with an approximate aggregatevalue of $4.5 million to Ivoire Telecom.

      At the timeTitan made its investment, Ivoire Telecom held only a few licensesand was just beginning operations and the build-out of itsnetwork.  Titan had arranged to work with IvoireTelecom’s chief executive officer to enhance IvoireTelecom’s existing system of financial controls, policies andprocedures such that Titan would have theability to exercise significant influence through its status as themajority stockholder over each of Ivoire Telecom’s operatingsubsidiaries, through which the business was to be conducted. As part of this effort, it was Titan’s plan to develop andhave in place a system of financial controls, policies andprocedures sufficient for U.S. financialreporting purposes and conforming to the requirements ofSection 13(b) of the Securities Exchange Act of 1934.  Inpertinent part, subsection (2) of that section of the Exchange Actrequires Titan to:

|         | (A)     | Make and keep books,records, and accounts which, in reasonable detail, accurately andfairly reflect the transactions and dispositions of assets ofTitan; and |
|--------------------------------------------|-----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                       |                             |                                                                                                                                                              |  |  |
|         | (B)     | Devise and maintain asystem of internal accounting controls sufficient to providereasonable assurances that:                                                 |
|                                       |                             |                                                                                                                                                              |  |  |
|                                            |                             | (i)                                                                                                                                      | Transactions are executedin accordance with management's general or specificauthorization; |
|                                       |                             |                                                                                                                                                              |  |
|                                            |                             | (ii)                                                                                                                                     | Transactions are recordedas necessary (I) to permit preparation of financial statements inconformity with generally accepted accounting principles or anyother criteria applicable to such statements, and (II) to maintainaccountability for assets; |
|                                       |                             |                                                                                                                                                              |  |
|                                            |                             | (iii)                                                                                                                                    | Access to assets ispermitted only in accordance with management's general or specificauthorization; and |
|                                       |                             |                                                                                                                                                              |  |
|                                            |                             | (iv)                                                                                                                                     | The recordedaccountability for assets is compared with the existing assets atreasonable intervals and appropriate action is taken with respectto any differences. |

      Titanencountered significant difficulties in obtaining consolidatedfinancial results from Ivoire Telecom shortly after the initialinvestment was made.  The difficulties in obtaining accurateand timely financial information were further complicated by therapidly growing business of Ivoire Telecom, which expanded from astart-up business to a company with 14 operating subsidiaries invarious countries.  Although this rapid growth wascontemplated by the business plan and positive from a businessperspective, it produced multiple-currency and multiple-entityconsolidation implications.  Beginning in July 2000, the ChiefFinancial Officer of Titan Wireless and other Titan personnel maderegular trips, generally on a monthly basis, to IvoireTelecom’s headquarters to attempt to work directly withIvoire Telecom’s accounting staff and management to improvereporting awareness and capability.  After Titan’srepeated attempts to obtain the requisite financial informationwere unsuccessful, Titan was forced to conclude that enhancingIvoire Telecom’s existing system of financial controls,policies and procedures to a system sufficient for U.S. financialreporting purposes was not a priority of Ivoire Telecom’smanagement and accounting personnel.

      Titan engageda global independent public accounting firm to audit the financialstatements of Ivoire Telecom for the year ended December 31,2001.  The independent public accounting firm did not completeits audit procedures due to difficulties encountered in resolvingopen audit issues.  Specifically, the independent publicaccounting firm reported that there were weaknesses in internalcontrols, inconsistent accounting policies and procedures, andlimited use of management information systems, all resulting in theinability of Ivoire Telecom to prepare and report accuratefinancial statements sufficient for U.S. financial reportingpurposes.  All of Titan’s requests and other directactions have resulted in no success in obtaining timely andreliable financial statements meeting U.S. standards from IvoireTelecom.

      Titanconsolidated the operating results of Ivoire Telecom for the periodfrom July 1, 2000 through December 31, 2000 in Titan’sreporting period from October 1, 2000 through March 31, 2001(reflecting a three month reporting lag), which cumulative resultsincluded approximately $0.4 million of revenues and$3.4 million of pre-tax operating losses.  During thesecond quarter of 2001, however, Titan appropriately concludedthat, as a result of its inability to control or exert significantinfluence on Ivoire Telecom’s financial policies, Titanceased consolidation and determined that the cost method wasappropriate.

      Additionally,Titan believes that it has taken all actions necessary to be keptwell informed of Ivoire Telecom’s business, network build-outand use of proceeds from the advances through regular operationalstatus reports and continuing discussions with IvoireTelecom’s management and major equipment providers, as wellas through the physical installation, test and inspection of assetsand equipment purchased using such proceeds.  Specifically,Titan Wireless’s technical team performed in-countryinstallation and test procedures on selected network equipment, andprovided direct installation guidelines to Ivoire Telecom’sequipment providers.  Further, Titan Wireless managementperformed periodic site visits of the significant subsidiaries,which included a physical verification of the significant networkassets.  As a result of this continuing interaction withIvoire Telecom and the verification from its customers that IvoireTelecom was in fact carrying long distance traffic over thenetwork, Titan was able to monitor the use of IvoireTelecom’s assets and equipment.  In this regard, Titanbelieves that its controls were sufficient to have reasonableassurances that the assets were used in accordance withTitan’s authorization of the advances.

      Titan engagedin substantial efforts to establish appropriate financial controlsand procedures to enable accurate and timely reporting of financialresults of Ivoire Telecom.  These efforts, as discussed above,were not successful, leading Titan to cease consolidating theoperating results of Ivoire Telecom and reporting its investment onthe cost method.  While inadequate to support continuedconsolidation, Ivoire Telecom did have adequate controls andpractices in place to permit Titan to monitor the use of funds byIvoire Telecom to acquire telecommunications equipment, licenses,and related infrastructure in accordance with the business plandeveloped by Ivoire Telecom.  Accordingly, Titan believes thatit complied with the requirements of Section 13(b) noted above inall material respects.  In the third quarter of 2002, theentire carrying value of the investment of approximately$52 million was determined to be impaired and writtenoff.

      InJanuary 1999, the Company invested approximately$0.5 million for a 19.9% ownership interest in a joint venturewith Sakon.  In July 2000, Titan loaned Sakon$15 million pursuant to a loan agreement.  InOctober 2000, Titan exercised its option pursuant to the loanagreement to convert amounts owed under the loan into additionalequity interest of 30.0% of Sakon, bringing the total equityinterest in Sakon to 49.9%.  This equity interest wasconverted in August 2002 from a 49.9% voting interest to a 15%voting interest and a 34.9% non-voting interest.  At suchtime, the amount outstanding of $15 million under the loan wasconverted to purchase consideration as the initial payment dueunder the terms of the agreement and recorded as goodwill. Under the terms of the agreement, an additional $12.5 millionof consideration was due and payable upon certain revenue targetsbeing attained.  These targets were met in January 2001, and a$5.0 million installment was made in the second quarter of2001, a $3.75 million installment was made in the firstquarter of 2002, and the remainder was paid in the third quarter of2002.  The excess of the purchase price over the estimatedfair market value of the net assets acquired, which has beenamortized over 20 years, was approximately $26.8 million atDecember 31, 2001.  In connection with the new requirementsfor evaluation of goodwill under SFAS No. 142, the$26.8 million was determined to be impaired and was fullyexpensed in the third quarter of 2002.  Prior to August 2002,Titan consolidated the operating results of Sakon due toTitan’s ability to control and significantly influence theoperations and policies of Sakon, in accordance with a managementagreement with Sakon.  In August 2002, the managementagreement was modified to nullify Titan’s ability to controlSakon, and Titan resigned from the management committee ofSakon.  Accordingly, Titan has no ability to substantiallyinfluence or control the operations of Sakon.  Thereafter,Titan’s investment in Sakon has been accounted for under thecost method.

      OnDecember 10, 1999, the Company's wholly owned subsidiary,Titan Africa, Inc. ("Titan Africa"), in connection with itscontract to build a satellite-based telephone system for thenational telephone company of Benin, Africa, the OPT, entered intoa Loan Facility Agreement for up to 30.0 billion Francs CFA (thecurrency of the African Financial Community), equivalent toapproximately $45.0 million U.S. dollars, with a syndicate offive banks, with Africa Merchant Bank as the Arranger.  Thismedium-term financing is a non-recourse loan to Titan Africa whichis guaranteed by the national telephone company of Benin, Africaand secured by the national telephone company's equipment andrevenues related to the project.  The facility has a fixedinterest rate of 9.5% and will be repaid in seven equal semi-annualpayments from the net receipts of this project, or by the OPT inthe event that such receipts are not adequate to make thesepayments, which commenced on December 31, 2000, and werescheduled to end on December 31, 2003.  The AfricaMerchant Bank and Titan Africa have collectively agreed to extendthe principal payments until service revenues reach certain levels,which is anticipated in mid to late 2002.  Approximately$40.5 million was drawn on this facility at December 31,2002 and is reflected in the non-current liabilities of TitanWireless.

OperatingResults

      For the yearended December 31, 2002, Titan Wireless generated$130.3 million of revenues and a net loss of$155.4 million, net of an $84.9 million taxbenefit.

      Included inTitan Wireless’ net loss for the year ended December 31, 2002are impairment charges of $211.4 million, or$137.4 million, net of tax, that were recorded as a result ofTitan’s decision to exit its international telecommunicationsbusiness.  The charges were comprised of thefollowing:  (1) impairment of goodwill in accordance withSFAS No. 142 of approximately $74.9 million, primarilycomprised of Titan’s acquisition of GlobalNet discussed aboveand Sakon, recorded in accordance with SFAS No. 142; (2)impairment of investments of approximately $62.6 million,primarily comprised of Titan’s investment in Ivoire Telecomdiscussed above; (3) and impairment of fixed and other assets ofapproximately $73.9 million.

      In addition,exit charges of approximately $20.1 million were recorded inthe third quarter of 2002, primarily related to outstandingcommitments of warranty obligations of $3.9 million,commitments for space satellite segments of $3.0 million, andoutstanding lease obligations of $1.6 million.  Theremaining $11.6 million of the charge is primarily related toemployee termination costs of $2.6 million, other estimateddirect costs to exit these businesses of $4.0 million and theestimated settlements of other obligations of approximately$5.0 million.  Such commitments are expected to be paidthrough the first half of 2004.  As of December 31, 2002,approximately $10.1 million is included in current andnon-current liabilities of discontinued operations.

      In summary,included in Titan Wireless’ net loss for 2002 is animpairment charge of $211.4 million, exit charges of$20.1 million and pre-tax losses excluding impairment and exitcharges of $8.8 million for the year ended December 31,2002.  Included in the operating losses of Titan Wireless for2002 is interest expense allocated to discontinued operations of$0.7 million.  All amounts presented are net of taxbenefits. 

*TitanTechnologies*

      For the year ended December 31, 2002, the discontinuedoperations of Titan Technologies generated revenues of$31.4 million and a net loss of $48.0 million, net of a$20.6 million tax benefit.  Included in TitanTechnologies’ net loss for 2002 is an impairment charge of$43.7 million, related to LinCom Wireless, AverCom andTitan’s commercial information technology business.  Themeasurement of this impairment is based upon indications of fairvalue, resulting in a write-off of the carrying value of its assetswhich included an impairment of goodwill of $21.0 million, inaccordance with SFAS No. 142, and impairment of other assetsof $22.7 million consisting primarily of fixed assets andcapitalized software.  In addition, exit charges ofapproximately $4.4 million were recorded primarily related toemployee termination costs, lease termination costs and otheroutstanding commitments.

      InSeptember 2002, certain assets of the AverCom business weresold for $0.5 million cash and an earn-out of$0.6 million of additional consideration based on certaingross margin targets.  In addition, the Company retainedapproximately $3.0 million of net accounts receivablebalances, which were substantially collected by December 31,2002.  In addition to the impairment of goodwill of$21.0 million, a charge of $14.9 million was recorded onJanuary 1, 2002, when the Company adopted SFAS No. 142 whichwas reported as a cumulative effect of a change in accountingprinciple.

      In additionto the impairment charges discussed above, pre-tax losses excludingimpairment and exit charges for the Titan Technologies businessesfor 2002 were $20.5 million.  Included in the operatinglosses for 2002 is interest expense allocated to discontinuedoperations of $0.8 million. 

*Cayenta*

      InJuly 2002, the two information technology businesses ofCayenta were sold for approximately $3.5 millionconsideration, in the form of a promissory note, with$1.0 million due a year from the date of sale and theremaining balance due in eight equal quarterly installments withthe final payments due within 3 years from the sale date.  Inaddition, a maximum potential earn-out is available forapproximately $7.5 million based on certain future EBITDA(earnings before interest, taxes, depreciation and amortization)targets.  For the year ended December 31, 2002, thesebusinesses generated revenues of $6.4 million and a net lossof $3.8 million, net of a tax benefit of$2.7 million.  Included in the net loss is a charge forgoodwill impairment in accordance with SFAS No. 142 associatedwith these two businesses of approximately $1.1 million, andother asset impairments of approximately $3.2 million. In addition, a $27.5 million impairment of goodwill wasrecorded on January 1, 2002, when the Company adopted SFASNo. 142 which was reported as a cumulative effect of a changein accounting principle.  In addition to the impairmentcharges noted above, operating losses, net of tax, for the yearended December 31, 2002 were $3.2 million, and included$0.1 million in interest expense allocated to discontinuedoperations.

      Theconsolidated financial statements of Titan for all periodspresented have been restated to reflect all businesses discussedabove as discontinued in accordance with SFASNo. 144.

***2001 DiscontinuedOperations***

      OnMarch 16, 2001, SureBeam Corporation, Titan's subsidiary thatprovides electronic irradiation systems and services, completed aninitial public offering ("IPO") of 6,700,000 shares of Class Acommon stock at a price of $10 per share.  On October 16,2001, Titan adopted a definitive plan to spin off SureBeam in theform of a tax-free dividend to Titan stockholders within the next12 months from that date.  The plan involved filing a letterruling request with the IRS to obtain approval of the tax-freedistribution.  Titan received a favorable ruling in May 2002,and on August 5, 2002, Titan’s remaining ownership interestin SureBeam was spun-off to Titan stockholders as a tax-freedividend.  Titan has historically reported the SureBeambusiness as a separate segment.  In accordance with AccountingPrinciples Board Opinion No. 30, "Reporting the Results ofOperations—Reporting the Effects of Disposal of a Segment ofa Business, and Extraordinary, Unusual and Infrequently OccurringEvents and Transactions," the consolidated financial statements ofTitan for all periods presented have been restated to reflectSureBeam as a discontinued business.  The net assets ofSureBeam as of August 5, 2002 and tax liabilities and othercosts resulting from the spin-off resulted in a net dividend ofapproximately $105.4 million which was recorded as a decreaseto paid-in-capital, partially offset by the reduction in deferredcompensation related to deferred compensation charges in 2000 and2001, reflecting the net value distributed to Titan’sstockholders.  The net assets excluded SureBeam’sliability to Titan of $15 million at August 5, 2002 underSureBeam’s line of credit with Titan (see Note 14).  Theline of credit balance at December 31, 2002 was$25 million and is reflected as a non-current asset in OtherAssets on the accompanying consolidated balance sheet.

      At the timethe Company adopted the plan to spin-off SureBeam, in accordancewith APB No. 30, the Company recorded a charge of$35.4 million for estimated costs of disposal and forestimated operating losses up to the date of disposal.  Thischarge was recorded in the third quarter of 2001.  All lossesincurred by SureBeam since that time have been charged against thisaccrual.  Losses charged against the accrual in 2001 were$14.9 million and in 2002 were $20.5 million in the sixmonths ended June 30, 2002.  An additional charge of$11.0 million was taken during the second quarter of 2002 torecord the net losses (in excess of the accrual) incurred bySureBeam during the second quarter of 2002 as well as estimatedoperating losses and spin-off expenses expected to be incurredthrough the spin-off date of August 5, 2002.  Subsequentto that date, SureBeam is no longer included in Titan’sresults of operations.  Losses through August 5, 2002charged against the accrual in third quarter of 2002 were$1.8 million.  Approximately $3.2 million of costsrelated to the spin-off have been charged against the lossaccruals.  As of December 31, 2002, $0.3 millionremains accrued for trailing spin-off costs. 

      Revenues andnet loss generated by SureBeam for the year ended December 31, 2001were $24.2 million and $76.1 million, respectively. Included in SureBeam’s net loss in 2001 is deferredcompensation of $54.3 million.  Revenues and net incomegenerated by SureBeam for the year ended December 31, 2000 were$25.2 million and $0.4 million, respectively. Included in SureBeam’s net losses is interest expense of$7.0 million and $3.8 million for the years endedDecember 31, 2001 and 2000, respectively, related to the promissorynote SureBeam had payable to us.

***2000 DiscontinuedOperations***

      In November2000, the Company's board of directors adopted a plan to dispose ofthe Company's commercial information assurance and networkmonitoring businesses.  In 1998 and 1997, the Company's Boardof Directors adopted a plan to wind down the Company's accesscontrol systems business and broadband communications business,respectively.  Accordingly, the results of these businesseshave been accounted for as discontinued operations.  Inaddition, the accompanying consolidated financial statementsreflect operations discontinued by certain of the companiesacquired by Titan during 1998 and 2000.  All periods presentedreflect these specific operations as discontinuedoperations. 

      Following isa summary in tabular format of the loss from discontinuedoperations for 2002 (amounts in millions):

|                                     |        | **Yearended December 31, 2002** |        |
|-------------------------------------|--------|--------------------------------------|--------|
|                                     |        |                                      |        |
|                                     | ****   | **Titan Wireless**                   | ****   | **Titan Technologies** |  | **Cayenta** |  | **SureBeam** |  | **Total** |  |
|                                     |        | ****                                 |        | **** |  | **** |  | **** |  | **** |  |
| Impairment ofgoodwill               |   | $                                    | (74.9  | ) | $ | (21.0 | ) | $ | (1.1 | ) | $ | — |  | $ | (97.0 | ) |
| Impairment ofinvestments            |   |                                 | (62.6  | ) |  | — |  |  | — |  |  | — |  |  | (62.6 | ) |
| Impairment of fixed andother assets |   |                                 | (73.9  | ) |  | (22.7 | ) |  | (3.2 | ) |  | — |  |  | (99.8 | ) |
| Exit charges                        |   |                                 | (20.1  | ) |   | (4.4 | ) |   | — |  |   | — |  |   | (24.5 | ) |
|                                     |   |                                      |        |  |  |  |  |  |  |  |  |
|                                     |   |                                 | (231.5 | ) |   | (48.1 | ) |  | (4.3 | ) |   | — |  |   | (283.9 | ) |
| Losses fromoperations               |   |                                 | (8.8   | ) |   | (20.5 | ) |  | (3.2 | ) |   | (11.0 | ) |   | (43.5 | ) |
|                                     |   |                                      |        |  |  |  |  |  |  |  |  |
|                                     |   |                                 | (240.3 | ) |   | (68.6 | ) |  | (7.5 | ) |   | (11.0 | ) |   | (327.4 | ) |
| Tax benefit                         |   |                                 | (84.9  | ) |  | (20.6 | ) |  | (2.7 | ) |  | (1.1 | ) |  | (109.3 | ) |
|                                     |   |                                      |        |  |  |  |  |  |  |  |  |
| Net loss                            |        | $                                    | (155.4 | ) | $ | (48.0 | ) | $ | (4.8 | ) | $ | (9.9 | ) | $ | (218.1 | ) |
|                                     |   |                                      |        |  |  |  |  |  |  |  |  |

**Balance SheetSummary**

      Following isa table of all related balance sheet categories for eachdiscontinued operation:

|                                                  |   | **As ofDecember 31,** |    |
|-------------------------------------------------------|--------|----------------------------|---------|
|                                                       |        |                            |         |
|                                                  |   | **2002**                   |    | **2001** |   |
|                                                       |        |                            |         |  |  |
| Current assets ofdiscontinued operations:             |   |                            |         |   |  |  |   |
|       TitanWireless     |   | $                          | 93,145  |  | $ | 27,621 |  |
|       Cayenta           |   |                            | 661     |   |  | 7,784 |  |
|       SureBeam          |   |                            | — |  |  | 44,940 |  |
|       TitanTechnologies |   |                            | 10,065  |  |  | 17,632 |  |
|       Other             |   |                       | — |  |  | 1,692 |  |
|                                                       |        |                            |         |  |  |
|                                                       |        | $                          | 103,871 |  | $ | 99,669 |  |
|                                                       |        |                            |         |  |  |
| Non-current assets ofdiscontinued operations:         |   |                       |         |  |   |  |  |
|       TitanWireless     |   | $                          | 4,212   |  | $ | 205,396 |  |
|       Cayenta           |   |                            | — |   |  | 29,875 |  |
|       SureBeam          |   |                            | — |  |  | 65,704 |  |
|       TitanTechnologies |   |                            | 2,370   |  |  | 45,163 |  |
|       Other             |   |                       | — |  |  | — |  |
|                                                       |        |                            |         |  |  |
|                                                       |        | $                          | 6,582   |  | $ | 346,138 |  |
|                                                       |        |                            |         |  |  |
| Current liabilities ofdiscontinued operations:        |   |                            |         |  |  |  |   |
|       TitanWireless     |   | $                          | 38,603  |  | $ | 21,174 |  |
|       Cayenta           |   |                            | 2,155   |  |  | 6,303 |   |
|       SureBeam          |   |                            | 187     |  |  | 30,977 |  |
|       TitanTechnologies |   |                            | 8,198   |  |  | 8,013 |  |
|       Other             |   |                       | — |  |  | 2,493 |  |
|                                                       |        |                            |         |  |  |
|                                                       |        | $                          | 49,143  |  | $ | 68,960 |  |
|                                                       |        |                            |         |  |  |
| Non-current liabilities ofdiscontinued operations:    |   |                       |         |  |   |  |  |
|       TitanWireless     |   | $                          | 42,821  |  | $ | 42,456 |  |
|       Cayenta           |   |                            | 1,205   |  |  | 451 |   |
|       SureBeam          |   |                            | — |  |  | 7,608 |  |
|       TitanTechnologies |   |                            | 800     |  |  | 510 |  |
|       Other             |   |                       | — |  |  | — |  |
|                                                       |        |                            |         |  |  |
|                                                       |        | $                          | 44,826  |  | $ | 51,025 |  |
|                                                       |        |                            |         |  |  |

      Included inthe total assets of Titan Wireless as of December 31, 2002 areapproximately $95.2 million of gross accounts receivable, lessapproximately $40.5 million (classified as a non-currentliability) representing the amounts drawn on the non-recourse loanfacility with the African Merchant Bank to cover subcontract costson Titan Wireless’s contract with the Office of Post andTelecommunications (OPT).  The net accounts receivable of$54.7 million are comprised of approximately$34.6 million due from the OPT, $15.5 million due fromTitan Wireless’s customer in Nigeria, and $4.6 milliondue from customers of the GlobalNet business.  The currentliabilities of $38.6 million of Titan Wireless includeapproximately $10.1 million of remaining exit costs andapproximately $21.2 million of accounts payable and leaseobligations of GlobalNet.  Titan is endeavoring to divestthese businesses through stock and asset sales and is currently innegotiations with a number of potential buyers of GlobalNet. In the event that Titan is unsuccessful in its endeavors to sellGlobalNet, Titan may incur a net cash outlay of approximately$17.5 million, the net liability balance of GlobalNet, to shutdown the business.

      The currentassets of Titan Technologies are primarily comprised of accountsreceivable balances and prepaid assets.

**Note 7.  Other FinancialData**

      Following aredetails concerning certain balance sheet accounts:

| ** **                           | ** ** | **AtDecember 31,****** | ** ** |
|--------------------------------------|------------|------------------------|------------|
| ** **                           | ** ** | ****                   | ** ** |
| ** **                           | ** ** | **2002**               | ** ** | **2001** | ** ** |
| ** **                           | ** ** | ****                   | ** ** | **** | ** ** |
| AccountsReceivable:                  |       |                   |       |   |   |   |   |
| U.S.Government — billed   |       | $                      | 250,118    |  | $ | 263,801 |   |
| U.S.Government — unbilled |       |                   | 48,728     |  |   | 45,722 |   |
| Trade                                |       |                   | 22,295     |  |   | 45,734 |   |
| Less allowance fordoubtful accounts  |       |                   | (6,778     | ) |   | (7,750 | ) |
|                                 |       | ****                   |       | **** |   |
|                                 |       | $                      | 314,363    |   | $ | 347,507 |   |
|                                      |       |                        |       |  |   |

      Billing inexcess of costs incurred are recorded as reductions to accountsreceivable and total $8.9 million and $9.6 million atDecember 31, 2002 and 2001, respectively.  Deferred revenueincluded in Other Accrued Liabilities totaled $10.0 million atDecember 31, 2002.

| ** **                                    | ** ** | **AtDecember 31,****** | ** ** |
|-----------------------------------------------|------------|------------------------|------------|
| ** **                                    | ** ** | ****                   | ** ** |
| ** **                                    | ** ** | **2002**               | ** ** | **2001** | ** ** |
| ** **                                    | ** ** | ****                   | ** ** | **** | ** ** |
| Inventories:                                  |       |                   |       |   |   |   |   |
| Materials                                     |       | $                      | 11,213     |   | $ | 11,143 |   |
| Work-in-process                               |       |                   | 9,947      |   |   | 8,852 |   |
| Finished goods                                |       |                   | 10,120     |   |   | 3,927 |   |
|                                          |       | ****                   |       | **** |   |
|                                          |       | $                      | 31,280     |   | $ | 23,922 |   |
|                                          |       |                        |       |  |   |
| Property andEquipment:                        |       |                   |       |   |   |   |   |
| Machinery andequipment                        |       | $                      | 118,540    |   | $ | 99,591 |   |
| Furniture andfixtures                         |       |                   | 26,225     |   |   | 29,194 |   |
| Land, buildings andleasehold improvements     |       |                   | 28,162     |   |   | 36,265 |   |
| Construction inprogress                       |       |                   | 1,664      |   |   | 1,575 |   |
|                                          |       | ****                   |       | **** |   |
|                                          |       |                   | 174,591    |  |   | 166,625 |   |
| Less accumulateddepreciation and amortization |       |                   | (110,886   | ) |   | (105,185 | ) |
|                                          |       | ****                   |       | **** |   |
|                                          |       | $                      | 63,705     |   | $ | 61,440 |   |
|                                          |       |                        |       |  |   |

      Supplementaldisclosures of cash flow information:

| ** **                                                                | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|
| ** **                                                                | ** ** | ****     | ** ** | ****     | ** ** | ****     |
| Noncash investing andfinancing activities:                                |       |     |       |     |       |     |   |   |   |
| Stock issued for acquisitions                                             |       | $        | 137,811    |     | $          | 144,764  |   | $ | — |
| Gain related to issuanceof stock in subsidiary                            |       |     | —    |     |       | 52,025   |   |   | 2,825 |
| Deferred compensationrelated to the issuance of stock options        |       |     | 29,834     |          |            | 78,725   |  |  | 19,331 |
| Shares contributed toemployee benefit plans                               |       |     | 7,529      |     |       | 4,941    |   |   | 2,364 |
| Extraordinary loss onearly extinguishments of debt                   |       |          | 5,408      |     |            | —  |   |  | 4,744 |
| Issuance of stock forequity interest                                      |       |     | —    |     |       | —  |   |   | 900 |
| Write-off of deferredcompensation related to discontinued operations |       |     | 629        |     |       | —  |   |   | — |
| Stock used for optionexercise                                             |       |     | —    |     |       | 292      |   |   | — |
| Equity in a subsidiaryissued in exchange for services                     |       |     | —    |     |       | —  |   |   | 2,000 |
| Cash paid for interest                                                    |       | $        | 32,408     |     | $          | 38,021   |   | $ | 34,381 |
| Cash paid (refunds) fortaxes                                              |       |     | (8,747     | )   |       | 3,612    |   |   | 11,942 |

      Detailsregarding the acquisition of businesses, net of cash acquired, inthe Consolidated Statements of Cash Flows are as follows (amountsin millions):

|                                                 |            | **YearEnded December 31, 2002** |            |
|-------------------------------------------------|------------|---------------------------------|------------|
|                                                 |            | ****                            |            |
| ** **                                      | ** ** | **Cash Paid**                   | ** ** | **Cash Acquired** | ** ** | **Net** |  |
| ** **                                      | ** ** | ****                            | ** ** | **** | ** ** | **** |  |
| Acquisition                                     |       |                            |       |   |   |   |   |   |   |  |
| Jaycor                                          |       | $                               | —    |   | $ | 36.0 |   | $ | 36.0 |  |
| Wave Systems                                    |       |                            | (8.5       | ) |   | 4.6 |   |   | (3.9 | ) |
| InternationalSystems                            |            |                                 | —    |  |  | 0.2 |  |  | 0.2 |  |
| Purchase adjustments forprior year acquisitions |            |                                 | (4.9       | ) |  | — |  |  | (4.9 | ) |
| ** **                                      | ** ** | ****                            | ** ** | **** | ** ** | **** |  |
|                                                 |            | $                               | (13.4      | ) | $ | 40.8 |  | $ | 27.4 |  |
| ** **                                      | ** ** | ****                            | ** ** | **** | ** ** | **** |  |

|                                                 |            | **YearEnded December 31, 2001** |            |
|-------------------------------------------------|------------|---------------------------------|------------|
|                                                 |            | ****                            |            |
| ** **                                      | ** ** | **Cash Paid**                   | ** ** | **Cash Acquired** | ** ** | **Net** |  |
| ** **                                      | ** ** | ****                            | ** ** | **** | ** ** | **** |  |
| Acquisition                                     |       |                            |       |   |   |   |   |   |   |  |
| BTG                                             |       | $                               | (23.4      | ) | $ | 1.2 |   | $ | (22.2 | ) |
| Datron                                          |       |                            | —    |  |   | 3.6 |   |   | 3.6 |  |
| Maxwell                                         |            |                                 | (9.2       | ) |  | — |  |  | (9.2 | ) |
| Purchase adjustments forprior year acquisitions |            |                                 | (6.4       | ) |  | — |  |  | (6.4 | ) |
| ** **                                      | ** ** | ****                            | ** ** | **** | ** ** | **** |  |
|                                                 |            | $                               | (39.0      | ) | $ | 4.8 |  | $ | (34.2 | ) |
| ** **                                      | ** ** | ****                            | ** ** | **** | ** ** | **** |  |

|                                                                                                              |            | **YearEnded December 31, 2000** |            |
|--------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|
|                                                                                                              |            | ****                            |            |
| ** **                                                                                                   | ** ** | **Cash Paid**                   | ** ** | **Cash Acquired** | ** ** | **Net** |  |
| ** **                                                                                                   | ** ** | ****                            | ** ** | **** | ** ** | **** |  |
| Acquisition                                                                                                  |       |                            |       |   |   |   |   |   |   |  |
| Pulse Sciences                                                                                               |       | $                               | (24.4      | ) | $ | 0.8 |   | $ | (23.6 | ) |
| LinCom governmentoperations                                                                                  |       |                            | (17.8      | ) |   | 4.3 |   |   | (13.5 | ) |
| SenCom                                                                                                       |            |                                 | (33.7      | ) |  | 8.2 |  |  | (25.5 | ) |
| Payments related toacquisition of companies    acquired by Titan prior to acquisition byTitan |            |                                 | (10.1      | ) |  | — |  |  | (10.1 | ) |
| ** **                                                                                                   | ** ** | ****                            | ** ** | **** | ** ** | **** |  |
|                                                                                                              |            | $                               | (86.0      | ) | $ | 13.3 |  | $ | (72.7 | ) |
| ** **                                                                                                   | ** ** | ****                            | ** ** | **** | ** ** | **** |  |

      TheCompany’s investments in non-marketable securities as ofDecember 31, 2002, include $7.6 million in e-tenna, reportedin Other Assets.  All other investments in non-marketablesecurities totaled $7.1 million at December 31, 2002, and arereported in Other Assets.

      Substantiallyall of the Company's operations are located in the UnitedStates.  Export and foreign revenues amounted to approximately$29.6 million, $21.4 million, and $13.6 million in2002, 2001, and 2000, respectively, primarily to countries inEurope, Asia, Africa and South America.  Substantially allinternational sales are denominated in U.S.dollars. 

      Sales to theU.S. government, including both defense and non-defense agencies,and sales as a subcontractor as well as direct sales, aggregatedapproximately $1,320.0 million in 2002, $905.3 million in2001, and $763.3 million in 2000. 

**Note 8.  Income Taxes**

      Thecomponents of the income tax provision (benefit) from continuingoperations are as follows:

| ** **                 | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** |   |
|----------------------------|------------|----------|------------|----------|------------|----------|--------|
| ** **                 | ** ** |          | ** ** |          | ** ** |          |   |
| Current:                   |       |     |       |     |       |     |   |   |   |   |
|    Federal  |       | $        | —    |          | $          | —  |        | $ | — |  |
|    Foreign  |       |          | —    |          |            | —  |        |  | — |  |
|    State    |       |     | 1,458      |     |       | 1,255    |   |   | 1,174 |  |
|                       |       |          |       |          |       |          |        |
|                       |       |     | 1,458      |          |            | 1,255    |        |  | 1,174 |  |
|    Deferred |       |     | (3,910     | )        |            | (248     | )      |  | (12,482 | ) |
|                       |       |          |       |          |       |          |        |
|                       |       | $        | (2,452     | )        | $          | 1,007    |        | $ | (11,308 | ) |
|                       |       |          |       |          |       |          |        |

      Following isa reconciliation of the income tax provision from continuingoperations expected (based on the United States federal income taxrate applicable in each year) to the actual tax provision (benefit)on income (loss):

| ** **                                                   | ** ** | **2002** | ** ** | **2001** | ** ** | **2000** | ** ** |
|--------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                   | ** ** |          | ** ** |          | ** ** |          | ** ** |
| Expected federal taxprovision on continuing operations       |       | $        | (3,498     | )        | $          | (2,441   | )          | $ | (8,178 | ) |
| State income taxes, net offederal income tax benefit         |       |     | (309       | )        |       | 1,255    |            |   | (721 | ) |
| State taxes in separatefiling states, net of federal benefit |            |          | 963        |          |            | —  |            |  | — |  |
| Goodwillamortization                                         |       |     | —    |          |       | 1,283    |       |   | 1,334 |   |
| Change in valuationallowance                                 |       |     | —    |          |       | —  |            |   | (8,100 | ) |
| Acquisition charges andother                                 |       |     | —    |          |       | 740      |       |   | 3,981 |  |
| Meals andentertainment                                       |       |     | 251        |          |       | 175      |       |   | 379 |   |
| Other                                                        |       |     | 141        |          |       | (5       | )          |   | (3 | ) |
|                                                         |       |          |       |          |       |          |       |
| Actual tax provision(benefit) on continuing operations       |       | $        | (2,452     | )        | $          | 1,007    |            | $ | (11,308 | ) |
|                                                         |       |          |       |          |       |          |       |

      The netdeferred tax asset as of December 31, 2002 and 2001, resultsfrom the following temporary differences:

| ** **                                 | ** ** | **2002** | ** ** | **2001** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| ** **                                 | ** ** |          | ** ** |          | ** ** |
| Losscarryforward                           |       | $        | 69,053     |          | $          | 13,268 |   |
| Employeebenefits                           |       |     | 32,018     |          |       | 22,688 |  |
| Purchased otherintangibles                 |       |     | (5,487     | )        |       | (5,638 | ) |
| Tax creditcarryforwards                    |       |     | 4,336      |          |       | 1,075 |   |
| Inventory, contract lossand other reserves |       |     | 50,608     |          |       | 22,142 |  |
| Accounts and unbilledreceivables           |       |     | (4,893     | )        |       | (5,255 | ) |
| Accruedliabilities                         |       |     | 10,850     |          |       | 5,481 |   |
| Depreciation andamortization               |       |     | 18,723     |          |       | (4,494 | ) |
| Other                                      |       |     | —    |          |       | 14 |   |
|                                       |       |          |       |          |       |
|                                       |       |     | 175,208    |          |       | 49,281 |  |
| Valuationallowance                         |       |     | (24,712    | )        |       | (3,100 | ) |
|                                       |       |          |       |          |       |
| Deferred tax asset,net                     |       | $        | 150,496    |          | $          | 46,181 |   |
|                                       |       |          |       |          |       |

      Realizationof certain components of the net deferred tax asset is dependentupon the Company generating sufficient taxable income prior toexpiration of loss and credit carryforwards.  The federal netoperating losses at December 31, 2002, to be carried forward to2003 are approximately $178 million, which carryforwards willexpire in periods through 2022.  Although realization is notassured, management believes it is more likely than not that thenet deferred tax asset will be realized.  The amount of thenet deferred tax asset considered realizable, however, could bereduced in the near term if estimates of future taxable incomeduring the carryforward period are reduced.  Also, underFederal tax law, certain potential changes in ownership of theCompany may limit annual future utilization of thesecarryforwards.  As such, the valuation allowance recorded isprovided against certain carryforwards which may not be utilized aswell as for certain preacquisition net operating losses which maynot be utilized due to annual limitations.  Prepaid Expensesand Other at December 31, 2002 include prepaid taxes of$3.1 million.  Other Accrued Liabilities at December 31,2001 include a deferred tax liability of $2.1 million. Other Non-current Liabilities at December 31, 2002 and 2001include a deferred tax liability of $17.4 million and$12.1 million, respectively. 

**Note 9.  Debt**

      OnMay 23, 2002, the Company entered into an agreement withWachovia Bank, National Association and Wachovia Securities for a$485 million credit facility from a syndicate of commercialbanks including Wachovia Securities acting as Sole Lead Arrangerand Wachovia Bank, National Association, as Administrative Agent,The Bank of Nova Scotia and Comerica Bank as Co-Syndication Agentsand Branch Banking Trust Company and Toronto Dominion Bank asCo-Documentation Agents and other financial institutions(collectively referred to hereafter as the “seniorlenders”).  The proceeds of the loan were used to repayoutstanding indebtedness on the Company’s $425 millioncredit facility arranged by Credit Suisse First Boston inFebruary 2000.  The senior secured credit facility issecured by substantially all of our and our subsidiaries’assets (other than the assets of Sakon and our foreign operations)and guaranteed by substantially all of our subsidiaries (except forSakon and our foreign subsidiaries).  The $485 millionfacility is comprised of a seven-year term loan in an aggregateprincipal amount of $350 million and a six-year$135 million revolving credit facility.  Loans made underthe term loan amortize at 1.0% per year for years one through six,with the remaining 94% due in four equal quarterly payments in yearseven of the agreement.  Under the term loan and the revolvingfacility, the Company has the option to borrow at the bank’srate or at adjusted LIBOR plus, in each case, an applicable marginbased on our total debt to EBITDA ratio (earnings before interestand taxes and depreciation and amortization).  The agreementcontains financial covenants, as defined per the senior creditagreement, which were comprised of the following atDecember 31, 2002:  a maximum debt to EBITDA (as defined)limit of 3.50 to 1, a minimum interest coverage ratio of 2.75to 1, a minimum fixed charge coverage ratio of 1.20 to 1 and aminimum net worth of $235 million (as defined).  AtDecember 31, 2002, the Company was in compliance with all financialcovenants.  No funds were drawn initially on the revolver,which is available to the Company for general corporate needs,including strategic acquisitions.  Additionally, the newfacility excluded Titan’s ownership of SureBeam stockas collateral, which enabled Titan to spin-off SureBeam inaccordance with Titan’s plans to do so.  However, thecredit agreement of $50 million that Titan has executed withSureBeam is secured by a first priority lien on all ofSureBeam’s assets.  Titan is required to collaterallyassign its rights under this credit agreement and its security aswell as the license agreement it has with SureBeam to its seniorlenders under its senior secured credit facility (see Note14).  At December 31, 2002, deferred financing costsincluded in Other Assets related to this facility wereapproximately $7.1 million and are being amortized over theterm of the agreement.

      Related to Titan's extinguishment of its prior creditfacility of $425 million with Credit Suisse First Boston, alldeferred financing costs related to that agreement were written offduring 2002, resulting in an extraordinary loss in the amount of$5.4 million, which is net of a tax benefit of$3.9 million, which has been reflected as an extraordinaryitem in the accompanying consolidated statements ofoperations. 

      AtDecember 31, 2002, total borrowings outstanding under ourcurrent credit facility were $348.3 million at a weightedaverage interest rate of 4.43%.  Commitments under letters ofcredit were $14.5 million at December 31, 2002,$14.1 million of which reduces availability of the workingcapital line, resulting in $120.9 million of availability onour working capital line at December 31, 2002.  Of the totalborrowings, $3.5 million was short-term. 

      OnFebruary 9, 2000, the Company and Titan Capital Trust (theTrust), our wholly owned subsidiary, issued 4 millionconvertible preferred securities (Remarketable Term IncomeDeferrable Equity Securities, or HIGH TIDES) at $50 per security,for a total of $200 million, with an over-allotment exercisedon February 16, 2000 for an additional 1 millionsecurities, for an additional $50 million.  The trustused the proceeds from the sale of the HIGH TIDES to purchase fromthe Company 53/4% Convertible Senior Subordinated Debentures, dueFebruary 15, 2030.  The debentures have the samefinancial terms as the HIGH TIDES.  The HIGH TIDES will accruedistributions of 53/4% per annum, with quarterly distributions to be paid inarrears on February 15, May 15, August 15 andNovember 15, commencing May 15, 2000.  The trust'sability to pay distributions on the HIGH TIDES is solely dependenton its receipt of interest payments from the Company on thedebentures.  In the event that all HIGH TIDES outstanding havenot been redeemed, approximately five years after the issuance ofthe instruments, then the remaining HIGH TIDES must be remarketed,which means that a remarketing agent will attempt to establish anew annual distribution rate, conversion price and redemptionfeatures for the HIGH TIDES that are consistent with a price perHIGH TIDES equal to 101% of its liquidation preference and also aremost favorable to the Company.  The 53/4% per annum rate will be applicablefrom the date of original issuance to, but excluding the resetdate.  The reset date is any date (a) not later thanFebruary 15, 2005, or the final reset date, or, if the day isnot a business day, the next succeeding day, and (b) notearlier than 70 business days prior to February 15, 2005, asmay be determined by the remarketing agent, in its solediscretion.  On or after the reset date, the applicable ratewill be the term rate established by the remarketing agent based onthe outcome of the remarketing.  The Company can, on one ormore occasions, defer the interest payments due on the debenturesfor up to 20 consecutive quarters unless an event of default underthe debentures has occurred and is continuing.  The holders ofthe HIGH TIDES may convert each security into shares of commonstock of Titan at the rate of 1.3553 shares (as adjusted for theSureBeam spin-off) of common stock for each HIGH TIDES (equivalentto a conversion price of $36.893 per share of common stock,compared to the initial conversion price of $49.625 per share ofcommon stock prior to the SureBeam spin-off).  The Company mayredeem the debentures in whole or in part, at any time on or afterFebruary 20, 2003 until but excluding the tender notificationdate, at a redemption price equal to 101.44% of the principalamount of the debentures, declining to 100% of the principal amountof the debentures on or after February 20, 2004, plus anyaccrued and unpaid interest; and after the reset date, inaccordance with the term call projections, if any, established inthe remarketing or, upon a failed final remarketing, on or afterthe third anniversary of the reset date at a redemption price equalto 100% of the principal amount of debentures, plus any accrued andunpaid interest.  At December 31, 2002, deferred financingcosts included in Other Assets related to this agreement wereapproximately $8.0 million and are being amortized over the term ofthe agreement.

      At December31, 2002, Titan had other secured and unsecured debt outstandingunder various agreements totaling $0.8 million short-term and$2.0 million long-term, with interest rates ranging from 6.76to 9.30%.  These agreements mature by 2015.  At December31, 2002, Titan was in compliance with the financial covenants ofall its debt agreements.

      Details oflong-term debt are as follows:

| ** **                                                                                                                                                                                                                                | ** ** | **December 31,****** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|
| ** **                                                                                                                                                                                                                                | ** ** |                           |       |
| ** **                                                                                                                                                                                                                                | ** ** | **2002**                  | ** ** | **2001** |   |
| ** **                                                                                                                                                                                                                                | ** ** |                           | ** ** |  |   |
| Senior creditfacility                                                                                                                                                                                                                     |       | $                         | 348,250    |  | $ | 330,000 |   |
| Note payable to bank,interest at 9.30%, due February 2006, secured by a    First Deed of Trust on an officebuilding                                                                                                   |       |                      | 430        |  |   | 457 |   |
| Note payable to UrbanBusiness Development Corporation, interest at    8.58%, due January 2015, guaranteed by the SmallBusiness Administration    and secured by a Second Deed of Trust on anoffice building |       |                      | 587        |  |   | 644 |   |
| Note payable, interest at6.76%, paid in 2002                                                                                                                                                                                              |       |                           | —    |  |  | 3,008 |  |
| Acquisition related notespayable of acquired companies, interest at 8.5%,    due March 2005                                                                                                                                |       |                      | 1,875      |  |   | 2,626 |  |
| Promissory note, securedby equipment, interest at 8.5%, paid in 2002                                                                                                                                                                      |       |                      | —    |  |   | 152 |   |
|                                                                                                                                                                                                                                           |       |                      |            |  |   |  |  |
|                                                                                                                                                                                                                                           |       |                           | 351,142    |  |  | 336,887 |  |
| Less:  Currentportion                                                                                                                                                                                                           |       |                      | (4,347     | ) |   | (14,088 | ) |
|                                                                                                                                                                                                                                           |       |                      |            |  |   |  |  |
|                                                                                                                                                                                                                                           |       | $                         | 346,795    |  | $ | 322,799 |  |
|                                                                                                                                                                                                                                           |       |                      |            |  |   |  |  |

**Titan DebtMaturities**

      Maturities oflong-term debt, excluding non-recourse debt, are asfollows:

| 2003       |   | $      | 4,347   |
|------------|--------|--------|---------|
| 2004       |   |   | 4,357   |
| 2005       |   |   | 3,807   |
| 2006       |   |   | 3,929   |
| 2007       |   |        | 3,541   |
| Thereafter |   |   | 331,161 |
|       |   |        |
|       |   | $      | 351,142 |
|       |   |        |

**Note 10.  Commitments andContingencies**

      The Companyleases certain buildings and equipment under noncancelableoperating lease agreements.  These leases generally requirethe Company to pay all executory costs such as taxes, insurance andmaintenance related to the leased assets.  Certain of theleases contain provisions for periodic rate accelerations toreflect cost-of-living increases.  Rental expense under theseleases was $40.1 million in 2002, $23.8 million in 2001,and $20.6 million in 2000.  In February 2000, ourCayenta subsidiary entered into a new long-term lease agreementwhich requires future minimum lease payments of approximately$6.6 million over 7 years.  There is additional space inthe facilities which, if vacant or desired by Cayenta, couldobligate Cayenta for additional future minimum lease payments ofapproximately $0.7 million over the 7 years.  The Companyis a guarantor on the lease.  Due to the Company’sdiscontinuance of its Cayenta business, Titan has subleased thisfacility under agreements that extend through 2007.  Rentalexpense in 2002, 2001, and 2000 includes $0.9 million,$0.8 million, and $0.8 million, respectively, paidrelated to this space. 

      Futureminimum lease payments under noncancellable operating leases atDecember 31, 2002, are as follows:

| 2003                        |   | $      | 38,980  |
|-----------------------------|--------|--------|---------|
| 2004                        |   |   | 36,821  |
| 2005                        |   |   | 30,198  |
| 2006                        |   |   | 26,874  |
| 2007                        |   |        | 18,600  |
| Thereafter                  |   |   | 41,421  |
|                        |   |        |
| Total minimum leasepayments |   | $      | 192,894 |
|                        |   |        |

      Obligationsunder capital leases were $0.9 million at December 31, 2002,including $0.2 million short-term in Other Accrued Liabilitiesand $0.7 million long-term in Other Non-current Liabilities inthe consolidated balance sheet.

      In theordinary course of business, Titan will guarantee the obligations(primarily lease commitments) entered into by its consolidatedsubsidiaries.  Specifically, Titan has guaranteed certainfacility leases for SureBeam, aggregating approximately$23.1 million for lease terms through 2020.

      OnAugust 16, 2002, Perimex International Corporation(“Perimex”) filed a complaint against Titan, TitanWireless and a former Titan Wireless employee in San Diego SuperiorCourt in San Diego, California.  The complaint alleges breachof contract, breach of the covenant of good faith and fair dealing,intentional interference with existing contractual relationshipsand prospective business advantage and violation of the Californiaunfair competition law arising from an alleged failure of TitanWireless to enter a joint venture with Perimex to provide wirelesstelecommunication services in Argentina and other related allegedmisconduct.  The complaint seeks damages of$53.65 million and seeks injunctive relief prohibiting Titanand Titan Wireless from transferring any of Titan Wireless’assets.  The court recently denied Perimex’s request fora preliminary injunction, sustained Titan and Titan Wireless’demurrer as to all causes of action in the complaint and grantedPerimex leave to amend the complaint.  The court also orderedPerimex to post a bond for $0.09 million to secure payment ofTitan and Titan Wireless’ costs if Titan prevails, or ifPerimex does not prevail.  Perimex elected not to post thebond and the complaint was voluntarily dismissed without prejudiceby Perimex.  However, Perimex has the right to file a newcomplaint.  The Company believes that Perimex’s claimsare without merit and the Company intends to defend its positionvigorously.

      We areinvolved in legal actions in the normal course of our business,including audits and investigations by various governmentalagencies that result from our work as a defense contractor. We and our subsidiaries are named as defendants in legalproceedings from time to time and we or our subsidiariesmay assert claims from time to time.  In addition, weacquire companies from time to time that have legal actions pendingagainst them at the time of acquisition. The Company has received a grand jury subpoena from theAntitrust Division of the Department of Justice requesting theproduction of documents relating to information technology servicesperformed for the Air Force at Hanscom Air Force Base inMassachusetts.  The Company has been informed that othercompanies who have performed such services have received subpoenasas well.  We have been cooperating and will continue tocooperate fully with the investigation.

      Based uponcurrent information and review, we believe the ultimate liabilityor recovery with respect to pending actions would not materiallyaffect our consolidated financial position or results ofoperations.  However, our evaluation of the likely impact ofthese actions could change in the future and an unfavorableoutcome, depending upon the amount and timing, could have amaterial adverse effect on the Company’s results ofoperations or cash flows in a future period.

**Note 11.  Cumulative ConvertiblePreferred Stock**

      Each share of$1.00 cumulative convertible preferred stock is entitled to1/3vote,annual dividends of $1 per share and is convertible at any timeinto .781 share of the Company's common stock (subject to customaryanti-dilution adjustments).  Common stock of 537,429 shareshas been reserved for this purpose.  As a result of thespin-off of SureBeam by Titan, the conversion rate changed from2⁄3 shares of Titan’s common stock per preferred share tothe current .781 rate.  The $1.00 cumulative convertiblepreferred stock is redeemable at the Company's option at aredemption price of $20 per share, plus cumulative dividends inarrears.  Upon liquidation, the $1.00 cumulative convertiblepreferred stockholders are entitled to receive $20 per share, pluscumulative dividends in arrears, before any distribution is made tothe common stockholders. 

**Note 12.  Common Stock**

      AtDecember 31, 2001, approximately 34,845,100 common shares werereserved for future issuance for conversion of preferred stock andsecurities, employee benefit and stock incentiveplans. 

      OnSeptember 25, 2002, Titan Systems Corporation, Titan’snational security subsidiary, was merged into The TitanCorporation.  As a result of this merger, outstanding stockoptions held by employees of Titan Systems Corporation wereexchanged using an exchange ratio of .8371, for approximately5.2 million stock options in The Titan Corporation.  Theexchange ratio was determined by Titan using a valuation of TitanSystems Corporation, as determined by a globally recognizedvaluation firm, and the average Titan Corporation closing stockprice for the 20 trading days ending on the day before themerger.

      The exchangeof Titan options resulted in a non-cash deferred compensationcharge of approximately $21.3 million in the third quarter of2002, which is reflected in selling, general and administrativeexpense in the accompanying consolidated statements ofoperations.  Approximately $2.0 million was amortized inthe fourth quarter of 2002.  Additional non-cash deferredcompensation of approximately $6.4 million will be amortizedover the next three years as the options vest over time.

      On July 26,2001, the Company sold 8,048,685 shares of its common stock in apublic offering, which included an over-allotment of 1,125,000shares, at a price of $18.00 per share.  The Company receivedapproximate aggregate proceeds from the offering of$137.6 million in July 2001, net of underwriters'commissions.  Transaction expenses related to the offeringwere approximately $1.4 million.  In addition, certainTitan stockholders sold 576,315 shares, including 489,972 sharesfrom the exercise of options, from which Titan received proceeds of$3.0 million.

      OnAugust 17, 1995, the Board of Directors adopted a ShareholderRights Agreement and subsequently distributed one preferred stockpurchase right ("Right") for each outstanding share of theCompany's common stock.  Each Right entitles the registeredholder to purchase from the Company one one-hundredth of a share ofSeries A Junior Participating Preferred Stock, par value $1.00per share (the "Preferred Shares") at a price of $42.00 per oneone-hundredth of a Preferred Share, subject to adjustment. The Rights become exercisable if a person or group acquires, in atransaction not approved by the Company's Board of Directors("Board"), 15% or more of the Company's common stock or announces atender offer for 15% or more of the stock. 

      If a personor group acquires 15% or more of the Company's common stock, eachRight (other than Rights held by the acquiring person or groupwhich become void) will entitle the holder to receive upon exercisea number of shares of the Company's common stock having a marketvalue of twice the Right's exercise price.  If the Company isacquired in a transaction not approved by the Board, each Right maybe exercised for common shares of the acquiring company having amarket value of twice the Right's exercise price.  Titan mayredeem the Rights at $.01 per Right, subject to certainconditions.  The Rights expire on August 17,2005. 

      Optionsauthorized for grant under the 2002 Employee and Director StockOption and Incentive Plan (the “2002 Plan”) and underthe 2000 Employee and Director Stock Option Plan (the “2000Plan”) are 5,500,000 and 4,000,000, respectively. Options authorized for grant under the Stock Option Plans of 1994and 1997 are 2,000,000 and under The 1996 Directors' Stock Optionand Equity Participation Plan (the "1996 Directors' Plan") are125,000.  Grants in 1999 and the beginning of 2000 exceededthe remaining shares available under the stock option plans of 1994and 1997.  The 2000 Plan was approved by the Company'sstockholders on May 30, 2000.  Under all plans, theoptions outstanding have been granted at prices that are equal tothe market price of the Company's stock on the date of grant. Under the intrinsic value method prescribed by APB 25, nocompensation cost is recorded.  However, the grants in 1999that exceeded the shares available at that time were placed underthe 2000 Plan after its approval by the stockholders.  Underthe provisions of Financial Accounting Standards BoardInterpretation No. 44 "Accounting for Certain TransactionsInvolving Stock Compensation" (an Interpretation of APB 25),the plan approval date becomes the grant date for purposes ofcomparison of market value to exercise price.  This resultedin deferred compensation related to these options of$15.6 million in 2000 based on the difference in market valueat May 30, 2000, and the grant price.  This deferredcompensation will be amortized to expense over the four-yearvesting period of these options, including $3.9 million in2002, $3.9 million in 2001, and $4.9 million expensed in2000, respectively.  Unamortized deferred compensation relatedto these options at December 31, 2002 was$2.4 million. 

      OnSeptember 25, 2002, Titan Systems Corporation, Titan’snational security subsidiary, was merged into The TitanCorporation.  As a result of this merger, outstanding stockoptions held by employees of Titan Systems were exchanged using anexchange ratio of .8371, for approximately 5.4 million stockoptions in The Titan Corporation.  The exchange ratio wasdetermined by Titan using a valuation of Titan Systems Corporation,as determined by a globally recognized valuation firm, and theaverage Titan Corporation closing stock price for the20 trading days ending on the day before themerger.

      Under the2002 and 2000 Employee and Director plans, and previous employeeplans, an option's maximum term is ten years.  Under theseplans, vested options expire 90 days after a grantee’stermination of employment or other relationship.  Under the1996 Directors' Plan, options expire 90 days after the optionholder ceases to be a director.  Under the applicable plans,directors may elect to receive stock in lieu of fees, such stock tohave a fair market value equal to the fees.  Employee optionsmay be granted throughout the year; directors' options are grantedannually.  Under the 2000 Plan, vesting for directors andfirst-time option grantees is over four years, with 25% exercisableat the completion of one year, and monthly vestingthereafter.  For option grants prior to the 2000 Plan, vestingis monthly over 4 years.  Options in the Stock OptionPlans of 1994 and 1997 and the 1996 Directors' Plan vest in 25%increments beginning one year after the grant date.  Stockoptions assumed by the Company as a result of the mergers discussedin Note 3 generally retain the terms under which they weregranted.  Stock options assumed by The Titan Corporation as aresult of the merger with Titan Systems Corporation discussed aboveretain the terms of the Titan Systems plans.

      The Companyelected to follow APB No. 25 and related interpretations inaccounting for its stock options.  See Note 2 for acalculation of the Company’s pro forma net income andearnings per share under the fair value method pursuant to SFAS No.123.

      The fairvalue of each option grant is estimated on the date of grant usingthe Black-Scholes option-pricing model using the followingweighted-average assumptions: zero dividend yield and an expectedlife of 5 years in all years; expected volatility of 73% in 2002,76% in 2001, and 72% in 2000; and a risk free interest rate of3.82% in 2002, 4.38% in 2001, and 5.05% in 2000.

      A summary ofthe status of the Company's fixed stock option plans as of December31, 2002, 2001 and 2000, and changes during the years ending onthose dates is presented below:

| ** **                                                                      | ** ** | **2002**         | ** ** | **2001**                             | ** ** | **2000**         |
|---------------------------------------------------------------------------------|------------|------------------|------------|--------------------------------------|------------|------------------|
| ** **                                                                      | ** ** | ****             | ** ** | ****                                 | ** ** | ****             |
| ** **                                                                      | ** ** | **Shares (000)** | ** ** | **Weighted- Average Exercise Price** | ** ** | **Shares (000)** | ** ** | **Weighted- Average Exercise Price** | ** ** | **Shares (000)** | ** ** | **Weighted- Average Exercise Price** |
| ** **                                                                      | ** ** | ****             | ** ** | ****                                 | ** ** | ****             | ** ** | **** | ** ** | **** | ** ** | **** |
| Outstanding at beginningof year                                                 |       |                  | 5,128      |                                      | $          | 14.45            |   |   | 4,972 |   |  | $  11.84 |   |   | 4,813 |   |  | $    4.99 |
| Granted                                                                         |       |             | 952        |                                      |       | 13.32            |   |   | 953 |   |   | 17.16 |   |   | 1,148 |   |   | 26.34 |
| Adjustment for TSCmerger                                                        |            |                  | 5,248      |                                      |            | 4.55             |  |  | — |  |  | — |  |  | — |  |  | — |
| Adjustment for SureBeamspin-off                                                 |            |                  | 1,789      |                                      |            | —          |  |  | — |  |  | — |  |  | — |  |  | — |
| Exchanged inacquisitions                                                        |       |             | 14         |                                      |       | 12.79            |   |   | 1,169 |   |   | 12.68 |   |   | — |   |   | — |
| Exercised                                                                       |       |             | (1,209     | )                                    |       | 6.92             |   |   | (1,735 | ) |   | 7.07 |   |   | (718 | ) |   | 28.11 |
| Canceled                                                                        |       |             | (916       | )                                    |       | 9.07             |   |   | (231 | ) |   | 15.36 |   |   | (271 | ) |   | 11.33 |
|                                                                            |       | ****             |       |                                 |       |             | **** |   |   |   |   | **** |   |   |   |
| Outstanding at end ofyear                                                       |       |             | 11,006     |                                 |       | 8.56             |   |   | 5,128 |   |   | 14.45 |   |   | 4,972 |   |   | 11.42 |
|                                                                            |       |                  |       |                                 |       |             |  |   |   |   |   |  |   |   |   |
| Options exercisable atyear-end                                                  |       |             | 6,957      |                                 |       |                  |   |   | 2,863 |   |   |   |   |   | 2,578 |   |   |   |
| Weighted-average fairvalue of    options granted during the year |       | $                | 8.49       |                                 |       |                  |   | $ | 12.15 |   |   |   |   | $ | 17.51 |   |   |   |

      The followingtable summarizes information about fixed stock options outstandingat December 31, 2002:

|                        |   | **OptionsOutstanding**            |   | **OptionsExercisable**                          |
|-----------------------------|--------|-----------------------------------|--------|-------------------------------------------------|
|                        |   |                                   |   |                                                 |
| **Range ofExercise Prices** |   | **NumberOutstanding at 12/31/02** |   | **Weighted-Average Remaining Contractual Life** |   | **Weighted-Average Exercise Price** |   | **NumberExercisable at 12/31/02** |   | **Weighted-Average Exercise Price** |
|                             |   |                                   |   |                                                 |   |  |   |  |   |  |
| $                           | 1.04   | –                           | $      | 4.18                                            |   | 3,866 |  | 5.60 | years |   | $ | 1.89 |   | 3,572 |   | $ | 1.91 |
|                             | 4.23   | –                           |        | 10.90                                           |   | 3,303 |   | 7.67 | years |   |   | 8.11 |   | 1,629 |   |   | 7.12 |
|                             | 10.94  | –                           |        | 17.29                                           |   | 3,539 |   | 8.09 | years |   |   | 14.69 |   | 1,540 |   |   | 15.26 |
|                             | 19.43  | –                           |        | 29.74                                           |   | 298 |   | 7.19 | years |   |   | 26.58 |   | 216 |   |   | 26.73 |
|                        |   |                                   |   |                                            |   |   |  |   |  |   |   |   |
|                        |   | 11,006                            |   | 7.07                                            | years |   |   | 8.54 |   | 6,957 |   |   | 6.86 |
|                        |   |                                   |   |                                            |   |   |   |   |  |   |   |   |

      As a resultof the SureBeam spin-off, all Titan outstanding stock options undereach of the Company’s stock option plans were adjusted suchthat the number of options was increased by a factor of 1.345 andthe exercise price was decreased by dividing by 1.345.  Thisadjustment maintained the same aggregate intrinsic value of thestock options that existed prior to the spin-off compared to theaggregate intrinsic value of the stock options immediately afterthe transaction and ensured that the ratio of the exercise priceper share to the market value per share was not reduced.  Theadjustment was determined in accordance with the FASB’sFinancial Interpretation No. 44 (FIN 44), “Accountingfor Certain Transactions Involving Stock Compensation,” andresulted in no compensation charge.

      Under the2000 Employee Stock Purchase Plan, the Company is authorized toissue up to 1,500,000 shares of common stock to its full-timeemployees.  This plan replaced the Company's 1995 EmployeeStock Purchase Plan, which was authorized to issue 500,000shares.  All employees of the Company are eligible toparticipate in the plan.  Under the terms of the plan,employees may elect to have between 1 and 15 percent of theirregular earnings, as defined in the plan, withheld to purchase theCompany's common stock.  The purchase price of the stock is 85percent of the lower of its market price at the beginning or at theend of each offering period.  An offering period is sixmonths, beginning January 1 and July 1 of eachyear.  Approximately 21%, 24%, and 27% of eligible employeesparticipated in the Plan and purchased approximately 655,100,476,100, and 559,000 shares of the Company's common stock in 2002,2001, and 2000, respectively.  During 2002, grants ofapproximately 202,800 shares of Titan stock under the 2002 Employeeand Director Stock Option and Incentive Plan were utilized tofulfill the Company’s funding requirement under thisplan.  The weighted-average fair value of the purchase rightsgranted in 2002, 2001, and 2000 was $3.73, $5.09, and $3.33,respectively, which represents the approximate intrinsic value tothe participants related to the benefits of participation in theplan as determined in accordance with SFAS 123. 

      At December31, 2002, the Company also had warrants outstanding for 6,725shares of the Company's common stock at a price of $15.87 pershare.

      During 1999,SureBeam granted options that resulted in deferred compensation toSureBeam calculated as the difference between the fair market valueof the shares of common stock underlying the option at the date ofgrant and the option exercise price.  The deferredcompensation is amortized over the vesting period of the underlyingoptions which is four years.  Accordingly, SureBeam recordeddeferred compensation of approximately $17 which resulted in aninsignificant non-cash compensation amortization expense for theyear ended December 31, 1999.  During 2000, SureBeamrecorded deferred compensation of approximately $3.2 millionwhich resulted in a non-cash compensation amortization expense ofapproximately $0.6 million.  SureBeam also recorded$78.6 million as deferred compensation at the time its initialpublic offering closed.  This amount was recognized as anon-cash charge to SureBeam's earnings of approximately$38.9 million in March 2001 at the time the initialpublic offering closed, with the balance being recognized over theremaining four-year vesting period of the options including anadditional $15.4 million in 2001.  The amortization ofdeferred compensation expense is reflected in the loss fromdiscontinued operations in all years.

      Under itsvariable stock option plan, Cayenta had granted options to certainemployees who agreed to resell shares purchased with those optionsto Cayenta.  Cayenta recorded deferred compensationamortization related to these option grants of approximately $0.6million in the year ended December 31, 2000.  Cayenta alsoissued options to employees not covered by this buyback option atexercise prices that were less than the deemed fair market value ofthe underlying common shares on the date of grant.  Cayentarecorded deferred compensation amortization relating to thesegrants of approximately $0.4 million in 2001 and $0.2 millionin 2002. 

**Note 13.  Benefit Plans**

      The Companyhas various defined contribution benefit plans covering certainemployees.  The Company's contributions to these plans were$14.6 million, $12.6 million, and $10.5 million in2002, 2001 and 2000, respectively.  No discretionarycontributions were made in 2000, 2001, or 2002. 

      The Companyhas a non-qualified executive deferred compensation plan forcertain officers and key employees.  The Company's expense forthis plan, including interest, was $0.9 million,$0.6 million, and $0.7 million in 2002, 2001, and 2000,respectively.  Interest expense for the years endedDecember 31, 2002, 2001, and 2000 includes $0.6 million,$0.5 million and $0.3 million, respectively, related tothe plan.  This obligation has been fully funded and iscarried in a Rabbi trust.  Included in other non-currentliabilities is $10.7 million, $6.2 million, and$5.7 million related to this plan at December 31, 2002, 2001and 2000, respectively.  Cash surrender value of the lifeinsurance related to this plan was $10.9 million and$7.3 million included in Other Assets in the consolidatedbalance sheet at December 31, 2002 and 2001,respectively.  The Company also has performance bonus plansfor certain of its employees.  Related expense amounted toapproximately $14.5 million, $10.5 million, and$9.9 million in 2002, 2001, and 2000, respectively.

      The Companyhas previously provided for postretirement benefit obligations ofoperations discontinued in prior years.  The Company alsoimplemented a post retirement medical benefit plan for seniorexecutives in 2000.  All values related to this plan areimmaterial.  The Company has no other postretirement benefitor pension obligations for any of its continuing operations or forits recently discontinued businesses. 

**Note 14.  Related PartyTransactions**

      Prior to thespin-off of SureBeam Corporation, Titan and SureBeam entered into anumber of agreements.

      *CreditAgreement*.  We have extended a $50 million seniorsecured revolving loan commitment to SureBeam that allows SureBeamto borrow up to $12.5 million in the second quarter of 2002,up to $17 million in the third quarter of 2002 and up to$12.5 million per quarter beginning in the fourth quarter of2002 through the fourth quarter of 2003, subject to the$50 million limitation on borrowing.   The amountavailable for borrowing in the second, third and fourth quarters of2003 is based upon SureBeam’s earnings before interest,taxes, depreciation and amortization (EBITDA) for the prior quarteras a percentage of the EBITDA target in its financial plansubmitted to Titan.  If EBITDA is less than 25% of targetEBITDA, then the amount available is $5 million, provided thatno amounts are available unless SureBeam covenants during thecurrent quarter to limit its total operating expenses (defined asresearch and development and selling, general and administrativeexpenses) to $5 million.  If EBITDA is 25% of target,then the amount available is $6.25 million or 50% of thequarterly maximum and for each percentage of EBITDA above 25% oftarget, the percentage of the quarterly maximum above 50% will beincreased pro rata.  To the extent SureBeam does not fullyborrow the maximum amount during any quarter of 2002, theunutilized amount can be borrowed in the subsequent quarters in2002.  As of the end of 2002, SureBeam had borrowed$25 million on this facility, which is reflected as anon-current asset in Other Assets on the consolidated balancesheet.  On February 3, 2003, SureBeam filed a Form 8-K withthe Securities and Exchange Commission wherein SureBeam stated thatthey do not anticipate borrowing additional amounts on the creditfacility during 2003 or during the remaining period that the creditfacility is outstanding. 

      SureBeam isobligated to make quarterly principal payments on the creditfacility as follows:  13.75% of the outstanding principalbalance as of December 31, 2003 during each quarter in 2004;25% of the outstanding principal balance as of December 31,2004 during each quarter in 2005; and all remaining principal byDecember 31, 2005.  In addition, with some exceptions,SureBeam is obligated to use net proceeds from the sale of assetsand its securities to repay amounts advanced under thisfacility.  Interest is payable monthly beginning inJanuary 2003.  The credit agreement contains affirmativeand negative covenants, including covenants limitingSureBeam’s incurrence of debt, capital expenditures,operating expenses, investments, declaration of dividends and otherrestricted payments, sale of stock of subsidiaries andconsolidations and mergers.  The credit agreement, however,does not contain any financial covenants requiring SureBeam tomaintain specific financial ratios.  The credit agreement issecured by a first priority lien on all of SureBeam’sassets.  Titan is required to collaterally assign our rightsunder this credit agreement and our security as well as the LicenseAgreement to our senior lenders under our senior credit facility(see Note 9).  In March 2003, SureBeam and Titan entered intoan agreement amending the credit agreement.  That amendmentwaived, subject to certain conditions, SureBeam’s obligationto use net proceeds from the sale of its equity securities to makemandatory payments under the credit agreement during the period ofMarch 2003 through September 2004.  In connection therewith,SureBeam agreed to provide for certain change orders and thefurnishing of maintenance services under the Equipment ServicesAgreement.

      *TaxAllocation Agreement and Tax Disaffiliation and Tax SharingAgreement*.  We have agreed to pay SureBeam for any taxbenefits we realized through our use of net operating lossesgenerated by SureBeam while it was a member of our consolidatedgroup for federal income tax purposes.  Payment is due in thefirst year in which SureBeam could have used those losses to reduceits taxes.  SureBeam has not generated taxable income sinceits inception, and we do not know if and when SureBeam willgenerate taxable income and, accordingly, when such paymentmay become due.  We and SureBeam also have allocatedresponsibility for the payment of taxes we each owe and agreed toreimburse the other party for the tax liabilities we assume. We also agree to be responsible for taxes imposed by the IRSconcerning our spin-off of SureBeam under Section 355(e) of theInternal Revenue Code, to the extent such taxes are a direct resultof actions taken by Titan, including the sale of our equitysecurities.  SureBeam has the same responsibility for taxes asa direct result of their actions, including the sale of equitysecurities.  Titan and SureBeam have agreed to share equallyin any tax that is imposed for reasons other than an action by usor SureBeam.

      InSeptember 2001, Titan purchased a world-wide perpetual andexclusive, non-royalty bearing license to use SureBeam'sintellectual property for all applications and fields other thanthe food, animal hide and flower markets, for the followingconsideration: 1) a $50 million senior secured line of credit,2) the exchange of the $75 million debt owed by SureBeam toTitan for additional shares of Class B and Class A common stock ofSureBeam, and 3) a cash payment of $8 million, with$4 million paid at September 30, 2001 and fourinstallments of $1 million each payable on March 31,2002, June 30, 2002, September 30, 2002 andDecember 31, 2002.  All amounts due under this agreementwere paid as of December 31, 2002.  The unamortized balance ofthe license agreement is $7.5 million at December 31, 2002,and is reflected as a non-current asset in Other Assets in theconsolidated balance sheet.  The license is being amortizedover a 15 year life, the average life of the relatedpatents.

      In addition,Titan has guaranteed certain lease obligations of SureBeam, andSureBeam is obligated to reimburse us for any payments we makeunder these guarantees.  Any guarantee payments we make reduceamounts available for future borrowing under the creditagreement.  SureBeam is obligated to pay us a monthly fee of10% of the guaranteed monthly payments.  Some of theguaranteed leases have longer terms than the credit facility. If Titan remains a guarantor at the maturity date for the creditfacility, then SureBeam will enter into a reimbursement agreementwith Titan covering the outstanding guarantees.  The aggregateamount of the lease obligations Titan has guaranteed as of March31, 2003 is approximately $23.1 million.  The leasesextend through periods ending in 2020.

      InDecember 2001, Titan exchanged $2 million of debt owed toTitan by SureBeam for 190,385 Class B common shares ofSureBeam, and exchanged the remaining $73 million of thebalance on February 13, 2002 for 4,441,496 Class Aand 3,225,765 Class B common shares of SureBeam. These shares were part of the distribution to Titan stockholders asa result of the spin-off.

      Titan hasentered into subcontract agreements with SureBeam for them tobuild, design and integrate linear accelerators we are providingfor our customers in our Scan Technologies business to providemedical sterilization electron beam accelerators as well as mailsanitization systems for the United States Postal Service("USPS").  All appropriate intercompany eliminations have beenmade in our consolidated financial statements for the periods thatSureBeam was part of Titan’s consolidated financialstatements.

      Titan hasagreed to purchase all of its requirements for electron beamaccelerators from SureBeam through December 31, 2003 unlessSureBeam does not offer competitive pricing or cannot meet requireddelivery schedules.  The equipment and services are priced atSureBeam’s cost plus a 20% markup unless we agree to analternative pricing arrangement for a purchase order. SureBeam has supplied equipment and services under this contract inconnection with our contract with the U.S. Postal Service and inconnection with our medical sterilizationbusiness.****

      In relationto SureBeam's strategic alliance with Hawaii Pride, Titan hasguaranteed up to the greater of SureBeam's equity interest inHawaii Pride (which is currently zero), or 19.9% of Hawaii Pride's$6.8 million, 15-year loan from its lender, Web Bank.  Asof December 31, 2002, Titan has guaranteed approximately$1.4 million, or 19.9% of the loan balance.  In the eventthat Hawaii Pride defaults on the loan, Titan may be obligated tocover any defaults on the entire outstanding balance of theloan. 

      We havesubleased to SureBeam approximately 70,522 square feet used for itsservice center in Sioux City, Iowa, as well as facilities inDublin, California, Omaha, Nebraska and Saudi Arabia. Generally, SureBeam is paying us sublease payments equal to ourmonthly expense under these leases plus a 10% markup. SureBeam will continue to seek to have itself substituted as thedirect lessee under each master lease so that the sublease can beterminated.

      InMarch 2002, our Board of Directors adopted a stock optionrelinquishment program, the primary purpose of which was to alignthe interests of our directors and senior executives more closelywith our stockholders' interests by allowing directors and seniorexecutives to participate in the appreciation in our equityvalue:

|        | •      | without requiring ourdirectors and executive officers to trade shares of our commonstock obtained through the exercise of options on the open market;and |
|--------------------------------------|--------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |                       |                                                                                                                                                |
|        | •      | without the dilutive andpotentially stock-price depressive effects associated with theexercise and subsequent sale of stock option shares.               |

      The programalso was intended to assist our directors and executive officerswith their individual financial planning.  Under the program,a participant who gave notice of his intent to participate byMarch 29, 2002, could relinquish eligible, in-the-money stockoptions in exchange for a loan, the principal amount of which is150% of the difference between the aggregate exercise price of theoptions and the product of (i) the number of shares issuableupon exercise of the options and (ii) a 20-day trailingaverage of the daily high and low sales price of our common stockprior to relinquishment.  The loans bear interest at a rateequal to the applicable federal rate as published by the InternalRevenue Service for the month in which the loan was made.  Theloans were contingent upon the participants, within 90 days,utilizing a portion of the loan proceeds to purchase a lifeinsurance policy with a death benefit sufficient to repay the loanand accrued interest thereon upon maturity. 

      If,subsequent to the individual's notice to participate and within90 days after receiving the loan proceeds, the individualelected not to participate in the program or no life insurancepolicy was obtained, the loans were repaid with accrued interestthereon and the options were returned to the individual.  Theloans mature on the death of the second to die of the participantand his/her spouse.  Under the program, the followingtransactions have occurred:

|        | •      | Dr. Ray, Chairman ofthe Board and Chief Executive Officer: 222,380 optionsrelinquished, $3,985,725 principal amount of loan, 5.48% interestper annum; |
|--------------------------------------|--------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                 |                                 |                                                                                                                                                  |
|        | •      | Mr. Fink, director:15,000 options relinquished, $336,337.50 principal amount of loan,5.48% interest per annum;                                        |
|                                 |                                 |                                                                                                                                                  |
|        | •      | Mr. Alexander,director: 19,972 options relinquished, $499,999 principal amount ofloan, 5.48% interest per annum.                                      |

      In connectionwith the same program, loans were conditionally made to Mr.Costanza, Senior Vice President, General Counsel and Secretary inthe amount of $614,400, and Mr. Hanisee, director, in the amount of$220,184.  In June 2002, Mr. Costanza and Mr. Haniseerepaid the outstanding balance of their loans in full.  Titanhas recorded interest income of $0.2 million related to the accruedinterest on the outstanding loans due from the directors notedabove. 

      Since theeffective date of the Sarbanes-Oxley Act in July 2002, whichprecludes such loans to Company officers and directors, the StockOptions Relinquishment Plan is no longer available to Companyexecutives.

      Inconjunction with Titan’s plan to exit its internationaltelecommunications business, Titan entered into an agreement withGeolutions, Inc. (“Geolutions”) to subcontract TitanWireless’s outstanding contractual and warrantyobligations.  Geolutions is a newly formed company, founded bya former executive of Titan Wireless and former officer ofTitan.  Titan has a fixed price contract of $1.9 million,plus incidental expenses of up to $0.6 million and other thirdparty costs of an aggregate maximum of $1.4 million, which ispayable through mid 2004, the period over which Titan’swarranty obligations exist on its existing customercontracts.  The contract is cancelable by Titan under certaincircumstances of non-performance by Geolutions.  Inconjunction with Titan’s agreement with Geolutions, Titan hasassigned its existing warranty obligations in its internationaltelecommunications business with its existing customers toGeolutions.

**Note 15.  UnauditedQuarterly Financial Data (in thousands, except per sharedata)**

| **2002**                                                                                                                                                                                                                                             | ****   | **First Quarter** | ****    | **Second Quarter** | ****   | **Third Quarter** | **** | **Fourth Quarter** | ****     | **Total Year** | ****   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------------------|--------|-------------------|------|--------------------|----------|----------------|--------|
| ****                                                                                                                                                                                                                                                 |        | ****              |         | ****               |        | ****              |      | ****               |          | ****           |        |
| Revenues                                                                                                                                                                                                                                             |   | $                 | 314,348 |                    | $      | 345,631           |      | $                  | 352,819  |                | $      | 379,362 |  | $ | 1,392,160 |  |
| Gross profit                                                                                                                                                                                                                                         |        |                   | 60,923  |                    |        | 68,872            |      |                    | 65,842   |                |        | 67,462 |  |  | 263,099 |  |
| Income (loss) fromcontinuing    operations before extraordinary loss    and cumulative effect of change in    accounting principle                                                                      |   |              | 7,913   |                    |        | 10,162            |      |                    | (33,516  | )              |        | 7,605 |  |  | (7,836 | ) |
| Net loss                                                                                                                                                                                                                                             |        |                   | (33,624 | )                  |        | (11,767           | )    |                    | (225,298 | )              |        | (772 | ) |  | (271,461 | ) |
|                                                                                                                                                                                                                                       |   |              |         |                    |        |                   |      |                    |          |                |   |  |  |   |  |  |
| Basic earnings pershare:                                                                                                                                                                                                                             |   |              |         |                    |   |                   |      |               |          |                |   |  |  |   |  |  |
|    Income(loss) from continuing       operations beforeextraordinary loss       and cumulative effect ofchange in       accountingprinciple |   | $                 | 0.11    |                    | $      | 0.13              |      | $                  | (0.43    | )              | $      | 0.10 |  | $ | (0.11 | ) |
|    Netloss                                                                                                                                                                                                                            |   |              | (0.48   | )                  |   | (0.15             | )    |               | (2.89    | )              |   | (0.01 | ) |   | (3.58 | ) |
|                                                                                                                                                                                                                                       |   |              |         |                    |   |                   |      |               |          |                |   |  |  |   |  |  |
| Diluted earnings pershare:                                                                                                                                                                                                                           |   |              |         |                    |   |                   |      |               |          |                |   |  |  |   |  |  |
|    Income(loss) from continuing       operations beforeextraordinary loss       and cumulative effect ofchange in       accountingprinciple |   |              | 0.11    |                    |        | 0.12              |      |                    | (0.43    | )              |        | 0.09 |  |  | (0.11 | ) |
|    Netloss                                                                                                                                                                                                                            |   |              | (0.47   | )                  |   | (0.16             | )    |               | (2.89    | )              |   | (0.01 | ) |   | (3.58 | ) |

| **2001**                                                                                      | ****   | **First Quarter** | ****    | **Second Quarter** | ****   | **Third Quarter** | **** | **Fourth   Quarter** | ****    | **Total Year** | ****   |
|-----------------------------------------------------------------------------------------------|--------|-------------------|---------|--------------------|--------|-------------------|------|---------------------------|---------|----------------|--------|
| ****                                                                                          |        | ****              |         | ****               |        | ****              |      | ****                      |         | ****           |        |
| Revenues                                                                                      |   | $                 | 215,027 |                    | $      | 229,333           |      | $                         | 237,158 |                | $      | 292,979 |  | $ | 974,497 |  |
| Gross profit                                                                                  |   |              | 47,763  |                    |        | 48,873            |      |                           | 52,908  |                |        | 69,838 |  |  | 219,382 |  |
| Income (loss) fromcontinuing    operations                                     |   |              | (13,478 | )                  |        | 1,192             |      |                           | 2,937   |                |        | 5,892 |  |  | (3,457 | ) |
|                                                                                |   |              |         |                    |   |                   |      |                      |         |                |   |  |  |   |  |  |
| Net income(loss)                                                                              |   |              | (59,870 | )                  |   | (7,805            | )    |                      | (38,791 | )              |   | 7,852 |  |   | (98,614 | ) |
| Basic earnings pershare:                                                                      |   |              |         |                    |   |                   |      |                      |         |                |   |  |  |   |  |  |
|    Income(loss) from continuing       operations |   | $                 | (0.31   | )                  | $      | 0.02              |      | $                         | 0.04    |                | $      | 0.09 |  | $ | (0.13 | ) |
|    Netincome (loss)                                                            |   |              | (1.28   | )                  |   | (0.16             | )    |                      | (0.63   | )              |   | 0.12 |  |   | (1.76 | ) |
|                                                                                |   |              |         |                    |   |                   |      |                      |         |                |   |  |  |   |  |  |
| Diluted earnings pershare:                                                                    |   |              |         |                    |   |                   |      |                      |         |                |   |  |  |   |  |  |
|    Income(loss) from continuing       operations |   |              | (0.31   | )                  |        | 0.02              |      |                           | 0.04    |                |        | 0.09 |  |  | (0.13 | ) |
|    Netincome (loss)                                                            |   |              | (1.28   | )                  |   | (0.16             | )    |                      | (0.61   | )              |   | 0.12 |  |   | (1.76 | ) |

      The abovefinancial information for each quarter reflects all normal andrecurring adjustments.

      Income fromcontinuing operations and net loss for 2002 include exit andrestructuring charges and other of $53.3 million.  Netloss for 2002 includes a loss from discontinued operations of$218.1 million.  The loss from continuing operationsincludes all costs previously related to the Cayenta headquartersand network operations center, which supported sales, marketing,administrative and operational functions of all previouslyintegrated Cayenta operations.  The headquarters and networkoperations center were eliminated on March 1, 2002 when certain ofthe components of Cayenta were discontinued.  Certain of thesecosts were previously included in the loss from discontinuedoperation for the interim period for the first quarter of 2002,as  filed in the  Company’s  Form 10-Qfor the quarter ended March 31, 2002, filed with the Commission onMay 15, 2002.  These headquarters and network operations costsof approximately $17.1 million, which includes an impairmentcharge of $14.9 million for certain assets of the networkoperations center and corporate headquarters of Cayenta, have nowbeen reclassified to continuing operations in the presentationabove.

      Loss fromcontinuing operations and net loss for 2001 include acquisition andintegration related charges and other of $27.8 million. Net loss for 2001 includes a loss from discontinued operations of$95.2 million.****

**PART****III**

**Item 9.  Changes In andDisagreements with Accountants on Accounting and FinancialDisclosure**

      Theinformation required by Item 9 with respect to changes inaccountants is incorporated here in by this reference to suchinformation filed under Form 8-K dated April 15, 2002.  TheCompany changed its public accountants from Arthur Andersen LLP toKPMG LLP for the fiscal year 2002.

**Item 10.  Directors and ExecutiveOfficers of the Company**

      Theinformation required by Item 10 with respect to the directors andthe executive officers of the Company is incorporated herein bythis reference to such information under "Election of Directors -Information Concerning Nominees," "Management - Executive Officers"and "Section 16(A) Beneficial Ownership Reporting Compliance" inthe Company's definitive proxy statement for the 2003 AnnualMeeting of Stockholders.

**Item 11.  ExecutiveCompensation**

      Theinformation required by Item 11 is incorporated herein by thisreference to such information under "Report of the Compensation,Stock Option and Pension Committee of the Board of Directors onExecutive Compensation" and "Executive Compensation and OtherInformation" in the Company's definitive proxy statement for the2003 Annual Meeting of Stockholders.

**Item 12.  Security Ownership ofCertain Beneficial Owners and Management**

      Theinformation required by Item 12 is incorporated herein by thisreference to such information under "Ownership of the Common Stockof the Titan Corporation" in the Company's definitive proxystatement for the 2003 Annual Meeting of Stockholders.

**Item 13.  Certain Relationshipsand Related Transactions**

      Theinformation required by Item 13 is incorporated herein by thisreference to such information under "Agreements with ExecutiveOfficers and Directors" in the Company's definitive proxy statementfor the 2003 Annual Meeting of Stockholders.

**Item 14.  Controls andProcedures**

      Evaluation ofDisclosure Controls and Procedures.

      Under thesupervision and with the participation of our executive management,including our Chief Executive Officer and Chief Financial Officer,we performed an evaluation of the effectiveness and design of ourdisclosure controls and procedures within 90 days before the filingdate of this annual report.  Based on that evaluation, ourexecutive management, including our Chief Executive Officer and ourChief Financial Officer, concluded that our disclosure controls andprocedures are effective.

      Changes ininternal controls.

      There havebeen no significant changes in our internal controls or proceduresor other factors that could significantly affect our internalcontrols.

**PARTIV**

**Item 15.  Exhibits, Financial StatementSchedules, and Reports on Form 8-K**
| (a)      | 1 and 2.  FinancialStatements being filed as part of this report are listed in theindex in Item 8, on page ____.                                 |
|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |                                                                                                                                                  |
| (b)      | During the three monthsended December 31, 2002, and through the date of this filing, therewere no current reports on Form 8-K filed by theRegistrant. |

**ExhibitIndex**
| **Exhibit No.**    | **   ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | **   ** | **Page No.** |
|--------------------|------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------|--------------|
| ****               | ** **             | ****                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | ** **             | ****         |
| 3.1                |                   | Registrant's Certificateof Amendment of Restated Certificate of Incorporation dated as ofOctober 21, 1998, which was Exhibit No. 3.1 toRegistrant's Quarterly Report on Form 10-Q datedNovember 16, 1998,is incorporated herein by thisreference.  Registrant's Restated Certificate of Incorporationdated as of November 6, 1986, which was Exhibit No. 3.1to Registrant's 1987 Annual Report on Form 10-K isincorporated herein by this reference.  Registrant'sCertificate of Amendment of Restated Certificate of Incorporationdated as of June 30, 1987, which was Exhibit 3.2 toRegistrant's 1987 Annual Report on Form 10-K is incorporatedherein by this reference. |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 3.2                |                   | Registrant's Bylaws, whichwere Exhibit 3.3 to Registrant's 1999 Annual Report onForm 10-K, are incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 3.3                |                   | Amendments to Bylaws ofRegistrant, dated March 22, 2000 and August 16, 2000, which wereExhibit 3.4 to Registrant’s 2001 Annual Report on Form 10-K,is incorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 4.1                |                   | Rights Amendment, dated asof August 21, 1995, between The Titan Corporation and AmericanStock Transfer and Trust Company, which was Exhibit 1 toRegistrant's Form 8-A dated September 5, 1995, isincorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.1               |                   | Stock Option Plan of 1990,which was filed in the 1990 definitive proxy statement and wasExhibit 10.11 to Registrant's 1989 Annual Report on 10-K, isincorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.2               |                   | Stock Option Plan of 1994,which was filed in the 1994 definitive proxy statement and wasExhibit 10.17 to Registrant's 1993 Annual Report onForm 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.3               |                   | Amendment to Stock OptionPlan Of 1994, which was Exhibit 10.3 to Registrant's 1999Annual Report on Form 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.4               |                   | Stock Option Plan of 1997,which was filed in the Registrant's 1997 Definitive Proxy Statementas Appendix A, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.5               |                   | Amendment to Stock OptionPlan of 1997, which was Exhibit 10.5 to Registrant's 1999Annual Report on Form 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.6               |                   | 1992 Directors' StockOption Plan which was filed in the 1993 definitive proxy statementand was Exhibit 10.14 to Registrant's 1992 Annual Report onForm 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.7               |                   | 1996 Directors' StockOption and Equity Participation Plan, which was filed in the 1996definitive proxy statement and was Exhibit 10.7 toRegistrant's 1995 Annual Report on Form 10-K, is incorporatedherein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.8               |                   | 1995 Employee StockPurchase Plan, which was Exhibit 4 to Registrant'sForm S-8 dated December 18, 1995, is incorporated hereinby this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.9               |                   | Lease Agreement dated asof July 9, 1991, by and between Torrey Pines LimitedPartnership, a California limited partnership, as landlord, andRegistrant, as tenant, which was Exhibit 10.1 to Registrant'sForm 8-K dated July 11, 1991, is incorporated herein bythis reference.                                                                                                                                                                                                                                                                                                                                                                                                                                      |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.10              |                   | Executive Severance Planentered into by the Registrant with Ronald B. Gorda, which wasExhibit 6(a)(10) to Registrant's Quarterly Report onForm 10-Q dated November 13, 1995, is incorporated hereinby this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.11              |                   | Executive Severance Planentered into by the Company with Gene W. Ray, Eric M. DeMarco andNicholas J. Costanza, which was Exhibit 10.15 to Registrant's1999 Annual Report on Form 10-K, is incorporated herein bythis reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.12              |                   | Loan and SecurityAgreement, dated December 29, 1995, by and between Registrantand Capital Associates International, Inc., which wasExhibit 10.17 to Registrant's 1995 Annual Report onForm 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.13              |                   | Rider datedAugust 13, 1996, to Loan and Security Agreement datedDecember 29, 1995 by and between Registrant and CapitalAssociates International, Inc. which was Exhibit 10.28 toRegistrant's 1996 Annual Report on Form 10-K, is incorporatedherein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.14              |                   | Loan Facility Agreementdated as of December 10, 1999 among Titan Africa, Inc.,Office des Postes et Telecommunications of the State of Benin,Banque Belgolaise, Eco Bank Benin, Banque Ouest Africain pour leDeveloppement, Banque Internationale du Benin, Continental BankBenin and Bank of Africa Benin, which was Exhibit 10.32 toRegistrant's 1999 Annual Report on Form 10-K, is incorporatedherein by this reference.                                                                                                                                                                                                                                                                                                   |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.15              |                   | Agreement and Plan ofReorganization dated as of January 28, 2000 among The TitanCorporation, MT Acquisition Corp., William C. Lindsey, Inc. (DBALinCom Corporation) and the Principal Shareholder of William C.Lindsey, Inc., which was Exhibit 10.34 to Registrant's 1999 AnnualReport on Form 10-K, is incorporated herein by thisreference.  We have not filed Schedules and similarattachments to this Exhibit.  Upon request, the Company willfurnish supplementally to the Commission a copy of any omittedschedule.                                                                                                                                                                                               |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.16              |                   | 53/4% Convertible Preferred SecuritiesRemarketable Term Income Deferrable Equity Securities (High Tides)dated as of February 3, 2000, which was Exhibit 10.35 toRegistrant's 1999 Annual Report on Form 10-K, is incorporatedherein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.17              |                   | Agreement and Plan ofMerger dated as of March 10, 2000 among The Titan Corporation,Titan Acquisition Corporation and Pulse Engineering, Inc.,which was Exhibit 10.37 to Registrant's 1999 Annual Report onForm 10-K, is incorporated herein by this reference.  Wehave not filed Schedules and similar attachments to thisExhibit.  Upon request, the Registrant will furnishsupplementally to the Commission a copy of any omittedschedule.                                                                                                                                                                                                                                                              |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.18              |                   | Agreement and Plan ofMerger, dated as of March 24, 2000, by and among The TitanCorporation, V T Acquisition Corp. and AverStar, Inc., whichwas Exhibit 2.1 to Registrant's Form S-4 (No. 333-35188)dated April 20, 2000, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                              |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.19              |                   | Stock Purchase Agreement,dated as of May 31, 2000, by and among The Titan Corporation,SenCom Corp. and The Stockholders of SenCom Corp, which was Exhibit10.39 to the Registrant's 2000 Annual Report on Form 10-K, isincorporated herein by this reference.  We have not filedSchedules and similar attachments to this Exhibit.  Uponrequest, the Registrant will furnish supplementally to theCommission a copy of any omitted schedule.                                                                                                                                                                                                                                                                              |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.20              |                   | Stock Purchase Agreement,dated June 28, 2000, by and among Titan Wireless, Inc.,Titan Wireless Afripa Holding, Inc., Ivoire Telecom S.A.Holding and M. Louis N'Ki Diakite, which was Exhibit 10.42 to theRegistrant's 2000 Annual Report on Form 10-K, is incorporatedherein by this reference.  We have not filed Schedules andsimilar attachments to this Exhibit.  Upon request, theRegistrant will furnish supplementally to the Commission a copy ofany omitted schedule.                                                                                                                                                                                                                                 |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.21              |                   | The Titan Corporation 2000Employee Stock Purchase Plan, which was Exhibit 4.1 toRegistrant's Form S-8 dated July 11, 2000, isincorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.22              |                   | The Titan Corporation 2000Employee and Director Stock Option and Incentive Plan, which wasExhibit 4.2 to Registrant's Form S-8 (No. 333-41140)dated July 11, 2000, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.23              |                   | Asset Purchase Agreementdated March 23, 2001 by and among Maxwell Technologies SystemsDivision, Inc., Maxwell Technologies, Inc., and Titan SystemsCorporation, which was Exhibit 10.1 to the Registrant's QuarterlyReport on Form 10-Q dated May 15, 2001, is incorporated herein bythis reference.  We did not file Schedules and similarattachments to this Exhibit.  Upon request, the Registrantwill furnish supplementally to the Commission a copy of any omittedschedule.                                                                                                                                                                                                                                             |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.24              |                   | Agreement and Plan ofReorganization, dated September 19, 2001, among The TitanCorporation, T T Acquisition Corp., and BTG, Inc., which was filedas Exhibit 2.1 to the Registrant's Current Report on Form 8-K datedSeptember 19, 2001, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.25              |                   | Agreement and Plan ofMerger and Reorganization, dated as of June 24, 2001, by and amongThe Titan Corporation, Gem Acquisition Corp. and Datron SystemsIncorporated, which was Exhibit 2.1 to Registrant's Form S-4 datedJuly 9, 2001 (No. 333-64768) is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                           |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.26              |                   | Agreement and Plan ofMerger, dated January 6, 2002, among The Titan Corporation, T T IIIAcquisition Corp., and GlobalNet, Inc., which was Exhibit 2.1 tothe Registrant's Current Report on Form 8-K dated January 6, 2002,is incorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.27              |                   | Agreement and Plan ofMerger and Reorganization, dated as of January 21, 2002, by andamong The Titan Corporation, Thunderbird Acquisition Corp. andJaycor, Inc., which was Exhibit 2.1 to the Registrant's CurrentReport on Form 8-K dated January 21, 2002, is incorporated hereinby this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.28              |                   | Exchange Agreement datedDecember 31, 2001, between SureBeam Corporation and The TitanCorporation, which was Exhibit 10.2 to the Registrant's CurrentReport on Form 8-K dated March 22, 2002, is incorporated herein bythis reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.29              |                   | Exchange Agreement datedFebruary 11, 2002, between SureBeam Corporation and The TitanCorporation, which was Exhibit 10.3 to the Registrant's CurrentReport on Form 8-K dated March 22, 2002, is incorporated herein bythis reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.30              |                   | License Agreement datedOctober 17, 2001, between SB OperatingCo, Inc. and The TitanCorporation, which was Exhibit 10.4 to the Registrant's CurrentReport on Form 8-K dated March 22, 2002, is incorporated herein bythis reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.31              |                   | The Titan CorporationDeferred Compensation Plan, Master Plan Document effectiveJanuary 1, 2002, which was Exhibit 10.54 to Registrant’s2001 Annual Report on Form 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.32              |                   | Contract for Purchase andSale of Equipment and services made and entered into as ofFebruary 11, 2002, by and between The Titan Corporation andSureBeam Corporation, which was Exhibit 10.55 to Registrant’s2001 Annual Report on Form 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.33              |                   | Letter Agreement datedMarch 29, 2002, between The Titan Corporation and SureBeamCorporation, which was Exhibit 10.56 to Registrant’s 2001Annual Report on Form 10-K, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.34              |                   | Senior Secured CreditAgreement dated as of May 23, 2002, among The Titan Corporation, asthe Borrower, various financial institutions from time to time, asthe Lenders, Wachovia Bank, National Association as AdministrativeAgent, The Bank of Nova Scotia and Comerica Bank – Californiaas Syndication Agents, and Branch Banking and Trust Company andToronto Dominion (New York), Inc., as Documentation Agents, whichwas Exhibit 10.1 to Registrant's Current Report on Form 8-K datedMay 23, 2002, and filed June 21, 2002 is incorporated herein bythis reference.                                                                                                                                                          |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.35              |                   | Insurance Certificates,which are Annex I to Exhibit D to the Senior Secured CreditAgreement dated as of May 23, 2002, among The TitanCorporation, as the Borrower, various financial institutions fromtime to time, as the Lenders, Wachovia Bank, National Associationas Administrative Agent, the Bank of Nova Scotia and ComericaBank—California as Syndication Agents, and Branch Banking andTrust Company and Toronto Dominion (New York), Inc. asDocumentation Agents, which were Exhibit 10.1 to Registrant’sCurrent Report on Form 8-K/A dated as of May 23, 2002 and filedAugust 9, 2002, are incorporated herein by thisreference.                                                                 |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 10.36              |                   | The Titan Corporation 2002Employee Stock Purchase Plan, which was Exhibit 99.2 toRegistrant’s Form S-8 (No. 333-103751) dated March 11, 2003,is incorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.37              |                   | The Titan Defense SystemsCorporation 1997 Stock Purchase Plan, which was Exhibit 99.3 toRegistrant’s Form S-8 (No. 333-103751) dated March 11, 2003,is incorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.38              |                   | The Titan Technologies andInformation Systems Corporation 1998 Stock Option Plan, which wasExhibit 99.4 to Registrant’s Form S-8 (No. 333-103751) datedMarch 11, 2003, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.39              |                   | Senior Secured CreditAgreement between theRegistrant and SureBeamCorporation and Exhibits thereto dated as of August 2, 2002,which was filed as Exhibits 10.1 through 10.9 withRegistrant’s Form 8-K dated August 2, 2002 and filed August14, 2002, is incorporated herein by this reference.                                                                                                                                                                                                                                                                                                                                                                                                                                     |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.40              |                   | The Titan Corporation 2002Employee and Director Stock Option and Incentive Plan, which wasExhibit 99.1 to Registrant’s Form S-8 (No. 333-103751) datedMarch 11, 2003, is incorporated herein by thisreference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                   | *            |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.41              |                   | Confidential GeneralRelease and Employment Separation Agreement effective as ofFebruary 20, 2003 between the Registrant and Eric M.DeMarco.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                   |              |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |    |
| 10.42              |                   | Amendment to SeniorSecured Credit Agreement and Contract For Purchase and Sale ofEquipment and Services dated as of March 28, 2003 between theRegistrant and SureBeam Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                   |              |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 21                 |                   | Subsidiaries of Registrantas of March 24, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                   |              |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 23                 |                   | Consent of KPMG LLP,Independent Auditors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                   |         |
|     |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                   |    |
| 99.1               |                   | Section 906 Certification,Chief Executive Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                   |         |
|               |                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                        |              |
| 99.2               |                   | Section 906 Certification,Chief Financial Officer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                   |         |

----

*          Previouslyfiled as indicated and incorporated herein by reference fromfilings previously made by the Company.

**SIGNATURES**

    Pursuant to therequirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto dulyauthorized.

|                                                           |        | THE TITANCORPORATION |
|----------------------------------------------------------------|--------|----------------------|
| March 28, 2003                                                 |   | By:                  | /s/ GENE W. RAY |
|                                                                |
| Gene W.Ray,*Chief Executive Officer and Chairman of the Board* |

    Pursuant to therequirements of the Securities Exchange Act of 1934, this reporthas been signed below by the following persons on behalf of theRegistrant and in the capacities and on the datesindicated.
| **Signature**                     | ** ** | **Title**                                                                      | ** ** | **Date**      |
|-----------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------|
| ****                              | ** ** | ****                                                                           | ** ** | ****          |
|                              |            |                                                                                |            |               |
| /s/ GENE W. RAY              |       | Chief Executive Officerand Chairman of the Board                               |       | March 28,2003 |
| ****                              |
| Gene W.Ray                        |
|                              |            |                                                                                |            |               |
| /s/ MARK W. SOPP             |       | Senior Vice Presidentand Chief Financial Officer (Principal Financial Officer) |       | March 28,2003 |
| ****                              |
| Mark W.Sopp                       |
|                              |            |                                                                                |            |               |
| /s/ DEANNA J. HOM            |       | Vice President, CorporateController (Principal Accounting Officer)             |       | March 28,2003 |
| ****                              |
| Deanna J.Hom                      |
|                              |            |                                                                                |            |               |
| /s/ MICHAEL B. ALEXANDER     |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Michael B.Alexander               |
|                              |            |                                                                                |            |               |
| /s/ EDWARD H. BERSOFF, Ph.D. |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Edward H.Bersoff, Ph.D.           |
|                              |            |                                                                                |            |               |
| /s/ JOSEPH F. CALIGIURI      |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Joseph F.Caligiuri                |
|                              |            |                                                                                |            |               |
| /s/ PETER A. COHEN           |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Peter A.Cohen                     |
|                              |            |                                                                                |            |               |
| /s/ DANIEL J. FINK           |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Daniel J.Fink                     |
|                              |            |                                                                                |            |               |
| /s/ SUSANGOLDING                  |       | Director                                                                       |            | March 28,2003 |
| ****                              |
| SusanGolding                      |
|                              |            |                                                                                |            |               |
| /s/ ROBERT M. HANISEE        |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Robert M.Hanisee                  |
|                              |            |                                                                                |            |               |
| /s/ ROBERT E. LA BLANC       |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Robert E.La Blanc                 |
|                              |            |                                                                                |            |               |
| /s/ JAMES ROTH               |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| JamesRoth                         |
|                              |            |                                                                                |            |               |
| /s/ JOSEPH R. WRIGHT, JR.    |       | Director                                                                       |       | March 28,2003 |
| ****                              |
| Joseph R.Wright, Jr.              |

CERTIFICATIONS

I, Gene W.Ray, certify that:

1. I havereviewed this annual report on Form 10-K of The TitanCorporation;

2. Basedon my knowledge, this annual report does not contain any untruestatement of a material fact or omit to state a material factnecessary to make the statements made, in light of thecircumstances under which such statements were made, not misleadingwith respect to the period covered by this annualreport;

3. Basedon my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in allmaterial respects the financial condition, results of operationsand cash flows of The Titan Corporation as of, and for, the periodspresented in this annual report;

4. TitanCorporation’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

a)designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annualreport is being prepared;

b)evaluated the effectiveness of the registrant's disclosure controlsand procedures as of a date within 90 days prior to the filing dateof this annual report (the "Evaluation Date"); and

c)presented in this annual report our conclusions about theeffectiveness of the disclosure controls and procedures based onour evaluation as of the Evaluation Date;

5. TitanCorporation’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditorsand the audit committee of registrant's board of directors (orpersons performing the equivalent function):

a) allsignificant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant's ability torecord, process, summarize and report financial data and haveidentified for the registrant's auditors any material weaknesses ininternal controls; and

b) anyfraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant's internalcontrols; and

6. TitanCorporation's other certifying officers and I have indicated inthis annual report whether or not there were significant changes ininternal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recentevaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

Date:  March 28, 2003

| /s/ GENE W. RAY                    |                                                                                                                                                                                                                                                                                                                                         |                         |
|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
|                                    |                                                                                                                       |
| Gene W.Ray Chief Executive Officer |                                                                |

CERTIFICATIONS

I, Mark W.Sopp, certify that:

1. I havereviewed this annual report on Form 10-K of The TitanCorporation;

2. Basedon my knowledge, this annual report does not contain any untruestatement of a material fact or omit to state a material factnecessary to make the statements made, in light of thecircumstances under which such statements were made, not misleadingwith respect to the period covered by this annualreport;

3. Basedon my knowledge, the financial statements, and other financialinformation included in this annual report, fairly present in allmaterial respects the financial condition, results of operationsand cash flows of The Titan Corporation as of, and for, the periodspresented in this annual report;

4. TitanCorporation’s other certifying officers and I are responsiblefor establishing and maintaining disclosure controls and procedures(as defined in Exchange Act Rules 13a-14 and 15d-14) for theregistrant and we have:

a)designed such disclosure controls and procedures to ensure thatmaterial information relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annualreport is being prepared;

b)evaluated the effectiveness of the registrant's disclosure controlsand procedures as of a date within 90 days prior to the filing dateof this annual report (the "Evaluation Date"); and

c)presented in this annual report our conclusions about theeffectiveness of the disclosure controls and procedures based onour evaluation as of the Evaluation Date;

5. TitanCorporation’s other certifying officers and I have disclosed,based on our most recent evaluation, to the registrant's auditorsand the audit committee of registrant's board of directors (orpersons performing the equivalent function):

a) allsignificant deficiencies in the design or operation of internalcontrols which could adversely affect the registrant's ability torecord, process, summarize and report financial data and haveidentified for the registrant's auditors any material weaknesses ininternal controls; and

b) anyfraud, whether or not material, that involves management or otheremployees who have a significant role in the registrant's internalcontrols; and

6. TitanCorporation's other certifying officers and I have indicated inthis annual report whether or not there were significant changes ininternal controls or in other factors that could significantlyaffect internal controls subsequent to the date of our most recentevaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

Date:  March 28, 2003

| /s/ MARK W. SOPP                     |                                                                                                                                                                                                                                                                                                                                         |                         |
|--------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------|
|                                      |                                                                                                                       |
| Mark W.Sopp**Chief Financial Officer |                                                                |

**THE TITAN CORPORATION**

**SCHEDULE II—VALUATION AND QUALIFYINGACCOUNTS**

**(AsRestated—see Note 1 of the Notes to ConsolidatedFinancial Statements)**

**For theyears ended December 31, 2002, 2001, and 2000**

**(inthousands of dollars)**
| ** **                                              | ** ** | **Balanceat beginning of year****** | ** ** | **Additions (charges to expense)(a)****** | ** ** | **Chargedto Other Accounts** | ** ** | **Deductions****** | ** ** | **Balanceat end of year****** |        |
|---------------------------------------------------------|------------|-------------------------------------|------------|-------------------------------------------|------------|------------------------------|------------|--------------------|------------|-------------------------------|--------|
| ** **                                              | ** ** | ****                                | ** ** | ****                                      | ** ** | ****                         | ** ** | ****               | ** ** | ****                          |        |
| 2002:                                                   |       |                                |       |                                      |       |                         |       |               |       |                          |   |   |   |   |   |  |
| Accrued exitcharges                                     |            | $                                   | —    |                                           | $          | 53,317                       |            | $                  | —    |                               | $      | 15,556 |  | $ | 37,761 |  |
| Accrued merger andintegration costs                     |       |                                | 1,298      |                                           |            | —                      |            |                    | —    |                               |        | 1,298 |  |  | — |  |
| Allowance for doubtfulaccounts                          |       |                                | 7,750      |                                           |            | 1,582                        |            |                    | —    |                               |        | 2,554 |  |  | 6,778 |  |
| Accrual for estimatedlosses for discontinued operations |       |                                | 17,004     |                                           |            | 11,014                       |            |                    | —    |                               |        | 27,752 |  |  | 266 |  |
| 2001:                                                   |       |                                |       |                                      |       |                         |       |               |       |                          |   |   |   |   |   |  |
| Accrued merger andintegration costs                     |       | $                                   | 3,846      |                                      | $          | 27,847                       |       | $                  | —    |                          | $      | 30,395 |   | $ | 1,298 |  |
| Allowance for doubtfulaccounts                          |       |                                | 3,719      |                                      |       | 7,531                        |       |               | —    |                          |   | 3,500 |   |   | 7,750 |  |
| Accrual for estimatedlosses for discontinued operations |       |                                     | —    |                                      |       | 35,413                       |       |               | —    |                          |   | 18,409 |   |   | 17,004 |  |
| 2000:                                                   |       |                                |       |                                      |       |                         |       |               |       |                          |   |   |   |   |   |  |
| Accrued merger andintegration costs                     |       | $                                   | 5,880      |                                      | $          | 38,820                       |       | $                  | 10,000     | (b)                           | $      | 30,854 |   | $ | 3,846 |  |
| Allowance for doubtfulaccounts                          |       |                                | 3,372      |                                      |       | 871                          |       |               | —    |                          |   | 524 |   |   | 3,719 |  |

(a)         Includes $117, $4,334, and $(326) added throughacquisitions in 2002, 2001 and 2000, respectively.

(b)         Valuationallowance for unbilled receivables not in accrued merger andintegration costs.

      Following isa description of all exit charges and acquisition and integrationcharges:

*Fiscal 2002Charges*

      Included inthe year ended December 31, 2002 is $53.3 million ofrestructuring costs related to the merger of Titan Systems intoTitan on September 25, 2002 and exit charges related to theshutdown of Cayenta’s headquarters office. Approximately $11.7 million of these exit charges are relatedto the shutdown of the Cayenta headquarters office and networkoperations center, which includes employee termination costs andother liabilities of approximately $4.5 million, leasecommitment costs of approximately $4.8 million, and non-cashasset impairment charges of approximately $2.4 millionrelating primarily to the unamortized leasehold improvements andother fixed assets at the Cayenta headquarters.  The remaininglease commitment costs are expected to be paid through futureperiods ending in January 2007.  Included in the employeetermination costs are 33 personnel reductions. 

      Approximately$39.9 million of the restructuring charges were related to themerger of Titan Systems into Titan and other associatedreorganization and consolidation costs.  The costs includedapproximately $32.2 million for the consolidation of variousTitan Systems facilities into centralized locations in Virginia andCalifornia.  This charge reflects the estimated losses, net ofestimated sublease income, on future lease commitments offacilities with terms extending through year 2009.  TheCompany intends to actively market the facilities for subleaseopportunities.  However, the available space is in marketsadversely affected by the economy and may not be subleased atattractive rates or at all.  Included in the employeetermination costs are 19 personnel reductions. 

      Approximately$7.7 million of the Titan Systems restructuring costs areprimarily related to employee termination costs, employee retentioncosts, duplicate transition costs and professional fees related toacquisitions and certain reorganization and consolidationactivities within Titan Systems.

      The remaining$1.7 million is related to direct transaction costs incurred byTitan on acquisitions that did not successfully close, primarilythe Science and Engineering Associates, Inc. proposedacquisition.

*Fiscal 2001Charges*

      Acquisitionand integration related charges and other of $27.9 million in2001 included $12.2 million related to the integration of ACSand AverStar and other restructuring and realignment activities, a$5.5 million impairment charge for fixed assets associatedwith Cayenta’s network operations center and$10.0 million related to other asset impairments andrestructuring activities associated with Cayenta’sheadquarters office, and $0.2 million related to personnelreductions in Cayenta’s federal government business, which isnow a part of Titan’s government business.

      The$12.2 million charge is primarily related to the integrationof ACS and AverStar, and a realignment of the business around themajor categories of customers of Titan Systems, which togetherresulted in a reduction in employee workforce of approximately 50employees and the closing of several facilities.  Included inthese costs is approximately $3.1 million of employeetermination costs, $3.5 million of costs to eliminateduplicate and excess facilities and assets, $1.1 million ofduplicate personnel costs to transition processes and functions,and $1.5 million of asset impairment costs of certain assetbalances.  The recoverability of such balances was impaireddue to our exit from a satellite services business within theformer Titan Systems segment.  Approximately $3.0 millionof the charge was related to another subsidiary acquired in a prioryear for contingencies arising from matters pre-existing to Titan'sacquisition of the business.  That acquisition was accountedfor as a purchase, and the matters pre-existing Titan's acquisitionwere resolved in 2001. 

      Included inthe 2001 charge is $15.5 million related to the restructuringof Cayenta’s headquarters office.  As a result ofreduced corporate spending on commercial information technologyservices and e-business software applications, the Companydeveloped and approved a plan to restructure the Cayentaheadquarters and network operations center, which included areduction in workforce of approximately 40 personnel,resulting in a charge of $1.7 million, and the elimination ofduplicate and excess facilities, resulting in a charge ofapproximately $0.8 million.  As a result of management'sevaluation of the recoverability of all the assets of Cayenta, inaccordance with Statement of Financial Accounting Standards No.121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed Of", management concluded fromthis evaluation that a significant impairment of intangible as wellas long-lived assets had occurred.  An impairment charge wasrequired because the estimated fair value was less than thecarrying value of the assets.  The impairment charge of$13.0 million was comprised of the following:$5.5 million for fixed assets associated with Cayenta'snetwork operations center, $2.0 million for prepaidadvertising costs and $5.3 million for Cayenta's investment inSoliance, LLC, a joint venture that markets and deliversinformation technology systems and solutions to the utilityindustry, and $0.2 million for certain otherassets.

*Fiscal 2000Charges*

      Acquisitionrelated charges of $28.8 million in 2000 include costs of$20.5 million related to the ACS merger including directtransaction costs of approximately $9.2 million comprised ofaccounting, legal, investing banking, financial printing and otherdirect costs.  Also included in the ACS merger costs was awrite-down of approximately $5.4 million related to theimpairment of certain receivables, for which the realizability ofsuch assets was impaired as a result of the merger with Titan,which impacted the recoverability of certain contract costs,employee termination costs of approximately $2.1 million, and$3.8 million of costs to eliminate duplicate facilities andassets.  In addition, the Company recorded a valuationallowance of $10.0 million in connection with certain of theCompany's integration activities, particularly as they relate toconforming ACS to Titan's accounting policies and procedures, andin determining appropriate valuation allowances against unbilledreceivables which may not be realizable under normal contractreimbursement cycles.

      Included inacquisition related charges is $8.3 million related to themerger with AverStar.  These costs consisted of approximately$2.4 million of direct transaction costs, approximately$5.6 million of employee termination costs, and costs toeliminate duplicate facilities of approximately$0.3 million. 

QuickLinks

PART I          Item 1.  Business          Item2.  Properties          Item 3.  LegalProceedings          Item 4.  Submissionof Matters To a Vote of Security Holders

PART II          Item 5.  Market forthe Company's Common Equity and Related StockholderMatters          Item 6.  SelectedFinancial Data          Item 7.  Management's Discussionand Analysis Of Financial Condition and Results OfOperations          Item7A.  Quantitative and Qualitative Disclosures AboutMarket Risk          Item8.  Financial Statements and SupplementaryData

          Report Of IndependentAuditors

          Consolidated Statements OfOperations          Consolidated Balance Sheets          Consolidated Statements Of CashFlows          Consolidated Statements OfStockholders' Equity

          Notes To ConsolidatedFinancial Statements                    Note 1.  Nature ofOperations                    Note 2.  SignificantAccounting Policies                    Note3.  Acquisitions                     Note 4.  Exitand Restructuring Charges and Other                     Note 5.  Acquisitionand Integration Related Charges and Other                    Note 6.  DiscontinuedOperations                    Note 7.  Other FinancialData                    Note 8.  Income Taxes                    Note 9.  Debt                    Note10.  Commitments and Contingencies                    Note 11.  CumulativeConvertible Preferred Stock                     Note 12.  CommonStock                     Note 13.  BenefitPlans                     Note 14.  RelatedParty Transactions                    Note15.  Unaudited Quarterly Financial Data

Part III          Item9.  Changes In and Disagreements with Accountants onAccounting and Financial Disclosure          Item10.  Directors and Executive Officers of theCompany           Item 11.  ExecutiveCompensation           Item 12.  SecurityOwnership of Certain Beneficial Owners and Management           Item 13.  CertainRelationships and Related Transactions          Item14.  Controls and Procedures

Part IV          Item 15.  Exhibits, FinancialStatement Schedules, and Reports on Form 8-K

SIGNATURES