<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: SEPTEMBER 19, 1997
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-12771 95-3630868
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
10260 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(619) 546-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
================================================================================
<PAGE> 2
FORM 8-K
ITEM 5. OTHER EVENTS.
As previously reported, on November 20, 1996, Registrant entered into a
definitive acquisition agreement to purchase Bell Communications Research, Inc.
("Bellcore"), a global provider of communications software, engineering and
consulting services. Pursuant to Rule 3-05 of Regulation S-X, filed herewith are
audited financial statements of Bellcore for the three year period ended
December 31, 1996 and unaudited financial statements for the interim period
ended June 30, 1997. Further, pursuant to Rule 11-01 of Regulation S-X, filed
herewith are pro forma financial information reflecting the probable acquisition
of Bellcore.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following consolidated financial statements of Bellcore are
filed as part of this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants. Incorporated by reference to
Item 7(a) of Registrant's Current Report on Form 8-K dated July 11,
1997. -
Consolidated Statements of Operations and Retained Earnings (Deficit)
for the years ended December 31, 1996, 1995 and 1994. Incorporated by
reference to Item 7(a) of Registrant's Current Report
on Form 8-K dated July 11, 1997. -
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Incorporated by reference to Item 7(a) of Registrant's Current Report
on Form 8-K dated July 11, 1997. -
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. Incorporated by reference to
Item 7(a) of Registrant's Current Report on Form 8-K dated July 11,
1997. -
Notes to Consolidated Financial Statements, December 31, 1996,
1995 and 1994. Incorporated by reference to Item 7(a) of
Registrant's Current Report on Form 8-K dated July 11, 1997. -
Unaudited Consolidated Statements of Operations and Retained
Earnings (Deficit) for the six months ended June 30, 1997 and 1996 F-1
Unaudited Consolidated Balance Sheets as of June 30, 1997 and
December 31, 1996 F-2
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Unaudited Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 F-3
Notes to Consolidated Financial Statements, June 30, 1997 and 1996 F-4
</TABLE>
(b) The following pro forma condensed consolidated financial statements
give effect to the probable acquisition of Bellcore by the Company and are filed
with this report:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
July 31, 1997 F-8
Unaudited Pro Forma Condensed Consolidated Statement of Income:
Fiscal year ended January 31, 1997 F-9
Six months ended July 31, 1997 F-10
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements F-11
</TABLE>
<PAGE> 4
BELLCORE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ----------------------------
(Unaudited, Dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Bell Operating Companies $ 184,708 $ 201,764 $ 349,448 $ 384,437
Third Party 69,451 48,492 140,258 104,964
- -------------------------------------------------------------------------------------------------------------------
Total Revenues 254,159 250,256 489,706 489,401
- -------------------------------------------------------------------------------------------------------------------
Cost of Revenues 174,490 185,802 344,451 365,420
- -------------------------------------------------------------------------------------------------------------------
Gross Profit 79,669 64,454 145,255 123,981
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Research & Investment 18,037 10,893 27,499 19,455
Marketing & Sales 36,616 34,198 70,312 62,461
General & Administrative 26,424 28,779 44,745 61,631
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 81,077 73,870 142,556 143,547
- -------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) (1,408) (9,416) 2,699 (19,566)
- -------------------------------------------------------------------------------------------------------------------
Interest 1,287 1,765 3,455 3,630
Other Expense/(Income) 2,975 847 2,108 (734)
- -------------------------------------------------------------------------------------------------------------------
Income/(Loss) Before Income Taxes (5,670) (12,028) (2,864) (22,462)
- -------------------------------------------------------------------------------------------------------------------
Provision/(Benefit) for Income Taxes (5,831) (6,470) (4,678) (9,933)
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 161 $ (5,558) $ 1,814 $ (12,529)
- -------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Retained earnings (deficit), beginning of period (52,240) (48,644) (53,893) (41,673)
Net income (loss) 161 (5,558) 1,814 (12,529)
Amount transferred from Additional Paid In
Capital/Common Stock 5,856 5,653 5,856 11,614
Dividends paid (5,856) (5,653) (5,856) (11,614)
- -------------------------------------------------------------------------------------------------------------------
RETAINED DEFICIT, END OF PERIOD $ (52,079) $ (54,202) $ (52,079) $ (54,202)
- -------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-1
<PAGE> 5
BELLCORE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
Dollars in thousands 1997 1996
(UNAUDITED)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents $ 74,969 $ 53,504
Accounts Receivable:
Bell Operating Companies 172,881 131,625
Third Party, net of allowance 78,148 84,284
Prepaid Expenses and Other 14,237 7,962
Deferred Income Taxes 12,147 19,791
- ----------------------------------------------------------------------------------------
Total Current Assets 352,382 297,166
- ----------------------------------------------------------------------------------------
Property, Plant and Equipment 602,607 651,203
Less Accumulated Depreciation (407,285) (431,805)
- ----------------------------------------------------------------------------------------
Net Property, Plant and Equipment 195,322 219,398
- ----------------------------------------------------------------------------------------
Deferred Charges and Other Assets 29,066 25,811
Noncurrent Deferred Income Taxes 32,359 24,351
Income Taxes Receivable 37,126 43,933
- ----------------------------------------------------------------------------------------
TOTAL ASSETS $ 646,255 $ 610,659
- ----------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $ 57,100 $ 89,000
Accounts Payable 13,011 21,842
Accrued Liabilities:
Wages and Salaries 31,015 52,155
Benefits 35,323 30,867
Bell Operating Companies 81,549 59,718
Other Accrued Liabilities 147,168 82,489
Current Portion of Capital Lease Obligations 3,910 6,504
- ----------------------------------------------------------------------------------------
Total Current Liabilities 369,076 342,575
- ----------------------------------------------------------------------------------------
Long-Term Liabilities
Long-Term Capital Lease Obligations 1,154 2,968
Accrued Pension and Postretirement Benefits 100,098 88,790
Other Noncurrent Liabilities 81,873 79,080
- ----------------------------------------------------------------------------------------
Total Long-Term Liabilities 183,125 170,838
- ----------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note F)
Stockholders' Equity
Common Stock - Seven Shares Authorized Without Par Value 139,777 151,139
Unrealized Gain/Loss on Marketable Equity Securities 6,356 --
Retained Deficit (52,079) (53,893)
- ----------------------------------------------------------------------------------------
Total Stockholders' Equity 94,054 97,246
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 646,255 $ 610,659
- ----------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE> 6
BELLCORE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30,
(Unaudited, Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) $ 1,814 $ (12,529)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation 36,361 33,107
Deferred Income Taxes (364) (1,946)
Provision for Doubtful Accounts 1,413 --
Decrease (Increase) in Assets:
Accounts Receivable (36,533) 9,212
Prepaid Expenses and Other (6,275) (5,160)
Deferred Charges and Other Assets 3,101 4,970
Income Taxes Receivable 6,807 --
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Liabilities 60,995 (25,862)
Accrued Pension and Postretirement Benefits 11,308 11,006
Other Noncurrent Liabilities 2,793 (10,678)
- -----------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 81,420 2,120
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Plant and Equipment (13,862) (15,678)
Proceeds from Disposals of Property, Plant and
Equipment 1,898 1,126
- -----------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (11,964) (14,552)
- -----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in Short-Term Borrowings (31,900) 45,600
Dividends Paid (11,362) (11,614)
Principal Payments on Capital Lease Obligations (4,729) (8,745)
- -----------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities (47,991) 25,241
- -----------------------------------------------------------------------------------------------------
Net Increase in Cash and Cash Equivalents 21,465 12,809
- -----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 53,504 24,882
- -----------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,969 $ 37,691
- -----------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid (Received) During the Period for:
Interest $ 2,342 $ 3,379
Income Taxes $ (3,683) $ 11,760
Supplemental Schedule of Noncash Investing and
Financing Activities
Capital Lease Obligations Incurred for Use of Equipment $ 322 $ 4,847
- -----------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the financial statements.
- -----------------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE> 7
BELLCORE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In the opinion of management, the unaudited financial information for the six
month periods ended June 30, 1997 and 1996 reflect all adjustments (which
include only normal, recurring adjustments) necessary for a fair presentation
thereof.
B) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
It is the Company's policy not to enter into derivative financial instruments
for speculative purposes. The Company has entered into foreign currency forward
contracts to protect against foreign currency exchange risks associated with
certain firm and identifiable foreign currency commitments entered into in the
ordinary course of business. At June 30, 1997, the Company had $16,474,600 of
foreign currency forward exchange contracts in Australian dollars, with net
unrealized gains of $774,370. These contracts were executed for terms of one
year or less.
C) SEGREGATED CASH
The Company provides toll-free services operations through one of its
subsidiaries as the agent of the Bell Operating Companies. The Company has
recorded cash collections in excess of costs incurred to provide toll-free
services operations as a liability to the Bell Operating Companies. At June 30,
1997 the liability amounted to $83.1 million. As a result, $72.0 million of the
reported cash and cash equivalents of $75.0 million is segregated from general
corporate purposes and is maintained on behalf of the Bell Operating Companies.
F-4
<PAGE> 8
BELLCORE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D) SHORT-TERM BORROWINGS AND CREDIT AGREEMENTS
The Company has a $250.0 million, unsecured revolving credit loan agreement with
five banks which allow borrowings on a revolving basis until June 2001. The
agreements enable borrowings at various interest rates based on certificate of
deposit, eurodollar, or interbank offshore borrowing rates. Annual facility fees
are .09% of the total commitment during the revolving credit term. At June 30,
1997, there were no loans outstanding under the revolving credit agreement.
E) INCOME TAXES
Income taxes for interim periods are computed using the estimated annual
effective rate method.
F) COMMITMENTS AND CONTINGENCIES
Bellcore is involved in various legal proceedings which are related to the
conduct of its business. The Company has established a reserve which it believes
is adequate and believes that the ultimate resolution of such pending litigation
will not have a material adverse effect on the Company's results of operations
or its financial position.
G) SUBSEQUENT EVENT
On August 1, 1997, $56.5 million of the cash segregated from general corporate
purposes and maintained on behalf of the Bell Operating Companies was sent to
numerous toll-free service operators at the direction of the Bell Operating
Companies.
F-5
<PAGE> 9
ITEM 7 (B) Pro Forma Financial Information
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On November 20, 1996, Science Applications International Corporation
("SAIC" or "the Company") entered into a definitive acquisition agreement to
acquire all of the outstanding common stock of Bell Communications Research,
Inc. ("Bellcore"), a global provider of software development, engineering and
consulting services, advanced research and development, technical training and
other services to the telecommunications industry. Bellcore is currently owned
by the Regional Bell Operating Companies and is primarily located in New Jersey.
As of December 31, 1996, Bellcore had approximately 5,500 employees and annual
revenues of approximately $1 billion. The acquisition is subject to certain
conditions and contingencies, including regulatory approvals, and is expected to
be consummated in the Company's third quarter ending October 31, 1997. As of the
date of this filing, the Company has not consummated the acquisition and is
awaiting certain regulatory approvals. Upon consummation of the acquisition,
Bellcore will become a wholly-owned subsidiary of SAIC.
Currently, Bellcore's fiscal year end is December 31. For purposes of
the pro forma condensed consolidated financial statements, Bellcore's fiscal
year ended December 31, 1996 and interim period ended June 30, 1997 have been
included in the Company's January 31, 1997 and July 31, 1997 condensed
consolidated financial statements, respectively.
The following unaudited pro forma condensed consolidated financial
statements give effect to the probable acquisition of Bellcore by the Company in
a transaction using the purchase method of accounting and the assumptions and
adjustments in the accompanying notes. The pro forma adjustments are based on
preliminary estimates of fair value. Actual adjustments will be based on final
appraisals and other analyses of fair values.
The unaudited pro forma condensed consolidated balance sheet is based
on the individual balance sheets of Bellcore, appearing elsewhere in this form
8-K, and the Company, and have been prepared to reflect the acquisition by the
Company of Bellcore as of July 31, 1997. The unaudited pro forma condensed
consolidated statement of income combines the consolidated statement of income
of SAIC and Bellcore for the year ended January 31, 1997 and the interim period
ended July 31, 1997 as if the acquisition occurred on February 1, 1996.
The unaudited pro forma condensed consolidated financial statements are
based on assumptions the Company believes are reasonable, factually supportable
and directly attributable to the acquisition. However, the actual impact of the
Bellcore acquisition could differ materially from the unaudited pro forma
condensed consolidated balance sheet and statements of income included herein.
The purchase price allocation is preliminary and management anticipates that the
final allocation could differ materially from that included in the unaudited pro
forma
F-6
<PAGE> 10
condensed consolidated financial statements included herein. The final purchase
price could differ in the allocation to property and equipment, land and
buildings, and intangible assets and their corresponding amortization periods.
The amortization periods could differ ranging from one to eight years for
property and equipment, twenty to forty years for buildings, and three to ten
years for intangible assets. In addition, the final purchase price could differ
in the allocation to the pension plan asset and other postretirement benefit
(OPEB) liability and these differences could impact the final goodwill amount.
The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements, including the notes thereto, of the Company in its Annual Report on
Form 10-K/A for the year ended January 31, 1997 and of Bellcore incorporated by
reference to item 7(a) of the Company's Current Report on Form 8-K dated July
11, 1997, and the unaudited consolidated financial statements, including notes
thereto, of the Company in its Quarterly Report on Form 10-Q for the quarterly
period ended July 31, 1997 and of Bellcore contained in this filing on Form 8-K.
These unaudited pro forma condensed consolidated financial statements are shown
for illustrative purposes only and are not necessarily indicative of the results
of operations or financial position of the consolidated company that might have
occurred had the Bellcore acquisition been completed at the beginning of the
periods specified, nor are they necessarily indicative of future operating
results or financial position.
F-7
<PAGE> 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 31, 1997
-----------------------------------------------------------------
SAIC BELLCORE PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(NOTE 1)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ...................... $ 181,217 $ 74,969 $ 355,286 (b) $ 136,409
(1,400)(b)
(473,663)(c)
Restricted cash ................................ 31,699 31,699
Receivables .................................... 542,434 251,029 793,463
Inventories .................................... 16,378 16,378
Prepaid expenses and other current assets ...... 16,185 14,237 (5,100)(a) 25,322
Deferred income taxes .......................... 49,375 12,147 61,522
----------- ----------- ----------- -----------
Total current assets ...................... 837,288 352,382 (124,877) 1,064,793
Property and equipment ......................... 90,442 148,210 25,000 (c) 263,652
Land and buildings ............................. 111,777 47,112 24,000 (c) 182,889
Intangible assets .............................. 53,926 322,441 (d) 376,367
Other assets ................................... 54,507 98,551 195,000 (e) 373,458
24,000 (f)
1,400 (b)
----------- ----------- ----------- -----------
$ 1,147,940 $ 646,255 $ 466,964 $ 2,261,159
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities ....... $ 309,492 $ 241,728 $ -- $ 551,220
Accrued payroll and employee benefits .......... 170,308 66,338 236,646
Income taxes payable ........................... 21,579 21,579
Notes payable and current portion of long-term
liabilities .................................. 9,129 61,010 155,286 (b) 225,425
----------- ----------- ----------- -----------
Total current liabilities ................. 510,508 369,076 155,286 1,034,870
----------- ----------- ----------- -----------
Long-term liabilities and minority interest .... 54,221 183,125 146,732 (g) 643,078
59,000 (f)
200,000 (b)
----------- ----------- ----------- -----------
405,732
-----------
Common stock ................................... 512 139,777 (139,777)(c) 512
Additional paid-in capital ..................... 363,602 363,602
Retained earnings (deficit) .................... 228,558 (52,079) 52,079 (c) 228,558
Other stockholders' equity ..................... (9,461) 6,356 (6,356)(c) (9,461)
----------- ----------- ----------- -----------
Total stockholders' equity ................ 583,211 94,054 (94,054) 583,211
----------- ----------- ----------- -----------
$ 1,147,940 $ 646,255 $ 466,964 $ 2,261,159
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements.
F-8
<PAGE> 12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1997
-----------------------------------------------------------------
SAIC BELLCORE PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ........................................... $ 2,402,224 $ 1,009,851 $ (5,989)(h) $ 3,406,086
Cost and expenses:
Cost of revenues ............................... 2,092,254 727,953 2,820,207
Selling, general and administrative expenses ... 191,836 292,682 22,441 (i) 500,801
(5,518)(j)
(640)(l)
Other (income) expense, net .................... (1,111) (1,111)
Interest expense ............................... 4,925 8,389 24,942 (k) 38,396
140 (m)
----------- ----------- ----------- -----------
2,289,015 1,027,913 41,365 3,358,293
Income (loss) before income taxes .................. 113,209 (18,062) (47,354) 47,793
Provision for (benefit from) income taxes .......... 49,529 (5,842) (10,349)(n) 33,338
----------- ----------- ----------- -----------
Net income (loss) .................................. $ 63,680 $ (12,220) $ (37,005) $ 14,455
=========== =========== =========== ===========
Earnings per share ................................. $ 1.23 N/A $ .28
=========== =========== ===========
Average number of shares outstanding, including
common stock equivalents ........................... 52,309 52,309
=========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements.
F-9
<PAGE> 13
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY 31, 1997
-----------------------------------------------------------------
SAIC BELLCORE PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues ........................................... $ 1,325,488 $ 489,706 $ (2,994)(h) $ 1,812,200
Cost and expenses:
Cost of revenues ............................... 1,161,585 344,451 1,506,036
Selling, general and administrative expenses ... 99,920 142,556 11,221 (i) 251,253
(2,124)(j)
(320)(l)
Other (income) expense, net and minority
interest .................................... (2,868) 2,108 (760)
Interest expense ............................... 2,853 3,455 12,471 (k) 18,849
70 (m)
----------- ----------- ----------- -----------
1,261,490 492,570 21,318 1,775,378
Income (loss) before income taxes .................. 63,998 (2,864) (24,312) 36,822
Provision for (benefit from) income taxes .......... 28,799 (4,678) (5,432)(n) 18,689
----------- ----------- ----------- -----------
Net income (loss) .................................. $ 35,199 $ 1,814 $ (18,880) $ 18,133
=========== =========== =========== ===========
Earnings per share ................................. $ .66 $ N/A $ .34
=========== =========== ===========
Average number of shares outstanding, including
common stock equivalents ........................... 54,133 54,133
=========== ===========
</TABLE>
See accompanying notes to Unaudited Pro Forma
Condensed Consolidated Financial Statements.
F-10
<PAGE> 14
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - The unaudited pro forma condensed consolidated balance sheets and
statements of income have been prepared to reflect the probable acquisition
of Bellcore by the Company for an estimated aggregate price of $473,663.
Pro forma adjustments are made to reflect:
(a) Assets that will not be acquired by the Company.
(b) Issuance of debt to finance the acquisition of Bellcore and deferral of
debt issuance costs. The debt consists of $200,000 in 7.6% long-term notes
payable maturing in May 2007 and $155,286 of borrowings on revolving line
of credit agreements, which expire in May 2002, with an interest rate of
6.3%.
(c) Purchase price allocation to record assets and liabilities at estimated
fair value:
<TABLE>
<CAPTION>
<S> <C>
Cash payment to Bellcore owners $ 463,563
Deferred acquisition costs 10,100
---------
Total purchase price 473,663
---------
Elimination of book value of net assets acquired:
Common stock (139,777)
Accumulated deficit 52,079
Other stockholders' equity (6,356)
Assets not acquired 5,100
---------
Net equity (88,954)
---------
Excess of purchase price over net book value $ 384,709
=========
Allocation of excess purchase price over net book value:
Amount assigned to property and equipment $ 25,000
Amount assigned to land and buildings 24,000
Amount assigned to excess pension plan assets at fair
value over the projected benefit obligation 195,000
Deferred tax assets - non current 24,000
Deferred tax liabilities - non current (146,732)
Amount assigned to OPEB liabilities in excess of the fair
value of plan assets (59,000)
Amount assigned to identifiable intangible assets 118,300
Amount assigned to goodwill 204,141
---------
$ 384,709
=========
</TABLE>
The purchase price allocation is based upon estimates from a valuation process
that is still in its preliminary stages. Because the consummation of the
acquisition is awaiting regulatory approvals, which are expected to be obtained
during the Company's third quarter ending October 31, 1997, the final allocation
of the purchase price upon closing could materially differ from these estimates.
F-11
<PAGE> 15
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
(d) Identifiable intangible assets based upon estimates from a valuation
process that is still in its preliminary stages and goodwill. Because the
consummation of the acquisition is awaiting regulatory approvals, which are
expected to be obtained during the third quarter ending October 31, 1997,
the final allocation of the purchase price upon closing could materially
differ from these estimates.
(e) Excess of the Bellcore pension plan assets at fair value over the projected
benefit obligation. The Company is in the process of reviewing the
actuarial assumptions and data relative to the Bellcore pension plan. The
final allocation of the purchase price could materially differ from
estimates based upon the review and final actuarial valuation and could
impact the final goodwill amount.
(f) Estimate of Bellcore's postretirement benefit obligation in excess of the
fair value of plan assets, including the related deferred tax asset. The
Company is reviewing the actuarial data relative to the Bellcore
postretirement benefit plans and based on the review, the final allocation
of the purchase price could differ and impact the final goodwill amount.
(g) Deferred tax liabilities, in accordance with SFAS 109, related to the
purchase price allocation (c) to property and equipment, land and
buildings, pension plan (e) and purchased intangibles (d), other than
goodwill.
(h) Elimination of interest income earned, calculated using an average rate of
5.0%, on cash balances which reflects the use of cash for the acquisition.
(i) Amortization of purchased intangibles on a straight-line basis over 3 to 10
years, and goodwill, on a straight-line basis over 15 years. The Company is
in the early stages of compiling data and reviewing the preliminary
assumptions related to the valuation of the excess of the purchase price
over the estimated fair value of net intangible and tangible assets
acquired. The final valuation and allocation of the purchase price upon the
consummation of the acquisition could materially differ from the
preliminary estimates.
(j) Elimination of amortization of unrecognized net transition
obligation/assets, unrecognized prior service cost and unrecognized net
gains included in the net periodic pension and postretirement benefits
expense.
(k) Interest expense on $200,000 of long-term notes and $155,286 of short-term
debt incurred in connection with the acquisition of Bellcore at an average
effective interest rate of 6.9%.
(l) Depreciation of property and equipment based on the estimated purchase
price allocation per the preliminary valuation.
(m) Amortization of deferred debt issuance costs on a straight-line basis over
the term of the $200,000 long-term notes. Difference between amortization
on a straight-line basis and using the net effective interest method of
amortization is deemed immaterial.
(n) Income tax effects of pretax pro forma adjustments using the statutory rate
in effect during the periods for which the pro forma condensed consolidated
statements of income are presented.
F-12
<PAGE> 16
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 hereunto duly authorized.
(Registrant) SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
Date: September 19, 1997 By: /s/ W. A. Roper
--------------------------------
W. A. Roper
Senior Vice President
and Chief Financial Officer
