<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-12771
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-3630868
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10260 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
(619) 546-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of November 30, 1997, the Registrant had 49,881,604 shares of
Class A common stock, $.01 par value per share, issued and outstanding, and
317,554 shares of Class B common stock, $.05 par value per share, issued and
outstanding.
<PAGE> 2
PART I
FINANCIAL INFORMATION
<PAGE> 3
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 Nine months ended
------------------------------------- ------------------------------------
October 31, 1997 October 31, 1996 October 31, 1997 October 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 714,408 $ 636,810 $ 2,039,896 $ 1,754,327
--------------- --------------- ---------------- ---------------
Costs and expenses:
Cost of revenues 621,620 559,026 1,783,205 1,533,164
Selling, general and
administrative expenses 61,441 46,243 161,361 136,593
Interest expense 1,688 1,273 4,541 3,705
Other (income) expense, net (7,371) (2,070) (12,934) (1,567)
Minority interest in income
of consolidated subsidiaries 1,952 - 4,647 -
--------------- --------------- ---------------- ---------------
679,330 604,472 1,940,820 1,671,895
--------------- --------------- ---------------- ---------------
Income before income taxes 35,078 32,338 99,076 82,432
Provision for income taxes 15,785 14,148 44,584 36,064
--------------- --------------- ---------------- ---------------
Net income $ 19,293 $ 18,190 $ 54,492 $ 46,368
=============== =============== ================ ===============
Earnings per share of
common stock and equivalents $ .35 $ .35 $ 1.01 $ .90
=============== =============== ================ ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Condensed Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
October 31, 1997 January 31, 1997
---------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 288,410 $ 45,279
Restricted cash 39,432 14,456
Receivables 554,710 567,634
Inventories 13,327 33,983
Prepaid expenses and other current assets 16,549 12,708
Deferred income taxes 60,579 37,155
------------ -------------
Total current assets 973,007 711,215
Property and equipment (less accumulated depreciation
of $121,361 and $130,488 at October 31, 1997 and
January 31, 1997, respectively) 106,764 89,027
Land and buildings (less accumulated depreciation of
$15,681 and $13,444 at October 31, 1997 and
January 31, 1997, respectively) 111,020 96,768
Intangible assets (less accumulated amortization of
$54,643 and $43,870 at October 31, 1997 and
January 31, 1997, respectively) 48,121 59,569
Other assets 49,958 55,883
------------ -------------
$ 1,288,870 $ 1,012,462
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 313,760 $ 271,282
Accrued payroll and employee benefits 207,314 131,234
Income taxes payable 15,021 16,859
Notes payable and current portion of long-term liabilities 12,635 21,287
------------ -------------
Total current liabilities 548,730 440,662
------------ -------------
Long-term liabilities 71,911 44,341
------------ -------------
Minority interest in consolidated subsidiaries 4,418
------------
Stockholders' equity:
Common stock:
Class A, $.01 par value
Authorized: 100,000 shares
Issued and outstanding:
October 31, 1997 - 49,830 shares 498
January 31, 1997 - 48,013 shares 480
Class B, $.05 par value
Authorized: 5,000 shares
Issued and outstanding:
October 31, 1997 - 318 shares 16
January 31, 1997 - 326 shares 16
Additional paid-in capital 450,689 304,658
Retained earnings 227,261 232,562
Other stockholders' equity (14,653) (10,257)
------------ -------------
Total stockholders' equity 663,811 527,459
------------ -------------
$ 1,288,870 $ 1,012,462
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Condensed Consolidated Statement of Cash Flows
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine months ended
-------------------------------------
October 31, 1997 October 31, 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 54,492 $ 46,368
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 36,883 31,034
Non-cash compensation 27,214 22,449
Minority interest in income of consolidated
subsidiaries 4,647
Net gain on sales of certain business assets (5,613)
Loss on disposal of property and equipment 1,714 926
Income tax benefit from employee stock transactions 12,678 6,077
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables 5,071 (17,462)
Inventories 6,406 2,989
Prepaid expenses and other current assets (4,111) (5,095)
Progress payments (4,041) (28,176)
Deferred income taxes (23,424) 720
Other assets (5,007) (2,093)
Accounts payable and accrued liabilities 10,842 18,677
Accrued payroll and employee benefits 77,568 (2,335)
Income taxes payable (3,570) 12,495
------------ -------------
191,749 86,574
------------ -------------
Cash flows from investing activities:
Expenditures for property and equipment (28,031) (26,951)
Expenditures for land and buildings (16,489) (4,431)
Acquisitions of certain business assets, net of cash
acquired (785) (17,964)
Proceeds from sales of certain business assets 50,174
Proceeds from disposal of property and equipment 5,124 206
Proceeds from sale of debt securities available for sale 7,576
------------ -------------
9,993 (41,564)
------------ -------------
Cash flows from financing activities:
Increase in notes payable and long-term liabilities 7,023 9,228
Reduction of notes payable and long-term liabilities (17,555) (5,537)
Net proceeds from sale of minority interest in subsidiary 63,528
Sales of common stock 49,363 13,294
Repurchases of common stock (60,970) (36,969)
------------ -------------
41,389 (19,984)
------------ -------------
Increase in cash and cash equivalents 243,131 25,026
Cash and cash equivalents at beginning of period 45,279 22,765
------------ -------------
Cash and cash equivalents at end of period $ 288,410 $ 47,791
============ =============
Supplemental schedule of non-cash investing and financing
activities:
Repurchases of common stock upon exercise of stock options $ 15,949 $ 14,090
============ =============
Liabilities assumed or incurred in acquisitions of certain
business assets $ 18 $ 15,777
============ =============
Capital lease obligations for property and equipment $ 23,030 $ 363
============ =============
Long-term mortgage assumed upon purchase of land
and building $ 6,929
=============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
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 nine months ended October 31, 1997 and 1996 reflect all adjustments (which
include only normal, recurring adjustments) necessary for a fair presentation
thereof. Operating results for the nine months ended October 31, 1997 are not
necessarily indicative of the results that may be expected for the fiscal year
ending January 31, 1998. For further information, refer to the consolidated
financial statements and footnotes included in the Company's 1997 Annual Report
on Form 10-K/A to Stockholders.
Note B - Restricted Cash
The Company's majority-owned subsidiary (Note I), Network Solutions, Inc.
("NSI"), has an agreement with the National Science Foundation which requires
NSI to set aside 30% of the cash collections from domain name registrations
revenue to be reinvested for the enhancement of the intellectual infrastructure
of the Internet. The Company also has a contract to provide support services to
the National Cancer Institute's Frederick Cancer Research and Development Center
("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.
Note C - Receivables
Unbilled accounts receivable include $20,089,000 of costs incurred on projects
for which the Company has been requested by the customer to begin work under a
new contract, or extend work under a present contract, but for which formal
contracts or contract modifications have not been executed at October 31, 1997.
Note D - Composition of Certain Financial Statement Captions
<TABLE>
<CAPTION>
October 31, 1997
----------------
(in thousands)
<S> <C>
Inventories:
Contracts-in-process $ 5,766
Raw Materials 7,561
--------
$ 13,327
========
</TABLE>
Note E - Notes Payable and Long-Term Liabilities
On August 20, 1997, the Company entered into two new credit facilities
("Facilities") totaling $900,000,000 with a group of financial institutions
which provides for (i) a five-year reducing revolving credit facility of up to
$700,000,000 ("Facility A") and (ii) a 364-day revolving credit facility of up
to $200,000,000 ("Facility B"). These Facilities were entered into to provide
funding for the acquisition of Bell Communications Research, Inc. ("Bellcore")
and for general corporate purposes and replace the $105,000,000 unsecured
revolving credit loan agreements ("old credit loan agreements") which the
Company had. Borrowings under the Facilities are unsecured and bear interest, at
the Company's option, at various rates based on the base rate or bid rate or on
margins over the CD rate or LIBOR. The Company pays a facility fee on the total
commitment amount, regardless of utilization based on a Pricing Matrix. The
Facilities are subject to financial covenants, such as, requiring the Company to
maintain certain levels of net worth and an interest coverage ratio, as well as
a limitation on indebtedness. As of October 31, 1997, there were no balances
outstanding under these Facilities.
<PAGE> 7
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 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 ability to conduct
business.
The Company has recognized the need to ensure its operations will not be
adversely impacted by the Year 2000 software problems and initiated in 1996 a
program to prepare the Company's computer systems and applications for the Year
2000. The Company expects to incur costs specifically associated with modifying
internal-use software for the Year 2000 which costs will be charged to expense
as incurred. Based on preliminary evaluations, the Company does not anticipate
such costs to have a material impact on the Company's results of operations. In
addition, the Company is evaluating its Year 2000 exposure with respect to its
products and services and is currently unable to determine the extent of such
exposure and its potential impact on the Company's results of operations.
Note H - Sale of SAIT Business Unit
On March 7, 1997, the Company sold the majority of the net assets of the SAIT
business unit. The purchase price was subject to potential adjustments, plus
contingent payments if certain milestones were achieved by the business post
closing. At April 30, 1997, final settlement and adjustments with the buyer were
pending and certain circumstances gave rise to uncertainty surrounding the
realization of the gain on the sale. Given these circumstances, the Company
deferred the recognition of any gain until the uncertainty was resolved. During
the quarter ended July 31, 1997, significant uncertainty surrounding the
realization of the gain was resolved and the Company recognized a gain on the
sale of $3,595,000.
Note I - Sale of Minority Interest in Subsidiary
On October 1, 1997, the Company sold 3,795,000 shares of Class A common stock of
its subsidiary NSI in an initial public offering. The Company's net proceeds
from the offering were $64,0000,000 resulting in a gain of $62,000,000, which
was recorded as additional paid-in-capital. Prior to the offering, NSI was a
wholly-owned subsidiary of the Company. Upon completion of the offering, the
Company owns 100% of the outstanding NSI Class B common stock which represents a
76% ownership in NSI and 97% of the combined voting power of NSI's outstanding
Class A and Class B common stock.
Note J - Subsequent Event
On November 14, 1997, the Company completed its acquisition of all the issued
and outstanding common stock of Bellcore, a leading provider of communications
software, engineering, and professional services, pursuant to a definitive
acquisition agreement dated November 20, 1996, as amended. Bellcore was
previously owned by the Regional Bell Operating Companies ("RBOCs"), which
include Ameritech, Bell Atlantic, Bell South, NYNEX, Pacific Telesis Group, SBC
Communications, and US WEST or their affiliates.
The preliminary purchase price of $471,800,000 was funded from the Company's
available cash on hand and from bank borrowings, including borrowings under the
Facilities (Note E). The purchase price will be accounted for under the purchase
method of accounting and allocated to the assets acquired and liabilities
assumed based upon their estimated fair values in the Company's fourth quarter
of fiscal 1998. Results of operations for Bellcore will be included with those
of the Company for periods subsequent to the date of the acquisition. The
purchase price is subject to certain post closing adjustments which will be
determined when the audit of the final closing balance sheet is completed. The
excess purchase price over the net book value of assets acquired is estimated to
be $382,000,000. The final purchase price allocation could differ in the
allocation to and corresponding amortization periods of property and equipment,
land and buildings, intangible assets and resulting goodwill. 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. Goodwill is expected to be amortized over a period of fifteen years. The
purchase price allocation
<PAGE> 8
will be determined within the allowable time frame as prescribed by Accounting
Principles Board Opinion No.16, "Business Combinations", and after appraisals
and other analyses of fair value are completed. Accordingly, the final
allocation could differ materially from the supplemental unaudited pro forma
summary information presented below.
The following unaudited pro forma summary information presents the consolidated
results of operations as if the acquisition had been completed at the beginning
of the periods presented and are not necessarily indicative of the results of
operations of the consolidated Company that might have occurred had the
acquisition been completed at the beginning of the periods specified, nor are
they necessarily indicative of future operating results. Up to the date of
closing, Bellcore derived its revenues principally from the RBOCs, who operated
in a regulatory environment, under service agreements which provided for
recovery of certain regulatory costs, including return on investment.
Furthermore, Bellcore's net income had been based on a statutory return on its
asset base while owned by the RBOCs.
<TABLE>
<CAPTION>
Nine months ended October 31, 1997
-------------------------------------------------------------
Unaudited, Pro Forma, in thousands, except earnings per share
Pro Forma Pro Forma
SAIC Bellcore Adjustment Combined
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 2,039,896 $ 742,347 $ 2,782,243
============ ============== =============
Net Income $ 54,492 $ 9,252 $ (20,547) $ 43,197
============ ============== ============ =============
Earnings per share $ 1.01 $ N/A $ .80
============ ============== =============
</TABLE>
<TABLE>
<CAPTION>
Nine months ended October 31, 1996
-------------------------------------------------------------
Unaudited, Pro Forma, in thousands, except earnings per share
Pro Forma Pro Forma
SAIC Bellcore Adjustment Combined
------------ --------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 1,754,327 $ 735,046 $ 2,489,373
============ =============== ==============
Net Income (loss) $ 46,368 $ (16,229) $ (20,547) $ 9,592
============ =============== ============ ==============
Earnings per share $ .90 $ N/A $ .19
============ =============== ==============
</TABLE>
<PAGE> 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
Revenues for the three and nine months ended October 31, 1997 increased
12.2% and 16.3%, respectively, compared to the same periods of the prior year.
INTESA, the Company's consolidated 60%-owned joint venture, which was formed on
January 2, 1997, was directly responsible for 6.3% and 6.5% of the percentage
increase for the three and nine months ended October 31, 1997. The
remaining increase in revenues of 5.9% and 9.8% for the same periods was
attributable to internal growth in the traditional business areas which
continued to shift toward lower cost service type contracts. This business shift
reflects the increasingly competitive business environment in the Company's
traditional business areas, as well as the Company's increased success in the
engineering and field services market, which typically involve lower cost
contracts.
Revenues are generated from the efforts of the Company's technical staff as well
as the pass through of costs for materials and subcontract efforts, which
primarily occur on large, multi-year contracts. At October 31, 1997, the Company
had approximately 23,200 full-time employees compared to approximately 20,300 at
October 31, 1996. Material and subcontract ("M&S") revenues were $168 million
and $489 million for the three and nine months ended October 31, 1997,
respectively, compared to $177 million and $460 million for the same periods of
the prior year. As a percentage of total revenues, M&S revenues have decreased
to 24% for the three and nine months ended October 31, 1997, respectively,
compared to 28% and 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 28%
for the nine months ended October 31, 1997 from 23% for same period of the prior
year. The increase in revenues from FFP contracts is related to growth in
non-U.S.Government revenues. The Company's non-U.S. Government customers
typically do not contract on a cost-reimbursement basis. Fixed-price
level-of-effort and time-and-materials type contracts decreased to 18% of
revenues for the nine months ended October 31, 1997 from 23% in 1996, while cost
reimbursement contracts were 54% 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 remained relatively constant at
87.3% and 87.6% for the three and nine months ended October 31, 1997,
respectively, compared to 87.8% and 87.4% for the same periods of the prior
year.
Selling, general and administrative ("SG&A") expenses as a percentage of
revenues for the three and nine months ended October 31, 1997 were 8.6% and
7.9%, respectively, compared to 7.3% and 7.8% 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. B&P and IR&D
costs remained relatively constant as a percentage of revenues for the three
months ended October 31, 1997, while G&A costs increased as a percentage of
revenues for the same period. The increase in G&A costs for the three months
ended October 31, 1997 was primarily attributable to the increased charges taken
to income for the amortization and impairment of goodwill.
Interest expense for the nine months ended October 31, 1997 and 1996 primarily
relates to interest on building mortgages, deferred compensation and notes
payable.
Other income (net of other expense) was $7 million and $13 million for the three
and nine months ended October 31, 1997, respectively, compared to $2 million for
the same periods of the prior year. The increase in other income primarily
relates to the gain on the sale of the SAIT business unit (as discussed in the
notes to condensed consolidated financial statements), interest income on higher
average cash balances and gains on the sale of certain other business assets.
On October 1, 1997, the Company sold 3,795,000 shares of Class A common stock of
its NSI subsidiary in an initial public offering. The Company's net proceeds
from the offering were $64,0000,000 resulting in a gain of $62,000,000
<PAGE> 10
which was recorded as additional paid-in-capital. Prior to the offering, NSI was
a wholly-owned subsidiary of the Company. Upon completion of the offering, the
Company owns 100% of the outstanding NSI Class B common stock which represents a
76% ownership in NSI and 97% of the combined voting power of NSI's outstanding
Class A and Class B common stock.
On November 14, 1997, the Company completed its acquisition of all the issued
and outstanding common stock of Bell Communications Research, Inc. ("Bellcore"),
a leading provider of communications software, engineering, and professional
services, pursuant to a definitive acquisition agreement dated November 20,
1996, as amended, Bellcore was previously owned by the Regional Bell Operating
Companies ("RBOCs"), which include Ameritech, Bell Atlantic, Bell South, NYNEX,
Pacific Telesis Group, SBC Communications, and US WEST or their affiliates. The
preliminary purchase price of $472 million was funded from the Company's
available cash on hand and from bank borrowings, including borrowings under the
Company's credit facilities. The purchase price will be accounted for under the
purchase method of accounting and allocated to the assets acquired and
liabilities assumed based upon their estimated fair values in the Company's
fourth quarter of fiscal 1998. Results of operations for Bellcore will be
included with those of the Company for periods subsequent to the date of the
acquisition. The purchase price is subject to certain post closing adjustments
which will be determined when the audit of the final closing balance sheet is
completed. Furthermore, the final purchase price allocation will be determined
within the allowable time frame as prescribed by Accounting Principles Board
Opinion No.16, "Business Combinations" and after appraisals and other analyses
of fair value are completed. Accordingly, the final allocation could differ
materially from the supplemental unaudited pro forma summary information
presented in the notes to condensed consolidated financial statements.
The Bellcore acquisition will result in a substantial growth in both the
employee base and commercial revenues of the Company. The growth and additional
debt of this potential acquisition may place a significant strain on the
Company's management, operational and financial resources. There can be no
assurance that the Company will be able to effectively manage the expansion of
its operations or that the Company's systems, procedures or controls will be
adequate to support the integration of the acquired business. Any inability to
effectively manage the growth could have a material adverse effect on the
Company's consolidated financial position, results of operations and cash flows.
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 has recognized the need to ensure its operations will not be
adversely impacted by the Year 2000 software problems and initiated in 1996 a
program to prepare the Company's computer systems and applications for the Year
2000. The Company expects to incur costs specifically associated with modifying
internal-use software for the Year 2000 which costs will be charged to expense
as incurred. Based on preliminary evaluations, the Company does not anticipate
such costs to have a material impact on the Company's results of operations. In
addition, the Company is evaluating its Year 2000 exposure with respect to its
products and services and is currently unable to determine the extent of such
exposure and its potential impact on the Company's results of operations.
Liquidity and Capital Resources
The Company's primary sources of liquidity continue to be funds provided by
operations and credit facilities. At October 31, 1997 and 1996 there were no
borrowings outstanding under such facilities and cash and cash equivalents and
long-term investments totaled $288 million and $48 million, respectively. Cash
flows generated from operating activities were $192 million for the nine months
ended October 31, 1997 compared to $87 million for the same period of the prior
year. The Company continues to actively monitor receivables with emphasis placed
on collection activities and the negotiation of more favorable payment terms.
Cash flows from investing activities generated cash of $10 million for the nine
months ended October 31, 1997 compared to a use of cash of $42 million for the
same period of the prior year. The source of cash was primarily generated from
the sale of net assets of the SAIT business unit and was partially offset by the
purchase of land and buildings and increased expenditures for property and
equipment.
The Company generated $41 million in cash from financing activities for the nine
months ended October 31, 1997 compared to a use of cash of $20 million for the
same period of the prior year. The Company generated cash from
<PAGE> 11
minority interest in its subsidiary NSI, and sales of the Company's common
stock while utilizing its cash to pay off a mortgage note and repurchase the
Company's common stock.
The Company's cash flows from operations plus borrowing capacity are expected to
provide sufficient funds for the Company's operations, common stock repurchases,
capital expenditures and future long-term debt requirements. Subsequent to the
quarter ended October 31, 1997, the Company filed a shelf registration statement
to register public debt securities. The Company has not issued any debt
securities yet, but intends to use the net proceeds from the sale of the debt
securities in the future for general corporate purposes, including reducing
borrowings under the Company's credit Facilities. Acquisitions in the future are
expected to be financed from operations and borrowing capacity as well as the
issuance of Company common stock.
<PAGE> 12
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various investigations, claims and lawsuits arising
in the normal conduct of its business, none of which, in the opinion of the
Company's management, will have a material adverse effect on its consolidated
financial position, results of operations or its ability to conduct business.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K.
During the fiscal quarter for which this report is filed, the following
report(s) on Form 8-K were filed by the Registrant:
(i) Form 8-K filed October 23, 1997, Item 5, Other Events
(ii) Form 8-K filed October 15, 1997, Item 5, Other Events
(iii) Form 8-K filed September 30, 1997, Item 5, Other Events
(iv) Form 8-K filed September 19, 1997, Item 5 & Item 7, Other Events
and Financial Statements and Exhibits
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
Date: December 15, 1997 /s/ W. A. Roper
-----------------------------------
Senior Vice President and
Chief Financial Officer and
as a duly authorized officer
<PAGE> 14
Exhibit Index
Science Applications International Corporation
Fiscal Quarter Ended October 31, 1997
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description of Exhibits Page No.
- ------- ----------------------- ----------
<S> <C> <C>
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Exhibit to Condensed Consolidated Financial Statements
Computation of Per Share Earnings
(Unaudited, in thousands, except per-share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------------- -----------------------------------
October 31, 1997 October 31, 1996 October 31, 1997 October 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
PRIMARY:
Net Income $ 19,293 $ 18,190 $ 54,492 $ 46,368
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 200 190 601 570
Interest earned, net of income tax expense
on assumed investment of U.S. government
securities or commercial paper -- -- -- --
---------------- ---------------- ---------------- ----------------
Adjusted net income $ 19,493 $ 18,380 $ 55,093 $ 46,938
================ ================ ================ ================
Weighted average shares outstanding 51,418 49,056 50,995 48,987
Dilutive stock options, based on the modified
treasury stock method, using average fair value 3,738 3,041 3,479 3,239
---------------- ---------------- ---------------- ----------------
Total average shares outstanding 55,156 52,097 54,474 52,226
================ ================ ================ ================
Per Share Amount $ .35 $ .35 $ 1.01 $ .90
================ ================ ================ ================
FULLY DILUTED:
Net Income $ 19,293 $ 18,190 $ 54,492 $ 46,368
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt 18 146 53 437
Interest earned, net of income tax expense
on assumed investment of U.S. government
securities or commercial paper -- -- -- --
---------------- ---------------- ---------------- ----------------
Adjusted net income $ 19,311 $ 18,336 $ 54,545 $ 46,805
================ ================ ================ ================
Weighted average shares outstanding 51,418 49,056 50,995 48,987
Dilutive stock options, based on the modified
treasury stock method, using quarter-end
or exercise date established price if higher than
average fair value 3,738 3,041 3,479 3,239
---------------- ---------------- ---------------- ----------------
Total average shares outstanding 55,156 52,097 54,474 52,226
================ ================ ================ ================
Per Share Amount $ .35 $ .35 $ 1.00 $ .90
================ ================ ================ ================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED STATEMENTS OF INCOME
AND CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> OCT-31-1997
<CASH> 327,842
<SECURITIES> 0
<RECEIVABLES> 554,710
<ALLOWANCES> 0
<INVENTORY> 13,327
<CURRENT-ASSETS> 973,007
<PP&E> 354,826
<DEPRECIATION> 137,042
<TOTAL-ASSETS> 1,288,870
<CURRENT-LIABILITIES> 548,730
<BONDS> 71,911
0
0
<COMMON> 514
<OTHER-SE> 663,297
<TOTAL-LIABILITY-AND-EQUITY> 1,288,870
<SALES> 0
<TOTAL-REVENUES> 2,039,896
<CGS> 0
<TOTAL-COSTS> 1,783,205
<OTHER-EXPENSES> 153,074
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,541
<INCOME-PRETAX> 99,076
<INCOME-TAX> 44,584
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 54,492
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
</TABLE>
