<PAGE>
- --------------------------------------------------------------------------------
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 April 30, 1994
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 May 31, 1994, the registrant had 44,891,232 shares of Class A common
stock, $.01 par value per share, issued and outstanding, and 359,207 shares of
Class B common stock, $.05 par value per share, issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Unaudited, in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended
---------------------------------------
April 30, 1994 April 30, 1993
-------------- --------------
<S> <C> <C>
Revenues $ 413,280 $ 369,081
---------- ----------
Costs and expenses:
Cost of revenues 364,220 324,469
Selling, general and administrative expenses 31,394 27,766
Interest expense 768 743
---------- ----------
396,382 352,978
---------- ----------
Income before income taxes 16,898 16,103
Provision for income taxes 7,249 6,763
---------- ----------
Net income $ 9,649 $ 9,340
---------- ----------
---------- ----------
Earnings per share of common stock
and equivalents $ .20 $ .20
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
April 30, 1994 January 31, 1994
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,511 $ 53,556
Receivables 347,198 356,836
Inventories 23,105 14,764
Prepaid expenses 11,395 10,354
Deferred income taxes 21,806 22,083
------------ ------------
Total current assets 419,015 457,593
Property and equipment (less accumulated depreciation
of $99,557 and $96,538 at April 30, 1994
and January 31, 1994, respectively) 49,532 50,581
Land and buildings (less accumulated depreciation of
$6,854 and $6,492 at April 30, 1994
and January 31, 1994, respectively) 68,799 69,161
Other assets 61,085 34,240
------------ ------------
$ 598,431 $ 611,575
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 118,847 $ 133,433
Accrued payroll and employee benefits 81,163 106,548
Income taxes payable 15,299 9,889
Notes payable and current portion of long-term liabilities 2,249 1,143
------------ ------------
Total current liabilities 217,558 251,013
Long-term liabilities 27,834 25,060
Stockholders' equity:
Common stock:
Class A, $.01 par value
Authorized: 100,000 shares
Issued and outstanding:
April 30, 1994 - 44,922 shares 449
January 31, 1994 - 44,315 shares 443
Class B, $.05 par value
Authorized: 5,000 shares
Issued and outstanding:
April 30, 1994 - 360 shares 18
January 31, 1994 - 364 shares 19
Additional paid-in capital 187,003 172,713
Retained earnings 165,569 162,327
------------ ------------
Total stockholders' equity 353,039 335,502
------------ ------------
$ 598,431 $ 611,575
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to consoidated financial statements.
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Three months ended
----------------------------------
April 30, 1994 April 30, 1993
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $9,649 $9,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,549 5,288
Noncash compensation 9,130 7,658
Loss on disposal of property and equipment 47 29
Increase (decrease) in cash resulting from changes in:
Receivables 8,502 42,112
Inventories (8,399) (2,869)
Prepaid expenses (1,041) (326)
Deferred income taxes 277
Other assets (2,706) 572
Progress payments 1,194 6,633
Accounts payable and accrued liabilities (14,586) (44,325)
Accrued payroll and employee benefits (25,385) (9,222)
Income taxes payable 6,353 2,400
-------------- --------------
(11,416) 17,290
-------------- --------------
Cash flows from investing activities:
Expenditures for property and equipment (3,258) (4,098)
Acquisitions of certain business assets (11,148) (41)
Proceeds from disposal of property and equipment 70 84
Purchase of marketable securities (13,988)
-------------- --------------
(28,324) (4,055)
-------------- --------------
Cash flows from financing activities:
Increase (decrease) in notes payable and long-term liabilities 1,957 (27)
Sales of common stock 8,482 6,373
Repurchases of common stock (8,744) (7,525)
-------------- --------------
1,695 (1,179)
-------------- --------------
(Decrease) increase in cash and cash equivalents (38,045) 12,056
Cash and cash equivalents at beginning of period 53,556 15,989
-------------- --------------
Cash and cash equivalents at end of period $15,511 $28,045
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO 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.
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits," SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and Statement of Position ("SOP") 93-6, "Employers' Accounting for
Employee Stock Ownership Plans." Adoption of SFAS No. 112 had an immaterial
effect on net income for the three months ended April 30, 1994, while adoption
of SFAS No. 115 and SOP 93-6 did not have an effect on the Company's financial
position or results of operations during the three months ended April 30, 1994.
Certain amounts from the three months ended April 30, 1993 have been
reclassified in the consolidated financial statements to conform to the
presentation of the three months ended April 30, 1994.
The number of outstanding common stock equivalents referred to in Note F
includes Class A common stock and the conversion of a share of Class B common
stock into five shares of Class A common stock.
In the opinion of management, the unaudited financial information for the three
month periods ended April 30, 1994 and 1993 reflect all adjustments (which
include only normal, recurring adjustments) necessary for a fair presentation
thereof.
NOTE B - RECEIVABLES
Unbilled accounts receivable include $13,936,000 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 April 30, 1994.
NOTE C - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
April 30, 1994
--------------
(in thousands)
<S> <C>
Inventories:
Contracts-in-process, less progress payments of $3,961 $10,581
Raw Materials 12,524
-------
$23,105
-------
-------
Other Assets:
Intangibles $27,682
Marketable securities 20,175
Deferred taxes 3,796
Other 9,432
-------
$61,085
-------
-------
</TABLE>
NOTE D - MARKETABLE SECURITIES
Marketable securities consist of long-term municipal bonds held to maturity and
measured at amortized cost in accordance with recently issued SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." As of April
30, 1994, marketable securities of $20,175,000 had a fair value of $19,744,000
maturing in two to three years.
<PAGE>
NOTE E - NOTES PAYABLE
The Company has substantially equivalent unsecured revolving credit/term loan
agreements with three banks totaling $67,500,000 which allow borrowings on a
revolving basis until July 1, 1996. At that time, the Company has the option to
borrow under three-year term notes, payable in twelve quarterly installments.
The agreements enable borrowings at various interest rates, at the Company's
option, based on prime, money market, London interbank borrowing, certificate of
deposit, bankers' acceptance, or other negotiated rates. Annual facility fees
are 1/4 of 1% of the total commitment during the initial revolving credit term.
As of April 30, 1994, the entire $67,500,000 was available under the most
restrictive debt covenants of the credit/term loan agreements.
NOTE F - EMPLOYEE BENEFIT PLANS
The Company has an Employee Stock Ownership Plan (the "Plan") in which eligible
employees participate. The Company has made cash contributions to the Plan
based upon amounts determined annually by the Board of Directors. Contributions
have been allocated to participants' accounts based on their annual
compensation. The Company recognizes compensation expense as the fair value of
the common stock or cash in the year of contribution. Compensation expense of
$2,654,000 was recorded for the three month period ended April 30, 1994. A
participant's interest in their Plan accounts vests 25% per year in the third
through sixth year of service. Shares of common stock distributed from the Plan
bear a limited put option that, if exercised, would require the Company to
repurchase the shares at the current fair value. At April 30, 1994, the Plan
held 16,228,000 shares of common stock equivalents with a fair value of
$235,518,000. All shares held by the Plan are included in the computation of
earnings per share which is based on the weighted average number of shares of
common stock outstanding, increased by the effect of dilutive options.
NOTE G - INCOME TAXES
Income taxes for interim periods are computed using the estimated annual
effective rate method.
NOTE H - COMMITMENTS AND CONTINGENCIES
The Company is subject to certain Government inquiries and investigations of its
business practices. The Company does not anticipate any action as a result of
such inquiries and investigations which would have a material adverse effect on
its consolidated financial position or results of operations or its ability to
conduct business.
On February 15, 1994, the Company was served with search warrants and a subpoena
for documents and records associated with the performance by an operating unit
of the Company under three contracts with the Department of Defense (DOD). The
search warrants and subpoena state that the Government is seeking evidence
regarding the making of false claims to the DOD, as well as conspiracy to commit
such offenses. The Company has not been apprised of the details of the
allegations being investigated nor has it been charged with any wrongdoing.
Accordingly, the Company is unable to assess the impact, if any, of this
investigation on its consolidated financial position, results of operations or
its 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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues for the three months ended April 30, 1994 increased 12.0% compared to
the same period of the prior year and continued to shift toward lower cost
service type contracts. This 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 April 30, 1994, the Company
had approximately 15,900 full-time employees compared to approximately 14,400 at
April 30, 1993. Material and subcontract ("M&S") revenues were $94 million and
$79 million for the three months ended April 30, 1994 and 1993, respectively.
As a percentage of total revenues, M&S revenues were 23% and 21% for the three
months ended April 30, 1994 and 1993, respectively, and have increased primarily
due to the growth of product revenues. Product revenues generally have a very
high percentage of M&S content.
The Company's principal customer, the U.S. Government, continues to shift the
procurement of product and system development contracts to cost-reimbursement,
time-and-materials ("T&M") or fixed-price level-of-effort ("FP-LOE") contracts,
instead of firm fixed-price ("FFP") contracts. This, along with more selective
bidding of FFP opportunities, resulted in the decrease of the percentage of the
Company's revenues attributable to the higher risk, FFP contracts to 17% for the
three months ended April 30, 1994 from 21% for same period of the prior year.
FP-LOE and T&M type contracts represented 21% and 18% of revenues for the three
months ended April 30, 1994 and 1993, respectively, while cost reimbursement
contracts were 62% and 61% for the same periods, 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 Company incurred overruns during the
performance of certain FFP contracts for the three months ended April 30, 1994
and 1993.
The cost of revenues as a percentage of revenues (excluding interest income)
increased to 88.2% for the three months ended April 30, 1994 compared to 87.9%
for the same period of the prior year. The increase in the cost of revenues
percentage is primarily attributable to three factors: overruns during the
performance of certain FFP contracts; faster revenue growth in the lower cost
service type contracts, which typically have higher cost of revenues; and faster
growth in M&S revenues which have nearly all their associated costs in the cost
of revenues category.
Selling, general and administrative ("SG&A") expenses as a percentage of
revenues (excluding interest income) remained relatively constant at 7.6% and
7.5% for the three months ended April 30, 1994 and 1993, respectively. SG&A is
comprised of general and administrative ("G&A"), bid and proposal ("B&P') and
independent research and development ("IR&D") expenses. B&P costs increased as
a percentage of revenues and typically fluctuate with the number and size of
proposals being prepared by the Company. IR&D costs remained constant, while
G&A expenses decreased as a percentage of revenues. The decrease was primarily
related to the growth in M&S revenues and low cost service type contracts. The
Company continues to closely monitor G&A expenses as part of an on-going program
to control indirect costs.
Interest expense for the three months ended April 30, 1994 and 1993 primarily
relates to interest on a building mortgage and deferred compensation.
Effective February 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, "Employers' Accounting for Postemployment
Benefits," SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" and Statement of Position ("SOP") 93-6, "Employers' Accounting for
Employee Stock Ownership Plans." Adoption of SFAS No. 112 had an immaterial
effect on net income for the three months ended April 30, 1994, while adoption
of SFAS No. 115 and SOP 93-6 did not have an effect on the Company's financial
position or results of operations during the three months ended April 30, 1994.
The Company is involved in various investigations, claims and lawsuits arising
in the normal conduct of its business, none of which the Company anticipates
will have a material adverse effect on its consolidated financial position,
results of operations or its ability to conduct business. On February 15, 1994,
the Company was served with search warrants
<PAGE>
and a subpoena for documents and records associated with the performance by an
operating unit of the Company under three contracts with the Department of
Defense (DOD). The search warrants and subpoena state that the Government is
seeking evidence regarding the making of false claims to the DOD, as well as
conspiracy to commit such offenses. The Company has not been apprised of the
details of the allegations being investigated nor has it been charged with any
wrongdoing. Accordingly, the Company is unable to assess the impact, if any, of
this investigation 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/term loan agreements. At April 30, 1994 and
1993, there were no borrowings outstanding under such agreements. The Company
continues to actively monitor receivables with emphasis placed on collection
activities and the negotiation of more favorable payment terms. Average
receivable days outstanding as of April 30, 1994 remained constant at 64 days
since the fiscal year end January 31, 1994. 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 and
planned capital expenditures.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 15, 1994, the Company was served with search warrants and a subpoena
for documents and records associated with the performance by an operating unit
of the Company under three contracts with the Department of Defense (DOD). The
search warrants and subpoena state that the Government is seeking evidence
regarding the making of false claims to the DOD, as well as conspiracy to commit
such offenses. The Company has not been apprised of the details of the
allegations being investigated nor has it been charged with any wrongdoing.
Accordingly, the Company is unable to assess the impact, if any, of this
investigation on its consolidated financial position, results of operations or
its ability to conduct business.
The registrant is also involved in various other investigations, claims and
lawsuits arising in the normal conduct of its business, none of which, in the
opinion of the registrant's management, will have a material adverse effect on
the registrant's consolidated financial condition.
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 February 18, 1994 - Item 5 "Other Events".
<PAGE>
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: June 14, 1994 /s/W. A. Roper
----------------------------
Senior Vice President and
Chief Financial Officer and
as a duly authorized officer
<PAGE>
Exhibit Index
Science Applications International Corporation
Fiscal Quarter Ended April 30, 1994
Exhibit Sequential
No. Description of Exhibits Page No.
- ------- --------------------------------------------------- ----------
11 Statement re: Computation of Per Share Earnings __________
<PAGE>
EXHIBIT 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EXHIBIT TO CONSOLIDATED FINANCIAL STATEMENTS
COMPUTATION OF PER SHARE EARNINGS
(Unaudited, in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended
------------------------------
April 30, 1994 April 30, 1993
-------------- --------------
<S> <C> <C>
PRIMARY:
Net Income $ 9,649 $ 9,340
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 194 178
Interest earned, net of income tax expense on
assumed investment of U.S. government
securities or commercial paper 31 17
-------- --------
Adjusted net income $ 9,874 $ 9,535
-------- --------
-------- --------
Weighted average shares outstanding 46,216 44,942
Dilutive stock options, based on the modified
treasury stock method, using average fair value 2,953 2,526
-------- --------
Total average shares outstanding 49,169 47,468
-------- --------
-------- --------
Per Share Amount $ .20 $ .20
-------- --------
-------- --------
FULLY DILUTED:
Net Income $ 9,649 $ 9,340
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 194 178
Interest earned, net of income tax expense on
assumed investment of U.S. government
securities or commercial paper 25 5
-------- --------
Adjusted net income $ 9,868 $ 9,523
-------- --------
-------- --------
Weighted average shares outstanding 46,216 44,942
Dilutive stock options, based on the modified
treasury stock method, using quarter-end or
exercise date established price if higher than
average fair value 2,953 2,526
-------- --------
Total average shares outstanding 49,169 47,468
-------- --------
-------- --------
Per Share Amount $ .20 $ .20
-------- --------
-------- --------
</TABLE>
