-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QOzaSCveDOFdzEQrSk2jjWzDZLUru6L0ojtCbYJoOGrBZxhijhFvZThyORQcSnyZ HnGt2nP4LjLjQbVpz3+H+w== 0000912057-96-028989.txt : 19961213 0000912057-96-028989.hdr.sgml : 19961213 ACCESSION NUMBER: 0000912057-96-028989 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961031 FILED AS OF DATE: 19961212 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCIENCE APPLICATIONS INTERNATIONAL CORP CENTRAL INDEX KEY: 0000353394 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 953630868 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12771 FILM NUMBER: 96679388 BUSINESS ADDRESS: STREET 1: 10260 CAMPUS POINT DR STREET 2: LEGAL DEPT CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6195466000 MAIL ADDRESS: STREET 1: LEGAL DEPT STREET 2: 10260 CAMPUS POINT DR CITY: SAN DIEGO STATE: CA ZIP: 92121 10-Q 1 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 _____________________ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO Section 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-12771 SCIENCE APPLICATIONS INTERNATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 95-3630868 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 10260 CAMPUS POINT DRIVE SAN DIEGO, CALIFORNIA 92121 (619) 546-6000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO ----- ---- As of November 30, 1996, the Registrant had 47,983,876 shares of Class A common stock, $.01 par value per share, issued and outstanding, and 325,984 shares of Class B common stock, $.05 par value per share, issued and outstanding. PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited, in thousands, except per-share amounts)
Three months ended Nine months ended ----------------------------------- ----------------------------------- October 31, 1996 October 31, 1995 October 31, 1996 October 31, 1995 ---------------- ---------------- ---------------- ---------------- Revenues $ 636,810 $ 547,774 $ 1,754,327 $ 1,553,395 ---------- ---------- ------------ ------------ Costs and expenses: Cost of revenues 556,956 480,782 1,531,597 1,356,537 Selling, general and administrative expenses 46,243 39,736 136,593 119,417 Interest expense 1,273 918 3,705 3,216 ---------- ---------- ------------ ------------ 604,472 521,436 1,671,895 1,479,170 ---------- ---------- ------------ ------------ Income before income taxes 32,338 26,338 82,432 74,225 Provision for income taxes 14,148 11,589 36,064 32,659 ---------- ---------- ------------ ------------ Net income $ 18,190 $ 14,749 $ 46,368 $ 41,566 ---------- ---------- ------------ ------------ ---------- ---------- ------------ ------------ Earnings per share of common stock and equivalents $ .35 $ .29 $ .90 $ .82 ---------- ---------- ------------ ------------ ---------- ---------- ------------ ------------
See accompanying notes to condensed consolidated financial statements. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (in thousands)
October 31, 1996 January 31, 1996 ---------------- ---------------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 47,791 $ 22,765 Restricted cash 8,948 3,029 Receivables 549,441 500,201 Inventories 38,835 40,097 Prepaid expenses and other current assets 14,395 9,182 Deferred income taxes 18,233 18,953 ------------ ----------- Total current assets 677,643 594,227 Property and equipment (less accumulated depreciation of $125,060 and $110,344 at October 31, 1996 and January 31, 1996, respectively) 88,214 69,441 Land and buildings (less accumulated depreciation of $12,756 and $10,894 at October 31, 1996 and January 31, 1996, respectively) 97,332 87,844 Intangible assets (less accumulated amortization of $34,754 and $27,031 at October 31, 1996 and January 31, 1996, respectively) 62,179 55,210 Other assets 46,601 52,568 ------------ ----------- $ 971,969 $ 859,290 ------------ ----------- ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 235,653 $ 210,393 Accrued payroll and employee benefits 137,087 138,709 Income taxes payable 28,137 15,636 Notes payable and current portion of long-term liabilities 21,512 2,304 ------------ ----------- Total current liabilities 422,389 367,042 Long-term liabilities 42,345 33,151 Stockholders' equity: Common stock: Class A, $.01 par value Authorized: 100,000 shares Issued and outstanding: October 31, 1996 - 47,882 shares 479 January 31, 1996 - 46,909 shares 469 Class B, $.05 par value Authorized: 5,000 shares Issued and outstanding: October 31, 1996 - 327 shares 16 January 31, 1996 - 332 shares 17 Additional paid-in capital 282,368 242,751 Retained earnings 224,372 215,860 ------------ ----------- Total stockholders' equity 507,235 459,097 ------------ ----------- $ 971,969 $ 859,290 ------------ ----------- ------------ -----------
See accompanying notes to condensed consolidated financial statements. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited, in thousands)
Nine months ended ------------------------------------ October 31, 1996 October 31, 1995 ---------------- ---------------- Cash flows from operating activities: Net income $ 46,368 $ 41,566 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 29,615 23,832 Non-cash compensation 22,449 12,487 Loss on disposal of property and equipment 926 676 Increase (decrease) in cash, excluding effects of acquisitions, resulting from changes in: Receivables (17,462) (54,709) Inventories 2,989 789 Prepaid expenses and other current assets (5,095) (4,281) Deferred income taxes 720 40 Other assets (674) (2,477) Progress payments (28,176) 2,829 Accounts payable and accrued liabilities 18,677 (15,735) Accrued payroll and employee benefits (2,335) (4,847) Income taxes payable 18,572 1,518 ----------- ------------ 86,574 1,688 ----------- ------------ Cash flows from investing activities: Expenditures for property and equipment (27,314) (18,247) Expenditures for land and buildings (4,431) (522) Acquisitions of certain business assets, net of cash acquired (17,964) (1,707) Proceeds from disposal of property and equipment 206 291 Proceeds from sale of debt securities available for sale 7,576 ----------- ------------ (41,927) (20,185) ----------- ------------ Cash flows from financing activities: Net borrowings under revolving credit agreements 6,000 Increase (decrease) in notes payable and long-term liabilities 4,054 (5,138) Sales of common stock 13,294 11,653 Repurchases of common stock (36,969) (16,464) ----------- ------------ (19,621) (3,949) ----------- ------------ Increase (decrease) in cash and cash equivalents 25,026 (22,446) Cash and cash equivalents at beginning of period 22,765 28,203 ----------- ------------ Cash and cash equivalents at end of period $ 47,791 $ 5,757 ----------- ------------ ----------- ------------ Supplemental schedule of non-cash investing and financing activities: Issuance of common stock for acquisitions of certain business assets $ 8,973 ------------ ------------ Liabilities assumed or incurred in connection with acquisitions of certain business assets $ 15,777 $ 13,936 ----------- ------------ ----------- ------------ Long-term mortgage assumed upon purchase of land and building $ 6,929 ----------- -----------
See accompanying notes to condensed consolidated financial statements. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying financial information has been prepared in accordance with the instructions to Form 10-Q and therefore does not necessarily include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Certain amounts from the nine months ended October 31, 1995 have been reclassified in the condensed consolidated financial statements to conform to the presentation of the nine months ended October 31, 1996. In the opinion of management, the unaudited financial information for the nine month periods ended October 31, 1996 and 1995 reflect all adjustments (which include only normal, recurring adjustments) necessary for a fair presentation thereof. NOTE B - RESTRICTED CASH The Company has a contract to provide support services to the National Cancer Institute's Frederick Cancer Research and Development Center. As part of the contract, the Company is responsible for paying for materials, equipment and other direct costs of the Center through the use of a restricted cash account which is pre-funded by the U.S. Government. In addition, the Company has another agreement which requires the Company to set aside 30% of the revenue collected which is to be used for development and enhancement of future information technology. NOTE C - RECEIVABLES Unbilled accounts receivable include $13,993,000 of costs incurred on projects for which the Company has been requested by the customer to begin work under a new contract, or extend work under a present contract, but for which formal contracts or contract modifications have not been executed at October 31, 1996. NOTE D - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS October 31, 1996 ---------------- (in thousands) Inventories: Contracts-in-process, less progress payments of $566 $ 14,863 Raw Materials 23,972 --------- $ 38,835 --------- --------- NOTE E - NOTES PAYABLE AND LONG-TERM LIABILITIES During the quarter ended October 31, 1996, the Company assumed a mortgage note of $6,929,000 in connection with the purchase of land and a building. Terms of the note include quarterly payments of principal and interest with a variable interest rate (6.42% at October 31, 1996) through December 2016. In connection with an acquisition of certain business assets during the quarter ended July 31, 1996, the Company incurred debt of $14,400,000. Terms of the note include monthly payments of principal and interest with an interest rate of 6.96% through December 1999. The Company has substantially equivalent unsecured revolving credit loan agreements with three banks totaling $105,000,000 which allow borrowings on a revolving basis until March 31, 2000. The agreements enable borrowings at various interest rates, at the Company's option, based on prime, money market, certificate of deposit, or interbank offshore borrowing rates. Annual facility fees are 1/8 of 1% of the total commitment during the revolving credit term. As of October 31, 1996, the entire $105,000,000 was available under the most restrictive debt covenants of the credit loan agreements. NOTE F - INCOME TAXES Income taxes for interim periods are computed using the estimated annual effective rate method. NOTE G - COMMITMENTS AND CONTINGENCIES In August 1996, the Company entered into a seven year operating lease for a general purpose office building. The lease terms include an option for the Company to purchase the building at the end of the initial seven year term. If the purchase option is not exercised, the Company may be required to pay certain supplemental rental payments if proceeds from the sale of the building are below specified amounts. The maximum supplemental rental payment which could be required is $28,809,000. Subsequent to the quarter ended October 31, 1996, on November 20, 1996, the Company entered into a definitive acquisition agreement to purchase Bell Communications Research, Inc. ("Bellcore"). The consummation of the acquisition is subject to certain contingencies, including receipt of regulatory approvals which are expected to take between nine and fourteen months to obtain. The Company is involved in various investigations, claims and lawsuits arising in the normal conduct of its business, none of which, in the opinion of the Company's management, will have a material adverse effect on its consolidated financial position, results of operations or ability to conduct business. The Company leases a general purpose office building and has guaranteed a $12,250,000 loan on behalf of the building owner. Certain financial ratios and balances required by the guarantee have been maintained. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Revenues for the three and nine months ended October 31, 1996 increased 16.3% and 12.9%, respectively, compared to the same periods of the prior year. The increase in revenues is primarily attributable to growth in the commercial and international business areas and in lower cost service type contracts. This latter trend reflects the increasingly competitive business environment in the Company's traditional business areas, as well as the Company's increased success in the engineering and field services market, which typically involve lower cost contracts. Revenues are generated from the efforts of the Company's technical staff as well as the pass through of costs for materials and subcontract efforts, which primarily occur on large, multi-year contracts. At October 31, 1996, the Company had approximately 20,300 full-time employees compared to approximately 19,200 at October 31, 1995. Material and subcontract ("M&S") revenues were $177 million and $460 million for the three and nine months ended October 31, 1996, respectively, compared to $144 million and $401 million for the same periods of the prior year. As a percentage of total revenues, M&S revenues were 28% and 26% for the three and nine months ended October 31, 1996, respectively, compared to 26% for the same periods of the prior year. Revenues by contract type indicate that the percentage of the Company's revenues attributable to the higher risk, firm fixed-price ("FFP") contracts increased to 23% for the nine months ended October 31, 1996 from 19% for the same period of the prior year. Fixed-price level-of-effort and time-and-materials type contracts represented 23% and 26% of revenues for the nine months ended October 31, 1996 and 1995, respectively, while cost reimbursement contracts were 54% and 55% for the same periods of the prior year, respectively. The Company assumes greater performance risk on FFP contracts and the failure to accurately estimate ultimate costs or to control costs during performance of the work may result in reduced profits or losses. The cost of revenues as a percentage of revenues (excluding interest income) remained relatively constant at 87.5% and 87.3% for the three and nine months ended October 31, 1996, respectively, compared to 87.8% and 87.4% for the same periods of the prior year. SG&A expenses as a percentage of revenues (excluding interest income) for the three and nine months ended October 31, 1996 were 7.3% and 7.8%, respectively, compared to 7.3% and 7.7% for the same periods of the prior year. SG&A is comprised of general and administrative ("G&A"), bid and proposal ("B&P") and independent research and development ("IR&D") expenses. IR&D and B&P costs increased slightly as a percentage of revenues. The level of B&P activity and costs has historically fluctuated depending on the availability of bidding opportunities and resources. G&A expenses decreased as a percentage of revenues. The Company continues to monitor G&A expenses as part of an ongoing program to control direct costs. Interest expense for the nine months ended October 31, 1996 and 1995 primarily relates to interest on a building mortgage and deferred compensation. Subsequent to the quarter ended October 31, 1996, on November 20, 1996, the Company entered into a definitive acquisition agreement to purchase Bell Communications Research, Inc. ("Bellcore"). The consummation of the acquisition is subject to certain contingencies, including receipt of regulatory approvals which are expected to take between nine and fourteen months to obtain. The Company is involved in various investigations, claims and lawsuits arising in the normal conduct of its business, none of which, in the opinion of the Company's management, will have a material adverse effect on its consolidated financial position, results of operations or its ability to conduct business. Liquidity and Capital Resources The Company's primary sources of liquidity continue to be funds provided by operations and revolving credit loan agreements. At October 31, 1996, there were no borrowings outstanding under such agreements compared to $6 million outstanding at an interest rate of 6.4% at October 31, 1995. Cash and cash- equivalents and short and long-term investments totalled $48 million and $26 million at October 31, 1996 and 1995, respectively. Cash flows generated from operating activities were $87 million for the nine months ended October 31, 1996 compared to $2 million for the same period of the prior year. Receivable days outstanding as of October 31, 1996 were 64 days compared to 67 days for the same period of the prior year. Average receivable days outstanding for the nine months ended October 31, 1996 were 64 days compared to 65 days for the same period of the prior year. The Company continues to actively monitor receivables with emphasis placed on collection activities and the negotiation of more favorable payment terms. Cash flows used on investing activities increased to $42 million for the nine months ended October 31, 1996 compared to $20 million for the same period of the prior year. The increase was primarily due to acquisitions of businesses and increased expenditures for property, equipment, land, and buildings. The Company utilized $20 million for financing activities for the nine months ended October 31, 1996 compared to $4 million for the same period of the prior year. The Company's cash flows from operations plus borrowing capacity are expected to provide sufficient funds for the Company's operations, business acquisitions, common stock repurchases, capital expenditures, and future long- term debt requirements. In addition, the Company intends to obtain financing to complete the acquisition of Bellcore. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in various investigations, claims and lawsuits arising in the normal conduct of its business, none of which, in the opinion of the Company's management, will have a material adverse effect on its consolidated financial position, results of operations or its ability to conduct business. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - See Exhibit Index. (b) Reports on Form 8-K. During the fiscal quarter for which this report is filed, the following report(s) on Form 8-K were filed by the Registrant: (i) Form 8-K filed October 2, 1996 - Item 5 "Other Events." (ii) Form 8-K filed November 22, 1996 - Item 5 "Other Events." SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SCIENCE APPLICATIONS INTERNATIONAL CORPORATION Date: December 12, 1996 /s/W. A. Roper ----------------------------- Senior Vice President and Chief Financial Officer and as a duly authorized officer Exhibit Index Science Applications International Corporation Fiscal Quarter Ended October 31, 1996 Exhibit No. Description of Exhibits - ------- --------------------------------------------------------------- 11 Statement re: Computation of Per Share Earnings 27 Financial Data Schedule EX-11 2 EXHIBIT 11 EXHIBIT 11 SCIENCE APPLICATIONS INTERNATIONAL CORPORATION EXHIBIT TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS COMPUTATION OF PER SHARE EARNINGS (Unaudited, in thousands, except per-share amounts)
Three months ended Nine months ended ---------------------------------- ---------------------------------- October 31, 1996 October 31, 1995 October 31, 1996 October 31, 1995 ---------------- ---------------- ---------------- ---------------- PRIMARY: Net Income $ 18,190 $ 14,749 $ 46,368 $ 41,566 Reduction of interest expense, net of income tax expense on assumed retirement of short-term and long-term debt 190 216 570 647 Interest earned, net of income tax expense on assumed investment of U.S. government securities or commercial paper - - - - --------- --------- --------- --------- Adjusted net income $ 18,380 $ 14,965 $ 46,938 $ 42,213 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding 49,056 48,457 48,987 47,939 Dilutive stock options, based on the modified treasury stock method, using average fair value 3,041 2,949 3,239 3,359 --------- --------- --------- --------- Total average shares outstanding 52,097 51,406 52,226 51,298 --------- --------- --------- --------- --------- --------- --------- --------- Per Share Amount $ .35 $ .29 $ .90 $ .82 --------- --------- --------- --------- --------- --------- --------- --------- FULLY DILUTED: Net Income $ 18,190 $ 14,749 $ 46,368 $ 41,566 Reduction of interest expense, net of income tax expense on assumed retirement of short-term and long-term debt 146 191 437 573 Interest earned, net of income tax expense on assumed investment of U.S. government securities or commercial paper - - - - --------- --------- --------- --------- Adjusted net income $ 18,336 $ 14,940 $ 46,805 $ 42,139 --------- --------- --------- --------- --------- --------- --------- --------- Weighted average shares outstanding 49,056 48,457 48,987 47,939 Dilutive stock options, based on the modified treasury stock method, using quarter-end or exercise date established price if higher than average fair value 3,041 2,949 3,239 3,359 --------- --------- --------- --------- Total average shares outstanding 52,097 51,406 52,226 51,298 --------- --------- --------- --------- --------- --------- --------- --------- Per Share Amount $ .35 $ .29 $ .90 $ .82 --------- --------- --------- --------- --------- --------- --------- ---------
EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED CONSOLIDATED STATEMENT OF INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS JAN-31-1997 FEB-01-1996 OCT-31-1996 56,739 0 549,441 0 38,835 677,643 323,362 137,816 971,969 422,389 42,345 495 0 0 506,740 971,969 0 1,754,327 0 1,531,597 136,593 0 3,705 82,432 36,064 0 0 0 0 46,368 .90 .90
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