<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 JULY 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 August 31, 1996, the Registrant had 47,281,317 shares of Class A
common stock, $.01 par value per share, issued and outstanding, and 326,784
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
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per-share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
--------------------------------- ---------------------------------
July 31, 1996 July 31, 1995 July 31, 1996 July 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 600,596 $ 528,782 $ 1,117,517 $ 1,005,621
------------- ------------- ------------- -------------
Costs and expenses:
Cost of revenues 522,788 457,771 974,641 875,755
Selling, general and
administrative expenses 49,733 44,637 90,350 79,681
Interest expense 1,368 1,329 2,432 2,298
------------- ------------- ------------- -------------
573,889 503,737 1,067,423 957,734
------------- ------------- ------------- -------------
Income before income taxes 26,707 25,045 50,094 47,887
Provision for income taxes 11,626 11,020 21,916 21,070
------------- ------------- ------------- -------------
Net income $ 15,081 $ 14,025 $ 28,178 $ 26,817
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per share of
common stock and equivalents $ .29 $ .28 $ .55 $ .54
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
July 31, 1996 January 31, 1996
------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 39,419 $ 22,765
Restricted cash 6,065 3,029
Receivables 498,696 500,201
Inventories 39,658 40,097
Prepaid expenses and other current assets 12,119 9,182
Deferred income taxes 18,593 18,953
----------- -----------
Total current assets 614,550 594,227
Property and equipment (less accumulated depreciation
of $117,894 and $110,344 at July 31, 1996 and
January 31, 1996, respectively) 89,473 69,441
Land and buildings (less accumulated depreciation of
$12,117 and $10,894 at July 31, 1996 and
January 31, 1996, respectively) 90,297 87,844
Intangible assets (less accumulated amortization of
$31,512 and $27,031 at July 31, 1996 and
January 31, 1996, respectively) 63,347 55,210
Other assets 44,503 52,568
----------- -----------
$ 902,170 $ 859,290
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 201,700 $ 210,393
Accrued payroll and employee benefits 145,368 138,709
Income taxes payable 18,208 15,636
Notes payable and current portion of long-term liabilities 24,624 2,304
----------- -----------
Total current liabilities 389,900 367,042
Long-term liabilities 30,098 33,151
Stockholders' equity:
Common stock:
Class A, $.01 par value
Authorized: 100,000 shares
Issued and outstanding:
July 31, 1996 - 47,303 shares 473
January 31, 1996 - 46,909 shares 469
Class B, $.05 par value
Authorized: 5,000 shares
Issued and outstanding:
July 31, 1996 - 327 shares 16
January 31, 1996 - 332 shares 17
Additional paid-in capital 267,413 242,751
Retained earnings 214,270 215,860
----------- -----------
Total stockholders' equity 482,172 459,097
----------- -----------
$ 902,170 $ 859,290
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Six months ended
---------------------------------
July 31, 1996 July 31, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 28,178 $ 26,817
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 17,496 15,698
Noncash compensation 13,267 11,926
Loss on disposal of property and equipment 485 291
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables 4,171 6,605
Inventories 1,063 9,879
Prepaid expenses and other current assets (2,813) (2,936)
Deferred income taxes 360 (542)
Other assets 1,094 (649)
Progress payments 4,758 513
Accounts payable and accrued liabilities (12,278) (34,145)
Accrued payroll and employee benefits 5,941 (3,122)
Income taxes payable 6,023 (1,411)
------------- -------------
67,745 28,924
------------- -------------
Cash flows from investing activities:
Expenditures for property and equipment (19,761) (10,378)
Expenditures for land and buildings (3,676) (520)
Acquisitions of certain business assets, net of cash (18,459) 1,402
Proceeds from disposal of property and equipment 137 217
Proceeds from sale of debt securities available for sale 7,576
------------- -------------
(34,183) (9,279)
------------- -------------
Cash flows from financing activities:
Increase (decrease) in notes payable and long-term liabilities 2,206 (4,869)
Sales of common stock 21,181 12,941
Repurchases of common stock (40,295) (16,938)
------------- -------------
(16,908) (8,866)
------------- -------------
Increase in cash and cash equivalents 16,654 10,779
Cash and cash equivalents at beginning of period 22,765 28,203
------------- -------------
Cash and cash equivalents at end of period $ 39,419 $ 38,982
------------- -------------
------------- -------------
Supplemental schedule of non-cash investing and
financing activities:
Issuance of common stock for acquisitions of certain
business assets $ 8,973
-------------
-------------
Liabilities assumed in acquisitions of certain
business assets $ 15,667 $ 13,936
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
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.
In the opinion of management, the unaudited financial information for the three
and six month periods ended July 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 $22,511,000 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 July 31, 1996.
NOTE D - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
July 31, 1996
-------------
(in thousands)
Inventories:
Contracts-in-process, less progress payments of $1,736 $ 12,238
Raw Materials 27,420
---------
$ 39,658
---------
---------
NOTE E - NOTES PAYABLE AND LONG-TERM LIABILITIES
In connection with an acquisition of certain business assets, the Company
assumed a note of $14,400,000 with an interest rate of 6.96% due in April 2000.
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 July 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
The Company is involved in various other 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.
<PAGE>
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 and six month periods ended July 31, 1996 increased 13.6%
and 11.1%, respectively, compared to the same periods 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 July 31, 1996, the Company
had approximately 20,400 full-time employees compared to approximately 19,100 at
July 31, 1995. Material and subcontract ("M&S") revenues were $158 million and
$283 million for the three and six months ended July 31, 1996, respectively,
compared to $135 million and $257 million for the same periods of the prior
year. As a percentage of total revenues, M&S revenues have remained relatively
constant at 26% and 25% for the three and six months ended July 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 higher risk, firm fixed-price ("FFP") contracts increased to 21%
for the six months ended July 31, 1996 from 19% for same period of the prior
year. Fixed-price level-of-effort and time-and-materials type contracts
represented 25% of revenues for the six months ended July 31, 1996 and 1995,
while cost reimbursement contracts were 54% and 56% 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 cost of revenues as a percentage of revenues (excluding interest income)
remained relatively constant at 87.1% and 87.3% for the three and six month
periods ended July 31, 1996, respectively, compared to 86.7% and 87.1% for the
same periods of the prior year.
SG&A expenses as a percentage of revenues (excluding interest income) for the
three and six months ended July 31, 1996 remained relatively constant at 8.3%
and 8.1%, respectively, compared to 8.4% and 7.9% 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 costs increased slightly, while B&P and G&A costs remained constant 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.
In addition, the Company continues to monitor G&A expenses as part of an ongoing
program to control indirect costs.
Interest expense for the six months ended July 31, 1996 and 1995 primarily
relates to interest on a building mortgage, deferred compensation and borrowings
outstanding under the Company's credit loan agreements.
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 July 31, 1996 and 1995
there were no borrowings outstanding under such agreements and cash and cash
equivalents and long-term investments totaled $39 million and $60 million,
respectively. Cash flows generated from operating activities were $68 million
compared to $29 million for the same period of the prior year. Receivable days
outstanding as of July 31, 1996 and 1995 were 65 days. Average receivable days
outstanding for the six months ended July 31, 1996 and 1995 were 64 days. The
Company continues to actively monitor receivables with emphasis placed on
collection activities and the negotiation of more favorable payment terms.
Cash flows used for investing activities increased to $34 million for the six
months ended July 31, 1996 compared to $9 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. This
increase was partially offset by proceeds from
<PAGE>
the sales of debt securities. The Company expects to continue acquiring
businesses to complement the Company's capabilities in the areas of commercial
information technology, transportation, environment, health, energy and national
security.
The Company used $17 million for financing activities for the six months ended
July 31, 1996 compared to $9 million for the same period of the prior year. The
increase in utilizing cash for financing activities was primarily due to
increased repurchases of the Company's common stock from the Employee Stock
Ownership Plan. 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.
<PAGE>
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
(a) The Annual Meeting of Stockholders of the registrant was held on July
12, 1996.
(b) All of the directors nominated by management in registrant's 1996
Proxy Statement were elected and no solicitation in opposition to
management's nominees was made.
(c) At the Annual Meeting, the stockholders of the registrant approved the
following:
(i) the election of the following Directors by the votes set forth
below:
Number of Votes of Common Stock
---------------------------------
Withhold
Director For Authority
- -------- ---------- ---------
C. K. Davis 37,543,738 761,708
W. A. Downing 37,379,394 761,708
E. A Frieman 37,419,983 761,708
J. W. McRary 35,308,693 761,708
W. A. Owens 37,300,352 761,708
S. D. Rockwood 37,361,366 761,708
J. P. Walkush 37,628,857 761,708
(ii) the appointment of Price Waterhouse, LLP as registrant's
independent accountants for the year ending January 31, 1997 with
37,068,219 shares voting for the proposal, 286,694 shares voting
against and 398,564 shares abstaining.
(d) 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.
No reports on Form 8-K were filed by the registrant during the fiscal
quarter for which this report is filed.
<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: September 12, 1996 /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 July 31, 1996
Exhibit
No. Description of Exhibits
- -------- -------------------------------------------------
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
<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 Six months ended
--------------------------------- ---------------------------------
July 31, 1996 July 31, 1995 July 31, 1996 July 31, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY:
Net Income $ 15,081 $ 14,025 $ 28,178 $ 26,817
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 311 165 623 510
Interest earned, net of income tax expense
on assumed investment of U.S. government
securities or commercial paper - 145 - 145
------------- ------------- ------------- -------------
Adjusted net income $ 15,392 $ 14,335 $ 28,801 $ 27,472
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding 49,058 48,064 48,953 47,679
Dilutive stock options, based on the modified
treasury stock method, using average fair value 3,288 3,337 3,339 3,564
------------- ------------- ------------- -------------
Total average shares outstanding 52,346 51,401 52,292 51,243
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Per Share Amount $ .29 $ .28 $ .55 $ .54
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
FULLY DILUTED:
Net Income $ 15,081 $ 14,025 $ 28,178 $ 26,817
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 245 201 490 510
Interest earned, net of income tax expense
on assumed investment of U.S. government
securities or commercial paper - 58 - 58
------------- ------------- ------------- -------------
Adjusted net income $ 15,326 $ 14,284 $ 28,668 $ 27,385
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Weighted average shares outstanding 49,058 48,064 48,953 47,679
Dilutive stock options, based on the modified
treasury stock method, using quarter-end
or exercise date established price if higher than
average fair value 3,288 3,337 3,339 3,564
------------- ------------- ------------- -------------
Total average shares outstanding 52,346 51,401 52,292 51,243
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Per Share Amount $ .29 $ .28 $ .55 $ .53
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
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 SIX MONTHS ENDED JULY 31,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JUL-31-1996
<CASH> 45,484
<SECURITIES> 0
<RECEIVABLES> 498,696
<ALLOWANCES> 0
<INVENTORY> 39,658
<CURRENT-ASSETS> 614,550
<PP&E> 309,781
<DEPRECIATION> 130,011
<TOTAL-ASSETS> 902,170
<CURRENT-LIABILITIES> 389,900
<BONDS> 30,098
0
0
<COMMON> 489
<OTHER-SE> 481,683
<TOTAL-LIABILITY-AND-EQUITY> 902,170
<SALES> 0
<TOTAL-REVENUES> 1,117,517
<CGS> 0
<TOTAL-COSTS> 974,641
<OTHER-EXPENSES> 90,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,432
<INCOME-PRETAX> 50,094
<INCOME-TAX> 21,916
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,178
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
</TABLE>
