<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, 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 May 31, 1996, the registrant had 47,513,683 shares of Class A
common stock, $.01 par value per share, issued and outstanding, and 328,148
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
(Unaudited, in thousands, except per-share amounts)
Three months ended
---------------------------------
April 30, 1996 April 30, 1995
-------------- --------------
Revenues $516,921 $476,839
-------- --------
Costs and expenses:
Cost of revenues 451,853 417,501
Selling, general and administrative
expenses 40,617 35,527
Interest expense 1,064 969
-------- --------
493,534 453,997
-------- --------
Income before income taxes 23,387 22,842
Provision for income taxes 10,290 10,050
-------- --------
Net income $ 13,097 $ 12,792
-------- --------
-------- --------
Earnings per share of common stock
and equivalents $ .26 $ .26
-------- --------
-------- --------
See accompanying notes to condensed consolidated financial statements.
<PAGE>
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
April 30, 1996 January 31, 1996
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 41,443 $ 22,765
Restricted cash 4,783 3,029
Receivables 466,206 500,201
Inventories 35,194 40,097
Prepaid expenses and other current assets 10,061 9,182
Deferred income taxes 18,701 18,953
-------- --------
Total current assets 576,388 594,227
Property and equipment (less accumulated depreciation
of $112,302 and $110,344 at April 30, 1996
and January 31, 1996, respectively) 70,984 69,441
Land and buildings (less accumulated depreciation of
$11,485 and $10,894 at April 30, 1996
and January 31, 1996, respectively) 90,929 87,844
Intangible assets 52,482 55,210
Other assets 43,524 52,568
-------- --------
$834,307 $859,290
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $197,347 $210,393
Accrued payroll and employee benefits 105,485 138,709
Income taxes payable 17,890 15,636
Notes payable and current portion of long-term liabilities 1,716 2,304
-------- --------
Total current liabilities 322,438 367,042
Long-term liabilities 35,135 33,151
Stockholders' equity:
Common stock:
Class A, $.01 par value
Authorized: 100,000 shares
Issued and outstanding:
April 30, 1996 - 47,646 shares 476
January 31, 1996 - 46,909 shares 469
Class B, $.05 par value
Authorized: 5,000 shares
Issued and outstanding:
April 30, 1996 - 330 shares 17
January 31, 1996 - 332 shares 17
Additional paid-in capital 262,913 242,751
Retained earnings 213,328 215,860
-------- --------
Total stockholders' equity 476,734 459,097
-------- --------
$834,307 $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>
Three months ended
-------------------------------
April 30, 1996 April 30, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,097 $ 12,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,995 7,017
Non-cash compensation 12,877 11,313
Loss on disposal of property and equipment 354 130
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables 30,459 (13,442)
Inventories 3,655 6,645
Prepaid expenses and other current assets 1,141 (1,508)
Progress payments 4,784 2,886
Deferred income taxes 252 (271)
Other assets 1,857 515
Accounts payable and accrued liabilities (14,800) (34,013)
Accrued payroll and employee benefits (33,224) (32,114)
Income taxes payable 3,565 (8)
-------- --------
32,012 (40,058)
-------- --------
Cash flows from investing activities:
Expenditures for property and equipment (7,108) (2,479)
Expenditures for land and buildings (3,676) (565)
Proceeds from disposal of property and equipment 100 96
Proceeds from sale of debt securities available for sale 5,602
-------- --------
(5,082) (2,948)
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit loan agreements 29,000
Decrease in notes payable and long-term liabilities (1,070) (5,847)
Sales of common stock 13,946 5,551
Repurchases of common stock (21,128) (8,668)
-------- --------
(8,252) 20,036
-------- --------
Increase (decrease) in cash and cash equivalents 18,678 (22,970)
Cash and cash equivalents at beginning of period 22,765 28,203
-------- --------
Cash and cash equivalents at end of period $ 41,443 $ 5,233
-------- --------
-------- --------
Supplemental schedule of non-cash investing and
financing activities:
Issuance of common stock for acquisitions of certain
business assets $ 3,882
--------
--------
Liabilities assumed in acquisitions of certain
business assets $ 10,235
--------
--------
</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.
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies at the date of the financial statements as well
as the reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best
available information and actual results could differ from those estimates.
In the opinion of management, the unaudited financial information for the
three month periods ended April 30, 1996 and 1995 reflect all adjustments
(which include only normal, recurring adjustments) necessary for a fair
presentation thereof.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Short-term debt securities are included in prepaid expenses and other current
assets and consist of municipal bonds which have been recorded at fair market
value. As of April 30, 1996, short-term debt securities of $2,020,000 had a
fair value of $2,016,000 maturing in 1998. Gross unrealized losses amounted
to $4,000.
It is the Company's policy not to enter into derivative financial instruments
for speculative purposes. The Company has entered into foreign currency
forward exchange contracts to protect against currency exchange risks
associated with certain firm and identifiable foreign currency commitments
entered into in the ordinary course of business. At April 30, 1996, the
Company had approximately $5,474,000 of foreign currency forward exchange
contracts in Spanish pesetas, British pounds sterling and French francs
outstanding with net unrealized losses of $64,000. These contracts were
executed with creditworthy banks for terms of six years or less.
NOTE C - 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 contract 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 D - RECEIVABLES:
Unbilled accounts receivable include $21,456,000 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, 1996.
NOTE E - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
April 30, 1996
--------------
(in thousands)
Inventories:
Contracts-in-process, less progress payments of $2,325 $10,851
Raw Materials 24,343
-------
$35,194
-------
-------
<PAGE>
NOTE F - NOTES PAYABLE
The Company has substantially equivalent unsecured revolving credit loan
agreements with three banks with commitments 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. There were no balances outstanding under
the credit loan agreements at April 30, 1996 and the entire $105,000,000 was
available under the most restrictive debt covenants of the credit loan
agreements.
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 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, cash flows 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, 1996 increased 8.4% 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, 1996, the
Company had approximately 19,900 full-time employees compared to
approximately 18,500 at April 30, 1995. Material and subcontract ("M&S")
revenues were $125 million and $122 million for the three months ended April
30, 1996 and 1995, respectively. As a percentage of total revenues, M&S
revenues have remained relatively constant at 24% and 26% for the three
months ended April 30, 1996 and 1995, respectively.
Revenues by contract type indicate that the percentage of the Company's
revenues attributable to the higher risk, firm fixed-price ("FFP") contracts
remained relatively constant at 19% for the three months ended April 30, 1996
compared to 20% for the same period of the prior year. Fixed-price
level-of-effort ("FP-LOE") and time-and-materials ("T&M") type contracts
represented 26% and 24% of revenues for the three months ended April 30, 1996
and 1995, respectively, while cost reimbursement contracts were 55% 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 87.5% for the three months ended April 30,
1996 compared to 87.6% for the same period of the prior year.
Selling, general and administrative ("SG&A") expenses as a percentage of
revenues (excluding interest income) were 7.9% and 7.5% for the three months
ended April 30, 1996 and 1995, 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. The level of B&P activity and costs has historically fluctuated
depending on the availability of bidding opportunities and resources. IR&D
costs remained constant as a percentage of revenues while G&A costs increased
as a percentage of revenues. 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, 1996 and 1995 primarily
relates to interest on a building mortgage, deferred compensation and
borrowings 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, cash flows 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 April 30, 1996, there
were no borrowings outstanding compared to $29,000,000 outstanding at an
interest rate of 6.4% for the same period of the prior year. At April 30,
1996, the entire commitment of $105,000,000 was available under the most
restrictive debt covenants of the credit loan agreements while cash and
cash-equivalents and short-term investments totaled $48 million.
Cash flows generated from operating activities were $32 million for the three
months ended April 30, 1996 compared to a use of cash of $40 million for the
same period of the prior year. Receivable days outstanding as of April 30,
1996 and 1995 were 63 days. Average receivable days outstanding for the
three months ended April 30, 1996 were 66 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.
<PAGE>
Cash flows spent on investing activities increased to $5 million for the
three months ended April 30, 1996 compared to $3 million for the same period
of the prior year. The increase was primarily due to increased expenditures
for property and equipment, and land and buildings offset by proceeds from
the sale of debt securities.
The Company used $8 million for financing activities for the three months
ended April 30, 1996 compared to a source of cash of $20 million for the same
period for the prior year. The use of cash for financing activities for the
three months ended April 30, 1996 was to repurchase common stock and was
primarily funded by sales of common stock and cash generated from operating
activities. For the same period of the prior year, the Company borrowed funds
under the Company's revolving credit loan agreements to finance working
capital requirements.
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, cash flows 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:
No reports on Form 8-K were filed by the registrant during the fiscal
quarter for which this report is on file.
<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 13, 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 April 30, 1996
Exhibit Sequential
No. Description of Exhibits Page No.
- ------- ----------------------------------------------------- ----------
11 Statement re: Computation of Per Share Earnings
----------
27 Financial Data Schedule
----------
<PAGE>
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
------------------------------
April 30, 1996 April 30, 1995
-------------- --------------
PRIMARY:
Net Income $13,097 $12,792
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 241 345
Interest earned, net of income tax expense
on assumed investment of U.S. government
securities or commercial paper 101 --
------- -------
Adjusted net income $13,439 $13,137
------- -------
------- -------
Weighted average shares outstanding 48,849 47,294
Dilutive stock options, based on the modified
treasury stock method, using average fair
value 3,389 3,790
------- -------
Total average shares outstanding 52,238 51,084
------- -------
------- -------
Per Share Amount $ .26 $ .26
------- -------
------- -------
FULLY DILUTED:
Net Income $13,097 $12,792
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 241 309
Interest earned, net of income tax expense
on assumed investment of U.S. government
securities or commercial paper 64 --
------- -------
Adjusted net income $13,402 $13,101
------- -------
------- -------
Weighted average shares outstanding 48,849 47,294
Dilutive stock options, based on the modified
treasury stock method, using quarter-end or
exercise date established price if higher
than average fair value 3,389 3,790
------- -------
Total average shares outstanding 52,238 51,084
------- -------
------- -------
Per Share Amount $ .26 $ .26
------- -------
------- -------
<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 THREE MONTHS ENDED APRIL 30, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 46,226
<SECURITIES> 0
<RECEIVABLES> 466,206
<ALLOWANCES> 0
<INVENTORY> 35,194
<CURRENT-ASSETS> 576,388
<PP&E> 285,700
<DEPRECIATION> 123,787
<TOTAL-ASSETS> 834,307
<CURRENT-LIABILITIES> 322,438
<BONDS> 35,135
493
0
<COMMON> 0
<OTHER-SE> 476,241
<TOTAL-LIABILITY-AND-EQUITY> 834,307
<SALES> 0
<TOTAL-REVENUES> 516,921
<CGS> 0
<TOTAL-COSTS> 451,853
<OTHER-EXPENSES> 40,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,064
<INCOME-PRETAX> 23,387
<INCOME-TAX> 10,290
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,097
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
