Cost Irregularities Void CCT’s Sale of Zeta to Whittaker
A $39-million sale of a defense electronics subsidiary to Los Angeles-based Whittaker Corp. last March was canceled after Whittaker found irregularities in the firm’s cost figures on defense contracts, it was announced Monday.
Whittaker purchased majority control of defense contractor Zeta Laboratories from Computer & Communications Technology of San Diego for $33.6 million. It paid another $5.4 million for shares held by the public.
Under the agreement announced Monday, CCT will take back ownership of Zeta and refund $39 million to Whittaker. “The adverse impact on Zeta and CCT could be substantial,” according to CCT Chairman E. T. Bahre.
Serious Violation
Bahre said the suspect cost statements on defense subcontracts had been submitted to the Defense Department. Although he declined to elaborate, submission of false cost data is a serious violation of contract requirements and is usually associated with driving up charges to the Pentagon.
In previous cases, other defense subcontractors have been required to pay restitution for overcharges related to submitting false cost data to the Pentagon.
“We feel we are doing the responsible thing,” Bahre said. “We are going to take Zeta back and restore it to (the status of) a respectable defense contractor.”
Bahre said that Zeta derived about 80% of its $23 million in 1985 sales from defense contracts. CCT posted sales of $67.7 million in 1985 and a $9.9-million loss.
The voiding of the sale of Zeta to Whittaker will have a significant effect on CCT’s 1986 financial results. The firm posted a $6.2-million profit in the first quarter, partly as a result of the gain from the sale of Zeta. CCT had a $7.7-million loss on continuing operations.
Zeta, based in Santa Clara, employs about 240 people in the manufacture of microwave communications components. CCT acquired Zeta in 1979 for about $4.5 million, Bahre said. It later sold a 14% share to the public.
Bahre, who is also chairman of Zeta, said no CCT officers were aware of the cost irregularities at Zeta. “We had no knowledge whatever of this,” Bahre said. “There had been no implications of any CCT individuals involved in these irregularities.”
The irregularities were brought to CCT’s attention last Thursday by Whittaker. An internal investigation is continuing and the results will be disclosed to the Defense Department, Bahre said.
CCT and Whittaker jointly announced the agreement to cancel the Zeta sale Monday after stock market trading had closed for the day. CCT stock closed at $11.25 a share, up 25 cents.
Bahre said he could not say whether the irregular cost figures would affect Zeta’s profit statement or its balance sheet. He added, however, that there could be substantial adverse impact on the value of the entity.
“We can’t quantify the extent of the cost irregularities at this time, so we can’t estimate the impact,” he said.
