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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE
OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED JANUARY 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER: 0-12771
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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 95-3630868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 CAMPUS POINT DRIVE, SAN DIEGO, 92121
CALIFORNIA
(Address of Registrant's principal executive (Zip Code)
offices)
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Registrant's telephone number, including area code: (619) 546-6000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, Par Value $.01 Per Share
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 14, 1997, the aggregate market value of the voting stock held
by non-affiliates of Registrant was $653,518,572. For the purpose of this
calculation, it is assumed that the Registrant's affiliates include the
Registrant's Board of Directors and certain of the employee benefit plans of the
Registrant and its subsidiaries. The Registrant disclaims the existence of any
control relationship between it and such employee benefit plans.
As of March 14, 1997, there were 48,575,760 shares of Registrant's Class A
Common Stock and 322,319 shares of Registrant's Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the Company's 1997
Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K Report.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Science Applications International Corporation (the "Company") provides
diversified professional and technical services ("Technical Services") and
designs, develops and manufactures high-technology products ("Products"). The
Company's Technical Services and Products are primarily sold to departments and
agencies of the U.S. Government, including the Department of Defense ("DOD"),
Department of Energy ("DOE"), Department of Transportation, Department of
Veterans Affairs ("VA"), Environmental Protection Agency and National
Aeronautics and Space Administration ("NASA"). Revenues generated from the sale
of Technical Services and Products to the U.S. Government as a prime contractor
or subcontractor accounted for approximately 79%, 83% and 86% of revenues in
fiscal years 1997, 1996 and 1995, respectively. The balance of the Company's
revenues are attributable to the sales of Technical Services and Products to
foreign, state and local governments, commercial customers and others. The
percentage of revenues attributable to Technical Services has increased since
fiscal year 1995 while Product revenues have correspondingly decreased.
Technical Services revenues and Product revenues were 94% and 6%, respectively,
for fiscal year 1997; 93% and 7%, respectively, for fiscal year 1996; and 91%
and 9%, respectively, for fiscal year 1995. On March 7, 1997, the Company sold
its Science Applications International Technologies ("SAIT") business unit,
which designed, manufactured and sold certain ruggedized computers and display
products and accounted for 49% of the Company's Product revenues in fiscal year
1997. The Company provides Technical Services primarily in the areas of
"National Security," "Health," "Environment," "Energy" and "Other Technical
Services," the last of which includes the Company's transportation, commercial
information technology and space business areas. The percentage of Technical
Services revenues attributable to National Security-related work has gradually
declined to 44% of total revenues for fiscal year 1997. For fiscal year 1997,
the Health, Environment, Energy and Other Technical Services business areas
accounted for 14%, 11%, 5% and 20%, respectively, of total revenues. For certain
financial information regarding the Company's Technical Services and Products
segments, see Note C of Notes to Consolidated Financial Statements of the
Company set forth on page F-11 of this Form 10-K.
The principal office and corporate headquarters of the Company is located
in San Diego, California at 10260 Campus Point Drive, San Diego, California
92121 and its telephone number is (619) 546-6000. All references to the Company
include, unless the context indicates otherwise, the Company and its predecessor
and subsidiary corporations.
TECHNICAL SERVICES
National Security
The Company currently provides a wide array of national security-related
Technical Services to its customers, including advanced research and technology
development, systems engineering and systems integration and technical,
operational and management support services. Examples of the Company's Technical
Services in the national security area include the following:
- Development and integration of command, control and intelligence
applications software, middleware and data bases in client-server
architectures to provide situational awareness and decision-aiding to
military commanders and organizations; the range of services includes
architectural definition, systems and software engineering, systems
installation, training and site support.
- Information and telecommunication system engineering and support
services, including requirements analysis and acquisition support,
computer system design, information and user environment modeling and
data communication systems support.
- Defense studies and analyses for various defense and intelligence
agencies of the U.S. Government, including studies regarding conventional
and nuclear warfare issues, treaty negotiation and verification, and the
integration of military operational and technological considerations with
defense policy issues.
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- Development of core technology for advanced distributed simulation and
applications for the DOD and other government and commercial customers.
- Support of numerous DOD test and evaluation requirements of ground, air,
sea and space systems; assistance to the U.S. Air Force, U.S. Navy, U.S.
Army, U.S. Marine Corps and the Office of the Secretary of Defense in
assessing the military effectiveness and suitability of major
communication, sensor, navigation, weapon and related systems that
support primary service and/or joint service roles and missions.
- Logistics engineering services and turnkey logistics information
management systems for a wide variety of government customers.
- Design, integration, implementation and operation of battlefield
simulation training ranges on land, air and sea.
- Systems engineering and technical assistance for cruise missiles,
unmanned aerial vehicles, future aircraft and ballistic missile concepts;
systems analysis of sensors for the detection and tracking of aircraft
and ballistic missiles; and studies regarding the survivability of
tactical aircraft and strategic missiles.
- Support to the DOD in imagery collection, processing, exploitation and
dissemination systems for digital processing, technology intelligence
communications and information management.
- Maintenance engineering and training, including field technical services
and repair, electronic system design and hands-on operational support,
primarily to the U.S. Navy.
- Independent verification and validation and software quality assurance
support services for shipboard combat systems, mission planning
functions, operational flight software command and control processors,
nuclear surety systems, soft copy imagery processing, data storage and
dissemination systems and various submarine, surface ship and command,
control and communications systems.
- Engineering, environmental, quality assurance, integration and program
support to the U.S. Army's chemical demilitarization and remediation
activity.
- System engineering, development, integration and related services for the
intelligence community.
Health
The Company provides health-related Technical Services to government and
commercial customers, including medical information systems, technology
development and research support services. Examples of the Company's Technical
Services in the health area include the following:
- Applied research, systems integration and customer support services to
both commercial and federal health care clients, including research
initiatives for the U.S. Advanced Research Projects Agency, developing
and operating a nationwide health care frame relay-based
telecommunications system for the VA and automating the information
systems for the DOD's medical treatment facilities worldwide.
- Information engineering, software development and program support for the
Department of Health and Human Services and the National Institutes of
Health.
- Design, development and operation of health information networks for
integrated healthcare delivery systems for commercial healthcare clients.
- Research support services to the National Cancer Institute-Frederick
Cancer Research and Development Center, including management and
operations support, quality and safety operations, ongoing research and
research support tasks.
- Support to the U.S. Army in the biomedical area, including providing
expert analysis, research planning, program design and review and topical
research on a variety of military medical issues, including medical
countermeasures to chemical and biological warfare, casualty care,
battlefield hazards and the U.S. Army's breast cancer research program,
as well as biomedical service and management of government facilities.
- Preclinical product development services for the pharmaceutical,
biotechnology and medical device community, including veterinary
pathology, Food and Drug Administration requirements analysis, quality
assurance and Good Laboratory Practices consulting, special toxicological
assay development and performance, client site services, and the
development and management of complete product development programs
(virtual product development).
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Environment
In the environmental area, the Company performs site assessments, remedial
investigations and feasibility studies, remedial actions, technology
evaluations, sampling, monitoring and regulatory compliance support and
training. Examples of the Company's Technical Services in the environmental area
include the following:
- Management and technical support to the DOE for the characterization of
the nation's first potential high-level waste repository, including the
preparation and coordination of environmental assessments, field testing,
technical evaluations, public information, quality assurance, information
systems and training.
- Development, demonstration and evaluation of new technologies for
hazardous waste treatment, including bioremediation and high-energy
plasma treatment systems.
- Solid and hazardous waste services to federal, state and local
governments and the private sector, including environmental assessments,
environmental impact statements, design engineering, remedial
investigations and feasibility studies, remedial actions, regulatory and
enforcement support, pollution prevention and engineering services.
- Analysis of a broad range of environmental issues associated with the
marine sciences such as ocean dumping, mineral exploration, global
change, global ocean circulation and temperature trends.
- Support associated with the development of treatment technologies,
including treatability studies, development of protocols for technology
evaluation, pollution prevention assessments, waste minimization and
technology assessments.
- Development and implementation of information systems.
Energy
The energy-related Technical Services of the Company include safety
evaluations, security, reliability and availability engineering evaluations,
technical reviews, quality assurance, information systems, plant monitoring
systems and project management. Examples of the Company's Technical Services in
the energy area include the following:
- Engineering and support services to nuclear, electric, gas and other
utility operations in the areas of computer systems, information
processing, configuration management, risk assessment, safety analysis,
nuclear engineering, reliability and availability evaluations, simulator
upgrades, energy policy analysis and alternative energy evaluation.
- Support to DOE in planning, facility transitions, safety analysis,
transportation, waste management, quality assurance, emergency
preparedness and public outreach.
- Design, fabrication and application of alternative energy sources such as
solar generators and fuel cells.
- Information systems services to the DOE, including collection, analysis
and storage of energy information, the development of geographic
information systems and the overall management of large computer
facilities.
- Support to DOE in fusion energy research, including facility management,
computer system development and project management support in connection
with an international thermonuclear experimental reactor.
- Systems integration services to the utility industry, including design,
development and installation of plant process computer systems,
supervisory control and data acquisition (SCADA) systems and electronic
security systems.
- Management, operation and technical services for fossil energy research
laboratories.
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Other Technical Services
The Company provides Technical Services to government and commercial
customers in such other areas as transportation, commercial information
technology and space. Examples of other Technical Services provided by the
Company include the following:
- Development, installation and operation of computer and
telecommunications systems for various transportation applications,
including automated toll revenue collection, rail asset and freight
management, intermodal terminal operation, advanced traffic and
congestion management, rail electrification, traffic control, air traffic
control, commercial vehicle electronic clearance, explosive and
contraband detection and state motor vehicle registration.
- Strategic planning, operational analysis and evaluation, surface
transportation planning and engineering, software development and
reengineering, safety and human factors research and hazardous material
transportation safety.
- Information technology and automatic data processing outsourcing services
for commercial clients.
- Scientific and computing services to federal agencies involved in global
change research, including processing, utilization and scientific
analysis of space, airborne and ground-based remotely sensed data.
- Security services for the U.S. Government and commercial customers,
including material control and accountability, computer and information
security, technical surveillance countermeasures, intrusion detection,
access control and physical plant threat assessments and vulnerability
analysis.
- Safety, reliability and quality assurance engineering support for NASA's
Space Shuttle and Space Station programs.
- Internet domain name registration and related services and Intranet
consulting and network design and implementation services.
- Undersea data collection and transmission systems and services, including
deep water systems, telecommunications cable systems and hydrographic
survey systems and other services in the areas of hydrography, physical
oceanography, diving, vessel operation and management, marine studies and
other maritime studies and analysis.
PRODUCTS
The Company designs, develops and manufactures high-technology products for
government and commercial customers. Examples of the Company's Products include
the following:
- Automatic equipment identification technology for rail, truck, air and
sea transportation modes.
- Digital and analog recording products, signal reconnaissance data
processors and telecommunications products for the intelligence
community.
RESOURCES
The Technical Services and Products provided by the Company utilize a wide
variety of resources. The Company anticipates the continued availability of the
resources required for the Technical Services and Products provided to
customers. A substantial portion of the computers and other equipment, materials
and subcontracted work required by the Company could be procured from alternate
supply sources. However, with respect to certain products and programs, the
Company depends on a particular source or vendor. While a temporary or permanent
disruption in the supply of these materials or services could cause
inconvenience or delay or impact the profitability of the affected programs or
products, the Company believes it would not materially affect the profitability
or operations of the Company as a whole.
The availability of skilled employees who have the necessary education
and/or experience in specialized scientific and technological disciplines
remains critical to the future growth and profitability of the Company. Because
of the Company's growth and the competitive business environment, it has become
more difficult to meet all of the Company's needs for such employees in a timely
manner. However, to date, such difficulties have not had a significant impact on
the Company. The Company intends to continue to devote significant resources to
recruit and retain qualified employees. Further, as an inducement, the Company
maintains a
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variety of benefit programs for its employees, including retirement and bonus
plans, group life, health, accident and disability insurance and offers its
employees the opportunity to participate in the Company's employee ownership
program. See "Employees And Consultants" and "The Limited Market."
MARKETING
The Company's marketing activities are primarily conducted by its own
professional staff of engineers, scientists, analysts and other personnel. The
Company's marketing approach for its Technical Services begins with the
development of information concerning the requirements of the U.S. Government
and other potential customers for the types of Technical Services provided by
the Company. Such information is gathered in the course of contract performance
and from formal briefings, participation in professional organizations and
published literature. This information is then evaluated and exchanged among
marketing groups within the Company (organized along functional, geographic and
other lines) in order to devise and implement, subject to management review and
approval, the best means of taking advantage of available business
opportunities, including the preparation of proposals responsive to the stated
and perceived needs of customers.
The Company's Products are marketed primarily through the Company's own
sales force, which is augmented by independent sales representatives.
COMPETITION
The businesses in which the Company is engaged are highly competitive. The
Company has a large number of competitors, some of which have been established
longer and have substantially greater financial resources and larger technical
staffs than the Company. Some of the other competitors, although smaller in
size, are more highly specialized. In addition, the U.S. Government's own
in-house capabilities and federal non-profit contract research centers are also
competitors of the Company because they perform certain types of services which
might otherwise be performed by the Company.
The primary competitive factors in the business areas in which the Company
is engaged are technical, management and marketing competence and price. The
Company's continued success is dependent upon its ability to hire and retain
highly qualified scientists, engineers, technicians, management and professional
personnel who will provide superior service and performance on a cost-effective
basis.
SIGNIFICANT CUSTOMERS
During the fiscal years ended January 31, 1997, 1996 and 1995,
approximately 80%, 84% and 88%, respectively, of the Company's contract revenues
from the Technical Services segment and approximately 57%, 71% and 68%,
respectively, of the Company's contract revenues from the Products segment, were
attributable to prime contracts with the U.S. Government or to subcontracts with
other contractors engaged in work for the U.S. Government.
In fiscal years 1997, 1996 and 1995, the U.S. Air Force accounted for
approximately 8%, 9% and 11%, respectively, of consolidated revenues, the U.S.
Army accounted for approximately 16%, 22% and 19%, respectively, of consolidated
revenues, the U.S. Navy accounted for approximately 10%, 9% and 10%,
respectively, of consolidated revenues and the DOE accounted for approximately
7%, 10% and 11%, respectively, of consolidated revenues.
During fiscal year 1996, approximately 10% of the Company's consolidated
revenues were derived from one U.S. Government contract to automate the
information systems for the DOD's medical treatment facilities worldwide. This
contract was substantially completed in 1997. No other single contract in the
Technical Services segment accounted for 10% or more of consolidated revenues in
fiscal year 1996 and no single contract in the Technical Services segment
accounted for 10% or more of consolidated revenues in fiscal years 1997 or 1995.
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No single customer or contract in the Products segment accounted for 10% or
more of consolidated revenues in fiscal years 1997, 1996 or 1995.
GOVERNMENT CONTRACTS
Many of the U.S. Government programs in which the Company participates as a
contractor or subcontractor may extend for several years; however, such programs
are normally funded on an annual basis. All U.S. Government contracts and
subcontracts may be modified, curtailed or terminated at the convenience of the
government if program requirements or budgetary constraints change. In the event
that a contract is terminated for convenience, the Company generally would be
reimbursed for its allowable costs through the date of termination and would be
paid a proportionate amount of the stipulated profit or fee attributable to the
work actually performed.
Termination or curtailment of major programs or contracts of the Company
could have a material adverse effect on the results of the Company's operations.
Although such contract and program terminations have not had a material adverse
effect on the Company in the past, no assurance can be given that curtailments
or terminations of U.S. Government programs or contracts will not have a
material adverse effect on the Company in the future.
The Company's business with the U.S. Government and other customers is
generally performed under cost-reimbursement, time-and-materials, fixed-price
level-of-effort or firm fixed-price contracts. Under cost-reimbursement
contracts, the customers reimburse the Company for its direct costs and
allocable indirect costs, plus a fixed fee or incentive fee. Under
time-and-materials contracts, the Company is paid for labor hours at negotiated,
fixed hourly rates and reimbursed for other allowable direct costs at actual
costs plus allocable indirect costs. Under fixed-price level-of-effort
contracts, the customer pays the Company for the actual labor hours provided to
the customer at negotiated hourly rates. Under firm fixed-price contracts, the
Company is required to provide stipulated products or services for a fixed
price. Because the Company assumes the risk of performing a firm fixed-price
contract at the stipulated price, the failure to accurately estimate ultimate
costs or to control costs during performance of the work could result, and in
some instances has resulted, in reduced profits or losses for particular firm
fixed-price contracts.
During the fiscal years ended January 31, 1997, 1996 and 1995,
approximately 57%, 57% and 63%, respectively, of the Technical Services revenues
were derived from cost-reimbursement type contracts and approximately 20%, 16%
and 13%, respectively, of the Technical Services revenues were from firm
fixed-price type contracts, with the balance from time-and-materials and
fixed-price level-of-effort type contracts. In contrast, the majority of the
Products revenues in these three years were derived from firm fixed-price type
contracts.
Any costs incurred by the Company prior to the execution of a contract or
contract amendment are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the customer. Unbilled receivables in this
category which were included in the Technical Services revenues and Product
revenues, exclusive of related fees, at January 31, 1997 were $13,009,000 and
$967,000, respectively. The Company expects to recover substantially all such
costs; however, no assurance can be given that the contracts or contract
amendments will be received or that the related costs will be recovered.
Contract costs for services or products supplied to the U.S. Government,
including allocated indirect costs, are subject to audit and adjustments by
negotiations between the Company and U.S. Government representatives.
Substantially all of the Company's indirect contract costs have been agreed upon
through the fiscal year ended January 31, 1995. Contract revenues for subsequent
years have been recorded in amounts which are expected to be realized upon final
settlement. However, no assurance can be given that audits and adjustments for
subsequent years will not result in decreased revenues or profits for those
years.
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PATENTS AND PROPRIETARY INFORMATION
Although the Company owns or has made application for patents on certain
products and processes, the nature of the Technical Services and Products
provided by the Company is such that the Company does not presently consider its
competitive position to be dependent upon patent protection. The Company claims
a proprietary interest in certain of its products, software programs,
methodology and know-how. Such proprietary information is protected by
copyrights, trade secrets, licenses, contracts and other means.
The U.S. Government has certain rights to data, computer codes and related
material developed by the Company under U.S. Government-funded contracts and
subcontracts. Generally, the U.S. Government may disclose such information to
third parties, including, in some instances, competitors. In the case of
subcontracts, the prime contractor may also have certain rights to the programs
and products developed by the Company under the subcontract.
BACKLOG
Backlog includes only the funded dollar amount of contracts in process and
does not include the dollar amount of projects for which the Company has been
given permission by the customer (i) to begin work but for which a formal
contract has not yet been entered into or (ii) to extend work under an existing
contract prior to the formal amendment or modification of the existing contract.
In these cases, either contract negotiations have not been completed or a
contract or contract amendment has not been executed. When a contract or
contract amendment is executed, the backlog will be increased by the difference
between the dollar value of the contract or contract amendment and the revenue
recognized to date.
The backlog for the Technical Services segment at January 31, 1997 and 1996
amounted to approximately $1,120,000,000 and $971,000,000, respectively, and the
backlog for the Products segment at those dates amounted to approximately
$74,000,000 and $109,000,000, respectively. At January 31, 1997, approximately
$24,000,000 of the backlog for the Products segment was related to the SAIT
business unit, which was sold on March 7, 1997. The Company expects that a
substantial portion of its backlog at January 31, 1997 (other than the amounts
related to SAIT) will be recognized as revenues prior to January 31, 1998. Some
contracts associated with the backlog are incrementally funded and may continue
for more than one year.
EMPLOYEES AND CONSULTANTS
As of March 14, 1997, the Company employed approximately 22,600, including
approximately 2,000 persons on a part-time basis. The Company also utilizes the
services of consultants to provide specialized technical and other services on
specific projects.
The highly technical and complex services and products provided by the
Company are dependent upon the availability of professional, administrative and
technical personnel having high levels of training and skills. Because of the
Company's growth and competitive business environment, it has become more
difficult to meet all of the Company's needs for such employees in a timely
manner. However, to date, such difficulties have not had a significant impact on
the Company. The Company intends to continue to devote significant resources to
recruit and retain qualified employees. Management believes the Company's
orientation towards employee ownership is a major factor in the Company's
ability to attract and retain qualified personnel.
None of the Company's employees are represented by a labor union. To date,
no strikes or work stoppages have been experienced and the Company considers its
relations with its employees to be good.
ITEM 2. PROPERTIES.
As of March 14, 1997, the Company conducted its operations in more than 330
offices and laboratory facilities located in 43 states, the District of Columbia
and various foreign countries and occupied a total of approximately 5,200,000
square feet of space. The Company has principal locations in the San Diego,
California and the Washington, D.C. metropolitan areas and occupies over
1,000,000 square feet of space in each of these locations. The information set
forth below is accurate as of March 14, 1997.
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The Company owns and occupies six buildings totaling approximately 550,000
square feet of space situated on 22.2 acres of land owned by the Company in the
Golden Triangle area of San Diego, California and leases a 128,500 square foot
office building located on that land. The Company has an option to purchase this
leased facility.
At the principal location of the Company in the Washington, D.C.
metropolitan area (McLean, Virginia), the Company owns and occupies a 287,000
square foot building located on 10 acres of land and leases two buildings
containing a total of approximately 425,000 square feet of space. The Company
has certain rights to purchase these leased buildings. In addition, the Company
owns and occupies a 62,000 square foot building on 2.6 acres of land in Reston,
Virginia.
The Company also owns and occupies (a) a 62,500 square foot building on
approximately 12 acres of land in Virginia Beach, Virginia, (b) an 83,000 square
foot building on approximately 8.4 acres of land in Oak Ridge, Tennessee, (c)
two buildings totaling 79,400 square feet on 4.5 acres in Dayton, Ohio, (d) a
101,500 square foot building on 18 acres in Huntsville, Alabama, (e) a 95,500
square foot building on approximately 7.3 acres of land in Columbia, Maryland
and (f) a 23,700 square foot building on approximately 3.1 acres of leased land
in Richland, Washington. The Company also leases a 30,000 square foot office
building in Orlando, Florida. The Company has an option to purchase this
building.
The nature of the Company's business is such that there is no practicable
way to relate occupied space to industry segments. The Company considers its
facilities suitable and adequate for its present needs. See Note K of Notes to
Consolidated Financial Statements of the Company on page F-19 of this Form 10-K
for information regarding commitments under leases.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of General Instructions to Form 10-K,
the following list is included as an unnumbered Item in Part I of this Form 10-K
in lieu of being incorporated by reference to the Company's definitive Proxy
Statement used in connection with the solicitation of votes for the Company's
1997 Annual Meeting of Stockholders (the "1997 Proxy Statement").
The following is a list of the names and ages (as of April 11, 1997) of all
Executive Officers of the Company, indicating all positions and offices with the
Company held by each such person and each such person's principal occupation or
employment during at least the past five years. All such persons have been
elected to serve until their successors are elected or until their earlier
resignation or retirement. Except as otherwise noted, each of the persons listed
below has served in his present capacity for at least the past five years.
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POSITIONS WITH THE COMPANY AND PRIOR BUSINESS
NAME OF EXECUTIVE OFFICER AGE EXPERIENCE
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D.P. Andrews....................... 52 Executive Vice President for Corporate Development
since October 1995 and a Director since October
1996. Mr. Andrews has held various positions with
the Company since 1993, including serving as Senior
Vice President for Corporate Development from 1994
to October 1995. Prior to joining the Company, Mr.
Andrews served as Assistant Secretary of Defense
from 1989 to 1993.
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POSITIONS WITH THE COMPANY AND PRIOR BUSINESS
NAME OF EXECUTIVE OFFICER AGE EXPERIENCE
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D.W. Baldwin....................... 44 Senior Vice President and Treasurer since January
1997. Mr. Baldwin has held various positions with
the Company since 1978, including serving as a
Senior Vice President from 1992.
J.R. Beyster....................... 72 Chairman of the Board, Chief Executive Officer and a
Director of the Company since the Company was
founded and President of the Company until 1988.
J.E. Glancy........................ 51 Corporate Executive Vice President since January
1994 and a Director of the Company since July 1994.
Dr. Glancy has held various positions with the
Company since 1976, including serving as a Sector
Vice President from 1991 to 1994.
J.D. Heipt......................... 54 Senior Vice President for Administration and
Secretary of the Company since 1984. Mr. Heipt has
held various positions with the Company since 1979.
W.A. Owens......................... 56 President and Chief Operating Officer since February
1997 and Vice Chairman of the Board and a Director
since March 1996. Prior to joining the Company, Mr.
Owens served as an Admiral in the U.S. Navy, serving
as Vice Chairman of the Joint Chiefs of Staff from
1993 to 1997 and as the Deputy Chief of Naval
Operations for Resources, Warfare Requirements and
Assessments from 1991 to 1993.
P.N. Pavlics....................... 36 Senior Vice President since January 1997 and
Controller of the Company since 1993. Mr. Pavlics
has held various positions with the Company since
1985, including serving as a Corporate Vice
President from 1993 to January 1997.
S.D. Rockwood...................... 54 Executive Vice President of the Company since April
1997 and Director since 1996. Dr. Rockwood has held
various positions with the Company since 1986,
including serving as a Sector Vice President from
1987 to April 1997.
W.A. Roper, Jr..................... 51 Senior Vice President and Chief Financial Officer of
the Company since 1990.
R.A. Rosenberg..................... 62 Executive Vice President of the Company since 1992.
Mr. Rosenberg has held various positions with the
Company since 1987.
D.E. Scott......................... 40 Senior Vice President since January 1997 and General
Counsel of the Company since 1992. Mr. Scott has
held various positions with the Company since 1987,
including serving as a Corporate Vice President from
1992 to January 1997.
E.A. Straker....................... 59 Executive Vice President of the Company since 1994
and a Director since 1992. Dr. Straker has held
various positions with the Company since 1971,
including serving as a Sector Vice President from
1986 to 1994.
J.H. Warner, Jr.................... 56 Corporate Executive Vice President of the Company
since 1996 and Director since 1988. Dr. Warner has
held various positions with the Company since 1973,
including serving as Executive Vice President from
1989 to 1996.
</TABLE>
9
<PAGE> 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
THE LIMITED MARKET
Since its inception, the Company has followed a policy of remaining
essentially employee owned. As a result, there has never been a general public
market for any of the Company's securities. In order to provide liquidity for
its stockholders, however, the Company has maintained a limited secondary market
(the "Limited Market") through its wholly-owned, broker-dealer subsidiary, Bull,
Inc., which was organized in 1973 for the purpose of maintaining the Limited
Market.
The Limited Market generally permits existing stockholders to sell shares
of Class A Common Stock on four predetermined days each year (each a "Trade
Date"). All shares of Class B Common Stock to be sold in the Limited Market must
first be converted into five times as many shares of Class A Common Stock. All
sales are made at the prevailing fair market value of the Class A Common Stock
determined pursuant to the formula and valuation process described below (the
"Formula Price") to employees, consultants and directors of the Company who have
been approved by the Board of Directors or the Operating Committee of the Board
of Directors as being entitled to subscribe to purchase up to a specified number
of shares of Class A Common Stock. In addition, the trustees of the Company's
Employee Stock Ownership Plan ("ESOP"), Cash or Deferred Arrangement ("CODA"),
1995 Employee Stock Purchase Plan, Stock Compensation Plan, Management Stock
Compensation Plan, Key Executive Stock Deferral Plan and the Syntonic
Technology, Inc. Retirement Savings Plan ("Syntonic Savings Plan")
(collectively, the "Benefit Plans") may also purchase shares of Class A Common
Stock for their respective trusts in the Limited Market. All sellers in the
Limited Market (other than the Company, ESOP, CODA and the Syntonic Savings
Plan) pay Bull, Inc. a commission equal to two percent of the proceeds from such
sales. No commission is paid by purchasers in the Limited Market.
In the event that the aggregate number of shares offered for sale in the
Limited Market on any Trade Date is greater than the aggregate number of shares
sought to be purchased by authorized buyers and the Company, offers by
stockholders to sell 500 or less shares of Class A Common Stock (or up to the
first 500 shares if more than 500 shares of Class A Common Stock are offered by
any such stockholder) will be accepted first. Offers to sell shares in excess of
500 shares of Class A Common Stock will be accepted on a pro-rata basis
determined by dividing the total number of shares remaining under purchase
orders by the total number of shares remaining under sell orders. If, however,
there are insufficient purchase orders to support the primary allocation of 500
shares of Class A Common Stock for each proposed seller, then the purchase
orders will be allocated equally among all of the proposed sellers up to the
total number of shares offered for sale.
The Company is currently authorized, but not obligated, to purchase up to
1,250,000 shares of Class A Common Stock in the Limited Market on any Trade
Date, but only if and to the extent that the number of shares offered for sale
by stockholders exceeds the number of shares sought to be purchased by
authorized buyers, and the Company, in its discretion, determines to make such
purchases. In fiscal years 1997 and 1996, the Company purchased 117,163 shares
and 33,372 shares, respectively, in the Limited Market. The Company's purchases
in fiscal years 1997 and 1996 accounted for 6.2% and 2.2%, respectively, of the
total shares purchased by all buyers in the Limited Market during such years.
During the 1997 and 1996 fiscal years, the trustees of the Company's CODA,
1993 Employee Stock Purchase Plan, 1995 Employee Stock Purchase Plan and the
Syntonic Savings Plan purchased an aggregate of 1,148,829 shares and 1,045,711
shares, respectively, in the Limited Market. These purchases accounted for
approximately 60.9% and 67.2% of the total shares purchased by all buyers in the
Limited Market during fiscal years 1997 and 1996, respectively. Such purchases
may change in the future, depending on the levels of participation in and
contributions to such plans and the extent to which such contributions are
invested in Class A Common Stock. To the extent that purchases by the trustees
of the Benefit Plans decrease and purchases by the Company do not increase, the
ability of stockholders to resell their shares in the Limited
10
<PAGE> 12
Market will likely be adversely affected. No assurance can be given that a
stockholder desiring to sell all or a portion of his or her shares of the
Company's Class A Common Stock in any trade will be able to do so.
To the extent that the aggregate number of shares sought to be purchased by
authorized buyers exceeds the aggregate number of shares offered for sale by
stockholders, the Company may, but is not obligated to, sell authorized but
unissued shares of Class A Common Stock in the Limited Market. In fiscal years
1997 and 1996, the Company sold an aggregate of 85,505 and 246,831 authorized
but unissued shares of Class A Common Stock, respectively, in the Limited
Market. The Company's sales in fiscal years 1997 and 1996 accounted for 4.5% and
15.9%, respectively, of the total shares sold by all sellers in the Limited
Market during such years. To the extent that the Company chooses not to sell
authorized but unissued shares of Class A Common Stock in the Limited Market,
the ability of individuals to purchase shares on the Limited Market may be
adversely affected. No assurance can be given that an individual desiring to buy
shares of the Company's Class A Common Stock in any trade will be able to do so.
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The fair market value of the Class A Common Stock is established pursuant
to the valuation process described below, which uses the formula set forth below
to determine the Formula Price at which the Class A Common Stock trades in the
Limited Market. The Formula Price is reviewed by the Board of Directors at least
four times each year, generally in conjunction with Board of Directors meetings
which are currently scheduled for January, April, July and October. Pursuant to
the Company's Certificate of Incorporation, the price applicable to shares of
Class B Common Stock is equal to five times the Formula Price.
The following formula ("Formula") is used in determining the Formula Price:
the price per share is equal to the sum of (i) a fraction, the numerator of
which is the stockholders' equity of the Company at the end of the fiscal
quarter immediately preceding the date on which a price determination is to
occur ("E") and the denominator of which is the number of outstanding common
shares and common share equivalents at the end of such fiscal quarter ("W1") and
(ii) a fraction, the numerator of which is 5.66 multiplied by the market factor
("M" or "Market Factor"), multiplied by the earnings of the Company for the four
fiscal quarters immediately preceding the price determination ("P"), and the
denominator of which is the weighted average number of outstanding common shares
and common share equivalents for those four fiscal quarters, as used by the
Company in computing primary earnings per share ("W"). The number of outstanding
common shares and common share equivalents described above assumes the
conversion of each share of Class B Common Stock into five shares of Class A
Common Stock. The 5.66 multiplier is a constant which was first included in the
Formula in March 1976. The Market Factor is a numerical factor which yields a
fair market value for the Class A Common Stock and the Class B Common Stock by
reflecting existing securities market conditions relevant to the valuation of
such stock. In establishing the Market Factor, the Board of Directors considers
the performance of the general securities markets and relevant industry groups,
the financial performance of the Company versus comparable public companies,
general economic conditions, input from an independent appraisal firm and other
relevant factors. The Market Factor is generally reviewed quarterly by the Board
of Directors in conjunction with an appraisal which is prepared by an
independent appraisal firm for the committees administering the qualified
retirement plans of the Company and certain of its subsidiaries (collectively,
the "Committee") and which is relied upon by the Committee and the Board of
Directors. The Market Factor, as determined by the Board of Directors, remains
in effect until subsequently changed by the Board of Directors. The Formula
Price of the Class A Common Stock, expressed as an equation, is as follows:
<TABLE>
<S> <C> <C> <C>
E 5.66MP
Formula Price = +
--- -------
W1 W
</TABLE>
The Formula was modified by the Board of Directors on April 14, 1995 to
delete a limitation that the Formula Price not be less than 90% of the net book
value per share of the Class A Common Stock at the end of the quarter
immediately preceding the date on which a price revision is to occur (the "book
value floor"). The modification was intended to ensure that the Formula Price
would be a fair market value as required by law. The Formula Price has always
exceeded the book value floor, and the book value floor has never been
11
<PAGE> 13
used to establish the Formula Price. With the exception of this modification,
the Formula has not been modified by the Board of Directors since March 23,
1984.
The following table sets forth information concerning the Formula Price for
the Class A Common Stock, the applicable price for the Class B Common Stock and
the Market Factor in effect for the periods beginning on the dates indicated.
There can be no assurance that the Class A Common Stock or the Class B Common
Stock will in the future provide returns comparable to historical returns or
that the Formula Price will not decline.
<TABLE>
<CAPTION>
PRICE PRICE
PER SHARE PER SHARE
MARKET OF CLASS A OF CLASS B
DATE FACTOR COMMON STOCK COMMON STOCK
- ----------------------------------------------------------- ------ ------------ ------------
<S> <C> <C> <C>
April 14, 1995............................................. 1.50 $16.41 $ 82.05
July 14, 1995.............................................. 1.60 $17.79 $ 88.95
October 13, 1995........................................... 1.60 $18.27 $ 91.35
January 12, 1996........................................... 1.70 $19.33 $ 96.65
April 12, 1996............................................. 1.80 $20.41 $ 102.05
July 12, 1996.............................................. 2.00 $21.89 $ 109.45
October 11, 1996........................................... 2.10 $22.83 $ 114.15
January 10, 1997........................................... 2.40 $25.96 $ 129.80
April 11, 1997............................................. 2.40 $26.55 $ 132.75
</TABLE>
The Board of Directors believes that the valuation process and Formula
result in a fair market value for the Class A Common Stock within a broad range
of financial criteria. Other than the quarterly review and possible modification
of the Market Factor, the Board of Directors will not change the Formula unless
(i) in the good faith exercise of its fiduciary duties and after consultation
with the Company's independent accountants as to whether the change would result
in a charge to earnings upon the sale of Class A Common Stock, the Board of
Directors, including a majority of the directors who are not employees of the
Company, determines that the Formula no longer results in a fair market value
for the Class A Common Stock or (ii) a change in the Formula or the method of
valuing the Class A Common Stock is required under applicable law.
HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
As of March 14, 1997, there were 12,946 holders of record of Class A Common
Stock and 137 holders of record of Class B Common Stock. As of such date,
approximately 91.8% of the Class A Common Stock and approximately 43.6% of the
Class B Common Stock were owned of record by current employees, directors and
consultants of the Company and their respective family members and by various
employee benefit plans of the Company and its subsidiaries.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and no cash dividends on the Class A Common Stock or Class B Common Stock
are contemplated in the foreseeable future. The Company's present intention is
to retain any future earnings for use in its business.
12
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA.
The following data has been derived from consolidated audited financial
statements. The consolidated balance sheet at January 31, 1997 and 1996 and the
related consolidated statements of income and of cash flows for the three years
ended January 31, 1997 and notes thereto appear elsewhere in this Form 10-K.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C>
Revenues............................. $2,402,224 $2,155,657 $1,921,880.. $1,670,882 $1,504,112
Cost of revenues..................... 2,092,254 1,875,072 1,692,623 1,477,701 1,327,992
Selling, general and administrative
expenses........................... 191,836 173,742 146,083 120,387 113,174
Interest expense..................... 4,925 4,529 3,468 2,966 2,841
Provision for income taxes........... 49,529 45,018 30,654 28,328 22,030
---------- ---------- ---------- ---------- ----------
Net income........................... $ 63,680 $ 57,296 $ 49,052 $ 41,500 $ 38,075
========= ========= ========= ========= =========
Earnings per share(1)................ $ 1.23 $ 1.13 $ 1.01 $ .89 $ .83
========= ========= ========= ========= =========
Average number of shares outstanding,
including common stock
equivalents........................ 52,309 51,306 49,264 47,429 46,179
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31
------------------------------------------------------
1997 1996 1995 1994 1993
---------- -------- -------- -------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets............................... $1,012,462 $859,290 $752,584 $611,575 $523,613
Working capital............................ 270,553 227,185 173,467 206,580 174,797
Long-term liabilities...................... 44,341 34,116 29,759 25,965 25,851
Stockholders' equity....................... 527,459 458,132 386,760 334,597 280,047
</TABLE>
- ---------------
(1) Fully diluted earnings per share are substantially the same as primary
earnings per share for the years presented. The Company has never declared
or paid cash dividends on its capital stock and no cash dividends are
presently contemplated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
Revenues increased 11%, 12% and 15% in 1997, 1996 and 1995, respectively,
over the prior year. Revenues in 1997 from the Company's principal customer, the
U.S. Government, 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 markets, which typically involve lower
cost contracts.
The Company provides diversified professional and technical services
("Technical Services") and designs, develops and manufactures high-technology
products ("Products"). The sale of Technical Services and Products to the U.S.
Government as a prime contractor or subcontractor accounted for 79% of revenues
in 1997, 83% in 1996 and 86% in 1995. This relative decrease is attributable to
growth in non-U.S. Government revenues as a result of the Company's efforts to
increase revenues from commercial and international clients and state and local
governments in the health, information technology and transportation business
areas. On an absolute basis, U.S. Government revenues increased 6% in 1997, 9%
in 1996 and 12% in 1995. Non-U.S. Government revenues increased 40% in 1997 and
34% in 1996 and 1995, over the prior year.
13
<PAGE> 15
The following table summarizes revenues by contract type for the last three
years:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
---------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Contract type:
Cost-reimbursement............................................ 54% 54% 59%
Time-and-materials and fixed-price level-of-effort............ 22% 26% 22%
Firm fixed-price.............................................. 24% 20% 19%
---- ---- ----
Total........................................................... 100% 100% 100%
===== ===== =====
</TABLE>
Cost-reimbursement contracts provide for the reimbursement of direct costs
and allowable indirect costs, plus a fee or profit component. Time-and-materials
("T&M") contracts typically provide for the payment of negotiated fixed hourly
rates for labor hours incurred plus reimbursement of other allowable direct
costs at actual cost plus allocable indirect costs. Fixed-price level-of-effort
("FP-LOE") contracts are similar to T&M contracts since ultimately revenues are
based upon the labor hours provided to the customer. Firm fixed-price contracts
require the Company to provide stipulated products, systems or services for a
fixed price. The Company assumes greater performance risk on firm fixed-price
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 relative increase in revenues from firm fixed-price contracts and associated
relative decrease in revenues from cost-reimbursement contracts from 1995 to
1997 result primarily from the Company's growth in non-U.S. Government revenues.
The Company's non-U.S. Government customers typically do not contract on a cost-
reimbursement basis.
The Company's business is directly related to the receipt of contract
awards and contract performance. There were 412 contracts with annual revenues
greater than $1 million in 1997, compared with 349 and 333 such contracts in
1996 and 1995, respectively. These larger contracts represented 75% of the
Company's revenues in 1997 compared to 76% in 1996 and 1995. Of these contracts,
28 contracts had individual revenues greater than $10 million in 1997 compared
to 21 such contracts in 1996 and 20 in 1995. The remainder of the Company's
revenues are derived from a large number of contracts with individual revenues
less than $1 million. Although the Company has committed substantial resources
and personnel required to pursue and perform larger contracts, the Company
believes it also maintains a suitable environment for the performance of
smaller, highly technical research and development contracts. These smaller
programs often provide the foundation for the Company's success on larger
procurements. Revenues on the Company's contracts are generated from the efforts
of its technical staff as well as the pass through of costs for material and
subcontract efforts, which primarily occur on large, multi-year contracts. At
the end of 1997, the Company had 20,900 full-time employees compared to 19,500
and 16,700 at the end of 1996 and 1995, respectively. Material and subcontract
("M&S") revenues were $667 million in 1997, $616 million in 1996 and $560
million in 1995. As a percentage of total revenues, M&S revenues have remained
relatively constant at 28% in 1997 and 29% in 1996 and 1995.
The revenue mix between the Technical Services segment and the Products
segment was 94% and 6%, respectively, of consolidated revenues in 1997, 93% and
7%, respectively, in 1996 and 91% and 9%, respectively, in 1995. Within the
Technical Services segment, revenues are further classified between "National
Security," "Health," "Environment," "Energy" and "Other Technical Services."
Other Technical Services includes the transportation, commercial information
technology, space and other business areas.
National Security revenues were 44% of total revenues in 1997 compared to
45% in 1996 and 46% in 1995. Although National Security revenues declined as a
percentage of total revenues, on an absolute basis, these revenues increased 8%
in 1997 and 1996 and 7% in 1995 over the prior year, in spite of declines in the
overall defense market during these periods. The U.S. Government maintained
funding in areas in which the Company has strong capabilities, such as research
and development, training, simulation and test and evaluation. Revenues in the
Health business area were 14% of total revenues in 1997 and 1996 and 11% in
1995. While Health revenues as a percentage of total revenues have remained
constant in 1997 and 1996, the Health contract which generated approximately 10%
of total revenues in 1996 was substantially completed in
14
<PAGE> 16
1997. However, to date, the Company has been successful maintaining the level of
its revenues in the Health business area through other contracts. Revenues from
the Environment business area were 11% of total revenues in 1997, 13% in 1996
and 14% in 1995. Energy revenues were 5% of total revenues in 1997, 7% in 1996
and 9% in 1995. The decreases in the Environment and Energy business areas
primarily reflect the budget reductions and changing priorities of the Company's
U.S. Government and commercial customers. Other Technical Services revenues were
20% of total revenues in 1997, 14% in 1996 and 11% in 1995. The continued growth
in Other Technical Services reflects the Company's expansion in the
transportation and commercial information technology markets and mirrors the
country's shift of priorities and resources from defense programs to civilian
programs in areas such as transportation. The Company expects this trend to
continue. In order for the Company to maintain or exceed historical revenue
growth rates, it will need to continue to increase its market share in the
National Security business area and/or increase its revenues from the health,
environment, energy, space, transportation and commercial information technology
business areas.
Products revenues were 6% of total revenues in 1997, 7% in 1996 and 9% in
1995. Products revenues are largely determined by the stage of contract
performance and the purchasing needs and capabilities of the Company's customers
and thus, can fluctuate from year to year. Subsequent to the 1997 fiscal year
end, on March 7, 1997, the Company sold the majority of the net assets of the
SAIT business unit, which accounted for 49% of the Company's Product revenues in
1997. The purchase price is subject to potential adjustments, plus contingent
payments if certain milestones are achieved by the business post-closing. Under
the agreement, the Company also retains certain contingent liabilities. Given
the early stage of the settlement period, the impact of the sale on the
consolidated financial position and results of operations has not been
determined. The Company, however, does not anticipate a loss on the sale.
The cost of revenues as a percentage of revenues (excluding interest
income) was 87.2% in 1997, 87.0% in 1996 and 88.2% in 1995. The decreased cost
of revenues percentage in 1997 and 1996 represents the combination of a number
of offsetting effects. The primary trend which increased the cost of revenues
percentage is faster revenue growth in lower cost service type contracts, which
typically have more of their associated costs in cost of revenues and less costs
in selling, general and administrative ("SG&A") expenses. Trends which decreased
the cost of revenues percentage are the growth in commercial revenues, which
have more of their associated costs in SG&A as opposed to cost of revenues and
decreased overruns from better performance on certain firm fixed-price contracts
in 1997 and 1996 compared to 1995.
SG&A expenses as a percentage of revenues (excluding interest income) were
8.0%, 8.1% and 7.6% in 1997, 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. While the level of B&P activity and
costs has historically fluctuated depending on the availability of bidding
opportunities and resources, B&P costs have remained constant in relation to
revenues over the past three years. IR&D costs also remained relatively constant
in relation to revenues over the past three years. G&A expenses as a percentage
of total revenues were 5.6% in 1997 compared to 5.8% in 1996 and 5.2% in 1995.
The higher level of G&A expenses in 1997 and 1996 was primarily attributable to
the increased charges taken to income for the amortization and impairment of
goodwill. The Company continues to closely monitor G&A expenses as part of an
on-going program to control indirect costs.
Operating profit margins by segment are strongly correlated to the
Company's financial performance on the contracts within each segment. The
operating profit margin in the Technical Services segment was 4.9% in 1997 and
1996 and 4.3% in 1995. The National Security operating profit margin was 4.9% in
1997 and 1996 and 2.8% in 1995. The lower operating profit margin in 1995 as
compared to 1997 and 1996 was a result of overruns on certain firm fixed-price
contracts in the National Security area. Health operating profit margin was 7.4%
in 1997, 6.2% in 1996 and 8.8% in 1995. Environment operating profit margin was
1.9% in 1997, 4.4% in 1996 and 4.9% in 1995. The lower operating profit margin
in 1997 was the result of losses on certain contracts in the local government
and private sector markets. Energy operating profit margin was 5.4% in 1997,
5.1% in 1996 and 5.8% in 1995. The operating profit margin in Other Technical
Services was 4.6% in 1997, 4.3% in 1996 and 3.8% in 1995. The operating profit
margin in the Products segment was 4.6% in 1997, 4.4% in 1996 and 3.9% in 1995.
The lower operating profit margin in 1995 was attributable to overruns on
15
<PAGE> 17
certain firm fixed-price contracts. In general, overall operating profit margins
for the Company remained constant in 1997 compared to 1996 and improved over
1995 due to better contract financial performance.
Interest expense in 1997, 1996 and 1995 primarily relates to interest on
building mortgages, deferred compensation, notes payable and borrowings
outstanding under the Company's revolving credit loan agreements. Increase in
interest expense was primarily driven by a note assumed in a business
acquisition and interest accrued on the deferred compensation plans. The
increase was offset slightly by lower average outstanding balances under the
Company's revolving credit loan agreements in 1997.
The provision for income taxes as a percentage of income before income
taxes was 43.75% in 1997, 44.0% in 1996 and 38.5% in 1995. The lower effective
tax rate in 1995 compared to 1996 and 1997 was primarily related to a final
settlement of certain issues in 1995 related to the Company's 1986 and 1987
federal and state income tax returns.
On November 20, 1996, the Company entered into a definitive acquisition
agreement to purchase Bell Communications Research, Inc. ("Bellcore"), a
provider of telecommunications services, information networking software and
consulting services. As of December 31, 1996, Bellcore had approximately 5,500
employees and annual revenues of approximately $1 billion. The consummation of
the acquisition is subject to certain conditions and contingencies, including
regulatory approvals which are expected to take between nine and fourteen months
to obtain from the date of the agreement. The Company has no assurance that the
acquisition will be completed. The acquisition, if completed, would result in a
substantial growth in both the employee base and commercial revenues of the
Company. The Company intends to finance a substantial portion of the purchase
price of Bellcore with debt financing. In anticipation of consummating the
transaction, as part of the debt financing, the Company entered into two forward
treasury lock agreements, totaling $200 million, which are intended to hedge
against interest rate fluctuations. 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
integrate the acquired business or manage the growth could have a material
adverse effect on the Company's results of operations and financial condition.
On January 2, 1997, the Company formed a foreign joint venture,
Informatica, Negocio y Tecnologia, S.A. ("INTESA"), with Venezuela's national
oil company, Petroleos de Venezuela, S.A., to provide information technology
services in Latin America. INTESA's fiscal year end is December 31; therefore,
the Company will begin to consolidate its 60% majority interest in INTESA in the
consolidated financial statements for the year ending January 31, 1998. Since
Venezuela is considered a highly inflationary economy, the functional currency
of INTESA is the U.S. dollar. Re-measurement gains or losses of this joint
venture will be recognized in the consolidated results of operations.
As described in the Notes to Consolidated Financial Statements, during
1997, the Company adopted Statement of Financial Accounting Standards ("SFAS")
123, "Accounting for Stock-based Compensation." In accordance with the
provisions of SFAS No. 123, the Company applies Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans and does not recognize compensation
expense for its employee stock-based compensation plans. The Company has
provided pro-forma disclosures of net income and earnings per share as if the
fair value-based method prescribed by SFAS No. 123 had been applied in measuring
compensation expense.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which establishes standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 will be adopted by the
Company as required for the interim period and fiscal year ending January 31,
1998. Upon adoption of SFAS No. 128, the Company will present basic EPS as well
as diluted EPS in the period of adoption and restate all prior-period data
presented for comparative purposes. Basic EPS will be computed by dividing
income available to common stockholders by the weighted average number of shares
of common stock outstanding. Diluted EPS will be computed similar to basic EPS
except that the weighted average number of shares of common stock outstanding
will be increased to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued.
16
<PAGE> 18
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 January 31, 1997 and 1996,
there were no borrowings outstanding under such agreements and cash and cash
equivalents and long-term investments totaled $45 million and $30 million,
respectively. Cash flows generated from operating activities were $90 million in
1997 compared to $46 million in 1996 and $114 million in 1995. Average
receivable days outstanding remained constant at 65 in 1997 and 1996, up from 63
in 1995. The Company continues to actively monitor receivables with emphasis
placed on collection activities and the negotiation of more favorable payment
terms.
Cash flows spent on investing activities were $57 million in 1997 compared
to $41 million and $120 million in 1996 and 1995, respectively. Acquisitions of
businesses, net of cash acquired, utilized $23 million in 1997 compared to a
source of cash of $1 million in 1996 and a use of cash of $71 million in 1995.
Acquisitions of businesses in 1997 were made to complement the Company's
capabilities in the areas of commercial information technology, transportation
and national security. Acquisitions of businesses in 1996 were made primarily
with the issuance of Company common stock. During 1996, the Company also spent
$21 million to acquire both direct and indirect equity interests in commercial
and international businesses. The Company intends to make additional
acquisitions in the future; however, the number and size of the acquisitions the
Company can complete may be limited due to the proposed acquisition of Bellcore.
Capital expenditures, excluding land and buildings, were $38 million, $33
million and $20 million in 1997, 1996 and 1995, respectively, and are expected
to be approximately $34 million for 1998. Expenditures for land and buildings
were $5 million, $1 million and $15 million in 1997, 1996 and 1995,
respectively, and are expected to be approximately $16 million for 1998.
The Company utilized $10 million for financing activities in 1997 compared
to $10 million and $19 million in 1996 and 1995, respectively. In 1997, funds
were utilized primarily for common stock repurchases. Increase in common stock
repurchases in 1997 from 1996 was primarily attributable to increased
repurchases of common stock from the Company's Employee Stock Ownership Plan
("ESOP") in order for the ESOP to fund payouts to participants.
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.
However, the Company intends to obtain financing, including debt, to complete
the acquisition of Bellcore and expects to finance other acquisitions in the
future from operations and borrowing capacity as well as with the issuance of
Company common stock.
EFFECTS OF INFLATION
The majority of the Company's contracts are cost-reimbursement type
contracts or are completed within one year. As a result, the Company has been
able to anticipate increases in costs when pricing its contracts. Bids for
longer term firm fixed-price and T&M type contracts typically include labor and
other cost escalations in amounts expected to be sufficient to cover cost
increases over the period of performance. Consequently, because costs and
revenues include an inflationary increase commensurate with the general economy,
net income, as a percentage of revenues, has not been significantly impacted by
inflation. As the Company expands into the international markets and into highly
inflationary economies, movements in foreign currency exchange rates may impact
the Company's results of operations. Currency exchange rate fluctuations may
also affect the Company's competitive position as a result of its impact on the
Company's profitability and the pricing offered to its non-U.S. customers.
17
<PAGE> 19
FORWARD-LOOKING INFORMATION
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements, including statements regarding the intent, belief or current
expectations of the Company or its officers with respect to, among other things,
trends affecting the Company's financial condition or results of operation and
the impact of competition. Such statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
materially from those in the forward-looking statements as a result of various
factors. Some of these factors include, but are not limited to: decrease in or
the failure to increase business with the U.S. Government; the impact of the
Bellcore acquisition; the ability of the Company to continue to identify and
consummate additional acquisitions; competitive pricing for Technical Services
and Products; early termination of U.S. Government contracts; losses or reduced
profits on firm fixed-price contracts; failure to obtain reimbursement for costs
incurred prior to the execution of a contract or contract modification; audits
of the Company's costs, including allocated indirect costs, by the U.S.
Government; and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company. Due to such uncertainties
and risks, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Consolidated Financial Statements of the Company attached hereto
and listed on the Index to Consolidated Financial Statements set forth on page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
For information with respect to the executive officers of the Company, see
"Executive Officers of the Registrant" at the end of Part I of this Form 10-K.
For information with respect to the Directors of the Company, see "Election of
Directors" appearing in the 1997 Proxy Statement, which information is
incorporated by reference into this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
For information with respect to executive compensation, see the information
set forth under the captions "Directors' Compensation," "Executive Compensation"
and "Compensation Committee Interlocks and Insider Participation" in the 1997
Proxy Statement, which information (except for the information under the
sub-captions "Compensation Committee Report on Executive Compensation" and
"Stockholder Return Performance Presentation") is incorporated by reference into
this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
For information with respect to the security ownership of certain
beneficial owners and management, see the information set forth under the
caption "Beneficial Ownership of the Company's Securities" in the 1997 Proxy
Statement, which information is incorporated by reference into this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
For information with respect to the interests of the Company's management
and others in certain transactions, see the information set forth under the
caption "Certain Relationships and Related Transactions" in the 1997 Proxy
Statement, which information is incorporated by reference into this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are attached hereto
and listed on the Index to Consolidated Financial Statements set forth on page
F-1 of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or the notes
thereto.
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
3(a) -- Restated Certificate of Incorporation of the Registrant, as amended July 19, 1990.
Incorporated by reference to Exhibit 3(a) to Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1991 (the "1991 10-K").
3(b) -- Bylaws of the Registrant, as amended through April 11, 1997.
4(a)* -- Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan of the
Registrant (form dated August 1992). Incorporated by reference to Exhibit 4(c) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended January 31,
1993 (the "1993 10-K").
</TABLE>
19
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
4(b)* -- Form of Stock Restriction Agreement of the Registrant's Employee Stock Ownership
Plan (form dated March 1, 1985). Incorporated by reference to Exhibit 4(e) to
Registrant's Annual Report on Form 10-K for the fiscal year ended January 31, 1985
(the "1985 10-K").
4(c)* -- Form of Stock Restriction Agreement of the Registrant's Bonus Compensation Plan
(form dated October 1990). Incorporated by reference to Exhibit 4(f) to the 1991
10-K.
4(d)* -- Form of Stock Restriction Agreement of the Registrant's Cash or Deferred Arrangement
(TRASOP Account) (form dated March 1, 1985). Incorporated by reference to Exhibit
4(g) to the 1985 10-K.
4(e)* -- Registrant's Bonus Compensation Plan, as amended through April 2, 1991. Incorporated
by reference to Exhibit 4(l) to the 1991 10-K.
4(f)* -- Registrant's 1982 Stock Option Plan, as amended through June 9, 1989. Incorporated
by reference to Exhibit 4(n) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1990 (the "1990 10-K").
4(g)* -- Registrant's 1992 Stock Option Plan as amended through November 3, 1994.
Incorporated by reference to Exhibit 4(g) to the Registrant's Annual Report on Form
10-K for the fiscal year ended January 31, 1995 (the "1995 10-K").
4(h)* -- Form of Non-Qualified Stock Option Agreement (Employee, Director and Consultant)
1982 Stock Option Plan (form dated October 1990). Incorporated by reference to
Exhibit 4(p) to the 1991 10-K.
4(i)* -- Form of Stock Restriction Agreement of the Registrant's Employee Stock Ownership
Plan (TRASOP Account) (form dated April 1, 1991). Incorporated by reference to
Exhibit 4(r) to the 1991 10-K.
4(j)* -- Form of Stock Restriction Agreement of the Registrant's Bonus Compensation Plan
(form dated July 1992). Incorporated by reference to Exhibit 4(v) to the 1993 10-K.
4(k)* -- Registrant's Stock Compensation Plan, as amended through April 3, 1996. Incorporated
by reference to Exhibit 4(k) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1996 (the "1996 10-K").
4(l)* -- Registrant's Management Stock Compensation Plan, as amended through April 3, 1996.
Incorporated by reference to Exhibit 4(l) to the 1996 10-K.
4(m)* -- Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan of the
Registrant (form dated February 1995). Incorporated by reference to Exhibit 4(n) to
the 1995 10-K.
4(n)* -- Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan of the
Registrant (form dated February 1995). Incorporated by reference to Exhibit 4(o) to
the 1995 10-K.
4(o)* -- Form of Stock Restriction Agreement of the Registrant's Bonus Compensation Plan
(form dated March 1995). Incorporated by reference to Exhibit 4(p) to the 1995 10-K.
4(p)* -- 1995 Employee Stock Purchase Plan. Incorporated by reference to Annex II to the
Registrant's Proxy Statement for the 1995 Annual Meeting of Stockholders as filed
June 1995 with the SEC (the "1995 Proxy").
4(q)* -- 1995 Stock Option Plan. Incorporated by reference to Annex I to the 1995 Proxy.
4(r)* -- Registrant's Keystaff Deferral Plan, as amended through November 1, 1995.
Incorporated by reference to Exhibit 4(r) to the 1996 10-K.
4(s)* -- Registrant's Key Executive Stock Deferral Plan. Incorporated by reference to Exhibit
4(s) to the 1996 10-K.
4(t)* -- Form of Non-Qualified Stock Option Agreement -- 1995 Stock Option Plan of the
Registrant (form dated August 1995). Incorporated by reference to Exhibit 4(t) to
the 1996 10-K.
4(u)* -- Form of Incentive Stock Option Agreement -- 1995 Stock Option Plan of the Registrant
(form dated August 1995). Incorporated by reference to Exhibit 4(u) to the 1996
10-K.
</TABLE>
20
<PAGE> 22
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ------------------------------------------------------------------------------------
<C> <S> <C>
4(v)* -- Form of Stock Restriction Agreement of the Registrant's Key Executive Stock Deferral
Plan (form dated March 1996). Incorporated by reference to Exhibit 4(v) to the 1996
10-K.
4(w)* -- Form of Alumni Stock Agreement.
10(a) -- Credit Agreement with Bank of America NT&SA dated as of April 7, 1995. Incorporated
by reference to Exhibit 10(a) to the Form 10- Q for the fiscal quarter ended April
30, 1995 ("April 1995 10-Q").
10(b) -- Credit Agreement with Citicorp USA, Inc. dated as of April 7, 1995. Incorporated by
reference to Exhibit 10(b) to the April 1995 10-Q.
10(c) -- Credit Agreement with Morgan Guaranty Trust Company of New York dated as of April 7,
1995. Incorporated by reference to Exhibit 10(c) to the April 1995 10-Q.
11 -- Statement re: computation of per share earnings.
21 -- Subsidiaries of the Registrant.
27 -- Financial Data Schedule.
28(a) -- Annual Report of the Registrant's Employee Stock Purchase Plan for the plan year
ended January 31, 1997.
28(b) -- Annual Report of the Registrant's Cash or Deferred Arrangement for the plan year
ended December 31, 1996.
</TABLE>
- ---------------
* Executive Compensation Plans and Arrangements.
(b) REPORTS ON FORM 8-K IN THE FOURTH QUARTER OF THE FISCAL YEAR ENDED JANUARY
31, 1997:
A Report on Form 8-K was filed on October 2, 1996. Disclosure was made
under Item 5 -- Other Events.
A Report on Form 8-K was filed on November 22, 1996. Disclosure was made
under Item 5 -- Other Events.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By: /s/ J.R. BEYSTER
------------------------------------
J.R. Beyster
Chairman of the Board and
Chief Executive Officer
Date: April 11, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
/s/ J.R. BEYSTER Chairman of the Board and April 11, 1997
- --------------------------------------------- Principal Executive Officer
J.R. Beyster
/s/ W.A. ROPER, JR. Principal Financial Officer April 11, 1997
- ---------------------------------------------
W.A. Roper, Jr.
/s/ P.N. PAVLICS Principal Accounting Officer April 11, 1997
- ---------------------------------------------
P.N. Pavlics
/s/ D.P. ANDREWS Director April 11, 1997
- ---------------------------------------------
D.P. Andrews
/s/ V.N. COOK Director April 11, 1997
- ---------------------------------------------
V.N. Cook
Director
- ---------------------------------------------
C.K. Davis
/s/ W.H. DEMISCH Director April 11, 1997
- ---------------------------------------------
W.H. Demisch
/s/ W.A. DOWNING Director April 11, 1997
- ---------------------------------------------
W.A. Downing
/s/ E.A. FRIEMAN Director April 11, 1997
- ---------------------------------------------
E.A. Frieman
/s/ J.E. GLANCY Director April 11, 1997
- ---------------------------------------------
J.E. Glancy
/s/ B.R. INMAN Director April 11, 1997
- ---------------------------------------------
B.R. Inman
/s/ H.M.J. KRAEMER, JR. Director April 11, 1997
- ---------------------------------------------
H.M.J. Kraemer, Jr.
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<C> <S> <C>
/s/ W.M. LAYSON Director April 11, 1997
- ---------------------------------------------
W.M. Layson
/s/ C.B. MALONE Director April 11, 1997
- ---------------------------------------------
C.B. Malone
/s/ J.W. MCRARY Director April 11, 1997
- ---------------------------------------------
J.W. McRary
/s/ W.A. OWENS Director April 11, 1997
- ---------------------------------------------
W.A. Owens
/s/ S.D. ROCKWOOD Director April 11, 1997
- ---------------------------------------------
S.D. Rockwood
/s/ E.A. STRAKER Director April 11, 1997
- ---------------------------------------------
E.A. Straker
/s/ M.E. TROUT Director April 11, 1997
- ---------------------------------------------
M.E. Trout
/s/ J.P. WALKUSH Director April 11, 1997
- ---------------------------------------------
J.P. Walkush
/s/ J.H. WARNER, JR. Director April 11, 1997
- ---------------------------------------------
J.H. Warner, Jr.
/s/ J.A. WELCH Director April 11, 1997
- ---------------------------------------------
J.A. Welch
/s/ J.B. WIESLER Director April 11, 1997
- ---------------------------------------------
J.B. Wiesler
/s/ A.T. YOUNG Director April 11, 1997
- ---------------------------------------------
A.T. Young
</TABLE>
23
<PAGE> 25
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS..................................................... F-2
FINANCIAL STATEMENTS
Consolidated Statement of Income for the three years ended January 31, 1997........... F-3
Consolidated Balance Sheet at January 31, 1997 and 1996............................... F-4
Consolidated Statement of Stockholders' Equity for the three years ended January 31,
1997................................................................................ F-5
Consolidated Statement of Cash Flows for the three years ended January 31, 1997....... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
Financial statement schedules are omitted because they are not applicable
or the required information is shown on the consolidated financial statements or
the notes thereto.
F-1
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Science Applications International Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Science Applications International Corporation and its subsidiaries
at January 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/S/ PRICE WATERHOUSE LLP
San Diego, California
April 4, 1997
F-2
<PAGE> 27
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE
AMOUNTS)
<S> <C> <C> <C>
Revenues................................................... $2,402,224 $2,155,657 $1,921,880
Costs and expenses:
Cost of revenues......................................... 2,092,254 1,875,072 1,692,623
Selling, general and administrative expenses............. 191,836 173,742 146,083
Interest expense......................................... 4,925 4,529 3,468
---------- ---------- ----------
2,289,015 2,053,343 1,842,174
---------- ---------- ----------
Income before income taxes................................. 113,209 102,314 79,706
Provision for income taxes................................. 49,529 45,018 30,654
---------- ---------- ----------
Net income................................................. $ 63,680 $ 57,296 $ 49,052
========= ========= =========
Earnings per share......................................... $ 1.23 $ 1.13 $ 1.01
========= ========= =========
Average number of shares outstanding, including common
stock equivalents........................................ 52,309 51,306 49,264
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 28
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31
---------------------
1997 1996
---------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 45,279 $ 22,765
Restricted cash...................................................... 14,456 3,029
Receivables.......................................................... 567,634 500,201
Inventories.......................................................... 33,983 40,097
Prepaid expenses and other current assets............................ 12,708 9,182
Deferred income taxes................................................ 37,155 18,953
---------- --------
Total current assets.............................................. 711,215 594,227
Property and equipment................................................. 89,027 69,441
Land and buildings..................................................... 96,768 87,844
Intangible assets...................................................... 59,569 55,210
Other assets........................................................... 55,883 52,568
---------- --------
$1,012,462 $859,290
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................. $ 271,282 $210,393
Accrued payroll and employee benefits................................ 131,234 138,709
Income taxes payable................................................. 16,859 15,636
Current portion of long-term liabilities............................. 21,287 2,304
---------- --------
Total current liabilities......................................... 440,662 367,042
---------- --------
Long-term liabilities.................................................. 44,341 34,116
---------- --------
Stockholders' equity, per accompanying statement:
Class A common stock, $.01 par value................................. 480 469
Class B common stock, $.05 par value................................. 16 17
Additional paid-in capital........................................... 304,658 249,855
Retained earnings.................................................... 232,562 215,860
Other stockholders' equity........................................... (10,257) (8,069)
---------- --------
Total stockholders' equity........................................ 527,459 458,132
Commitments and contingencies (Note K).................................
---------- --------
$1,012,462 $859,290
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 29
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
CLASS A CLASS B
--------------- ---------------
100,000,000 5,000,000
SHARES SHARES
AUTHORIZED AUTHORIZED ADDITIONAL
--------------- --------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS OTHER
------ ------ ------ ------ ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1994....... 44,315 $443 364 $ 19 $ 172,713 $162,327 $ (905)
Issuances of common stock....... 2,994 30 33,654
Repurchases of common stock..... (2,066) (21) (21) (2) (8,356) (22,336)
Income tax benefit from employee
stock transactions........... 3,557
Foreign currency translation
adjustment................... 101
Unearned stock compensation..... (3,516)
Net income...................... 49,052
------ ---- --- --- -------- -------- --------
Balance at January 31, 1995....... 45,243 452 343 17 201,568 189,043 (4,320)
Issuances of common stock....... 4,115 41 52,600
Repurchases of common stock..... (2,449) (24) (11) (11,456) (30,479)
Income tax benefit from employee
stock transactions........... 7,143
Foreign currency translation
adjustment................... (161)
Unearned stock compensation..... (3,588)
Net income...................... 57,296
------ ---- --- --- -------- -------- --------
Balance at January 31, 1996....... 46,909 469 332 17 249,855 215,860 (8,069)
Issuances of common stock....... 4,123 41 60,540
Repurchases of common stock..... (3,019) (30) (6) (1) (16,168) (46,978)
Income tax benefit from employee
stock transactions........... 10,431
Foreign currency translation
adjustment................... 1,279
Unearned stock compensation..... (3,467)
Net income...................... 63,680
------ ---- --- --- -------- -------- --------
Balance at January 31, 1997....... 48,013 $480 326 $ 16 $ 304,658 $232,562 $(10,257)
====== ==== === === ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 30
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 63,680 $ 57,296 $ 49,052
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 50,182 35,380 27,738
Non-cash compensation..................................... 22,654 13,224 9,898
Loss on disposal of property and equipment................ 895 1,385 1,583
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables............................................. (37,203) (75,139) (42,623)
Inventories............................................. 8,111 (13,257) (4,477)
Prepaid expenses and other current assets............... (3,427) 5,260 (2,129)
Progress payments....................................... (25,138) 10,660 11,443
Deferred income taxes................................... (18,202) 1,583 1,547
Other assets............................................ (11,704) (5,049) (8,280)
Accounts payable and accrued liabilities................ 46,678 4,701 44,734
Accrued payroll and employee benefits................... (8,188) 12,637 16,538
Income taxes payable.................................... 1,223 (2,774) 8,520
-------- -------- --------
89,561 45,907 113,544
-------- -------- --------
Cash flows from investing activities:
Expenditures for property and equipment...................... (37,747) (33,112) (20,188)
Expenditures for land and buildings.......................... (4,555) (1,233) (15,437)
Acquisitions of certain business assets, net of cash
acquired.................................................. (23,151) 1,475 (71,109)
Investments in affiliates.................................... (21,367)
Proceeds from disposal of property and equipment............. 727 332 297
Proceeds from sale of debt securities available for sale..... 7,576 12,478
Purchases of debt securities held to maturity................ (13,913)
-------- -------- --------
(57,150) (41,427) (120,350)
-------- -------- --------
Cash flows from financing activities:
Increase (decrease) in notes payable and long-term
liabilities............................................... 5,351 (3,441) (8,810)
Income tax benefit from employee stock transactions.......... 10,431 7,143 3,557
Sales of common stock........................................ 19,720 14,834 4,744
Repurchases of common stock.................................. (45,399) (28,454) (18,038)
-------- -------- --------
(9,897) (9,918) (18,547)
-------- -------- --------
Increase (decrease) in cash and cash equivalents............. 22,514 (5,438) (25,353)
Cash and cash equivalents at beginning of year............... 22,765 28,203 53,556
-------- -------- --------
Cash and cash equivalents at end of year..................... $ 45,279 $ 22,765 $ 28,203
======== ======== ========
Supplemental schedule of noncash investing and financing
activities:
Repurchase of common stock upon exercise of stock options.... $ 17,778 $ 13,505 $ 12,677
======== ======== ========
Long-term mortgage assumed upon purchase of land and
building.................................................. $ 6,919 $ -- $ --
======== ======== ========
Issuance of common stock for acquisitions of certain business
assets.................................................... $ -- $ 10,673 $ 5,282
======== ======== ========
Liabilities assumed in acquisitions of certain business
assets.................................................... $ 17,072 $ 17,839 $ 25,532
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 31
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of Science
Applications International Corporation and all majority-owned U.S. and
international subsidiaries (collectively referred to as "the Company"). All
significant intercompany transactions and accounts have been eliminated in
consolidation. Investments in affiliates and corporate joint ventures owned
twenty to fifty percent are accounted for under the equity method. Other
investments are generally carried at cost.
Certain of the Company's majority-owned subsidiaries have fiscal years
ending December 31. The financial position and results of operations of these
subsidiaries as of and for the year ending December 31 are included in the
Company's consolidated financial statements.
On January 2, 1997, the Company formed a joint venture, Informatica,
Negocio y Tecnologia, S.A. ("INTESA"), with Venezuela's national oil company,
Petroleos de Venezuela, S.A., to provide information technology services in
Latin America. INTESA's fiscal year end is December 31; therefore, the Company
will begin to consolidate its 60% majority interest in INTESA in the
consolidated financial statements for the year ending January 31, 1998.
Use of estimates
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 the
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.
Fair value of financial instruments
It is management's belief that the carrying amounts shown for the Company's
financial instruments are reasonable estimates of their related values. The fair
value of the Company's long-term liabilities is estimated based on the current
rates offered to the Company for similar debt with the same remaining
maturities.
Contract revenues
The major portion of the Company's revenues result from contract services
performed for the U.S. Government or from subcontracts with other contractors
engaged in work for the U.S. Government under a variety of contracts, some of
which provide for reimbursement of cost plus fees and others which are fixed-
price or time-and-materials type contracts. Generally, revenues and fees on
contracts are recognized as services are performed, using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. Revenues
from the sale of manufactured products are recorded when the products are
shipped.
The Company provides for anticipated losses on contracts by a charge to
income during the period in which the losses are first identified. Unbilled
receivables are stated at estimated realizable value. Contract costs, including
indirect costs, are subject to audit and adjustment by negotiations between the
Company and government representatives. Substantially all of the Company's
indirect contract costs have been agreed upon through 1995. Contract revenues
have been recorded in amounts that are expected to be realized upon final
settlement.
F-7
<PAGE> 32
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and cash equivalents
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less. Of the $45,279,000 and $22,765,000 total cash
and cash equivalents at January 31, 1997 and 1996, respectively, $16,161,000 and
$11,428,000, respectively, was invested in commercial paper.
Investment securities
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determinations at each balance sheet date. Debt securities are classified as
held to maturity or available for sale and are recorded at amortized cost and
fair value, respectively. As of January 31, 1997, the Company had $16,161,000 in
debt securities classified as held to maturity. As of January 31, 1996, the
Company had debt securities of $7,654,000 and $11,428,000 classified as
available for sale and held to maturity, respectively. Gross unrealized gains
and losses on the Company's available for sale securities were not significant.
Restricted cash
The Company's wholly-owned subsidiary 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.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the moving average and first-in, first-out methods.
Buildings, property and equipment
Depreciation and amortization of buildings and related improvements are
provided using the straight-line method over estimated useful lives of thirty to
forty years and ten years, respectively. Depreciation and amortization of
property and equipment are provided over the estimated useful lives of the
assets, primarily using a declining-balance method. The useful lives are three
to ten years for equipment and the shorter of the useful lives or the terms of
the leases for leasehold improvements.
Additions to property and equipment together with major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals and
betterments are charged to expense. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation or amortization are removed
from the accounts and any resulting gain or loss is recognized.
Long-lived assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future net cash flows is less than the carrying amount
of the asset.
F-8
<PAGE> 33
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets
Intangible assets consist primarily of goodwill. Goodwill represents the
excess of the purchase cost over the fair value of net assets acquired in an
acquisition and is amortized by the straight line method generally over five to
ten years. The carrying value of the Company's goodwill is reviewed when the
facts and circumstances suggest that they may be permanently impaired. If the
review indicates that the intangible assets may not be recoverable, as
determined by the undiscounted cash flow method, the assets will be reduced to
their estimated recoverable value. Amortization of intangible assets amounted to
$16,839,000, $11,044,000 and $6,257,000 in 1997, 1996 and 1995 respectively.
Accumulated amortization was $43,870,000 and $27,031,000 at January 31, 1997 and
1996, respectively.
During 1997, the Company determined that there was evidence that events and
changes in circumstances have made recovery of certain goodwill unlikely. The
Company determined that $6,154,000 of the carrying value of goodwill was
impaired; accordingly, that amount was charged to income and included in
depreciation and amortization expense.
Income taxes
Income taxes are provided utilizing the liability method. The liability
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. Additionally, under the
liability method, changes in tax rates and laws will be reflected in income in
the period such changes are enacted.
Stock-based compensation
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," encourages, but does not require, companies to
record compensation expense for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, compensation expense for stock options is
measured as the excess, if any, of the fair value of the Company's stock as
determined by the Board of Directors at the date of grant over the amount an
employee must pay to acquire the stock (Note J).
Common stock and earnings per share
Class A and Class B common stock are collectively referred to as common
stock in the Notes to Consolidated Financial Statements unless otherwise
indicated.
Computations of earnings per share are based on the weighted average number
of shares of common stock outstanding, increased by the effect of dilutive
options using the modified treasury stock method. Fully diluted earnings per
share was substantially the same as primary earnings per share in 1997, 1996 and
1995.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which establishes standards for computing and
presenting earnings per share ("EPS"). SFAS No. 128 will be adopted by the
Company as required for the interim period and fiscal year ending January 31,
1998. Upon adoption of SFAS No. 128, the Company will present basic EPS as well
as diluted EPS in the period of adoption and restate all prior-period EPS data
presented for comparative purposes. Basic EPS will be computed by dividing
income available to common stockholders by the weighted average number of shares
of common stock outstanding. Diluted EPS will be computed similar to basic EPS
except that the weighted average number of shares of common stock outstanding
will be increased to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued.
F-9
<PAGE> 34
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A general public market for the Company's common stock does not exist.
Periodic determinations of the fair market value of the common stock are made by
the Board of Directors pursuant to a stock price formula and valuation process
which includes an appraisal prepared by an independent appraisal firm. The Board
of Directors reserves the right to alter the formula and valuation process.
Other financial instruments
The Company initiates hedging activities by entering into currency exchange
agreements consisting principally of currency forward contracts to minimize
revenue and cost variations which could result from fluctuations in currency
exchange rates. These instruments, consistent with the underlying purchase or
sale commitments, typically mature within seven years of origination. In the
event of an early termination of a currency agreement designated as a hedge, the
gain or loss will continue to be deferred and will be included in the settlement
of the underlying transaction. At January 31, 1997, the Company had
approximately $4,645,000 of foreign currency forward exchange contracts in
British pounds sterling and French francs outstanding with net deferred gains of
$170,000.
In January 1997, the Company entered into forward treasury lock agreements
for a total of $200,000,000 which mature in October and November of 1997. Such
agreements were entered into to manage exposure to fluctuations in interest
rates on an anticipated, probable issuance of debt that will be used to finance
an anticipated, probable acquisition (Note B). Gains or losses resulting from
the differential to be paid or received are deferred and will be recorded as
adjustments to interest expense over the term of the underlying debt. In the
event of an early termination of these contracts which have been designated as
hedges, the gain or loss will continue to be deferred and recorded as an
adjustment to interest expense over the remaining term of the underlying debt.
The currency exchange agreements and forward treasury lock agreements are
treated as off-balance sheet financial instruments with related gains and losses
recognized in earnings upon the settlement of the underlying transactions. The
Company does not enter into speculative or leveraged derivative transactions and
all agreements have been entered into with financial institutions which are
considered credit worthy.
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and
long-term investments. The Company invests its excess cash principally in U.S.
Government and municipal debt securities and commercial paper and has
established guidelines relative to diversification and maturities in an effort
to maintain safety and liquidity. These guidelines are periodically reviewed and
modified to take advantage of trends in yields and interest rates.
Concentrations of credit risk with respect to receivables are limited
because the Company's primary customers are various agencies of the U.S.
Government as well as commercial customers engaged in work for the U.S.
Government. As of January 31, 1997, there were no significant concentrations of
receivables with these commercial customers.
Foreign currency
Financial statements of international subsidiaries, for which the
functional currency is the local currency, are translated into U.S. dollars
using the exchange rate at each balance sheet date for assets and liabilities
and a weighted average exchange rate for revenues, expenses, gains and losses.
Translation adjustments are recorded as a separate component of stockholders'
equity. The functional currency of the Company's foreign subsidiaries that
operate in a highly inflationary economy is the U.S. dollar. The monetary assets
and liabilities of these foreign subsidiaries are translated into U.S. dollars
at the exchange rate in effect at the balance sheet date, while revenues,
expenses, gains and losses are translated at the average exchange rate for the
period,
F-10
<PAGE> 35
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
except for items related to non-monetary assets and liabilities, which are
translated at historical rates. Resulting re-measurement gains or losses of
these foreign subsidiaries are recognized in the consolidated results of
operations.
Reclassifications
Certain amounts from previous years have been reclassified in the
consolidated financial statements to conform to the 1997 presentation.
NOTE B -- ACQUISITIONS AND INVESTMENTS IN AFFILIATES:
Acquisitions of certain business assets and companies have been accounted
for by the purchase method of accounting. The operations of the companies and
businesses acquired have been included in the accompanying consolidated
financial statements from their respective dates of acquisition. The excess of
the purchase price over fair value of the net assets acquired has been included
in intangible assets as goodwill. The aggregate effect of the purchased
acquisitions was not material to the Company's consolidated financial
statements.
On November 20, 1996, the Company entered into a definitive acquisition
agreement to purchase Bell Communications Research, Inc. ("Bellcore"), a
provider of telecommunications services, information networking software and
consulting services. As of December 31, 1996, Bellcore had approximately 5,500
employees and annual revenues of approximately $1 billion. The consummation of
the acquisition is subject to certain conditions and contingencies, including
regulatory approvals which are expected to take between nine and fourteen months
to obtain from the date of the agreement. The Company intends to finance a
substantial portion of the purchase price of Bellcore with debt financing. In
anticipation of consummating the transaction, as part of the debt financing, the
Company entered into two forward treasury lock agreements, totaling $200 million
(Note A), which are intended to hedge against interest rate fluctuations.
The carrying value of the Company's equity investments was $28,979,000 and
$25,016,000 at January 31, 1997 and 1996, respectively, which includes the
unamortized excess of the Company's investments over its equity in the
underlying net assets of $13,333,000 and $15,551,000, respectively.
NOTE C -- BUSINESS SEGMENT INFORMATION:
The Company's principal business involves the application of scientific
expertise, together with computer and systems technology, to solve complex
technical problems for government agencies and industrial customers. The skills
of the professional staff encompass a variety of scientific and technical
disciplines and the management structure is based upon broad technological
groupings, not necessarily related to any particular industry, line of business,
geographical area, market or class of customer.
For purposes of analyzing and understanding the Company's financial
statements, its operations have been classified into two broad segments:
Technical Services and Products. The Technical Services segment is further
classified between the National Security, Health, Environment, Energy and Other
business areas. Other business areas include commercial information technology,
transportation and space.
Technical Services consist of applied and basic research; analysis and
development of new and existing policies, concepts, systems and programs; design
and development of computer software; systems engineering; systems integration;
test and evaluation of new products or systems; technical operational and
management support; environmental engineering; and engineering support to
existing facilities, laboratories and systems.
Products include custom designed and standard hardware and software
products such as data display devices, "ruggedized" personal computers, sensors
and nondestructive imaging instruments. These products typically incorporate
Company-developed hardware and software as well as hardware and software
manufactured by others.
F-11
<PAGE> 36
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Industry segment information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Contract revenues:
Technical Services --
National Security..................................... $1,046,891 $ 966,864 $ 891,181
Health................................................ 332,077 304,199 206,405
Environment........................................... 260,153 274,316 264,511
Energy................................................ 118,168 142,190 169,732
Other................................................. 489,935 320,148 217,838
Products................................................. 153,547 146,653 170,325
Interest income............................................ 1,453 1,287 1,888
---------- ---------- ----------
Total revenues............................................. $2,402,224 $2,155,657 $1,921,880
========= ========= =========
Operating profit:
Technical Services --
National Security..................................... $ 51,196 $ 47,321 $ 25,356
Health................................................ 24,655 18,863 18,188
Environment........................................... 4,889 12,051 12,962
Energy................................................ 6,375 7,202 9,824
Other................................................. 22,504 13,659 8,287
Products................................................. 7,062 6,460 6,669
---------- ---------- ----------
116,681 105,556 81,286
Interest income............................................ 1,453 1,287 1,888
Interest expense........................................... (4,925) (4,529) (3,468)
---------- ---------- ----------
Income before income taxes................................. $ 113,209 $ 102,314 $ 79,706
========= ========= =========
Identifiable assets:
Technical Services --
National Security..................................... $ 218,112 $ 212,330 $ 176,452
Health................................................ 126,720 115,556 62,560
Environment........................................... 59,397 70,156 72,867
Energy................................................ 27,155 33,260 43,730
Other................................................. 167,950 96,621 99,081
Products................................................. 60,721 66,030 38,628
---------- ---------- ----------
660,055 593,953 493,318
Corporate and other assets................................. 352,407 265,337 259,266
---------- ---------- ----------
Total assets............................................... $1,012,462 $ 859,290 $ 752,584
========= ========= =========
</TABLE>
Because of the nature of the Company's business, sales between segments are
not material. Segment operating results reflect general corporate expense
allocations because all such expenses are allocated to individual cost
objectives by the Company, as required by Government Cost Accounting Standards.
Identifiable assets of the respective industry segments consist of receivables,
inventories and goodwill. All other assets are either corporate in nature, are
not identifiable with particular segments or are not material. Capital
expenditures and depreciation and amortization are not identified as to industry
segments for similar reasons.
F-12
<PAGE> 37
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1997, 1996 and 1995, approximately 79%, 83% and 86%, respectively,
of the Company's contract revenues were attributable to prime contracts with the
U.S. Government or to subcontracts with other contractors engaged in work for
the U.S. Government. Foreign operations and revenues directly attributable to
foreign customers were not material. In 1996, approximately 10% of the Company's
consolidated revenues were derived from one U.S. Government contract in the
Health business area, which is a contract to automate the information systems
for the Department of Defense's medical treatment facilities worldwide. This
contract was substantially completed in 1997. No single contract had revenues
greater than 10% of the Company's consolidated revenues in 1997 and 1995.
Subsequent to January 31, 1997, the Company sold a business unit which
manufactured data display devices and "ruggedized" personal computers and which
accounted for 49% of the Products revenue in 1997 (Note M).
NOTE D -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Contracts-in-process, less progress payments of $315 and $1,077
at January 31, 1997 and 1996, respectively.................. $ 13,161 $ 11,372
Raw materials.................................................. 20,822 28,725
-------- --------
$ 33,983 $ 40,097
======== ========
Property and equipment at cost:
Computers and other equipment.................................. $182,160 $146,354
Office furniture and fixtures.................................. 20,291 19,861
Leasehold improvements......................................... 17,064 13,570
-------- --------
219,515 179,785
Less accumulated depreciation and amortization................. 130,488 110,344
-------- --------
$ 89,027 $ 69,441
======== ========
Land and buildings at cost:
Buildings and improvements..................................... $ 87,235 $ 77,117
Land........................................................... 22,275 20,919
Land held for future use....................................... 702 702
-------- --------
110,212 98,738
Less accumulated depreciation and amortization................. 13,444 10,894
-------- --------
$ 96,768 $ 87,844
======== ========
Accounts payable and accrued liabilities:
Accounts payable............................................... $112,560 $ 97,415
Other accrued liabilities...................................... 92,379 56,680
Collections in excess of revenues on uncompleted contracts..... 66,343 56,298
-------- --------
$271,282 $210,393
======== ========
Accrued payroll and employee benefits:
Salaries, bonuses and amounts withheld from employees'
compensation................................................ $ 63,018 $ 77,309
Accrued vacation............................................... 52,138 47,111
Accrued contributions to employee benefit plans................ 16,078 14,289
-------- --------
$131,234 $138,709
======== ========
</TABLE>
F-13
<PAGE> 38
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- RECEIVABLES:
Receivables consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Receivables, primarily U.S. Government, less allowance for
doubtful accounts of $18,048 and $1,878 at January 31, 1997
and 1996, respectively:
Billed....................................................... $440,548 $359,087
Unbilled, less progress payments of $17,291 and $41,667 at
January 31, 1997 and 1996, respectively................... 101,326 114,206
Contract retentions.......................................... 25,760 26,908
-------- --------
$567,634 $500,201
======== ========
</TABLE>
Unbilled receivables at January 31, 1997 and 1996 include $13,976,000 and
$20,586,000, respectively, related to 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 an existing contract, but for which formal contracts or
contract modifications have not been executed. The balance of unbilled
receivables consist of costs and fees billable on contract completion or other
specified events, the majority of which is expected to be billed and collected
within one year. The majority of the retention balance is expected to be
collected beyond one year.
NOTE F -- REVOLVING CREDIT LOAN AGREEMENTS:
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
January 31, 1997, 1996 and 1995. As of January 31, 1997, the entire $105,000,000
was available under the most restrictive debt covenants of the credit loan
agreements. The maximum amounts outstanding were $31,000,000, $43,000,000 and
$12,800,000 in 1997, 1996 and 1995, respectively. The average amount outstanding
was $2,299,000, $9,380,000 and $197,000 during 1997, 1996 and 1995,
respectively. The weighted average interest rate in 1997, 1996 and 1995 was
5.9%, 6.4% and 4.9% respectively, based upon average daily balances.
NOTE G -- EMPLOYEE BENEFIT PLANS:
In 1995, the Company merged two of its profit sharing retirement plans into
one principal Profit Sharing Retirement Plan (PSRP) in which eligible employees
participate. Participants' interests vest 25% per year in the third through
sixth year of service. Participants also become fully vested upon reaching age
59 1/2, permanent disability or death. Contributions charged to income under the
PSRP were $10,167,000, $23,355,000 and $27,420,000 for 1997, 1996 and 1995,
respectively.
The Company has an Employee Stock Ownership Plan (the "Plan") in which
eligible employees participate. Cash contributions to the Plan are based upon
amounts determined annually by the Board of Directors and are allocated to
participants' accounts based on their annual compensation. The Company
recognizes compensation expense as the fair value of the Company common stock or
cash in the year of contribution. The vesting requirements for the Plan are the
same as the PSRP. Shares of Company common stock distributed from the Plan bear
a limited put option that, if exercised, would require the Company to repurchase
the shares at their then current fair value. At January 31, 1997, the Plan held
15,482,000 shares of Class A common stock and 30,000 shares of Class B common
stock with a combined fair value of
F-14
<PAGE> 39
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$405,807,000. Contributions charged to income under the Plan were $29,492,000,
$10,259,000 and $10,516,000 for 1997, 1996 and 1995, respectively.
The Company has one principal Cash or Deferred Arrangement (CODA) which
allows eligible participants to defer a portion of their income through
contributions. Such deferrals are fully vested, are not taxable to the
participant until distributed from the CODA upon termination, retirement,
permanent disability or death and may be matched by the Company. The Company's
matching contributions to the CODA of $9,567,000, $11,535,000 and $10,977,000
were charged to income in 1997, 1996 and 1995, respectively. Effective January
1, 1995, the Company's matching contributions to employees hired on or after
such date are subject to the same vesting requirements as the PSRP, while the
Company's matching contributions for employees hired prior to such date remain
fully vested.
The Company has a Bonus Compensation Plan which provides for bonuses to
reward outstanding performance. Bonuses are paid in the form of cash, fully
vested shares of Class A common stock or vesting shares of Class A common stock.
Awards of vesting shares of Class A common stock made prior to July 10, 1992,
vest at the rate of 10%, 20%, 30% and 40% after one, two, three and four years,
respectively, from the date of award. Awards of vesting shares of Class A common
stock made after July 10, 1992, vest at the rate of 20%, 20%, 20% and 40% after
one, two, three and four years, respectively. The amounts charged to income
under this plan were $32,359,000, $25,868,000 and $23,831,000 for 1997, 1996 and
1995, respectively.
In 1995, the Company adopted the Stock Compensation Plan and the Management
Stock Compensation Plan, together referred to as the "Stock Compensation Plans."
The Stock Compensation Plans provide for awards of share units to eligible
employees, which share units generally correspond to shares of Class A common
stock which are held in trust for the benefit of participants. Participants'
interests in these share units vest on a seven year schedule at the rate of
one-third at the end of each of the fifth, sixth and seventh years following the
date of the award. The fair market value of shares awarded under these plans are
recorded as unearned compensation and included as a separate component of
stockholders' equity. The unearned amounts are amortized to expense over the
vesting period. The amounts charged to income under these plans were $1,282,000,
$686,000 and $160,000 for 1997, 1996 and 1995, respectively.
The Company also has an Employee Stock Purchase Plan which allows eligible
employees to purchase shares of the Company's Class A common stock, with the
Company contributing 5% of the existing fair market value in 1997. Effective for
1998, the Company increased its contribution to 10%. There are no charges to
income under this plan.
NOTE H -- INCOME TAXES:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------------
1997 1996 1995
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Payable currently:
Federal................................................ $ 56,258 $36,281 $29,138
State and foreign...................................... 14,141 9,040 8,110
Deferred:
Federal................................................ (17,113) (158) (5,300)
State and foreign...................................... (3,757) (145) (1,294)
-------- ------- -------
$ 49,529 $45,018 $30,654
======== ======= =======
</TABLE>
F-15
<PAGE> 40
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes. Deferred
tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Income recognition:
Contractually billable method.................................. $ 25,787 $ 9,371
Completed contract method...................................... 2,165 2,164
Accrued vacation pay............................................. 18,872 16,878
Deferred compensation............................................ 9,511 8,884
Vesting stock bonuses............................................ 7,782 5,658
Other............................................................ 5,438 6,019
-------- --------
Total deferred tax assets................................... 69,555 48,974
-------- --------
Employee benefit plan contributions.............................. (9,581) (9,461)
Depreciation and amortization.................................... (2,390) (3,184)
Cash to accrual basis conversion for certain subsidiaries........ (490) (983)
Other............................................................ (2,169) (1,741)
-------- --------
Total deferred tax liabilities.............................. (14,630) (15,369)
-------- --------
Net deferred tax asset........................................... $ 54,925 $ 33,605
======== ========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax (35%) to income before income taxes
follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
---------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amount computed at statutory rate......................... $39,623 $35,810 $27,897
State income taxes, net of federal tax benefit............ 6,276 5,597 4,303
Revision of prior years' tax estimates.................... (1,875) (371) (4,134)
Nondeductible meals and entertainment..................... 2,567 2,409 2,150
Other..................................................... 2,938 1,573 438
------- ------- -------
$49,529 $45,018 $30,654
======= ======= =======
</TABLE>
Other assets include deferred income taxes of $17,770,000 and $14,652,000
at January 31, 1997 and 1996, respectively. Income taxes paid in 1997, 1996 and
1995 amounted to $59,196,000, $32,785,000 and $35,600,000, respectively. The
effective rate for 1995 had been reduced as a result of ongoing resolutions of
certain issues relating to prior year federal and state income tax returns as
well as a favorable settlement of 1986 and 1987 tax years.
F-16
<PAGE> 41
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- LONG-TERM LIABILITIES:
Long-term liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
-----------------
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Mortgages payable collateralized by real property.................. $19,214 $12,438
Deferred compensation.............................................. 20,263 17,224
Notes payable...................................................... 12,515 1,734
Deferred credits................................................... 11,039 1,600
Other.............................................................. 2,597 3,424
------- -------
65,628 36,420
Less current portion............................................... 21,287 2,304
------- -------
$44,341 $34,116
======= =======
</TABLE>
During 1997, the Company assumed a $6,919,000 mortgage note in connection
with the purchase of land and building. Terms of the note include quarterly
payments of principal and interest until December 2016. Interest is adjusted
annually and was 6.4% in 1997. In connection with the purchase of land and a
building in 1991, the Company assumed a mortgage note of $12,800,000. Terms of
this note include an 8.9% interest rate and monthly payments of principal and
interest of $102,000 until June 1997 when the remaining principal balance
becomes due.
The Company has two deferred compensation plans. The Keystaff Deferral Plan
is maintained for the benefit of key executives and directors, pursuant to which
eligible participants may elect to defer a portion of their compensation. The
Company makes no contributions to the accounts of participants under this plan
but does credit participant accounts for deferred compensation amounts and
interest earned on such deferred compensation. Interest is accrued based on the
Moody's Seasoned Corporate Bond Rate (7.6% in 1997). Deferred balances will
generally be paid upon the later of the attainment of age 65, ten years of plan
participation or retirement, unless participants elect an early pay-out. The Key
Executive Stock Deferral Plan is maintained for the benefit of directors and
certain key executives. Eligible participants may elect to defer a portion of
their compensation into a trust established by the Company which invests in
shares of Class A common stock. The Company makes no contributions to the
accounts of participants. Deferred balances will generally be paid upon
retirement or termination of affiliation.
In connection with a business acquisition completed in 1997, the Company
assumed liability for a $14,400,000 note due in December 1999. Other terms of
the note include monthly payments of principal and interest at 7.0%. The Company
has various other notes with interest rates from 4.3% to 8.0% that are due over
the next twelve years.
Maturities of long-term liabilities are as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 (IN THOUSANDS)
----------------------------------------------------------------------- --------------
<S> <C>
1998................................................................... $ 21,287
1999................................................................... 14,452
2000................................................................... 3,574
2001................................................................... 676
2002................................................................... 404
2003 and after......................................................... 25,235
--------------
$ 65,628
===========
</TABLE>
F-17
<PAGE> 42
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- COMMON STOCK AND OPTIONS:
The Company has options outstanding under three stock option plans, the
1995 Stock Option Plan (the 1995 Plan), which was adopted effective July 14,
1995, the 1992 Stock Option Plan (the 1992 Plan) and the 1982 Stock Option Plan
(the 1982 Plan). Under the 1995, 1992 and 1982 Plans, options are granted at
prices not less than the fair market value at the date of grant and for terms
not greater than ten years. Options granted prior to July 10, 1992 generally
become exercisable 10%, 20%, 30% and 40% after one, two, three and four years,
respectively, from the date of grant. Options granted after July 10, 1992
generally become exercisable 20%, 20%, 20% and 40% after one, two, three and
four years, respectively, from the date of grant. No options have been granted
under the 1992 Plan after July 31, 1995 and the 1982 Plan after July 10, 1992,
the dates the plans terminated, respectively. The Company makes no charge to
income in connection with these plans.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
during 1997. In accordance with the provisions of SFAS No. 123, the Company
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans and does
not recognize compensation expense for its employee stock-based compensation
plans. If the Company had elected to recognize compensation expense based upon
the fair value at the grant dates for stock option awards granted in 1997 and
1996, consistent with the methodology prescribed by SFAS No. 123, net income and
earnings per share in 1997 would have been reduced by $4,797,000 and $.08 per
share, respectively. For 1996, net income and earnings per share would have been
reduced by $2,273,000 and $.04 per share, respectively. These amounts were
determined using weighted-average per share fair values of options granted in
1997 and 1996 of $5.30 and $4.59, respectively. The fair value for these options
was estimated at the date of grant using the Black-Scholes option pricing model
with the following assumptions for 1997 and 1996, respectively; no dividend
yields, no volatility, risk free interest rates ranging from 5.3% to 7.2%, and
expected lives of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. The Company meets the definition of a non-public company for the
purposes of calculating fair value and, therefore, assumes no volatility in the
fair value calculation. Because the Company's employee stock options have
characteristics significantly different from those of traded options and because
changes in subjective input assumptions can materially affect the fair value
estimates, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock-based
compensation plans.
F-18
<PAGE> 43
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of changes in outstanding options under the plans during the
three years ended January 31, 1997, is as follows:
<TABLE>
<CAPTION>
SHARES OF CLASS A
SHARES OF CLASS A COMMON STOCK
COMMON STOCK WEIGHTED-AVERAGE EXERCISABLE UNDER
UNDER OPTIONS EXERCISE PRICE OPTIONS
----------------- ---------------- -----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
January 31, 1994......................... 10,689 $10.70 3,315
Options granted........................ 3,201 $14.38
Options canceled....................... (646) $11.75
Options exercised...................... (1,591) $ 9.23
-------
January 31, 1995......................... 11,653 $11.86 4,014
Options granted........................ 3,383 $16.33
Options canceled....................... (493) $12.62
Options exercised...................... (2,226) $ 9.96
-------
January 31, 1996......................... 12,317 $13.39 4,467
Options granted........................ 3,606 $20.27
Options canceled....................... (640) $15.16
Options exercised...................... (2,454) $10.76
-------
January 31, 1997......................... 12,829 $15.73 4,429
=======
</TABLE>
As of January 31, 1997, 20,649,000 shares of Class A common stock were
reserved for issuance upon exercise of options which are outstanding or which
may be granted. The Company has agreed to make available for issuance, purchase
or options approximately 776,000 shares of Class A common stock to employees,
prospective employees and consultants, generally contingent upon commencement of
employment or the occurrence of certain events. The selling price of shares and
the exercise price of options are to be the fair market value at the date such
shares are made available or options are granted.
A summary of options outstanding as of January 31, 1997 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED-AVERAGE
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS EXERCISABLE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
- ----------------- ----------- -------------- ---------------- ----------- ----------------
(OPTIONS OUTSTANDING AND EXERCISABLE IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$11.15 to
$11.83......... 1,655 $11.32 .4 1,653 $11.32
$12.01 to
$13.12......... 1,981 $12.34 1.4 1,145 $12.34
$14.19 to
$15.07......... 2,656 $14.38 2.4 1,032 $14.39
$15.72 to
$18.27......... 3,059 $16.33 3.4 599 $16.33
$19.33 to
$22.83......... 3,478 $20.27 4.4 --
------ -----
12,829 4,429
====== =====
</TABLE>
NOTE K -- COMMITMENTS AND CONTINGENCIES:
The Company occupies most of its facilities under operating leases. Most of
the leases require the Company to pay maintenance and operating expenses such as
taxes, insurance and utilities and also contain renewal options extending the
leases from one to twenty years. Certain of the leases contain purchase options
and provisions for periodic rate escalations to reflect cost-of-living
increases. Certain equipment, primarily computer-related, is leased under
short-term or cancelable leases. Rental expenses for facilities and equipment
totaled $68,334,000, $63,282,000 and $58,538,000 in 1997, 1996 and 1995,
respectively.
F-19
<PAGE> 44
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1997, the Company entered into a seven year operating lease for a
general purpose office building. The lease terms include an option for the
Company to purchase the building at the end of the initial seven year term. If
the purchase option is not exercised, the Company may be required to pay certain
supplemental rental payments if proceeds from the sale of the building are below
specified amounts. The maximum supplemental rental payment which could be
required is $28,809,000.
Minimum rental commitments, primarily for facilities, under all
non-cancelable operating leases in effect at January 31, 1997, are payable as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 (IN THOUSANDS)
----------------------------------------------------------------------- --------------
<S> <C>
1998................................................................... $ 44,363
1999................................................................... 28,466
2000................................................................... 16,787
2001................................................................... 8,729
2002................................................................... 5,659
2003 and after......................................................... 13,047
--------
$117,051
========
</TABLE>
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.
Other commitments at January 31, 1997 include outstanding letters of credit
aggregating $23,464,000, principally related to guarantees on contracts with
commercial and foreign customers, and outstanding surety bonds aggregating
$158,450,000, principally related to performance and payment type bonds.
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.
NOTE L -- SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Charges to costs and expenses for depreciation and amortization of
buildings, property and equipment were $31,790,000, $25,956,000 and $21,481,000
for 1997, 1996 and 1995, respectively.
The Company expensed $11,145,000, $10,258,000 and $8,490,000 of independent
research and development costs during 1997, 1996 and 1995, respectively.
Total interest paid in 1997, 1996 and 1995 amounted to $3,495,000,
$2,746,000 and $1,514,000, respectively.
NOTE M -- SUBSEQUENT EVENT:
On March 7, 1997, the Company sold the majority of the net assets of the
SAIT business unit to Litton Systems, Inc. The purchase price is subject to
potential adjustments, plus contingent payments if certain milestones are
achieved by the business post-closing. Under the agreement, the Company also
retains certain contingent liabilities. Given the early stage of the settlement
period, the impact of the sale on the consolidated financial position and
results of operations has not been determined. The Company, however, does not
anticipate a loss on the sale.
F-20
<PAGE> 1
Exhibit 3(b)
BYLAWS OF
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(a Delaware corporation)
ARTICLE I
OFFICES
Section 1.01 REGISTERED OFFICE. The registered office of SCIENCE
APPLICATIONS INTERNATIONAL CORPORATION (hereinafter called the "Corporation") in
the State of Delaware shall be at 1209 Orange Street, City of Wilmington, County
of New Castle, and the name of the registered agent in charge thereof shall be
The Corporation Trust Company.
Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction
of the business of the Corporation shall be at 10260 Campus Point Drive, San
Diego, California 92121. The Board of Directors (hereinafter called the "Board")
is hereby granted full power and authority to change said principal office from
one location to another.
Section 1.03 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation, for the purpose of electing directors and for the transaction
of such other proper business as the Board shall determine by resolution, and to
discuss any other business as is properly brought before the meeting in
accordance with these Bylaws, may be held at such time, date, and place as the
Board shall determine.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal offices of the Corporation not less than 50
days nor more than 75 days prior to the meeting; provided, however, that, in
AS AMENDED 04-11-97
1
<PAGE> 2
the event that less than 65 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and record
address of the stockholder proposing such business, (iii) the class and number
of shares of capital stock of the Corporation which are beneficially owned by
such stockholder, and (iv) any material interest of such stockholder in such
business.
No business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 2.01; provided,
however, that nothing in this Section 2.01 shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting.
The Chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with this Section 2.01 and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2.02 SPECIAL MEETINGS. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time by the
Board, or by a committee of the Board which has been duly designated by the
Board and whose powers and authority, as provided in a resolution of the Board
or in the Bylaws, include the power to call such meetings, but such special
meetings may not be called by any other person or persons; provided, however,
that if and to the extent that any special meeting of stockholders may be called
by any other person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the Delaware General Corporation Law (or its successor statute as in
effect from time to time hereafter), then such special meeting may also be
called by the person or persons, in the manner, at the times and for the
purposes so specified.
Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person or persons calling the respective
meeting and specified in the respective notices or waivers of notice thereof.
AS AMENDED 04-11-97
2
<PAGE> 3
Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his post office address furnished by him to the Secretary of
the Corporation for such purpose or, if he shall not have furnished to the
Secretary his address for such purpose, then at his post office address last
known to the Secretary, or by transmitting a notice thereof to him at such
address by telegraph, cable, or wireless. Except as otherwise expressly required
by law, no publication of any notice of a meeting of the stockholders shall be
required. Every notice of a meeting of the stockholders shall state the place,
date and hour of the meeting, and, in the case of a special meeting, shall also
state the purpose or purposes for which the meeting is called. Notice of any
meeting of stockholders shall not be required to be given to any stockholder who
shall have waived such notice and such notice shall be deemed waived by any
stockholder who shall attend such meeting in person or by proxy, except as a
stockholder who shall attend such meeting for the express purpose of objecting,
at the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Except as otherwise expressly
required by law, notice of any adjourned meeting of the stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
Section 2.05 QUORUM. Except in the case of any meeting for the election
of directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as a secretary of, such meeting may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present any business
may be transacted which might have been transacted at the meeting as originally
called.
Section 2.06 VOTING.
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by
AS AMENDED 04-11-97
3
<PAGE> 4
him and registered in his name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (a) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or (b) if notice of the meeting shall be waived, at the
close of business on the day next preceding the day on which the meeting shall
be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity shall
be entitled to vote such stock. Persons whose stock is pledged shall be entitled
to vote, unless in the transfer by the pledgor on the books of the Corporation
he shall have expressly empowered the pledgee to vote thereon, in which case
only the pledgee, or his proxy, may represent such stock and vote thereon. Stock
having voting power standing of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons have the
same fiduciary relationship, shall be voted in accordance with the provisions of
the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders all
matters, except as otherwise provided in the Certificate of Incorporation, in
these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, except as otherwise provided
in the Certificate of Incorporation or unless so directed by the chairman of the
meeting. On a vote by ballot, each ballot shall be signed by the stockholder
voting, or by his proxy, if there be such proxy, and it shall state the number
of shares voted.
AS AMENDED 04-11-97
4
<PAGE> 5
Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.08 JUDGES. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and shall
report the number of shares represented at the meeting and entitled to vote on
such question, shall conduct and accept the votes, and, when the voting is
completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The judges
need not be stockholders of the Corporation, and any officer of the Corporation
may be a judge on any question other than a vote for or against a proposal in
which he shall have a material interest.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board.
Section 3.02 NUMBER. The exact number of directors shall be fixed from
time to time, within the limits specified in the Certificate of Incorporation,
by resolution of the Board of Directors.
Section 3.03 ELECTION OF DIRECTORS.
(a) The directors shall be elected annually by the stockholders of the
Corporation and the persons receiving the greatest number of votes, up to the
number of directors to be elected, shall be the persons then elected. The
election of
AS AMENDED 04-11-97
5
<PAGE> 6
directors is subject to any provisions contained in the Certificate of
Incorporation relating thereto, including any provisions for a classified board
and for cumulative voting.
(b) Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of persons
for election to the Board of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors, by any Nominating
Committee or person appointed by the Board, or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.03(b). Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal offices of the Corporation not less than 50 days nor
more than 75 days prior to the meeting; provided, however, that in the event
that less than 65 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director: (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Rule 14A under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice: (i) the name and record address of such
stockholder and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by such stockholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure and, if he should so determine, he shall so declare to the
meeting, and the defective nomination shall be disregarded.
Section 3.04 RESIGNATIONS. Any director of the Corporation
AS AMENDED 04-11-97
6
<PAGE> 7
may resign at any time by giving written notice to the Board or to the Secretary
of the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.05 VACANCIES. Except as otherwise provided in the Certificate
of Incorporation, any vacancy in the Board, whether because of death,
resignation, disqualification, an increase in the number of directors, or any
other cause, may be filled by vote of the majority of the remaining directors,
although less than a quorum. Each director so chosen to fill a vacancy shall
hold office until his successor shall have been elected and shall qualify or
until he shall resign or shall have been removed.
Section 3.06 PLACE OF MEETING, ETC. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time by resolution designate or as shall be designated by
the person or persons calling the meeting or in the notice or a waiver of notice
of any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution determine.
If any day fixed for a regular meeting shall be a legal holiday at the place
where the meeting is to be held, then the meeting shall be held at the same hour
and place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board or the President or by any two
(2) directors, to be held at the principal office of the Corporation, or at such
other place or places, within or without the State of Delaware, as the person or
persons calling the meeting may designate.
Notice of all special meetings of the Board shall be mailed to each
director, addressed to him at his residence or usual place of business, at least
five (5) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegram, or given personally, on the second day,
or sooner, before
AS AMENDED 04-11-97
7
<PAGE> 8
the day on which the meeting is to be held. Such notice may be waived by any
director and any meeting shall be a legal meeting without notice having been
given if all the directors shall be present thereat or if those not present
shall, either before or after the meeting, sign a written waiver of notice of,
or a consent to, such meeting or shall after the meeting sign the approval of
the minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or be made a part of the minutes of the meeting.
Section 3.10 QUORUM AND MANNER OF ACTING. Except as otherwise provided
in these Bylaws or by law, the presence of a majority of the authorized number
of directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
Section 3.11 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
Section 3.12 COMPENSATION. No stated salary need be paid directors, as
such, for their services, but, by resolution of the Board, a fixed sum and
expense of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board or an annual directors' fee may be paid; provided
that nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 3.13 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. Any such committee,
to the extent provided in the resolution of the Board, shall have and may
exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have any power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's
AS AMENDED 04-11-97
8
<PAGE> 9
property and assets, recommending to the stockholders a dissolution of the
corporation or a revocation of the dissolution, or amending the Bylaws of the
Corporation; and unless the resolution of the Board expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Any such committee shall keep written minutes
of its meetings and report the same to the Board at the next regular meeting of
the Board.
Section 3.14 OFFICERS OF THE BOARD. The Board shall have a Chairman of
the Board and may, at the discretion of the Board, have a Vice Chairman. The
Chairman of the Board and the Vice Chairman shall be appointed from time to time
by the Board and shall have such powers and duties as shall be designated by the
Board.
Section 3.15 DIRECTORS EMERITUS. The Board may, at its discretion, have
one or more Director Emeritus who will serve at the pleasure of the Board. The
Board may appoint as a Director Emeritus any former Director of the Company if,
in the judgment of the Board, such Director has rendered exceptionally valuable
service to the Company and such Director's continued interest in and association
with the Company is desirable. Directors Emeritus may be invited to attend
meetings of the Board but will not be considered member(s) of the Board for
purposes of establishing a quorum and will not be entitled to vote on any
matters before the Board.
ARTICLE IV
OFFICERS
Section 4.01 NUMBER. The officers of the Corporation shall be a
Chairman of the Board, a President, one or more Vice Presidents, a Secretary and
a Treasurer. The Corporation may also have, at the discretion of the Board, one
or more Vice Chairmen of the Board, one or more Assistant Vice Presidents, one
or more Assistant Secretaries, one or more Assistant Treasurers and such other
officers as may be appointed in accordance with the provisions of Section 4.03
of this Article IV. One person may hold two or more offices, except that the
Secretary may not also hold the office of President.
Section 4.02 ELECTION. The officers of the Corporation, except such
officers as may be appointed in accordance with Section 4.03 or 4.05, shall be
chosen annually by the Board, and each shall hold office until his successor
shall have been duly chosen and shall qualify or until his resignation, removal
or other disqualification for service.
Section 4.03 SUBORDINATE OFFICERS, ETC. The Board may appoint such
other officers as the business of the Corporation may require, each of whom
shall have such authority and perform such duties as are provided in these
Bylaws or as the Board may from
AS AMENDED 04-11-97
9
<PAGE> 10
time to time specify, and shall hold office until he shall resign or shall be
removed or otherwise disqualified to serve.
Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by a majority of the directors at the time in
office, at any regular or special meeting of the Board, or except in case of an
officer chosen by the Board, by any officer upon whom such power of removal may
be conferred by the Board.
Any officer may resign at any time by giving written notice to the
Board, the Chairman of the Board, the President or the Secretary of the
Corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
Section 4.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
Section 4.06 PRESIDENT. The President of the Corporation shall, subject
to the control of the Board, have general supervision, direction and control of
the business and affairs of the Corporation. He shall preside at all meetings of
stockholders. He shall have the general powers and duties of management usually
vested in the president of a corporation, and shall have such other powers and
duties with respect to the administration of the business and affairs of the
Corporation as may from time to time be assigned to him by the Board or as is
prescribed by the Bylaws.
Section 4.07 VICE PRESIDENTS. The Vice President shall exercise and
perform such powers and duties with respect to the administration of the
business and affairs of the Corporation as may from time to time be assigned to
each of them by the President or by the Chief Executive Officer or by the Board
or as is prescribed by the Bylaws. In the absence or disability of the
President, the Vice Presidents, in order of their rank as fixed by the Board, or
if not ranked, the Vice President designated by the Board, shall perform all of
the duties of the President and when so acting shall have all of the powers of
and be subject to all the restrictions upon the President.
Section 4.08 SECRETARY. The Secretary shall keep, or cause to be kept,
a book of minutes at the principal office for the transaction of the business of
the Corporation, or such other place as the Board may order, of all meetings of
directors and stockholders, with the time and place of holding, whether regular
or special, and if special, how authorized and the notice thereof given, the
names of those present at directors' meetings, the
AS AMENDED 04-11-97
10
<PAGE> 11
number of shares present or represented at stockholders' meetings and the
proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
for the transaction of the business of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses; the number and
classes of shares held by each; the number and date of certificates issued for
the same; and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the stockholders and of the Board required by these Bylaws or by law
to be given, and he shall keep the seal of the Corporation in safe custody, and
shall have such other powers and perform such other duties as may be prescribed
by the Board or these Bylaws. If for any reason the Secretary shall fail to give
notice of any special meeting of the Board called by one or more of the persons
identified in Section 3.09, or if he shall fail to give notice of any special
meeting of the stockholders called by one or more of the person identified in
Section 2.02, then any such person or persons may give notice of any such
special meeting.
Section 4.09 TREASURER. The Treasurer shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned surplus, paid-in surplus and surplus
arising from a reduction of capital, shall be classified according to source and
shown in a separate account. The books of account shall at all reasonable times
be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name
and to the credit of the Corporation with such depositories as may be designated
by the Board. He shall disburse the funds of the Corporation as may be ordered
by the Board, shall render to the President and to the directors, whenever they
request it, an account of all of his transactions as Treasurer and of the
financial condition of the Corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board or these Bylaws.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 5.01 EXECUTION OF CONTRACTS. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contract or execute
AS AMENDED 04-11-97
11
<PAGE> 12
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances; and unless so
authorized by the Board or by these Bylaws, no officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or in
any amount.
Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money, notes or other evidence of indebtedness, issued in the
name of or payable to the Corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
Section 5.03 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the President, any Vice
President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
Section 5.04 GENERAL SPECIAL BANK ACCOUNTS. The Board may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
Section 6.01 CERTIFICATES FOR STOCK.
(a) Every owner of stock of the Corporation shall be entitled to have a
certificate or certificates, to be in such form as the Board shall prescribe,
certifying the number and class of shares of the stock of the Corporation owned
by him. The certificates representing shares of such stock shall be numbered in
the order in
AS AMENDED 04-11-97
12
<PAGE> 13
which they shall be issued and shall be signed in the name of the Corporation by
the President or a Vice President, and by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any of or all of the
signatures on the certificates may be a facsimile. In case any officer, transfer
agent or registrar who has signed, or whose facsimile signature has been placed
upon, any such certificate, shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.04.
(b) All shares of Class B Common Stock of the Corporation issued in the
merger of Science Applications, Inc., a wholly-owned subsidiary of the
Corporation ("SAI"), with and into the Corporation (the "1984 Reorganization")
in exchange for shares of Common Stock, par value $.05 per share, of the
Corporation ("Old Common Stock") which, in turn, were issued in the merger of
SAITEMP Company, a wholly-owned subsidiary of the Corporation, with and into SAI
(the "1981 Reorganization") in exchange for shares of Common Stock, par value
$.05 per share, of SAI ("SAI Common Stock") shall be subject to the same
contractual or other restrictions, if any, that were applicable immediately
prior to the effective time of the 1981 Reorganization to the shares of SAI
Common Stock that were exchanged in the 1981 Reorganization for the shares of
Old Common Stock that were, in turn, exchanged in the 1984 Reorganization for
such shares of Class B Common Stock.
(c) All shares of Class B Common Stock of the Corporation issued
subsequent to the effective time of the 1984 Reorganization upon exercise of
options granted prior to the effective time of the 1981 Reorganization under any
of SAI's stock option plans ("Options") which were converted into Options to
purchase shares of Old Common Stock in the 1981 Reorganization but which were
not converted into Options to purchase shares of Class A Common Stock in the
1984 Reorganization shall be subject to the same contractual or other
restrictions, if any, that would have been applicable to the shares of SAI
Common Stock issuable upon exercise of such Options if such Options had been
exercised immediately prior to the effective time of the 1981 Reorganization.
AS AMENDED 04-11-97
13
<PAGE> 14
(d) All restrictions on the transfer of any shares of capital stock of
the Corporation shall be noted conspicuously on the certificate representing
such shares and shall be enforceable against the holder of the restricted shares
or any successor or transferee of the holder including an executor,
administrator, trustee, guardian or other fiduciary entrusted with the
responsibility for the person or estate of the holder.
Section 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry or
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
Section 6.03 REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, or the Corporate Secretary, it is proper so to do.
Section 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORDS.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the
AS AMENDED 04-11-97
14
<PAGE> 15
date of such meeting, nor more than 60 days prior to any other action. If in any
case involving the determination of stockholders for any purpose other than
notice of or voting at a meeting of stockholders, the Board shall not fix such a
record date, the record date for determining stockholders for such purpose shall
be the close of business on the day on which the Board shall adopt the
resolution relating thereto. A determination of stockholders entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
such meeting; provided, however, that the Board may fix a new record date for
the adjourned meeting.
ARTICLE VII
MISCELLANEOUS
Section 7.01 CORPORATE INTENT. It is the intent and policy of the
Corporation to be a corporation whose outstanding voting securities are owned
primarily by officers, directors, employees and active consultants of the
Corporation and its direct and indirect subsidiaries.
Section 7.02 SEAL. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation and
words and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
Section 7.03 WAIVER OF NOTICES. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or after
the time stated therein, and such waiver shall be deemed equivalent to notice.
Section 7.04 FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of February in each year.
Section 7.05 AMENDMENTS. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board. These Bylaws or any of them, except Sections 3.02, 3.03
and this Section 7.05, may be altered, amended or repealed and new Bylaws may be
made by the vote of the holders of not less than a majority of the outstanding
shares of voting stock of the Corporation at an annual meeting of stockholders,
without previous notice, or at any special meeting of stockholders, provided
that such proposed amendment, modification, repeal or adoption is given in the
notice of special meeting. Sections 3.02, 3.03 and this Section 7.05 may be
altered, amended or repealed by the vote of the holders of not less than
two-thirds of the total voting power of all outstanding shares of voting stock
of the Corporation, at an annual meeting of stockholders, without previous
notice, or at any special meeting of
AS AMENDED 04-11-97
15
<PAGE> 16
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting.
Section 7.06 DESIGNATION OF ENGINEER. It is the intent of the Company
to engage in the practice of engineering in the State of Washington. In
accordance with Washington law, all engineering decisions pertaining to any
project or engineering activities in the State of Washington shall be made by a
designated engineer who shall be appointed by the Board of Directors from time
to time as vacancies occur.
AS AMENDED 04-11-97
16
<PAGE> 1
EXHIBIT 4(W)
ALUMNI STOCK AGREEMENT
This ALUMNI Stock Agreement ("Agreement") dated _________, 199_, is
made by and between _______________ ("ALUMNI") and Science Applications
International Corporation, a Delaware corporation ("SAIC").
RECITALS
WHEREAS, ALUMNI was employed by SAIC until __________________ (the
"Termination Date"); and
WHEREAS, ALUMNI is at least 59 1/2 years old and has been employed by
SAIC or its affiliates for at least ten (10) years; and
WHEREAS, pursuant to Article IV of SAIC's Certificate of
Incorporation, SAIC has the right to repurchase all shares of SAIC Class A
Common Stock owned by ALUMNI or affiliated with ALUMNI's account which were
issued after October 1, 1981 and all shares of SAIC Class A Common Stock which
ALUMNI has the right to obtain pursuant to SAIC's benefit plans, option
agreements or other contractual agreements at the time ALUMNI terminated
ALUMNI's employment with SAIC (the "ALUMNI Shares") at the Formula Price in
effect on the Termination Date; and
WHEREAS, pursuant to Article IV of SAIC's Certificate of
Incorporation, in order to exercise its right to repurchase the ALUMNI Shares,
SAIC must provide written notice to ALUMNI at ALUMNI's address of record within
sixty (60) days after the Termination Date; and
WHEREAS, the parties hereto desire to extend the time of SAIC's right
to repurchase the ALUMNI Shares until sixty (60) days after the five year
anniversary of the Termination Date;
NOW, THEREFORE, the parties agree as follows:
1. SAIC's right to repurchase the ALUMNI Shares shall be extended
to sixty (60) days after the five year anniversary of the Termination Date.
2. In the event SAIC elects to exercise its right to repurchase
the ALUMNI Shares, SAIC shall provide written notice to ALUMNI at ALUMNI's
address of record within sixty (60) days after the five year anniversary of the
Termination Date.
3. Such right of repurchase shall be at the Formula Price in
effect on the five year anniversary of the Termination Date.
4. Payment for the repurchase of the ALUMNI Shares will be made
by corporate check. ALUMNI agrees to provide SAIC with the share certificates
representing the ALUMNI Shares, or with a Lost Certificate Affidavit for the
ALUMNI Shares.
1
<PAGE> 2
5. This Agreement constitutes the final, complete and exclusive
agreement and understanding of the parties hereto in respect of the subject
matter contained herein, and supersedes all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by an officer, employee or representative of any party hereto.
6. This Agreement shall be deemed to have been entered into in the
State of California, and all questions of the validity, interpretation, or
performance of any of its terms or of any rights or obligations of the parties
to this Agreement shall be governed by California law.
7. Subject to applicable law, this Agreement may be amended, modified
and supplemented only by written agreement between the parties hereto which
states that it is intended to be a modification of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
"SAIC" SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
By:_______________________________________
J. D. Heipt
Senior Vice President
for Administration
"ALUMNI" __________________________________________
Signature
__________________________________________
Printed Name
2
<PAGE> 1
EXHIBIT 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
Computation of Per-Share Earnings
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended January 31
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
PRIMARY:
Net Income $63,680 $57,296 $49,052
Reduction of interest expense, net of income
tax expense on assumed retirement of
short-term and long-term debt 433 676 637
Interest earned, net of income tax expense on
assumed investment of U.S. government
securities or commercial paper -- -- --
------- ------- -------
Adjusted net income $64,113 $57,972 $49,689
======= ======= =======
Weighted average shares outstanding 49,154 48,136 46,603
Dilutive stock options, based on the modified
treasury stock method, using average fair value 3,155 3,170 2,661
------- ------- -------
Total average shares outstanding 52,309 51,306 49,264
======= ======= =======
Per Share Amount $ 1.23 $ 1.13 $ 1.01
======= ======= =======
FULLY DILUTED:
Net Income $63,680 $57,296 $49,052
Reduction of interest expense, net of
income tax expense on assumed retirement
of short-term and long-term debt -- 462 499
Interest earned, net of income tax expense on
assumed investment of U.S. government
securities or commercial paper -- -- --
------- ------- -------
Adjusted net income $63,680 $57,758 $49,551
======= ======= =======
Weighted average shares outstanding 49,154 48,136 46,603
Dilutive stock options, based on the modified
treasury stock method, using year-end
or exercise date established price if higher than
average fair value 3,178 3,170 2,661
------- ------- -------
Total average shares outstanding 52,332 51,306 49,264
======= ======= =======
Per Share Amount $ 1.22 $ 1.13 $ 1.01
======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 21
SAIC SUBSIDIARIES
AMSEC Corporation
Andrew Palmer & Associates Limited
(subsidiary of SAIC Limited)
Bull, Inc.
Campus Point Realty Corporation
Energy and Technology Management Corporation
Environmental Restoration Systems, Inc.
General Sciences Corporation
Hicks & Associates, Inc.
JHK & Associates, Inc.
JMD Development Corporation dba JDA
Network Solutions, Inc.
Pathology Associates International Corporation
PT Science Applications International Corporation Indonesia
R.E. Wright Environmental, Inc.
Sachse Engineering Associates, Inc.
SAIC (Bermuda) Ltd.
SAIC Colombia, Limitada
SAIC Commercial Enterprises, Inc.
SAIC de Mexico, S.A. de C.V.
SAIC Engineering, Inc.
SAIC Engineering of Ohio, Inc.
SAIC Global Technology Corporation
<PAGE> 2
SAIC Limited
(subsidiary of SAIC UK Limited)
SAIC - MIR
SAIC In Novosibirsk
SAIC UK Limited
SAIC Ukraine Corporation
Science Applications International (Barbados) Corporation
Science Applications International Corporation
(SAIC Canada)
Science Applications International Corporation de Venezuela, S.A.
Science Applications International Deutschland GmbH
Science Applications International, Europe S.A.
Science Applications International Pty. Ltd.
Science Applications International Technology
Syntonic Technology, Inc. dba TransCore
Systems Control Technology, Inc.
Wright Laboratory Services, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENT OF INCOME AND CASH
FLOWS FOR THE YEAR ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS."
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 59,735
<SECURITIES> 0
<RECEIVABLES> 567,634
<ALLOWANCES> 18,048
<INVENTORY> 33,983
<CURRENT-ASSETS> 711,215
<PP&E> 329,727
<DEPRECIATION> 143,932
<TOTAL-ASSETS> 1,012,462
<CURRENT-LIABILITIES> 440,662
<BONDS> 44,341
0
0
<COMMON> 496
<OTHER-SE> 526,963
<TOTAL-LIABILITY-AND-EQUITY> 1,012,462
<SALES> 0
<TOTAL-REVENUES> 2,402,224
<CGS> 0
<TOTAL-COSTS> 2,092,254
<OTHER-EXPENSES> 191,836
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,925
<INCOME-PRETAX> 113,209
<INCOME-TAX> 49,529
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,680
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.22
</TABLE>
<PAGE> 1
EXHIBIT 28 (a)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number __________
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
----------------------------
(Full title of the plan)
Science Applications International Corporation
10260 Campus Point Drive, San Diego, California 92121
-----------------------------------------------------
(Name of issuer of the securities held pursuant to the
plan and the address of its principal executive office)
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Science Applications International Corporation Stock Purchase Plan Committee has
duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Date: February 25, 1997 BY: /s/ Anne M. Jenings
---------------------------------------------
Anne M. Jenings
Science Applications International Corporation
Employee Stock Purchase Plan Committee
<PAGE> 3
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Index To Financial Statements
Page
----
Report of Independent Accountants F-2
Financial Statements:
Statement of Net Assets Available
for Benefits as of January 31, 1997 and 1996 F-3
Statement of Changes in Net Assets
Available for Benefits for the years ended
January 31, 1997, 1996, and 1995 F-4
Notes to Financial Statements F-5
Schedules:
None
All schedules are omitted because they are not applicable or the required
information is shown in the Financial Statements or the notes thereto.
F - 1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Employee Stock Purchase Plan Committee and Participants of the Science
Applications International Corporation Employee Stock Purchase Plan:
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the net assets available for benefits
of the Science Applications International Corporation Employee Stock Purchase
Plan at January 31, 1997 and 1996, and the changes in net assets available for
benefits for each of the three years in the period ended January 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Plan's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Diego, California
February 25, 1997
F - 2
<PAGE> 5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Statement of Net Assets Available for Benefits
<TABLE>
<CAPTION>
========== ==========
1/31/97 1/31/96
========== ==========
<S> <C> <C>
ASSETS:
Investments at fair value:
SAIC Class A Common Stock $6,093,000 $2,497,000
(Cost $5,367,000 and $2,332,000
respectively)
Receivables:
Participant contributions withheld 32,000 1,360,000
Employer contributions receivable 2,000 72,000
---------- ----------
Net assets available for benefits $6,127,000 $3,929,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
F - 3
<PAGE> 6
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Statement of Changes in Net Assets Available for Benefits
<TABLE>
<CAPTION>
Year Ended
-----------------------------------------------
1/31/97 1/31/96 1/31/95
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized appreciation of
investments in SAIC Common Stock $ 726,000 $ 164,000 $ 210,000
Realized appreciation of shares 71,000 116,000 0
distributed
Participant contributions 6,980,000 5,263,000 3,958,000
Employer contributions 370,000 279,000 210,000
Benefits paid (5,949,000) (5,855,000) (3,782,000)
----------- ----------- -----------
Increase/decrease in net assets 2,198,000 (33,000) 596,000
Net assets at beginning of year 3,929,000 3,962,000 3,366,000
----------- ----------- -----------
Net assets at end of year $ 6,127,000 $ 3,929,000 $ 3,962,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F - 4
<PAGE> 7
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
NOTE A - PLAN DESCRIPTION
The Science Applications International Corporation Employee Stock Purchase
Plan (the "Plan") is a three year plan the purpose of which is to secure for
Science Applications International Corporation (the "Company") and its
stockholders the benefits inherent in the ownership of capital stock of the
Company by employees of the Company and its subsidiaries. The Plan is intended
to provide to all eligible employees of the Company and designated subsidiaries
an opportunity to purchase shares of Class A Common Stock through payroll
deductions. It is intended that the Plan shall qualify under Section 423(b) of
the Internal Revenue Code. The 1995 Employee Stock Purchase Plan became
effective on July 14, 1995. The Plan is a successor plan to the 1993 Employee
Stock Purchase Plan which terminated on July 31, 1995. All shares purchased
under the 1993 Plan were distributed to participants or repurchased by the
Company. The plans are substantially similar except for the number of shares
reserved for issuance. The financial statements reflect the net assets available
for benefits and changes in net assets available for benefits of the 1995 Plan
as well as the 1993 Plan. Each participant is furnished with a copy of the
complete Plan before electing to participate in the Plan.
Science Applications International Corporation is the Trustee under the
Plan. No trustee fees have ever been paid by the Plan. No bonds of any nature
are furnished to the Plan by the Trustee, its officers or employees. The Plan is
administered by the Employee Stock Purchase Plan Committee (the "Committee")
whose members are appointed by the Company's Board of Directors to serve at the
discretion of the Board. The members of the Committee do not act in the capacity
of trustees. The members of the Committee receive no compensation from the Plan
for services rendered in connection therewith. The members of the committee as
of January 31, 1997 are A. Jenings, W. Reed, and W.A. Roper. The Plan is not
subject to the Employee Retirement Income Security Act of 1974, as amended.
At predetermined purchase dates during the year, the Trustee purchases for
the account of each participant the whole number of shares of the Company's
Class A Common Stock (the "Common Stock") which may be acquired from funds
available in the participant's Stock Purchase Account, together with the
Company's contribution as described below. The authority to control and manage
the operation and administration of the Plan is vested in the Committee.
Generally, all employees of the Company and its affiliates who have adopted the
Plan are eligible to participate in the Plan. Employees may contribute to the
Plan by authorizing payroll deductions in amounts equal to 3% or more, up to a
maximum of 10%, of their base compensation. These contributions are allocated to
the Stock Purchase Accounts of the respective participants. No interest is paid
on amounts in the participants' Stock Purchase Accounts.
F - 5
<PAGE> 8
There is no general public market for the Common Stock. However, the
Company has established and maintains a limited secondary market for the Common
Stock through its wholly-owned subsidiary, Bull, Inc. This limited market
permits stockholders to sell stock to employees, consultants, and directors of
the Company who have been approved by the Board of Directors or the Operating
Committee of the Board of Directors as being entitled to purchase an equity
interest in the Company. All purchases of SAIC's Common Stock are made either in
the limited secondary market or from the Company.
The purchase price to be paid for shares of Common Stock is the prevailing
fair market value (Note B). Of this price, 95% is paid out of the participant
contributions, and 5% is paid or accrued by the Company. Effective February 1,
1997, 90% of the purchase price will be paid out of the participant
contributions and 10% will be paid or accrued by the Company. A participant is
not entitled to purchase an amount of Common Stock having a fair market value,
as measured on its purchase date, in excess of 10% of their base compensation or
$25,000 in any calendar year pursuant to the Plan and any other employee stock
purchase plans which may be adopted by the Company.
A participant's interest in his account is 100% vested at all times.
Shares of Common Stock acquired under the Plan will be distributed to the
participant prior to any record date established by the Company for any vote of
its stockholders. Until distribution occurs, the shares are held by the Company,
acting as Trustee, on behalf of the participants. Each participant is furnished
with a statement of accounting at the time of any distribution.
All shares of Common Stock purchased pursuant to the Plan are subject to
the Company's right of repurchase upon the participant's termination of
employment or affiliation with the Company. The repurchase price is the
prevailing Formula Price at that time. Such shares are also subject to the
Company's right of first refusal in the event that the participant desires to
sell such shares other than in the limited market.
Participants may withdraw the money held in their Stock Purchase Accounts
at any time prior to the acquisition of shares of Common Stock therewith,
although upon doing so the participant will no longer be eligible to re-enroll
until the beginning of the next applicable plan year.
The 1995 Employee Stock Purchase Plan will terminate on July 31, 1998.
From Plan inception through January 31, 1997, 528,805 shares of Common Stock
were purchased by the 1995 Employee Stock Purchase Plan.
F - 6
<PAGE> 9
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of accounting
The accompanying financial statements are prepared on the accrual basis of
accounting.
Investment valuation and income, gains, and losses
The fair value of Common Stock is determined using the fair market value
pursuant to a stock price formula and valuation process which includes an
appraisal prepared by an independent appraisal firm. Periodic determinations of
fair market value of the Common Stock are made by the Board of Directors, with
the assistance of the independent appraisal firm. The Board of Directors
reserves the right to alter the formula. Realized gains and losses on Common
Stock are the difference between the fair market value when distributed and the
original cost of the shares of Common Stock purchased during the year or the
fair market value of shares held at the beginning of the year. Unrealized
appreciation or depreciation is computed as the fair market value of the Common
Stock held at the end of the year less the fair market value of the Common Stock
held at the beginning of the year or acquisition cost of Common Stock acquired
during the year. As of January 31, 1997 and 1996, the fair market value per
share was $25.96 and $19.33, respectively, for Class A Common Stock. The number
of shares held by the Plan was 234,693 and 129,155 on January 31, 1997 and 1996,
respectively.
Benefits distributable
Investments in Common Stock are distributed from the Plan prior to any
record date established by the Company for any vote of its stockholders.
Benefits distributable at January 31, 1997 and 1996 were $6,093,000 and
$2,497,000, respectively.
Administrative expenses of the Plan
All expenses incurred in the administration of the Plan are paid out of
the Plan assets unless the Company elects to pay such costs. During Plan years
ended January 31, 1997, 1996, and 1995, the Company paid all administrative
expenses of the Plan.
Use of estimates
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.
Contributions
Participant contributions are accrued when the participant earns the
compensation from which the contribution is made. Employer contributions are
accrued when the corresponding participant's contributions are accrued.
F - 7
<PAGE> 10
NOTE C - TAX STATUS AND FEDERAL INCOME TAX CONSEQUENCES TO PARTICIPANTS
The Plan is not subject to federal income taxes and is intended to qualify
under Section 423(b) of the Internal Revenue Code.
No taxable income will be recognized by a participant in the Plan until
the taxable year of sale or certain other dispositions of the shares of Common
Stock acquired under the Plan.
F - 8
<PAGE> 1
EXHIBIT 28(b)
Securities and Exchange Commission
Washington, D.C., 20549
Form 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the calendar year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
(Full Title of Plan)
Science Applications International Corporation
10260 Campus Point Drive, San Diego, California 92121
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act
of 1934, the Science Applications International Corporation Retirement Plans
Committee duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
DATE 4-15-97 /s/ Daniel W. Baldwin
---------------- -------------------------------
Daniel W. Baldwin
Senior Vice President
and Treasurer
Retirement Plans Committee
<PAGE> 3
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
Report, Financial Statements
and Additional Information
December 31, 1996 and 1995
<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
INDEX TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 1
Financial Statements:
Statement of Net Assets Available for Benefits 2
Statement of Changes in Net Assets Available for Benefits 3
Notes to Financial Statements 4 - 12
Additional Information:*
Schedule I - Schedule of Assets Held for Investment Purposes 13
Schedule II - Schedule of Loans or Fixed Income Obligations 14
Schedule III - Schedule of Reportable Transactions 15
</TABLE>
* Other schedules required by Section 2520.103-10 of the Department of Labor
Rules and Regulations for Reporting and Disclosure under ERISA have been
omitted because they are not applicable.
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Retirement Plans Committee
and Participants of the Science Applications
International Corporation Cash or Deferred Arrangement
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the net assets available for benefits
of the Science Applications International Corporation Cash or Deferred
Arrangement (the Plan) at December 31, 1996 and 1995, and the changes in net
assets available for benefits for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
Schedules I through III is presented for purposes of additional analysis and is
not a required part of the basic financial statements but is additional
information required by ERISA. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
San Diego, California
March 21, 1997
<PAGE> 6
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
ASSETS
<S> <C> <C>
Investments, at fair market value:
Mutual funds $310,573,000 $231,707,000
SAIC Common Stock 159,670,000 116,432,000
Short-term investments 348,000 684,000
Participant loans 17,000,000 11,630,000
------------ ------------
487,591,000 360,453,000
------------ ------------
Receivables:
Participant contributions 2,161,000 1,996,000
Company contributions 650,000 2,696,000
Interest income 4,000 6,000
------------ ------------
2,815,000 4,698,000
------------ ------------
Total assets 490,406,000 365,151,000
------------ ------------
LIABILITIES
Accrued Plan expenses 52,000 57,000
------------ ------------
Net assets available for benefits $490,354,000 $365,094,000
============ ============
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 7
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996 1995
<S> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 19,708,000 $ 15,305,000
Realized gain 4,722,000 2,082,000
Unrealized appreciation 18,677,000 22,430,000
SAIC Common Stock:
Realized gain 0 0
Unrealized appreciation 30,082,000 18,891,000
Interest 1,218,000 923,000
Participant contributions 66,555,000 59,133,000
Company contributions 9,625,000 11,535,000
------------ ------------
Total additions 150,587,000 130,299,000
------------ ------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 25,164,000 19,676,000
Plan expenses 163,000 191,000
------------ ------------
Total deductions 25,327,000 19,867,000
------------ ------------
Net increase 125,260,000 110,432,000
Net assets at beginning of year 365,094,000 254,662,000
------------ ------------
Net assets at end of year $490,354,000 $365,094,000
============ ============
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 8
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 1 - PLAN DESCRIPTION
GENERAL
The Science Applications International Corporation Cash or Deferred Arrangement
(the "Plan" or "CODA") was established on September 18, 1982 and became
effective January 1, 1983. The authority to administer the Plan is vested in the
Retirement Plans Committee (the "Committee") whose members are the Named
Fiduciaries for purposes of Section 402(a) of the Employee Retirement Income
Security Act of 1974, as amended. Generally, employees of Science Applications
International Corporation (the "Company" or "SAIC") and its subsidiaries are
eligible to participate in the Plan upon commencing employment, except for
employees in groups or units designated as ineligible. The following description
of the Plan provides only general information. Participants should refer to the
Plan document for a more complete description of the Plan's provisions.
The Plan consists of a Deferred Fund which is the fund in which assets acquired
by the Plan in its function as a qualified Cash or Deferred Arrangement are held
and accounted for. The Plan permits participants to elect to defer up to 18% of
their eligible compensation, as defined, for the Plan year and to have such
deferred amount contributed directly by the Company to the Deferred Fund for the
benefit of the participants. Such contributions are limited under Section 402(g)
of the Internal Revenue Code (the "Code") to $9,500 and $9,240 for the years
ended December 31, 1996 and 1995, respectively. Amounts deferred by
participants, including rollovers from qualified plans, totaled $66,555,000 and
$59,133,000 for the years ended December 31, 1996 and 1995, respectively.
In addition to amounts deferred by participants, the Company, at its discretion,
may make a matching contribution equal to a specified percentage of the
aggregate amounts deferred by participants. The match is only provided on
eligible participant deferrals of up to 10% of compensation, with any deferrals
above 10% receiving no match. In 1996 and 1995, the Company contributed 30% of
the first $2,000 of a participant's annual deferred compensation and 15% of such
deferred compensation above $2,000 for an annual total of $9,625,000 and
$9,431,000, respectively. During 1996 and 1995, the Company matching
contribution was allocated to the SAIC Common Stock Fund. Also, the Company, at
its discretion, may make an additional contribution to the Deferred Fund for the
benefit of non-highly compensated participants in order to comply with Section
401(k)(3) of the Code. During 1996 and 1995, additional Company contributions of
$0 and $2,104,000, respectively, were invested in the Vanguard Money Market
Reserves-Prime Portfolio. Effective January 1, 1997, the Company will contribute
50% of the first $2,000 of a participant's annual deferred compensation and 15%
of such deferred compensation above $2,000.
The Company's contribution to the Deferred Fund is to be paid in cash unless the
Company's Board of Directors determines to make the contribution in shares of
Class A Common Stock or another form. Contributions to the Deferred Fund shall
not exceed the maximum amount deductible by the Company for Federal income tax
purposes.
Employees hired prior to January 1, 1995 are immediately eligible for the
Company matching contributions. Employees hired on or after January 1, 1995, who
have elected to participate, are eligible for Company matching contributions if
they have attained age 21 and have both twelve calendar months of employment and
850 hours of service, as defined.
Participants may elect to borrow against their vested plan balances. Upon this
election, the loan balance is transferred from the applicable investment fund(s)
to a separate loan fund (participant loans) until repayment. Participants are
permitted to transfer to the Plan their account balances from a previous
employer's qualified retirement plan.
- 4 -
<PAGE> 9
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
A participant's interest in the employee deferral portion of the Deferred Fund
account is 100% vested at all times. The participant's interest in the Deferred
Fund account will be paid in a single distribution to the participant or their
designated beneficiary upon termination of employment with the Company,
retirement, permanent disability or death. A participant may not make
withdrawals from the Deferred Fund accounts while employed with the Company
prior to attaining age 59 1/2 unless the Committee determines the participant is
incurring financial hardship. After attaining age 59 1/2, a participant may make
withdrawals even if still employed with the Company.
Distributions from the Deferred Fund are paid in cash.
VESTING
A participant's interest in the Company matching contribution is 100% vested if
the participant was hired prior to January 1, 1995. If the participant was hired
on or after January 1, 1995, the participant's interest in the Company matching
contribution vests at the rate of 25% per year in years three through six,
becoming fully vested after six years of service, as defined. Participants are
deemed fully vested upon reaching age 59 1/2, permanent disability or death.
Forfeitures, arising from participants withdrawing from the Plan prior to
achieving 100% vesting, are applied to the Company's matching contribution.
There were no Plan forfeitures applied against Company matching contributions in
1996 or 1995.
INVESTMENT PROGRAMS
The investment programs offered to participants in the Deferred Fund allowed
participants to choose among thirteen investment funds during 1996 and nine
investment funds during 1995 offered by the Vanguard Group of Investment
Companies. Participants are also allowed to direct a portion of their investment
into Class A Common Stock of the Company. Such investment into the SAIC Common
Stock Fund can be exchanged into one of the Vanguard Funds subject to certain
restrictions.
THE VANGUARD FUNDS OFFERED DURING THE 1996 PLAN YEAR WERE AS FOLLOWS:
1) Vanguard Fixed Income Securities Fund - GNMA Portfolio, which invests in
fixed income securities guaranteed by the U.S. Government; 2) Vanguard Index
Trust-500 Portfolio, which invests in common stocks; 3) Vanguard Money Market
Reserves - Prime Portfolio, which invests in money market instruments; 4)
Vanguard Fixed Income Securities Fund - Short-Term Federal Portfolio, which
invests in U.S. government obligations; 5) Vanguard/ Wellesley Income Fund,
which invests in fixed income securities and common stocks; 6) Vanguard/Windsor
Fund, which invests in common stocks; 7) Vanguard International Growth
Portfolio, which invests in common stocks of companies based outside the United
States; 8) Vanguard U.S. Growth Portfolio, which invests in common stocks; 9)
Vanguard Fixed Income Securities Fund - Intermediate - Term Corporate Portfolio,
which invests primarily in investment grade corporate bonds; 10) Vanguard
LIFEStrategy Income Portfolio, which invests in common stocks, bonds and short
term reserves; 11) Vanguard LIFEStrategy Conservative Growth Portfolio, which
invests in common stocks, bonds and short term reserves; 12) Vanguard
LIFEStrategy Moderate Growth Portfolio, which invests in common stocks and
bonds; and 13) Vanguard LIFEStrategy Growth Portfolio, which invests in common
stocks and bonds. Separate Deferred Fund accounts are established for each
investment program selected by a participant. Participants may elect to transfer
their existing account balances at any time among the Vanguard investment funds
and/or alter the allocations of future contributions among any of the investment
alternatives under rules prescribed by the Committee.
PLAN TERMINATION
Although the Company has not expressed any intent to terminate the Plan, it
reserves the right to suspend or discontinue contributions to the Plan or to
terminate the Company's participation in the Plan at any time. In the event of
termination, a distribution of the participants' Deferred Fund account balances
will be made in accordance with the Plan provisions.
- 5 -
<PAGE> 10
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis of
accounting.
INVESTMENT VALUATION AND INCOME, GAINS AND LOSSES
Vanguard Funds
Deposits to the Vanguard Funds are used to buy shares from the respective
investment fund. Vanguard Fund shares are valued at the net asset value per
share as of each valuation date.
Investment transactions are accounted for on the date the shares in the fund are
purchased or sold. Realized and unrealized gains and losses are computed based
on the market value at the beginning of the year or purchase price if purchased
during the year.
SAIC Common Stock
A general public market for the Company's common stock does not exist;
therefore, the fair market value of the common stock is determined pursuant to a
stock price formula and valuation process which includes an appraisal prepared
by an independent appraisal firm. Periodic determinations of fair market value
of the common stock are made by the Board of Directors, with the assistance of
the independent appraisal firm. The Board of Directors reserves the right to
alter the formula.
The gains or losses realized on distributions of investments and the increases
or decreases in unrealized appreciation are calculated as the difference between
the current fair market value and the fair market value of the investments at
the beginning of the year or purchase price if purchased during the year. As of
December 31, 1996 and 1995, the fair market value of the Company's Class A
Common Stock was $22.83 per share and $18.27 per share and the Plan held
approximately 6,994,000 shares and 6,373,000 shares, respectively.
It is the policy of the Committee to keep the SAIC Common Stock Fund invested
primarily in Common Stock, except for estimated reserves for use in
distributions and investment exchanges by participants. Such reserves are
invested in the Vanguard Money Market Reserves - Prime Portfolio mutual fund. If
reserves in the SAIC Common Stock Fund are less than the amount required at any
given time to make requested distributions and investment changes, investment
exchanges out of the SAIC Common Stock Fund by participants may have to be
deferred.
Short-term investments
Short-term investments consist primarily of State Street Bank and Trust
Short-Term Investment Fund, which invests in short-term money market
instruments. State Street Bank and Trust Company is the Plan's Trustee.
CONTRIBUTIONS
Participant contributions and Company matching contributions are accrued based
upon the amounts deferred by participants at year end which are received by the
Trustee subsequent to year end. Additional Company contributions are accrued
based upon the amounts determined by the Company's Board of Directors (Note 1).
- 6 -
<PAGE> 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO PARTICIPANTS
Distributions to participants are recorded when paid. Generally, upon
termination or retirement, participants will receive their vested account
balance in a single lump sum payment following their termination or retirement
date. Benefits to be paid at a future date as elected by terminated or retired
participants are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
INVESTMENT FUND
Vanguard GNMA $ 2,816,000 $ 2,343,000
Vanguard Index 6,816,000 4,680,000
Vanguard Prime 4,598,000 3,758,000
Vanguard STFED 1,926,000 1,746,000
Vanguard Wellesley 2,727,000 2,412,000
Vanguard Windsor 12,725,000 9,315,000
Vanguard Intl. Growth 2,687,000 1,688,000
Vanguard U.S. Growth 2,171,000 464,000
Vanguard Int. Corporate Bond 124,000 28,000
Vanguard LS Income 91,000 0
Vanguard LS Cons. Growth 31,000 0
Vanguard LS Mod. Growth 173,000 0
Vanguard LS Growth 381,000 0
SAIC CODA Stock 19,290,000 13,035,000
Participant Loans 871,000 672,000
----------- -----------
Total $57,427,000 $40,141,000
=========== ===========
</TABLE>
These amounts are reflected as liabilities in the Plan's Form 5500.
ADMINISTRATIVE EXPENSES OF THE PLAN
All expenses incurred in the administration of the Plan are paid out of Plan
assets unless the Company elects to pay such costs. Fees totaling $52,000 and
$57,000 were paid or accrued to the Trustee by the Plan during 1996 and 1995,
respectively. Other Plan expenses totaling $111,000 and $134,000 were paid or
accrued by the Plan during 1996 and 1995, respectively.
USE OF ESTIMATES
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.
NOTE 3 - TAX STATUS
The Plan is intended to qualify under Section 401(a) of the Code. In addition,
the Deferred Fund of the Plan is intended to be a "Qualified Cash or Deferred
Arrangement" under Section 401(k) of the Code. The Plan is not subject to
Federal income taxes.
- 7 -
<PAGE> 12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Plan received a favorable determination letter from the Internal Revenue
Service during January 1997 indicating that the Plan and related trust, as
amended, are designed in accordance with applicable sections of the Code.
NOTE 4 - PARTY-IN-INTEREST TRANSACTIONS
Transactions involving cash, securities or assets of the Company, the Trustee or
other affiliated persons are considered to be party-in-interest transactions
under Section 2520.103-10 of the Department of Labor Rules and Regulations for
Reporting and Disclosure. Reportable party-in-interest transactions for the
years ended December 31, 1996 and 1995, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
NUMBER NUMBER
INVESTMENT SALES OF UNITS OF SALES COST PROCEEDS
<S> <C> <C> <C> <C>
State Street Bank & Trust
Short-Term Investment Fund 812,000 69 $81,180,000 $81,180,000
INVESTMENT PURCHASES
State Street Bank & Trust
Short-Term Investment Fund 805,000 72 $80,542,000
SAIC Class A Common Stock 621,000 4 $13,156,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------
NUMBER NUMBER
INVESTMENT SALES OF UNITS OF SALES COST PROCEEDS
<S> <C> <C> <C> <C>
State Street Bank & Trust
Short-Term Investment Fund 714,000 66 $71,397,000 $71,397,000
INVESTMENT PURCHASES
State Street Bank & Trust
Short-Term Investment Fund 721,000 78 $72,058,000
SAIC Class A Common Stock 761,000 4 $12,970,000
</TABLE>
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND
Financial information by investment fund as of December 31, 1996 and 1995, and
for the years then ended are shown on the following pages.
- 8 -
<PAGE> 13
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1996
<TABLE>
<CAPTION>
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH U.S. GROWTH
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $19,620,000 $58,841,000 $31,364,000 $26,138,000 $102,219,000 $25,170,000 $19,558,000
SAIC Common Stock
Short-term investments
Participant loans ----------- ----------- ----------- ----------- ------------ ----------- -----------
19,620,000 58,841,000 31,364,000 26,138,000 102,219,000 25,170,000 19,558,000
----------- ----------- ----------- ----------- ------------ ----------- -----------
Receivables:
Participant contributions
Company contributions
Accrued interest
----------- ----------- ----------- ----------- ------------ ----------- -----------
----------- ----------- ----------- ----------- ------------ ----------- -----------
Total assets 19,620,000 58,841,000 31,364,000 26,138,000 102,219,000 25,170,000 19,558,000
----------- ----------- ----------- ----------- ------------ ----------- -----------
LIABILITIES
Accrued Plan expenses
----------- ----------- ----------- ----------- ------------ ----------- -----------
Net assets available
for benefits $19,620,000 $58,841,000 $31,364,000 $26,138,000 $102,219,000 $25,170,000 $19,558,000
=========== =========== =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
VANGUARD VANGUARD VANGUARD LS CONS. LS MOD. VANGUARD SAIC COMMON
CORP. STFED LS INCOME GROWTH GROWTH LS GROWTH STOCK
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $1,538,000 $14,494,000 $455,000 $1,197,000 $2,384,000 $3,946,000 $ 3,649,000
SAIC Common Stock 159,670,000
Short-term investments
Participant loans ---------- ----------- -------- ---------- ---------- ---------- -----------
1,538,000 14,494,000 455,000 1,197,000 2,384,000 3,946,000 163,319,000
---------- ----------- -------- ---------- ---------- ---------- -----------
Receivables:
Participant contributions
Company contributions 650,000
Accrued interest
---------- ----------- -------- ---------- ---------- ---------- -----------
650,000
---------- ----------- -------- ---------- ---------- ---------- -----------
Total assets 1,538,000 14,494,000 455,000 1,197,000 2,384,000 3,946,000 163,969,000
---------- ----------- -------- ---------- ---------- ---------- -----------
LIABILITIES
Accrued Plan expenses
---------- ----------- -------- ---------- ---------- ---------- -----------
Net assets available
for benefits $1,538,000 $14,494,000 $455,000 $1,197,000 $2,384,000 $3,946,000 $163,969,000
========== =========== ======== ========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT STATE STREET
LOANS STIF TOTAL
<S> <C> <C> <C>
ASSETS
Investments:
Mutual funds $310,573,000
SAIC Common Stock 159,670,000
Short-term investments $ 348,000 348,000
Participant loans $17,000,000 ---------- 17,000,000
----------- ------------
17,000,000 348,000 487,591,000
----------- ---------- ------------
Receivables:
Participant contributions 2,161,000 2,161,000
Company contributions 650,000
Accrued interest 4,000 4,000
----------- ---------- -------------
2,165,000 2,815,000
----------- ---------- ------------
Total assets 17,000,000 2,513,000 490,406,000
----------- ---------- ------------
LIABILITIES
Accrued Plan expenses 52,000 52,000
----------- ---------- ------------
Net assets available
for benefits $17,000,000 $2,461,000 $490,354,000
=========== ========== ============
</TABLE>
- 9 -
<PAGE> 14
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH U.S. GROWTH
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $ 19,310,000 $ 39,488,000 $ 27,578,000 $23,023,000 $76,996,000 $18,085,000 $ 8,085,000
SAIC Common Stock
Short-term investments
Participant loans
------------ ------------ ------------ ----------- ----------- ----------- -----------
19,310,000 39,488,000 27,578,000 23,023,000 76,996,000 18,085,000 8,085,000
------------ ------------ ------------ ----------- ----------- ----------- -----------
Receivables:
Participant contributions
Company contributions 2,104,000
Accrued interest
------------ ------------ ------------ ----------- ----------- ----------- -----------
2,104,000
------------ ------------ ------------ ----------- ----------- ----------- -----------
Total assets 19,310,000 39,488,000 29,682,000 23,023,000 76,996,000 18,085,000 8,085,000
------------ ------------ ------------ ----------- ----------- ----------- -----------
LIABILITIES
Accrued Plan expenses
------------ ------------ ------------ ----------- ----------- ----------- -----------
Net assets available
for benefits $ 19,310,000 $ 39,488,000 $ 29,682,000 $23,023,000 $76,996,000 $18,085,000 $ 8,085,000
============ ============ ============ =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD SAIC COMMON PARTICIPANT STATE STREET
CORP. STFED STOCK LOANS STIF TOTAL
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $1,085,000 $14,746,000 $ 3,311,000 $231,707,000
SAIC Common Stock 116,432,000 116,432,000
Short-term investments $ 684,000 684,000
Participant loans $11,630,000 11,630,000
---------- ----------- ------------ ----------- ----------- ------------
1,085,000 14,746,000 119,743,000 11,630,000 684,000 360,453,000
---------- ----------- ------------ ----------- ----------- ------------
Receivables:
Participant contributions 1,996,000 1,996,000
Company contributions 592,000 2,696,000
Accrued interest 6,000 6,000
---------- ----------- ------------ ----------- ----------- ------------
592,000 2,002,000 4,698,000
---------- ----------- ------------ ----------- ----------- ------------
Total assets 1,085,000 14,746,000 120,335,000 11,630,000 2,686,000 365,151,000
---------- ----------- ------------ ----------- ----------- ------------
LIABILITIES
Accrued Plan expenses 57,000 57,000
---------- ----------- ------------ ----------- ----------- ------------
Net assets available
for benefits $1,085,000 $14,746,000 $120,335,000 $11,630,000 $ 2,629,000 $365,094,000
========== =========== ============ =========== =========== ============
</TABLE>
- 10 -
<PAGE> 15
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR
THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH U.S. GROWTH
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
INVESTMENT INCOME:
Mutual funds:
Dividends and interest $ 1,346,000 $ 1,222,000 $ 1,518,000 $ 2,101,000 $ 9,744,000 $ 1,073,000 $ 1,423,000
Realized gain (loss) 47,000 1,805,000 329,000 1,489,000 586,000 459,000
Unrealized (depreciation)
appreciation (430,000) 7,089,000 (204,000) 9,608,000 1,304,000 1,245,000
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 2,432,000 8,039,000 3,254,000 4,432,000 11,661,000 4,362,000 3,268,000
Company contributions
----------- ----------- ----------- ----------- ------------ ----------- -----------
Total additions 3,395,000 18,155,000 4,772,000 6,658,000 32,502,000 7,325,000 6,395,000
----------- ----------- ----------- ----------- ------------ ----------- -----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 1,074,000 2,880,000 2,825,000 1,666,000 5,086,000 1,322,000 666,000
Plan expenses
----------- ----------- ----------- ----------- ------------ ----------- -----------
Total deductions 1,074,000 2,880,000 2,825,000 1,666,000 5,086,000 1,322,000 666,000
----------- ----------- ----------- ----------- ------------ ----------- -----------
Net increase prior to exchanges 2,321,000 15,275,000 1,947,000 4,992,000 27,416,000 6,003,000 5,729,000
Exchanges (2,011,000) 4,078,000 (265,000) (1,877,000) (2,193,000) 1,082,000 5,744,000
----------- ----------- ----------- ----------- ------------ ----------- -----------
Net increase (decrease) 310,000 19,353,000 1,682,000 3,115,000 25,223,000 7,085,000 11,473,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 19,310,000 39,488,000 29,682,000 23,023,000 76,996,000 18,085,000 8,085,000
----------- ----------- ----------- ----------- ------------ ----------- -----------
End of year $19,620,000 $58,841,000 $31,364,000 $26,138,000 $102,219,000 $25,170,000 $19,558,000
=========== =========== =========== =========== ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD
VANGUARD VANGUARD VANGUARD LS CONS. LS MOD. VANGUARD SAIC COMMON
CORP. STFED LS INCOME GROWTH GROWTH LS GROWTH STOCK
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
INVESTMENT INCOME:
Mutual funds:
Dividends and interest $ 87,000 $874,000 $ 16,000 $ 53,000 $ 105,000 $ 146,000
Realized gain (loss) (1,000) (20,000) 1,000 2,000 6,000 19,000
Unrealized (depreciation)
appreciation (46,000) (185,000) (4,000) 20,000 79,000 201,000
SAIC Common Stock:
Realized gain
Unrealized appreciation $ 30,082,000
Interest 131,000
Participant contributions 256,000 1,914,000 30,000 162,000 473,000 776,000 11,446,000
Company contributions 9,575,000
---------- ----------- -------- ---------- ---------- ---------- ------------
Total additions 296,000 2,583,000 43,000 237,000 663,000 1,142,000 51,234,000
---------- ----------- -------- ---------- ---------- ---------- ------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 30,000 1,155,000 21,000 2,000 23,000 15,000 7,916,000
Plan expenses
---------- ----------- -------- ---------- ---------- ---------- ------------
Total deductions 30,000 1,155,000 21,000 2,000 23,000 15,000 7,916,000
---------- ----------- -------- ---------- ---------- ---------- ------------
Net increase prior to exchanges 266,000 1,428,000 22,000 235,000 640,000 1,127,000 43,318,000
Exchanges 187,000 (1,680,000) 433,000 962,000 1,744,000 2,819,000 316,000
---------- ----------- -------- ---------- ---------- ---------- ------------
Net increase (decrease) 453,000 (252,000) 455,000 1,197,000 2,384,000 3,946,000 43,634,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 1,085,000 14,746,000 0 0 0 0 120,335,000
---------- ----------- -------- ---------- ---------- ---------- ------------
End of year $1,538,000 $14,494,000 $455,000 $1,197,000 $2,384,000 $3,946,000 $163,969,000
========== =========== ======== ========== ========== ========== ============
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT STATE STREET
LOANS STIF TOTAL
<S> <C> <C> <C>
ADDITIONS TO NET ASSETS
INVESTMENT INCOME:
Mutual funds:
Dividends and interest $ 19,708,000
Realized gain (loss) 4,722,000
Unrealized (depreciation)
appreciation 18,677,000
SAIC Common Stock:
Realized gain
Unrealized appreciation 30,082,000
Interest $1,038,000 $ 49,000 1,218,000
Participant contributions 14,050,000 66,555,000
Company contributions 50,000 9,625,000
----------- ---------- ------------
Total additions 1,038,000 14,149,000 150,587,000
----------- ---------- ------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 483,000 25,164,000
Plan expenses 163,000 163,000
----------- ---------- ------------
Total deductions 483,000 163,000 25,327,000
----------- ---------- ------------
Net increase prior to exchanges 555,000 13,986,000 125,260,000
Exchanges 4,815,000 (14,154,000) 0
----------- ---------- ------------
Net increase (decrease) 5,370,000 (168,000) 125,260,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 11,630,000 2,629,000 365,094,000
----------- ---------- ------------
End of year $17,000,000 $2,461,000 $490,354,000
=========== ========== ============
</TABLE>
- 11 -
<PAGE> 16
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR
THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX PRIME WELLESLEY WINDSOR INT'L GROWTH
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 1,239,000 $ 856,000 $ 1,484,000 $ 1,438,000 $ 8,641,000 $ 476,000
Realized gain (loss) 20,000 766,000 131,000 686,000 402,000
Unrealized appreciation 1,387,000 7,895,000 3,079,000 7,036,000 1,369,000
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 2,814,000 6,332,000 3,686,000 4,586,000 11,122,000 4,459,000
Company contributions 2,104,000
------------ ------------ ------------ ----------- ----------- -----------
Total additions 5,460,000 15,849,000 7,274,000 9,234,000 27,485,000 6,706,000
------------ ------------ ------------ ----------- ----------- -----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 1,029,000 1,864,000 1,805,000 1,335,000 4,093,000 1,053,000
Plan expenses
------------ ------------ ------------ ----------- ----------- -----------
Total deductions 1,029,000 1,864,000 1,805,000 1,335,000 4,093,000 1,053,000
------------ ------------ ------------ ----------- ----------- -----------
Net increase prior to exchanges 4,431,000 13,985,000 5,469,000 7,899,000 23,392,000 5,653,000
Exchanges 53,000 2,789,000 (235,000) 825,000 1,093,000 (2,810,000)
------------ ------------ ------------ ----------- ----------- -----------
Net increase 4,484,000 16,774,000 5,234,000 8,724,000 24,485,000 2,843,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 14,826,000 22,714,000 24,448,000 14,299,000 52,511,000 15,242,000
------------ ------------ ------------ ----------- ----------- -----------
End of year $ 19,310,000 $ 39,488,000 $ 29,682,000 $23,023,000 $76,996,000 $18,085,000
============ ============ ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
VANGUARD VANGUARD VANGUARD SAIC COMMON PARTICIPANT STATE STREET
U.S. GROWTH CORP. STFED STOCK LOANS STIF TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 322,000 $ 30,000 $ 819,000 $ 15,305,000
Realized gain (loss) 108,000 9,000 (40,000) 2,082,000
Unrealized appreciation 833,000 41,000 790,000 22,430,000
SAIC Common Stock:
Realized gain
Unrealized appreciation $ 18,891,000 18,891,000
Interest 150,000 $ 717,000 $ 56,000 923,000
Participant contributions 1,218,000 96,000 2,198,000 10,198,000 12,424,000 59,133,000
Company contributions 9,216,000 215,000 11,535,000
----------- ---------- ---------- ------------ ----------- ----------- ------------
Total additions 2,481,000 176,000 3,767,000 38,455,000 717,000 12,695,000 130,299,000
----------- ---------- ---------- ------------ ----------- ----------- ------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 185,000 39,000 1,028,000 6,938,000 307,000 19,676,000
Plan expenses 191,000 191,000
----------- ---------- ---------- ------------ ----------- ----------- ------------
Total deductions 185,000 39,000 1,028,000 6,938,000 307,000 191,000 19,867,000
----------- ---------- ---------- ------------ ----------- ----------- ------------
Net increase prior to exchanges 2,296,000 137,000 2,739,000 31,517,000 410,000 12,504,000 110,432,000
Exchanges 5,789,000 948,000 (754,000) 1,419,000 2,616,000 (11,733,000)
----------- ---------- ---------- ------------ ----------- ----------- ------------
Net increase 8,085,000 1,085,000 1,985,000 32,936,000 3,026,000 771,000 110,432,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 0 0 12,761,000 87,399,000 8,604,000 1,858,000 254,662,000
----------- ---------- ---------- ------------ ----------- ----------- ------------
End of year $ 8,085,000 $1,085,000 14,746,000 $120,335,000 $11,630,000 $ 2,629,000 $365,094,000
=========== ========== ========== ============ =========== =========== ============
</TABLE>
- 12 -
<PAGE> 17
ADDITIONAL INFORMATION
SCHEDULE I
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
ITEM 27a FORM 5500 - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AT DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DESCRIPTION OF COST OF CURRENT
IDENTITY OF ISSUE INVESTMENT SHARES OR UNITS ASSET VALUE
<S> <C> <C> <C> <C>
Mutual funds:
The Vanguard Group Vanguard Fixed Income
of Investment Securities Fund -
Companies GNMA Portfolio 1,920,000 $ 19,323,000 $ 19,620,000
Vanguard Index Trust -
500 Portfolio 851,000 41,705,000 58,841,000
Vanguard Money
Market Reserves -
Prime Portfolio 35,013,000 35,013,000 35,013,000
Vanguard Fixed Income
Securities Fund -
Short-Term Federal
Portfolio 1,434,000 14,546,000 14,494,000
Vanguard/Wellesley
Income Fund 1,274,000 24,457,000 26,138,000
Vanguard/Windsor Fund 6,162,000 88,788,000 102,219,000
Vanguard Intl. Growth
Portfolio 1,529,000 21,801,000 25,170,000
Vanguard Interm.
Corporate Bond Portfolio 158,000 1,543,000 1,538,000
Vanguard U.S. Growth
Portfolio 824,000 17,479,000 19,558,000
Vanguard LIFEStrategy
Income Portfolio 39,000 459,000 455,000
Vanguard LIFEStrategy
Cons. Growth Portfolio 99,000 1,176,000 1,197,000
Vanguard LIFEStrategy
Mod. Growth Portfolio 184,000 2,305,000 2,384,000
Vanguard LIFEStrategy
Growth Portfolio 288,000 3,745,000 3,946,000
------------- --------------
272,340,000 310,573,000
Common Stock:
SAIC* Class A 6,994,000 129,588,000 159,670,000
Short-term investment:
State Street Short-Term Investment
Bank & Trust* Fund 348,000 348,000 348,000
Participant Loans Due Aug. 1994 to Dec. 2021;
6%-12% 4,000 17,000,000 17,000,000
------------- --------------
$ 419,276,000 $ 487,591,000
------------- --------------
</TABLE>
* Represents a party-in-interest.
-13-
<PAGE> 18
ADDITIONAL INFORMATION
SCHEDULE II
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
ITEM 27b FORM 5500 - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
AT DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AMOUNT RECEIVED
ORIGINAL DURING REPORTING YEAR UNPAID
AMOUNT --------------------- BALANCE AT
IDENTITY AND ADDRESS OF OBLIGOR OF LOAN PRINCIPAL INTEREST END OF YEAR
<S> <C> <C> <C> <C>
Edward Eldredge
P.O. Box 511073
Salt Lake City, UT 84151 $12,000 $ 0 $ 0 $ 8,000
Jack Elliot
94068 Doyle Point Rd
Gold Beach, OR 97444 $ 9,000 $ 0 $ 0 $ 5,000
Myra Harris
3452 Terrace Ct
Alexandria, VA 22302 $ 3,000 $2,000 $ 0 $ 0
Noble Oxford
508 Kountze Mem Dr
Bellevue, NE 68005 $12,000 $ 0 $ 0 $ 1,000
Buck Toler
32741 19th Pl
Federal Way, WA 98003 $11,000 $ 0 $ 0 $ 2,000
</TABLE>
<TABLE>
<CAPTION>
DETAILED DESCRIPTION OF LOSS INCLUDING DATES OF
MAKING AND MATURITY, INTEREST RATE, THE TYPE AND VALUE AMOUNT OVERDUE*
OF COLLATERAL, ANY RENEGOTIATION OF THE LOAN AND THE ----------------------
IDENTITY AND ADDRESS OF OBLIGOR TERMS OF THE RENEGOTIATION AND OTHER MATERIAL ITEMS PRINCIPAL INTEREST
<S> <C> <C> <C>
Edward Eldredge
P.O. Box 511073 Loan date: 8/24/89; Maturity date: 8/19/94;
Salt Lake City, UT 84151 Interest rate: 11%; Collateral - Vested balance $ 8,000 $ 0
Jack Elliot
94068 Doyle Point Rd Loan date: 11/29/91; Maturity date: 11/22/96;
Gold Beach, OR 97444 Interest rate: 9%; Collateral - Vested balance $ 5,000 $ 0
Myra Harris
3452 Terrace Ct Loan date: 10/27/95; Maturity date: 8/16/96;
Alexandria, VA 22302 Interest rate: 8%; Collateral - Vested balance $ 0 $ 0
Noble Oxford
508 Kountze Mem Dr Loan date: 3/27/92; Maturity date: 3/15/96;
Bellevue, NE 68005 Interest rate: 8%; Collateral - Vested balance $ 1,000 $ 0
Buck Toler
32741 19th Pl Loan date: 4/23/93; Maturity date: 4/12/96;
Federal Way, WA 98003 Interest rate: 7%; Collateral - Vested balance $ 2,000 $ 0
</TABLE>
* During 1997, the Company instructed the Plan's recordkeeper to issue Forms
1099 to the obligors listed above in the amount of the principal balance
outstanding at December 31, 1996.
-14-
<PAGE> 19
ADDITIONAL INFORMATION
SCHEDULE III
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
ITEM 27d FORM 5500 - SCHEDULE OF REPORTABLE TRANSACTIONS*
YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF PURCHASE SELLING LEASE EXPENSE
PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE PRICE RENTAL INCURRED
<S> <C> <C> <C> <C>
State Street Bank & Trust Short-term Investment Fund 72 $80,542,000
State Street Bank & Trust Short-term Investment Fund 69 $81,180,000
</TABLE>
<TABLE>
<CAPTION>
CURRENT
VALUE ON
COST OF TRANSACTION NET GAIN
PARTY INVOLVED ASSET DATE OR (LOSS)
<S> <C> <C> <C>
State Street Bank & Trust $80,542,000
State Street Bank & Trust $81,180,000 $81,180,000 $ 0
</TABLE>
* Transactions or series of transactions in excess of 5 percent of the current
value of the Plan's assets as of December 31, 1995 as defined in Section
2520.103-6 of the Department of Labor Rules and Regulations for Reporting
and Disclosure under ERISA.
-15-
