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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(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, 1998
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
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COMMISSION FILE NUMBER: 0-12771
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-3630868
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OR ORGANIZATION)
10260 CAMPUS POINT DRIVE, SAN DIEGO, CALIFORNIA 92121
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
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. [ ]
As of March 31, 1998, the aggregate market value of the voting stock held
by non-affiliates of Registrant was $1,050,466,293. 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 31, 1998, there were 52,612,683 shares of Registrant's Class A
Common Stock and 314,173 shares of Registrant's Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the Company's 1998
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 have been 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 66%, 79% and 83% of
revenues in fiscal years 1998, 1997 and 1996, respectively. The balance of the
Company's revenues were attributable to the sales of Technical Services and
Products to foreign, state and local governments, commercial customers and
others. On November 14, 1997, the Company completed its acquisition (the
"Bellcore Acquisition") of all of the outstanding common stock of Bell
Communications Research, Inc., a Delaware corporation ("Bellcore"), from the
Regional Bell Operating Companies (the "RBOCs"). Upon completion of the Bellcore
Acquisition, Bellcore became a wholly-owned subsidiary of SAIC. Bellcore is a
global provider of software, engineering and consulting services, advanced
research and development, technical training and other services to the
telecommunications industry. With the completion of the Bellcore Acquisition,
the Company's revenues attributable to the sales of Technical Services and
Products to commercial customers are expected to increase substantially as a
percentage of revenues.
The percentage of revenues attributable to Technical Services has increased
since fiscal year 1996 while Products revenues have correspondingly decreased.
Technical Services revenues and Products revenues were 98% and 2% of total
revenues, respectively, for fiscal year 1998; 94% and 6% of total revenues,
respectively, for fiscal year 1997; and 94% and 6% of total revenues,
respectively, for fiscal year 1996. In 1998, 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. The Company provides
Technical Services primarily in the areas of "National Security," "Health,"
"Environment," "Energy," "Telecommunications," "Commercial Information
Technology" and "Other Technical Services," the last of which includes the
Company's transportation and space business areas. The percentage of Technical
Services revenues attributable to National Security-related work has gradually
declined to 37% of total revenues for fiscal year 1998. For fiscal year 1998,
the Health, Environment, Energy, Telecommunications, Commercial Information
Technology and Other Technical Services business areas accounted for 12%, 9%,
4%, 8%, 14% and 14%, 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-13 of this Form 10-K.
In October 1997, the Company's ownership of the common stock of Network
Solutions, Inc., a Delaware corporation ("NSI"), was reduced from 100% to
approximately 76% as a result of NSI's initial public offering. Such ownership
interest represents approximately 97% of the combined voting power of the
outstanding common stock of NSI. NSI provides Internet domain name registration
services and Intranet consulting and network design and implementation services.
The Company has a 60% interest in a joint venture, Informatica, Negocio y
Tecnologia, S.A. ("INTESA"), which was formed with Venezuela's national oil
company, Petroleos de Venezuela, S.A. INTESA provides information technology
services in Latin America.
The Company was originally incorporated as a California corporation in 1969
and was re-incorporated as a Delaware corporation in 1984. The principal office
and corporate headquarters of the Company are 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.
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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:
O 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.
O 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.
O 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.
O Development of core technology for advanced distributed simulation and
applications for the DOD and other government and commercial customers.
O 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.
O Logistics engineering services and turnkey logistics information
management systems for a wide variety of government customers.
O Design, integration, implementation and operation of battlefield
simulation training ranges on land, air and sea.
O 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.
O Support to the DOD in imagery collection, processing, exploitation and
dissemination systems for digital processing, technology intelligence
communications and information management.
O Maintenance engineering and training, including field technical services
and repair, electronic system design and hands-on operational support,
primarily to the U.S. Navy.
O 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.
O Engineering, environmental, quality assurance, integration and program
support to the U.S. Army's chemical demilitarization and remediation
activity.
O System engineering, development, integration and related services for the
intelligence community.
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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:
O 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.
O Information engineering, software development and program support for the
Department of Health and Human Services and the National Institutes of
Health.
O Design, development and operation of health information networks for
integrated healthcare delivery systems for commercial healthcare clients.
O 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.
O 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 and
battlefield hazards, as well as biomedical service and management of
government facilities.
O 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).
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:
O 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.
O 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.
O 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.
O 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.
O Development and implementation of information systems.
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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:
O 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.
O Support to DOE in planning, facility transitions, safety analysis,
transportation, waste management, quality assurance, emergency
preparedness and public outreach.
O Design, fabrication and application of alternative energy sources such as
solar generators and fuel cells.
O 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.
O 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.
O 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.
O Management, operation and technical services for fossil energy research
laboratories.
Telecommunications
Examples of the Company's Technical Services in the telecommunications area
include the following:
O Design and implementation of interoperable communications networking
solutions to enable customers to plan, build, activate and service their
networks.
O New software products for the telecommunications industry and the
maintenance and enhancement of existing software systems, customization
of software and licensing of technology.
O Consulting and engineering services for telecommunications providers,
including the design and implementation of operating solutions for
customers' telecommunications needs.
O Research and development for the telecommunications industry.
Commercial Information Technology
Examples of the Company's Technical Services in the commercial information
technology area include the following:
O Information technology and automatic data processing outsourcing services
for commercial clients.
O Information protection and electronic business security services.
O Internet domain name registration and related services provided by the
Company's majority-owned subsidiary, NSI.
O Intranet consulting and network design and implementation services.
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Other Technical Services
The Company provides Technical Services to government and commercial
customers in such other areas as transportation and space. Examples of Other
Technical Services provided by the Company include the following:
O 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 and state motor vehicle
registration.
O 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.
O 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.
O 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.
O Safety, reliability and quality assurance engineering support for NASA's
Space Shuttle and Space Station programs.
O 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:
O Automatic equipment identification technology for rail, truck, air and
sea transportation modes.
O 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
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resources to recruit and retain qualified employees. Further, as an inducement,
the Company maintains a 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 "Business -- Employees And
Consultants" and "Market for Registrant's Common Equity and Related Stockholder
Matters -- 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, 1998, 1997 and 1996,
approximately 66%, 80% and 83%, respectively, of the Company's contract revenues
from the Technical Services segment and approximately 53%, 61% and 80%,
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 1998, 1997 and 1996, the U.S. Army accounted for
approximately 11%, 16% and 22%, respectively, of consolidated revenues, the U.S.
Navy accounted for approximately 8%, 10% and 9%, respectively, of consolidated
revenues and the DOE accounted for approximately 5%, 7% and 10%, 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 1998 or 1997.
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No single customer or contract in the Products segment accounted for 10% or
more of consolidated revenues in fiscal years 1998, 1997 or 1996.
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.
Modification, 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, 1998, 1997 and 1996,
approximately 50%, 57% and 57%, respectively, of the Technical Services revenues
were derived from cost-reimbursement type contracts and approximately 32%, 20%
and 16%, 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, 1998 were $14,583,000 and
$664,000, 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, 1997. 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
Bellcore's patent portfolio consists of more than 680 U.S. and foreign
patents. More than 200 of these patents have been licensed to organizations
worldwide. Bellcore has been granted patents across a wide range of disciplines,
including telecommunications transmission, services and operations, optical
networking, switching, wireless communications, protocols, architecture and
coding. Bellcore also actively pursues additional opportunities to license its
technologies to third parties and evaluates potential spin-offs of technologies
that it has developed.
Other than the business and operations of Bellcore, 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, 1998 and 1997
amounted to approximately $2,520,000,000 and $1,112,000,000, respectively, and
the backlog for the Products segment at those dates amounted to approximately
$43,000,000 and $82,000,000, respectively. The Company expects that a
substantial portion of its backlog at January 31, 1998 will be recognized as
revenues prior to January 31, 1999. Some contracts associated with the backlog
are incrementally funded and may continue for more than one year.
EMPLOYEES AND CONSULTANTS
As of January 31, 1998, the Company and its subsidiaries employed
approximately 30,300 persons. 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.
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RISK FACTORS
The following risk factors should be carefully considered in evaluating the
Company and its business because such factors currently have a significant
impact or may have a significant impact on the Company's business, operating
results or financial condition. Actual results could differ materially from
those projected in the forward-looking statements as a result of the following
risk factors set forth below.
CONCENTRATION OF REVENUE
Revenues generated from the sale of the Company's Technical Services and
Products to the U.S. Government as a prime contractor or subcontractor accounted
for 66%, 79% and 83% of revenues in fiscal years 1998, 1997 and 1996,
respectively. U.S. Government spending has declined in recent years, and the
current Congress and presidential administration have indicated that they intend
to further reduce U.S. Government spending. In addition, revenues from the U.S.
Government continues to shift toward lower cost service type contracts. The loss
of a substantial amount of government business could have a material adverse
effect on the Company's results of operations and financial condition. In
addition, Bellcore has historically derived substantially all of its revenues
from the RBOCs. Although the Company has made progress in its efforts to
diversify its business, it remains heavily dependent upon business with the U.S.
Government and with the RBOCs, and there can be no assurances that the Company
will be successful in expanding its customer base or that any new customers will
place orders for the Company's Technical Services or Products in amounts
comparable to those of the U.S. Government or the RBOCs. See "Business -- The
Company" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
POTENTIAL IMPACT OF ACQUISITION OF BELLCORE
On November 14, 1997, pursuant to a definitive agreement, the Company
completed its acquisition of Bellcore, a global provider of software,
engineering and consulting services, advanced research and development,
technical training and other services to the telecommunications industry. As of
January 31, 1998, Bellcore had approximately 5,400 employees and annual revenues
of approximately $1 billion. The acquisition resulted in a substantial growth in
both the employee base and commercial revenues of the Company. The Company
financed a portion of the purchase price of Bellcore with debt financing. Such
growth and additional debt 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.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON ACQUISITIONS FOR GROWTH
A significant portion of the growth in the Company's revenues in recent
years has been achieved through acquisitions of businesses that complement the
Company's Technical Services and Products. Although the Company intends to make
additional acquisitions in the future, the number and size of the acquisitions
that the Company can complete may be limited due to the Company's acquisition of
Bellcore. In addition, while the Company has been successful in identifying and
consummating acquisitions in the past, there can be no assurance that it will be
able to continue to make such acquisitions in the future at prices that it
considers reasonable or, if the acquisitions are consummated, that the Company
will be able to integrate the acquired businesses without adversely affecting
the Company's results of operations and financial condition.
YEAR 2000 COMPLIANCE
The Company has commenced, and in some cases finalized, the evaluation of
computer systems to ensure its operations will not be adversely impacted by Year
2000 software problems. The evaluation determined that certain portions of the
Company's software and systems require modification or replacement. If the
necessary modifications to existing software and conversions to new software are
not made, or are not completed timely,
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the Year 2000 issue could have a material adverse impact on the Company's
consolidated financial position, results of operations, cash flows or its
ability to conduct business. In addition, the Company has initiated
communications with its critical service providers, suppliers and vendors to
determine the extent to which the Company is vulnerable to those third parties'
failure to remediate their own Year 2000 issues. There can be no assurance that
such failure would not have a material adverse effect on the Company's
consolidated financial position, results of operations, cash flows or its
ability to conduct business. Furthermore, the Company has implemented an
on-going program to assess its exposure with respect to its products and
services. To date, no matters have come to the attention of the Company's
management that would have a material adverse effect on the Company's
consolidated financial position, results of operations, cash flows or its
ability to conduct business; however, there can be no assurance that the Company
will not be subject to material liability claims in the future.
The Company's assessment of the Year 2000 issue, including the costs of the
project and the timing of completion are based on management's best estimates
and input from third party customers, service providers, suppliers and vendors.
These estimates were derived using numerous assumptions about future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no assurance that
these estimates will be achieved and actual results could differ materially from
those anticipated. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
ABSENCE OF A PUBLIC MARKET
There is no public market for the Class A Common Stock. The Limited Market
permits existing stockholders to offer for sale shares of Class A Common Stock
any Trade Date (as such terms are defined on page 15). Generally, there are four
Trade Dates each year. The Company and the trustees and agents of the Company's
and certain of its subsidiaries' employee benefit plans are currently
authorized, but not obligated, to purchase shares of Class A Common Stock in the
Limited Market on any Trade Date, but only if and to the extent that they, in
their discretion, determine to make such purchases. To the extent that purchases
by such trustees, agents or the Company are not sufficient, the ability of
stockholders to resell their shares in the Limited Market will likely be
adversely affected. In each trade occurring during the last two fiscal years,
all shares of Class A Common Stock offered for sale in the Limited Market were
matched with buy orders and sold in the Limited Market. No assurance, however,
can be given that a stockholder desiring to sell all or a portion of his or her
shares of Class A Common Stock in any future trade will be able to do so. See
"Market for Registrant's Common Equity and Related Stockholder Matters -- The
Limited Market."
CLASS A COMMON STOCK PRICE DETERMINED BY BOARD OF DIRECTORS
The offering price and the price at which the Class A Common Stock trades
in the Limited Market are not, and subsequent prices will not be, determined by
the operation of a market of bargaining buyers and sellers. Instead, the price
is a value established by the Board of Directors pursuant to the Formula and
valuation process described on pages 16, 17 and 18 which the Board of Directors
believes represents a fair market value. The Board of Directors generally has
broad discretion to modify the Formula. The Formula was last modified in April
1998. The Formula does not specifically include variables reflecting all
relevant financial and valuation criteria. The mechanical application of the
Formula, assuming a constant Market Factor, tends to smooth the impact on the
stock price of quarterly fluctuations in the Company's operating results because
the Formula takes into account the net income of the Company for the four
preceding quarters. See "Market for Registrant's Common Equity and Related
Stockholder Matters -- Price Range of Class A Common Stock and Class B Common
Stock."
POSSIBLE VOLATILITY OF STOCK PRICE
The Formula Price of the Class A Common Stock could be subject to greater
fluctuations in the future than it has experienced in the past. The increased
volatility is expected to result from a number of factors, including (i) plans
to continue to increase the proportion of the Company's business involving
private sector customers, international customers and information technology and
the greater stock price volatility associated
10
<PAGE> 12
with companies in such business areas, (ii) the financial leverage impact of
current and any future debt levels of the Company as debt financing is used to
finance acquisitions and for other purposes, (iii) the impact of other equity
transactions that the Company may pursue, including public offerings of
securities of the Company's subsidiaries or affiliates, and (iv) the volatility
of the stock price of the Class A Common Stock of NSI, a publicly-traded
security of a majority-owned subsidiary of the Company, and its impact on the
Formula Price. As of March 13, 1998, the Company owned 100% of the outstanding
Class B Common Stock of NSI, representing approximately 76% of the combined
outstanding common stock of NSI. The NSI Class B Common Stock is convertible
into NSI Class A Common Stock, subject to certain limitations.
NO ASSURANCES REGARDING FUTURE RETURNS
There can be no assurance that the Class A Common Stock will in the future
provide returns comparable to historical returns or that the Formula Price will
not decline. See "Market for Registrant's Common Equity and Related Stockholder
Matters -- Price Range of Class A Common Stock and Class B Common Stock."
COMPETITION
The businesses in which the Company is engaged are highly competitive. The
Company's competitors include larger organizations with substantially greater
financial resources and larger technical staffs, smaller, more highly
specialized entities, the U.S. Government's own in-house capabilities and
federal non-profit contract research centers. The Company's continued success is
dependent upon its ability to provide superior service and performance on a
cost-effective basis. See "Business -- Competition."
EARLY TERMINATION OF 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. Modification, termination or curtailment of major programs or
contracts of the Company could have a material adverse effect on the Company's
results of operations and financial condition. Although such contract and
program modifications, terminations or curtailments have not had a material
adverse effect on the Company in the past, no assurance can be given that they
will not have such an effect in the future.
POTENTIAL GOVERNMENT INQUIRIES AND INVESTIGATIONS
The Company is from time to time subject to certain U.S. Government
inquiries and investigations of its business practices. No assurance can be
given that any such inquiry or investigation would not have a material adverse
effect on the Company's results of operations and financial condition.
CONTRACT REVENUES SUBJECT TO AUDITS BY GOVERNMENT AGENCIES
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, 1997. 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.
FIXED PRICE CONTRACT EXPOSURE
During the fiscal years ended January 31, 1998, 1997 and 1996, 32%, 20% and
16%, respectively, of Technical Services revenues were from firm fixed-price
type contracts, while the majority of Products revenues in these three years
were derived from such contracts. 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.
11
<PAGE> 13
AT RISK CONTRACT COSTS
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 Technical Services revenues and Products
revenues, exclusive of related fees, at January 31, 1998 were $14,583,000 and
$664,000, 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.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND CURRENCY EXCHANGES
The Company conducts a portion of its business outside of the U.S. in
transactions denominated in foreign currencies. As a result, the Company is
exposed to fluctuations in exchange rates which could result in losses and, in
turn, could adversely impact the Company's results of operations. Under the
Company's current foreign currency management policy, the Company may use
forward foreign currency exchange rate contracts to hedge against movements in
exchange rates for contracts executed in foreign currencies. However, the
Company generally does not hedge its exchange rate risks for its foreign
subsidiaries, which generally conduct business in currencies other than the U.S.
Dollar. Significant fluctuations in exchange rates in such countries could have
a material adverse effect on the Company's results of operations. This risk may
be significant for entities such as INTESA that operate in highly inflationary
economies. To date, losses resulting from exchange rate fluctuations have not
had a material adverse impact on the Company's results of operations; however,
there can be no assurance that the Company's future results of operations will
not be materially impacted by exchange rate fluctuations.
NO CASH DIVIDENDS
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.
RESTRICTIONS ON CLASS A COMMON STOCK
Certain of the shares of Class A Common Stock presently outstanding are,
and all shares of Class A Common Stock offered by the Company will be, subject
to certain restrictions (including a right of first refusal and a right of
repurchase upon termination of employment or affiliation (except that qualified
retiring employees may elect to have the Company defer its repurchase rights for
five years) and other restrictions on their transferability) set forth in the
Company's Certificate of Incorporation.
DEPENDENCE UPON KEY PERSONNEL
The Company's success will depend upon the continued contributions of its
founder, J.R. Beyster, its officers and key personnel, the loss of which could
materially adversely affect the Company's operations. The Company has not
generally entered into long-term employment contracts with its officers and key
employees. In addition, the Company does not maintain "key man" life insurance
for its officers or key employees.
ATTRACTION AND RETENTION OF SKILLED EMPLOYEES
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. Competition for such personnel is intense and competitors often employ
aggressive tactics to recruit key employees. The Company intends to continue to
devote significant resources to recruit and retain qualified employees; however,
no assurance can be given that the Company will be able to attract and retain
such employees on acceptable terms. Any failure to do so could have a material
adverse effect on the Company's operations.
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<PAGE> 14
ANTI-TAKEOVER EFFECTS
Consistent with and in furtherance of the Company's employee ownership
philosophy, certain provisions of the Company's Certificate of Incorporation and
Bylaws may discourage, delay or prevent attempts to acquire control of the
Company that are not approved by the Company's Board of Directors. The
provisions may, individually or collectively, have the effect of discouraging
takeover attempts that some stockholders might deem to be in their best
interests, including tender offers in which stockholders might receive a premium
for their shares over the Formula Price, as well as making it more difficult for
individual stockholders or a group of stockholders to elect directors.
ITEM 2. PROPERTIES
As of March 31, 1998, the Company conducted its operations in more than 370
offices and manufacturing and laboratory facilities located in 41 states, the
District of Columbia and various foreign countries and occupied a total of
approximately 7,900,000 square feet of space. The Company has principal
locations in the San Diego, California, the Washington, D.C. and Piscataway, New
Jersey metropolitan areas and occupies over 1,000,000 square feet of space in
each of these locations.
The Company owns and occupies seven buildings totaling approximately
677,000 square feet of space situated on 22.2 acres of land owned by the Company
in the Golden Triangle area of San Diego, California.
At the principal location of the Company in 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. The
Company has also executed a lease to occupy an additional 195,000 square foot
building in McLean, Virginia, upon completion of this building scheduled for
December 1999. In addition, the Company owns and occupies a 62,000 square foot
building on 2.6 acres of land in Reston, Virginia.
In the Chester, Piscataway and Red Bank, New Jersey areas, the Company owns
and occupies 13 buildings totaling approximately 725,000 square feet of space
situated on 206 acres of land. The Company also owns an additional 26 acres of
vacant land in Piscataway, New Jersey.
The Company also owns and occupies (a) a 62,500 square foot building on
approximately 13 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
100,000 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 and has an option to purchase this building. In
addition, the Company leases a 380,000 square foot building in Lisle, Illinois.
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 M of Notes to
Consolidated Financial Statements of the Company on page F-25 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.
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<PAGE> 15
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
1998 Annual Meeting of Stockholders (the "1998 Proxy Statement").
The following is a list of the names and ages (as of April 10, 1998) 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.
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
------------------------- --- --------------------------------------------------------
<S> <C> <C>
D. P. Andrews................ 53 Corporate Executive Vice President since January 1998 and
a Director since October 1996. Mr. Andrews has held
various positions with the Company since 1993, including
serving as Executive Vice President for Corporate
Development from October 1995 to January 1998. Prior to
joining the Company, Mr. Andrews served as Assistant
Secretary of Defense from 1989 to 1993.
D. W. Baldwin................ 45 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................ 73 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.
D. A. Cox.................... 50 Executive Vice President since January 1998. Mr. Cox has
held various positions with the Company since 1988,
including serving as a Sector Vice President from January
1996 to January 1998.
J. E. Glancy................. 52 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.................. 55 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.................. 57 President and Chief Operating Officer since February
1997. Mr. Owens will resign from these positions
effective as of June 1, 1998. Mr. Owens also served as
Vice Chairman of the Board from March 1996 to April 1998.
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................ 37 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............... 55 Executive Vice President of the Company since April 1997
and Director of the Company 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.............. 52 Senior Vice President and Chief Financial Officer of the
Company since 1990.
R. A. Rosenberg.............. 63 Executive Vice President of the Company since 1992. Mr.
Rosenberg has held various positions with the Company
since 1987.
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
------------------------- --- --------------------------------------------------------
<S> <C> <C>
D. E. Scott.................. 41 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.
R. C. Smith.................. 56 Chief Executive Officer and a Director of Bell
Communications Research, Inc., a wholly-owned subsidiary
of the Company ("Bellcore"), since January 1998 and a
Director of the Company since April 1998. Prior to
joining Bellcore, Mr. Smith was the Senior Vice
President -- Quality Development and Public Relations for
Sprint Corporation from 1991 to January 1998.
E. A. Straker................ 60 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............. 57 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>
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 permits existing stockholders to offer for sale shares
of Class A Common Stock on predetermined days (each a "Trade Date"). Generally,
there are four Trade Dates each year which typically occur approximately two
weeks after Board of Directors' meetings which are currently scheduled for
January, April, July and October. 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 price of the Class A
Common Stock determined by the Board of Directors pursuant to the valuation
process described below. 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 may subscribe to purchase up to a specified number of shares
of Class A Common Stock. In addition, the trustees or agents of the Company's
Employee Stock Retirement Plan ("ESRP"), Cash or Deferred Arrangement ("CODA"),
1995 Employee Stock Purchase Plan, the 1998 Employee Stock Purchase Plan (if
such plan is approved at the Company's 1998 Annual Meeting of Stockholders),
Stock Compensation Plan, Management Stock Compensation Plan, Key Executive Stock
Deferral Plan, the Bell Communications Research Savings and Security Plan and
the Bell Communications Research Savings Plan for Salaried Employees
(collectively, the "Bellcore Savings Plans") and the TransCore Retirement
Savings Plan of Syntonic Technology, Inc., a wholly-owned subsidiary of the
Company doing business as TransCore ("TransCore 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, ESRP, CODA, the Bellcore Savings Plans and the
TransCore 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
15
<PAGE> 17
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 1998 and 1997, the Company purchased 223,849 shares
and 117,163 shares, respectively, in the Limited Market. The Company's purchases
in fiscal years 1998 and 1997 accounted for 9.7% and 6.6%, respectively, of the
total shares purchased by all buyers in the Limited Market during such years.
During the 1998 and 1997 fiscal years, the trustees of the Company's CODA,
1995 Employee Stock Purchase Plan, the Bellcore Savings Plans and the TransCore
Savings Plan purchased an aggregate of 1,496,518 shares and 1,148,829,
respectively, in the Limited Market. These purchases accounted for approximately
59.0% and 60.9% of the total shares purchased by all buyers in the Limited
Market during fiscal years 1998 and 1997, 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 Market will likely
be adversely affected. Although all shares of Class A Common Stock offered for
sale were sold in the Limited Market on each Trade Date occurring during the
last two fiscal years, 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
1998 and 1997, the Company sold an aggregate of 927,657 and 85,505 shares of
Class A Common Stock, respectively, in the Limited Market or 36.6% and 4.5%,
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 future trade will be able to do so.
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The price of the Class A Common Stock (the "Formula Price") is established
by the Board of Directors pursuant to the valuation process which includes the
formula set forth below (the "Formula"). The Board of Directors sets the Market
Factor (as defined below) in the Formula at the value which causes the Formula
to yield the price which the Board of Directors believes represents a fair
market value. The Formula Price is the price at which the Class A Common Stock
trades in the Limited Market and 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. See
"Business -- Risk Factors -- Class A Common Stock Price Determined by Board of
Directors."
The following 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
16
<PAGE> 18
"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 diluted 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 to cause the price generated by the Formula to equal the
fair market value of the Class A Common Stock as determined by the Board of
Directors following an amendment of the Formula. The 5.66 multiplier has not
been assessed for change since that time. The Market Factor is a numerical
factor which is reviewed and set by the Board of Directors as part of the
valuation process. Historical values for each variable contained in the Formula
are set forth in the table on page 18.
The Formula Price of the Class A Common Stock, expressed as an equation, is
as follows:
Formula Price = E + 5.66 MP
W1 W
A valuation formula containing consideration of stockholder equity and
earnings per share was first used by the Board of Directors in establishing the
stock price of the Class A Common Stock in 1972. The Formula was amended in
1973, by inclusion of the Market Factor, to reflect the broad range of business,
financial and market forces that also affect the fair market value of the Class
A Common Stock. 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"). This 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 used to
establish the Formula Price. The Formula was also modified by the Board of
Directors on April 10, 1998 so that the Weighted Average Shares Outstanding or
"W" was derived by reference to the Company's "diluted earnings per share"
rather than by reference to the Company's "primary earnings per share." This
modification was made to conform to changes in the accounting standards related
to the calculation of earnings per share. See "Business -- Risk Factors -- Class
A Common Stock Price Determined by Board of Directors."
The Board of Directors has broad discretion to modify the Formula.
Nevertheless, 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.
In determining the price of the Class A Common Stock, the Board of
Directors considers the performance of the general securities markets and
relevant industry groups, the historical financial performance of the Company
versus comparable public companies, the prospects for the Company's future
performance, general economic conditions, input from an independent appraisal
firm and other relevant factors. The Board of Directors sets the Market Factor
at the value which causes the Formula to yield a price equal to the Board of
Directors' assessment of a fair market value for the Class A Common Stock. In
conjunction with the Board of Directors' valuation process, an appraisal of
Class A Common Stock is prepared by an independent appraisal firm for the
committees administering the Company's and certain of its subsidiaries'
qualified retirement plans. Valuation input from the appraiser is one of the
factors considered by the Board of Directors in establishing the Formula Price.
The Formula Price and Market Factor, as determined by the Board of Directors,
remains in effect until subsequently changed by the Board of Directors. The
Board of Directors believes that the valuation process results in a value which
represents a fair market value for the Class A Common Stock within a broad range
of financial criteria.
17
<PAGE> 19
The value assigned by the Board of Directors to the Market Factor has been
subject to larger and more frequent changes. Nonetheless, the Board of Directors
continues to use the Formula in determining the Formula Price. The price of the
Class A Common Stock and the Market Factor could be subject to greater
fluctuations in the future than in the past due to a number of factors,
including (i) plans to continue to increase the proportion of the Company's
business involving private sector customers, international customers and
information technology and the greater stock price volatility associated with
companies in such business areas, (ii) the financial leverage impact of current
and any future debt levels of the Company as debt financing is used to finance
acquisitions and for other purposes, (iii) the impact of other equity
transactions that the Company may pursue, including public offerings of
securities of the Company's subsidiaries or affiliates, and (iv) the volatility
of the stock price of the Class A Common Stock of NSI, a publicly-traded
security of a majority-owned subsidiary of the Company, and its impact on the
Formula Price. See "Business -- Risk Factors -- Possible Volatility of Stock
Price."
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
each of the variables contained in the Formula, including 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. See "Business -- Risk
Factors -- No Assurances Regarding Future Returns."
<TABLE>
<CAPTION>
'W' OR PRICE PRICE
'E' OR 'W(1)' WEIGHTED PER SHARE PER SHARE
MARKET STOCKHOLDERS OR SHARES 'P' OR AVG. SHARES OF CLASS A OF CLASS B
DATE FACTOR EQUITY(1) OUTSTANDING(2) EARNINGS(3) OUTSTANDING(4) COMMON STOCK COMMON STOCK
---- ------ ------------ -------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 12, 1996........ 1.80 459,097,000 50,848,815 57,296,000 51,306,036 $20.41 $102.05
July 12, 1996......... 2.00 476,734,000 51,526,715 57,601,000 51,594,455 $21.89 $109.45
October 11, 1996...... 2.10 482,172,000 51,418,186 58,657,000 51,830,619 $22.83 $114.15
January 10, 1997...... 2.40 507,235,000 52,094,779 62,098,000 52,003,218 $25.96 $129.80
April 11, 1997........ 2.40 527,459,000 52,682,394 63,680,000 52,308,789 $26.55 $132.75
July 11, 1997......... 2.70 559,284,000 53,556,198 67,459,000 52,695,291 $30.01 $150.05
October 10, 1997...... 3.20 583,211,000 54,369,492 70,701,000 53,229,203 $34.78 $173.90
January 9, 1998....... 3.60 663,811,000 55,148,817 71,804,000 53,993,996 $39.13 $195.65
April 10, 1998........ 3.90 754,778,000 57,511,742 84,794,000 54,889,045 $47.22 $236.10
</TABLE>
- ---------------
(1)"E" or Stockholders Equity 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.
(2)"W(1)" or Shares Outstanding is the number of outstanding common shares and
common share equivalents at the end of that fiscal quarter.
(3)"P" or Earnings is the earnings of the Company for the four fiscal quarters
immediately preceding the price determination.
(4)"W" or Weighted Average Shares Outstanding is the weighted average number of
outstanding common shares and common share equivalents for the four fiscal
quarters immediately preceding the price determination, as used by the Company
in computing diluted earnings per share.
HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
As of March 31, 1998, there were 18,558 holders of record of Class A Common
Stock and 149 holders of record of Class B Common Stock. As of such date,
approximately 93.0% of the Class A Common Stock and approximately 53.3% 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.
18
<PAGE> 20
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.
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from consolidated audited financial
statements. The consolidated balance sheet at January 31, 1998 and 1997 and the
related consolidated statements of income and of cash flows for the three years
ended January 31, 1998 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
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C> <C>
Revenues............................. $3,089,351 $2,402,224 $2,155,657 $1,921,880 $1,670,882
Cost of revenues..................... 2,623,339 2,094,447 1,875,183 1,686,970 1,475,485
Selling, general and administrative
expenses........................... 301,093 191,836 173,742 146,083 120,387
Interest expense..................... 11,682 4,925 4,529 3,468 2,966
Other (income) expense, net.......... (15,864) (2,193) (111) 5,653 2,216
Minority interest in income of
consolidated subsidiaries(1)....... 10,608
Provision for income taxes........... 73,699 49,529 45,018 30,654 28,328
---------- ---------- ---------- ---------- ----------
Net income........................... $ 84,794 $ 63,680 $ 57,296 $ 49,052 $ 41,500
========== ========== ========== ========== ==========
Earnings per share(2):
Basic.............................. $ 1.65 $ 1.30 $ 1.19 $ 1.05 $ .91
========== ========== ========== ========== ==========
Diluted............................ $ 1.55 $ 1.23 $ 1.14 $ 1.02 $ .89
========== ========== ========== ========== ==========
Common equivalent shares:
Basic.............................. 51,349 49,157 48,143 46,605 45,403
========== ========== ========== ========== ==========
Diluted............................ 54,806 51,738 50,285 47,865 46,759
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31
--------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets......................... $2,415,234 $1,012,462 $ 859,290 $ 752,584 $ 611,575
Working capital...................... 94,588 270,553 227,185 173,467 206,580
Long-term debt....................... 145,958 15,227 15,592 14,222 13,437
Long-term liabilities................ 313,677 29,114 18,524 14,733 11,623
Stockholders' equity................. $ 754,778 $ 527,459 $ 458,132 $ 386,760 $ 334,597
</TABLE>
- ---------------
(1) Relates to INTESA, the Company's consolidated 60%-owned joint venture, and
NSI, the Company's consolidated 76%-owned subsidiary.
(2) Earnings per share has been restated for 1997, 1996, 1995 and 1994 to
conform with the new Statement of Financial Accounting Standards No. 128,
"Earnings per Share." The Company has never declared or paid cash dividends
on its capital stock and no cash dividends are presently contemplated.
19
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides diversified professional and technical services
("Technical Services") involving the application of scientific expertise,
together with computer and systems technology, to solve complex technical
problems for a broad range of government and commercial customers, both in the
U.S. and abroad. In addition, the Company also designs, develops and
manufactures high-technology products ("Products"). The Company's Technical
Services and Products have been primarily sold to departments and agencies of
the U.S. Government. During 1998, the Company completed several key transactions
that have had positive impacts to its consolidated financial position, results
of operations and cash flows and expanded the Company's business with commercial
customers.
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. Accordingly, the Company consolidated its 60%
majority interest in INTESA, whose fiscal year end is December 31, in its
consolidated financial statements for the year ended January 31, 1998. Since
Venezuela is considered a highly inflationary economy, the functional currency
of INTESA is the U.S. dollar. Remeasurement gains or losses of this joint
venture are recognized in the consolidated results of operations.
On March 7, 1997, the Company sold the majority of the net assets of its
SAIT business unit and recognized a gain of $4 million on the sale which is
reflected in other income. SAIT manufactured data display devices and
"ruggedized" personal computers which accounted for 49% of the Products revenue
in 1997.
On October 1, 1997, the Company and its subsidiary Network Solutions, Inc.
(NSI) sold 3,795,000 shares of NSI Class A common stock in an initial public
offering. The Company's net proceeds from the offering were $64 million
resulting in a gain of $61 million which was recorded as additional paid-in-
capital. Prior to the offering, NSI was a wholly-owned subsidiary of the
Company. Upon completion of the offering, the Company has a 76% ownership
interest in NSI, which represents 97% of the combined voting power of the
outstanding common stock. NSI provides Internet domain name registration
services and Intranet consulting and network design and implementation services.
On November 14, 1997, the Company completed its acquisition (the "Bellcore
Acquisition") of all the issued and outstanding common stock of Bell
Communications Research, Inc. ("Bellcore") from the Regional Bell Operating
Companies ("RBOCs"). Upon the closing of the Bellcore Acquisition, Bellcore
became a wholly-owned subsidiary of the Company and approximately 5,500 Bellcore
employees joined the Company. The acquisition has been accounted for under the
purchase method of accounting and Bellcore's results of operations have been
included in the financial statements from the date of acquisition. The purchase
price has been allocated to the assets acquired and liabilities assumed based
upon their estimated fair values. The excess purchase price over the net book
value of assets acquired has been allocated to other identifiable intangible
assets and goodwill. Bellcore is a global provider of software development,
engineering and consulting services, advanced research and development,
technical training and other services to the telecommunications industry.
On January 29, 1998, the Company issued public debt securities with a
principal amount of $100 million. These debt securities are ten year fixed rate
notes with interest paid at 6.75%. Cash proceeds to the Company were $99
million.
RESULTS OF OPERATIONS
Revenues increased 29%, 11% and 12% in 1998, 1997 and 1996, respectively,
over the prior year. INTESA, Bellcore and NSI were directly responsible for 21
percentage points of the increase in 1998. The remaining increase in revenues of
8 percentage points was attributable to internal growth in the traditional
business areas. Revenues in 1998 from the Company's principal customer, the U.S.
Government, continued to
20
<PAGE> 22
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 service type
contracts.
The sale of Technical Services and Products to the U.S. Government as a
prime contractor or subcontractor accounted for 66% of revenues in 1998, 79% in
1997 and 83% in 1996. The decrease from 1996 to 1998 is primarily 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, commercial information technology,
telecommunications and transportation business areas. On an absolute basis, U.S.
Government revenues increased 7% in 1998, 6% in 1997 and 8% in 1996. Non-U.S.
Government revenues increased 109% in 1998, 40% in 1997 and 35% in 1996, over
the prior year. The larger increase in non-U.S. Government revenues in 1998 is
primarily attributable to the Bellcore Acquisition, INTESA and growth in NSI
revenues over 1997.
The following table summarizes revenues by contract type for the last three
years:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Contract type:
Cost-reimbursement.......................................... 50% 54% 54%
Time-and-materials and fixed-price level-of-effort.......... 18% 22% 26%
Firm fixed-price............................................ 32% 24% 20%
--- --- ---
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 increase in revenues from firm fixed-price contracts and associated relative
decrease in revenues from cost-reimbursement contracts from 1996 to 1998 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 440 contracts with annual revenues
greater than $1 million in 1998, compared with 412 and 349 such contracts in
1997 and 1996, respectively. These larger contracts represented 71% of the
Company's revenues in 1998 compared to 75% in 1997 and 76% in 1996. Of these
contracts, 39 contracts had individual revenues greater than $10 million in 1998
compared to 28 such contracts in 1997 and 21 in 1996. 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 system
integration type contracts. At the end of 1998, the Company had 30,300 full-time
employees compared to 20,900 and 19,500 at the end of 1997 and 1996,
respectively. Material and subcontract ("M&S") revenues were $755 million in
1998, $667 million in 1997 and $616 million in 1996. As a percentage of total
revenues, M&S revenues decreased to 25% in 1998 from 28% in 1997 and 29% in
1996. The decrease in 1998 is primarily attributable to faster growth in labor-
21
<PAGE> 23
related revenues and the sale of SAIT, which decreased M&S revenues in 1998 and
had accounted for 12% of M&S revenues in 1997.
The revenue mix between the Technical Services segment and the Products
segment was 98% and 2%, respectively, of consolidated revenues in 1998, 94% and
6%, respectively, in 1997 and 1996. Within the Technical Services segment,
revenues are further classified between "National Security," "Health,"
"Environment," "Energy," "Telecommunications," "Commercial Information
Technology" and "Other Technical Services." Other Technical Services includes
the transportation, space and other business areas.
National Security revenues were 37% of total revenues in 1998 compared to
44% in 1997 and 45% in 1996. Although National Security revenues declined as a
percentage of total revenues, on an absolute basis, these revenues increased 10%
in 1998, 8% in 1997 and 9% in 1996 over the prior year, in spite of declines in
the overall defense market during these periods. The U.S. Government maintained
funding in the National Security areas in which the Company believes it has
strong capabilities, such as command, control, communications, computers,
intelligence, surveillance and reconnaisance ("C4ISR"), research and
development, training, logistics and simulation. Revenues in the Health business
area were 12% of total revenues in 1998 and 14% in 1997 and 1996. Although
Health revenues declined as a percentage of total revenues, on an absolute
basis, these revenues have increased 9% in 1998, 10% in 1997 and 47% in 1996. In
1996, approximately 10% of consolidated revenues was derived from one U.S.
government contract in the Health business area, which was substantially
completed in 1997. However, to date, the Company has maintained and increased
the level of its revenues in the Health business area through other contracts.
Revenues from the Environment business were 9% of total revenues in 1998, 11% in
1997 and 13% in 1996. Energy revenues were 3% of total revenues in 1998, 4% in
1997 and 6% in 1996. 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. Telecommunications revenues were 8% of
total revenues in 1998 and 1% in 1997 and 1996. The increase in
Telecommunications revenues in 1998 reflects the acquisition of Bellcore which
primarily generates revenues in the Telecommunications segment. Commercial
Information Technology revenues were 14% of total revenues in 1998, 4% in 1997
and 2% in 1996. The increase in Commercial Information Technology revenues
reflects the Company's efforts to increase revenues from commercial and
international clients in the information technology area. INTESA and NSI both
contributed to the growth in Commercial Information Technology revenues. Other
Technical Services revenues were 14% of total revenues in 1998, 15% in 1997 and
12% in 1996. The increase in Other Technical Services revenues as a percent of
total revenues in 1997 compared to 1996 reflects the Company's expansion in the
transportation business area 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 of shifting priorities of the
country 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, Telecommunications, Commercial information
technology and Other Technical Services business areas.
Products revenues were 2% of total revenues in 1998 and 6% in 1997 and
1996. The decrease in product revenues as a percentage of total revenues is
attributable to the sale of SAIT in 1998.
The cost of revenues as a percentage of revenues was 85.1% in 1998, 87.2%
in 1997 and 87.0% in 1996. The decrease in 1998 reflects the growth in
commercial revenues from Bellcore, INTESA and NSI, which have more of their
associated costs in SG&A as opposed to cost of revenues.
SG&A expenses as a percentage of revenues were 9.8%, 8.0% and 8.1% in 1998,
1997 and 1996, respectively. SG&A is comprised of general and administrative
("G&A"), bid and proposal ("B&P") and independent research and development
("IR&D") expenses. G&A, B&P and IR&D increased as a percentage of revenues due
to the growth in commercial revenues which have more of their associated costs
in SG&A as opposed to cost of revenues. While the level of B&P activity and
costs have historically fluctuated depending on the availability of bidding
opportunities and resources, B&P costs have increased in relation to revenues in
1998. IR&D costs have also historically fluctuated depending on the stage of
development for various hardware and software systems and have increased in
relation to revenues in 1998. G&A costs as a
22
<PAGE> 24
percentage of total revenues were 6.4% in 1998 compared to 5.6% in 1997 and 5.8%
in 1996. The increase in G&A costs represents the combination of the growth in
commercial business and increased acquisition costs incurred in connection with
the Bellcore Acquisition. In 1998 and 1997, continued declining operating
results of certain acquired companies made the recovery of certain goodwill
unlikely as determined by the undiscounted cash flow method. The Company reduced
goodwill by $2.9 million and $6.2 million to its estimated recoverable value in
1998 and 1997, respectively. 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 5.5% in 1998, 4.8%
in 1997 and 5.0% in 1996. The National Security operating profit margin was 4.2%
in 1998, 5.2% in 1997 and 5.0% in 1996. The lower operating profit margin in
1998 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 8.0% in 1998, 7.2% in 1997 and 6.1% in 1996. Environment operating
profit margin was 4.5% in 1998, 2.1% in 1997 and 4.4% in 1996. 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 4.7% in 1998, 5.7% in 1997 and 5.3% in 1996. Telecommunications operating
profit margin was 11.3% in 1998, 11.8% in 1997 and 7.5% in 1996. The
Telecommunications business area performance in 1998 is dominated by Bellcore.
Commercial Information Technology operating profit margin was 6.6% in 1998, a
loss of 6.1% in 1997 and profit of .4% in 1996. The loss in 1997 primarily
relates to operating losses at NSI. The operating profit margin in Other
Technical Services was 3.2% in 1998, 5.7% in 1997 and 4.4% in 1996. The decrease
in Other Technical Services operating profit margin in 1998 was primarily
attributable to overruns on certain firm fixed-price contracts. The operating
profit margin in the Products segment was a loss of 1.9% in 1998, profit of 5.7%
in 1997 and profit of 4.6% in 1996. The operating loss in 1998 was attributable
to overruns on certain firm fixed-price contracts. In general, overall operating
profit margins for the Company increased in 1998 compared to 1997 and 1996
despite overruns on certain firm fixed-price contracts.
Interest expense in 1998, 1997 and 1996 primarily relates to interest on
building mortgages, deferred compensation, capital lease obligations, notes
payable and borrowings under the Company's revolving credit facilities. Increase
in interest expense was primarily driven by an increase in the average
borrowings outstanding during 1998 compared to 1997 and 1996. Average borrowings
in 1998 increased as a result of financing the acquisition of Bellcore.
Other income, net of other expense, was $16 million in 1998 compared to $2
million in 1997 and $111 thousand in 1996. The increase in other income
represents a combination of effects. Primarily increasing other income was
increased interest income and the gain on sale of SAIT and certain other
business assets. Offsetting the increase in other income was a loss on the
forward treasury lock agreements. The Company entered into these treasury lock
agreements, totaling $200 million, in 1997 to manage exposure to fluctuations in
interest rates on an anticipated, probable issuance of debt that was to be used
to finance the Bellcore acquisition. Due to changes in market conditions, an
unexpected decline in interest rates and availability of cash, the Company only
issued $100 million of debt, thus resulting in the recognition of a loss in
other expense.
The provision for income taxes as a percentage of income before income
taxes was 46.5% in 1998, 43.8% in 1997 and 44.0% in 1996. The higher effective
tax rate in 1998 compared to 1997 and 1996 is primarily attributable to
non-deductible goodwill amortization and non-deductible losses in foreign
operations.
The Bellcore Acquisition has resulted in a substantial growth in both
employee base and commercial revenues in the period since November 14, 1997.
Since the integration of Bellcore is still in its early stages, the growth and
debt brought on by the acquisition could still place a significant strain on the
Company's management, operational and financial resources if the Company does
not effectively manage the expansion of its operations. There can be no
assurance that the Company's systems, procedures or controls will be adequate to
support the integration of Bellcore. Any inability to effectively integrate
Bellcore or manage the growth could have a material adverse effect on the
Company's results of operations and financial condition. As of January 31, 1998,
the integration of Bellcore has not had an adverse effect on the Company. In
addition,
23
<PAGE> 25
Bellcore has historically derived substantially all of its revenues from the
RBOCs. In order for Bellcore to maintain or exceed historical revenue growth
rates, it will need to continue to increase its market share from its principal
customers, the RBOCs, or diversify with new customers.
As described in the Notes to Consolidated Financial Statements, during
1998, the Company adopted SFAS No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share ("EPS"). Dual
presentation of basic and diluted EPS for all periods presented is required.
Accordingly, EPS has been restated for 1997 and 1996 to conform with the new
standard. Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding. Diluted EPS is computed similar to basic EPS except that the
weighted average number of shares of common stock outstanding is increased to
include the effect of stock options and other stock awards granted to employees
under stock-based compensation plans that were outstanding during the period.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in the
financial statements and will be adopted by the Company in 1999. SFAS No. 131
establishes new standards for reporting operating segment information in annual
financial statements and reporting selected information about operating segments
in interim financial statements. The Company will adopt SFAS No. 131 for the
year ending January 31, 1999 and the interim period ending April 30, 2000. In
February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued and revises disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. The Company will adopt SFAS No. 132 in 1999. Since
these statements address disclosure and reporting issues, adoption of these
statements will not have a material effect on the Company's consolidated
financial position or results of operations.
The Company has commenced, and in some cases finalized, the evaluation of
computer systems to ensure its operations will not be adversely impacted by the
Year 2000 software problems. In 1996, the Company initiated a program to prepare
the Company's centralized internal computer systems and applications for the
Year 2000. The evaluation determined that certain portions of the Company's
software and systems required modification or replacement. Remediation efforts
have begun, with testing and validation to be completed in 1999. The costs
specifically associated with modifying internal-use software for the Year 2000
are expensed as incurred. The costs to modify internal-use software have not
had, nor are they anticipated to have, a material adverse effect on the
Company's consolidated financial position, results of operations, cash flows or
its ability to conduct business.
The Company has initiated communications with its critical service
suppliers and vendors to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own Year 2000 issues. There
can be no assurance that such failure would not have a material adverse effect
on the Company's systems, results of operations and ability to do business.
Furthermore, the Company has implemented an on-going program to assess its
exposure with respect to its products and services. As part of this program, the
Company is meeting with its significant customers and discussing opportunities
to perform additional services in order to resolve their Year 2000 issues. To
date, no matters have come to the attention of the Company's management that
would have a material adverse effect on its consolidated financial position,
results of operations, cash flows or its ability to conduct business.
The Company's assessment of the Year 2000 issue, including the costs of the
project and timing of completion are based on management's best estimates and
input from third party customers, service providers, suppliers and vendors.
These estimates were derived using numerous assumptions about future events,
including continued availability of certain resources, third party modifications
plans and other factors. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated.
While the Company does not believe that the Year 2000 matters discussed
above will have a material adverse effect on its consolidated financial
position, results of operations, cash flows and its ability to conduct business,
it is uncertain whether or to what extent the Company may be affected by such
matters.
24
<PAGE> 26
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
On August 20, 1997, the Company entered into two new credit facilities (the
"Facilities") totaling $900 million with a group of financial institutions which
provide for (i) a five-year reducing revolving credit facility of up to $700
million and (ii) a 364-day revolving credit facility of up to $200 million. The
Facilities were entered into to provide funding for the Bellcore Acquisition and
for general corporate purposes and replace the $105 million unsecured revolving
credit facility. In January 1998, upon issuance of public debt securities, the
Company terminated the 364-day revolving credit facility. The Company is subject
to certain financial covenants under the terms of the credit facility and was in
compliance with these covenants at the end of 1998.
The Company's primary sources of liquidity continue to be funds provided by
operations and the Five-Year revolving credit facility. In 1998, the issuance of
public debt securities was a source of liquidity for the Company. At January 31,
1998 and 1997, there were no borrowings outstanding under either the new or old
credit agreements, respectively, and cash and cash equivalents and short-term
investments totaled $230 million and $45 million, respectively. Cash flows
generated from operating activities were $351 million in 1998 compared to $111
million in 1997 and $53 million in 1996. Average revenue days outstanding
decreased to 68 in 1998 from 74 in 1997 and 1996. 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 $397 million in 1998 compared
to $57 million and $39 million in 1997 and 1996, respectively. The increase in
spending on investing activities in 1998 and 1997 is primarily attributable to
business acquisitions and the acquisition of capital assets. The primary use of
cash in 1998 was the Bellcore Acquisition. Although the Company used $340
million of cash for acquisitions of certain business assets, net of cash
acquired, in 1998, the Company also received proceeds of $48 million from the
sale of SAIT and other smaller business assets. The Company spent $23 million
for acquisitions of businesses in 1997 to complement the Company's capabilities
in the areas of commercial information technology, transportation and national
security. In 1996, $21 million was spent to acquire equity interests in
commercial and international businesses. The Company intends to continue to make
additional acquisitions and equity investments in the future. Capital
expenditures, excluding land and buildings, were $52 million, $38 million and
$31 million in 1998, 1997 and 1996, respectively, and are expected to be
approximately $78 million for 1999. Expenditures for land and buildings were $18
million, $5 million and $1 million in 1998, 1997 and 1996, respectively, and are
expected to be approximately $18 million for 1999.
The Company generated $191 million from financing activities in 1998
compared to a use of cash of $31 million and $19 million in 1997 and 1996,
respectively. In 1998, the primary sources of cash were the proceeds from
issuing public debt securities, proceeds from the initial public offering of NSI
common stock and proceeds from the sale of the Company's common stock. In 1997
and 1996, funds were utilized primarily for common stock repurchases and
payments on long-term debt. The increase in common stock repurchases in 1997
from 1996 was primarily attributable to increased repurchases of common stock
from the Company's Employee Stock Retirement Plan ("ESRP") in order for the ESRP
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. In
addition, acquisitions and equity investments in the future are expected to be
financed from operations and borrowing capacity as well as the issuance of
Company common stock.
EFFECTS OF INFLATION
Over half 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
25
<PAGE> 27
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.
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: a decrease in or
the failure to increase business with the U.S. Government; the ability of the
Company to effectively continue integrating Bellcore; the ability of Bellcore to
maintain or increase its market share with the RBOCs (Bellcore's principal
customers), or diversify with new customers; the ability of the Company to
continue to identify and consummate additional acquisitions; the ability of the
Company to competitively price its Technical Services and Products; the risk of
early termination of U.S. Government contracts; the risk of losses or reduced
profits on firm fixed-price contracts; a 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; the ability of the Company and third party customers, service
providers and suppliers to address the Year 2000 issue 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.
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 1998 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 1998
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.
26
<PAGE> 28
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 1998 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 1998 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
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
------- ----------------------
<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.
Incorporated by reference to Exhibit 3(b) to Registrant's
Annual Report on Form 10-K/A for the fiscal year ended
January 31, 1997 (the "1997 10-K").
10(a)* Registrant's Bonus Compensation Plan, as amended through
October 2, 1996.
10(b)* Registrant's 1992 Stock Option Plan, as amended through
October 2, 1996.
10(c)* Registrant's Stock Compensation Plan, as amended through
December 30, 1997.
10(d)* Registrant's Management Stock Compensation Plan, as amended
through December 30, 1997.
10(e)* 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.
10(f)* 1995 Stock Option Plan, as amended through October 2, 1996.
10(g)* Registrant's Keystaff Deferral Plan, as amended through
December 30, 1997.
10(h)* Registrant's Key Executive Stock Deferral Plan. Incorporated
by reference to Exhibit 4(s) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996.
10(i)* Form of Alumni Agreement. Incorporated by reference to
Exhibit 4(w) to the 1997 10-K.
10(j) Credit Agreement (multi-year facility) with Bank of America
NT&SA, Morgan Guaranty Trust Company, Citicorp USA, Inc. and
other financial institutions dated as of August 20, 1997.
Incorporated by reference to Exhibit 10(d) to the Form 10-Q
for the fiscal quarter ended July 31, 1997 ("July 1997
10-Q").
</TABLE>
* Executive Compensation Plans and Arrangements
27
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10(k)* Letter Agreement dated January 18, 1996 between Registrant
and W.A. Owens, as amended on March 30, 1998.
10(l)* Employment Agreement dated December 18, 1997 between
Registrant and R.C. Smith, as amended on February 2, 1998.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants
27 Financial Data Schedule.
28(a) Annual Report of the Registrant's 1995 Employee Stock
Purchase Plan for the plan year ended January 31, 1998.
28(b) Annual Report of the Registrant's Cash or Deferred
Arrangement for the plan year ended December 31, 1997.
28(c) Annual Report of the Registrant's subsidiary's (Syntonic
Technology, Inc. doing business as TransCore), TransCore
Retirement Savings Plan for the plan year ended December 31,
1997.
28(d) Annual Report of the Bell Communications Research Savings
and Security Plan for the plan year ended December 31, 1997.
28(e) Annual Report of the Bell Communications Research Savings
Plan for Salaried Employees for the plan year ended December
31, 1997.
</TABLE>
(b) REPORTS ON FORM 8-K IN THE FOURTH QUARTER OF THE FISCAL YEAR ENDED
JANUARY 31, 1998:
A Report on Form 8-K was filed on November 26, 1997. Disclosure was made
under Item 2 -- Acquisition or Disposition of Assets.
A Report on Form 8-K was filed on January 14, 1998. Disclosure was made
under Item 5 -- Other Events.
A Report on Form 8-K was filed on January 15, 1998. Disclosure was made
under Item 5 -- Other Events, and Item 7 -- Financial Statements and Exhibits.
* Executive Compensation Plans and Arrangements
28
<PAGE> 30
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.
Dated: April 10, 1998.
SCIENCE APPLICATIONS INTERNATIONAL
CORPORATION
(Registrant)
By /s/ J. R. BEYSTER
------------------------------------
J. R. Beyster
Chairman of the Board and
Chief Executive Officer
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> <C> <S>
/s/ J. R. BEYSTER Chairman of the Board and April 10, 1998
- -------------------------------------------------------- Principal Executive Officer
J. R. Beyster
/s/ W. A. ROPER, JR. Principal Financial Officer April 10, 1998
- --------------------------------------------------------
W. A. Roper, Jr.
/s/ P. N. PAVLICS Principal Accounting Officer April 10, 1998
- --------------------------------------------------------
P. N. Pavlics
/s/ D. P. ANDREWS Director April 10, 1998
- --------------------------------------------------------
D. P. Andrews
/s/ V. N. COOK Director April 10, 1998
- --------------------------------------------------------
V. N. Cook
/s/ W. H. DEMISCH Director April 10, 1998
- --------------------------------------------------------
W. H. Demisch
/s/ W. A. DOWNING Director April 10, 1998
- --------------------------------------------------------
W. A. Downing
/s/ J. E. GLANCY Director April 10, 1998
- --------------------------------------------------------
J. E. Glancy
/s/ B. R. INMAN Director April 10, 1998
- --------------------------------------------------------
B. R. Inman
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <C> <S>
/s/ A. K. JONES Director April 10, 1998
- --------------------------------------------------------
A. K. Jones
/s/ H. M. J. KRAEMER, JR. Director April 10, 1998
- --------------------------------------------------------
H. M. J. Kraemer, Jr.
/s/ W. M. LAYSON Director April 10, 1998
- --------------------------------------------------------
W. M. Layson
/s/ C. B. MALONE Director April 10, 1998
- --------------------------------------------------------
C. B. Malone
/s/ J. W. MCRARY Director April 10, 1998
- --------------------------------------------------------
J. W. McRary
/s/ S. D. ROCKWOOD Director April 10, 1998
- --------------------------------------------------------
S. D. Rockwood
Director
- --------------------------------------------------------
R. C. Smith
/s/ E. A. STRAKER Director April 10, 1998
- --------------------------------------------------------
E. A. Straker
/s/ M. E. TROUT Director April 10, 1998
- --------------------------------------------------------
M. E. Trout
/s/ J. P. WALKUSH Director April 10, 1998
- --------------------------------------------------------
J. P. Walkush
/s/ J. H. WARNER, JR. Director April 10, 1998
- --------------------------------------------------------
J. H. Warner, Jr.
/s/ J. A. WELCH Director April 10, 1998
- --------------------------------------------------------
J. A. Welch
/s/ J. B. WIESLER Director April 10, 1998
- --------------------------------------------------------
J. B. Wiesler
/s/ A. T. YOUNG Director April 10, 1998
- --------------------------------------------------------
A. T. Young
</TABLE>
30
<PAGE> 32
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, 1998.......................................... F-3
Consolidated Balance Sheet at January 31, 1998 and 1997..... F-4
Consolidated Statement of Stockholders' Equity for the three
years ended January 31, 1998.............................. F-5
Consolidated Statement of Cash Flows for the three years
ended January 31, 1998.................................... 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> 33
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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1998, 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 3, 1998
F-2
<PAGE> 34
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues............................................... $3,089,351 $2,402,224 $2,155,657
Costs and expenses:
Cost of revenues..................................... 2,623,339 2,094,447 1,875,183
Selling, general and administrative expenses......... 301,093 191,836 173,742
---------- ---------- ----------
Operating income..................................... 164,919 115,941 106,732
---------- ---------- ----------
Interest expense..................................... 11,682 4,925 4,529
Other (income) expense, net.......................... (15,864) (2,193) (111)
Minority interest in income of consolidated
subsidiaries...................................... 10,608
---------- ---------- ----------
Income before income taxes............................. 158,493 113,209 102,314
Provision for income taxes............................. 73,699 49,529 45,018
---------- ---------- ----------
Net income............................................. $ 84,794 $ 63,680 $ 57,296
========== ========== ==========
Earnings per share:
Basic................................................ $ 1.65 $ 1.30 $ 1.19
========== ========== ==========
Diluted.............................................. $ 1.55 $ 1.23 $ 1.14
========== ========== ==========
Common equivalent shares:
Basic................................................ 51,349 49,157 48,143
========== ========== ==========
Diluted.............................................. 54,806 51,738 50,285
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 35
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
JANUARY 31
------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 189,387 $ 45,279
Restricted cash........................................... 25,344 14,456
Receivables............................................... 810,385 562,950
Inventories............................................... 12,471 33,983
Prepaid expenses and other current assets................. 75,846 17,392
Deferred income taxes..................................... 62,367 37,155
---------- ----------
Total current assets.............................. 1,175,800 711,215
Property and equipment...................................... 288,282 89,027
Land and buildings.......................................... 195,534 96,768
Goodwill.................................................... 106,757 59,569
Other intangible assets..................................... 103,520
Prepaid pension assets...................................... 424,108
Other assets................................................ 121,233 55,883
---------- ----------
$2,415,234 $1,012,462
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 748,031 $ 273,481
Accrued payroll and employee benefits..................... 262,408 131,234
Income taxes payable...................................... 37,761 16,859
Notes payable and current portion of long-term debt....... 33,012 19,088
---------- ----------
Total current liabilities......................... 1,081,212 440,662
---------- ----------
Long-term debt.............................................. 145,958 15,227
Deferred income taxes....................................... 111,941
Other long-term liabilities................................. 313,677 29,114
Commitments and contingencies (Note N)......................
Minority interest in consolidated subsidiaries.............. 7,668
Stockholders' equity, per accompanying statement:
Class A Common Stock, $.01 par value...................... 519 480
Class B Common Stock, $.05 par value...................... 16 16
Additional paid-in capital................................ 538,760 304,658
Retained earnings......................................... 237,588 232,562
Other stockholders' equity................................ (22,105) (10,257)
---------- ----------
Total stockholders' equity........................ 754,778 527,459
---------- ----------
$2,415,234 $1,012,462
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 36
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 OTHER
AUTHORIZED AUTHORIZED ADDITIONAL STOCK-
--------------- --------------- PAID-IN RETAINED HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------ ------ ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
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)
Issuances of common stock............... 7,207 72 178,977
Repurchases of common stock............. (3,289) (33) (12) (22,489) (79,768)
Net unrealized loss on securities
available for sale.................... (3,691)
Income tax benefit from employee stock
transactions.......................... 16,950
Foreign currency translation
adjustment............................ (3,744)
Unearned stock compensation............. (4,413)
Sale of minority interest in
subsidiary............................ 60,664
Net income.............................. 84,794
------ ---- --- --- -------- -------- --------
Balance at January 31, 1998............... 51,931 $519 314 $16 $538,760 $237,588 $(22,105)
====== ==== === === ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 37
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------
1998 1997 1996
---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 84,794 $ 63,680 $ 57,296
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 69,860 50,359 35,380
Non-cash compensation................................... 31,051 22,654 13,224
Minority interest in income of consolidated
subsidiaries........................................... 10,524
Equity in income of unconsolidated affiliates........... (1,326) (2,253) (233)
Net (gain) on sales of certain business assets.......... (6,341)
Loss on disposal of property and equipment.............. 3,096 895 1,385
Income tax benefit from employee stock transactions..... 16,950 10,431 7,143
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables........................................... (25,159) (36,134) (71,908)
Inventories........................................... 7,262 8,111 (13,257)
Prepaid expenses and other current assets............. (10,852) (4,496) 2,029
Progress payments..................................... (465) (25,138) 10,660
Deferred income taxes................................. (56,772) (18,202) 1,583
Other assets.......................................... (45,930) (9,628) (4,816)
Accounts payable and accrued liabilities.............. 185,111 46,678 4,701
Accrued payroll and employee benefits................. 10,477 (8,188) 12,637
Income taxes payable.................................. 15,251 1,223 (2,774)
Other long-term liabilities........................... 63,073 10,751 (195)
---------- -------- --------
350,604 110,743 52,855
---------- -------- --------
Cash flows from investing activities:
Expenditures for property and equipment................... (52,450) (37,709) (30,704)
Expenditures for land and buildings....................... (17,633) (4,555) (1,233)
Acquisitions of certain business assets, net of cash
acquired................................................ (340,165) (23,151) 1,475
Purchase of debt securities available for sale............ (40,200)
Proceeds from sales of certain business assets............ 47,974
Proceeds from disposal of property and equipment.......... 5,192 727 332
Investments in affiliates................................. (21,367)
Proceeds from sale of debt securities available for
sale.................................................... 7,576 12,478
---------- -------- --------
(397,282) (57,112) (39,019)
---------- -------- --------
Cash flows from financing activities:
Proceeds from notes payable and issuance of long-term
debt.................................................... 108,993 3,729 1,856
Payments of notes payable and long-term debt.............. (17,943) (8,200) (6,397)
Principal payments on capital lease obligations........... (8,416) (967) (1,113)
Net proceeds from sale of minority interest in
subsidiary.............................................. 63,528
Sales of common stock..................................... 128,775 19,720 14,834
Repurchases of common stock............................... (83,526) (45,399) (28,454)
---------- -------- --------
191,411 (31,117) (19,274)
---------- -------- --------
Effect of exchange rate changes on cash................... (625)
----------
Increase (decrease) in cash and cash equivalents.......... 144,108 22,514 (5,438)
Cash and cash equivalents at beginning of year............ 45,279 22,765 28,203
---------- -------- --------
Cash and cash equivalents at end of year.................. $ 189,387 $ 45,279 $ 22,765
========== ======== ========
Supplemental schedule of non-cash investing and financing
activities:
Repurchases of common stock upon exercise of stock
options................................................. $ 18,551 $ 17,778 $ 13,505
========== ======== ========
Capital lease obligations for property and equipment...... $ 61,258 $ 38 $ 2,408
========== ======== ========
Long-term mortgage assumed upon purchase of land and
building................................................ $ 6,919
========
Fair value of assets acquired in acquisitions of certain
business assets......................................... $1,246,129 $ 41,881 $ 28,840
Cash paid in the acquisitions of certain business
assets.................................................. (467,902) (24,809) (328)
Issuance of common stock for assets acquired.............. (10,673)
---------- -------- --------
Liabilities assumed in acquisitions of certain business
assets.................................................. $ 778,227 $ 17,072 $ 17,839
========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 38
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- and wholly-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 and over which the Company exercises significant
influence are accounted for under the equity method. Other investments are
generally carried at cost. Outside investors' interest in the majority-owned
subsidiaries is reflected as minority interest.
Certain of the Company's majority- and wholly-owned subsidiaries have
fiscal years ending December 31. The financial position and results of
operations of these subsidiaries are included in the Company's consolidated
financial statements as of and for the year ended January 31, 1998. There were
no material intervening events since December 31, 1997 which would materially
affect the consolidated financial position or results of operations.
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. ("PDVSA"), to provide information technology
services in Latin America. Accordingly, the Company consolidated its 60%
majority interest in INTESA, whose fiscal year end is December 31, in the
consolidated financial statements for the year ended 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, which include cash and cash equivalents, short-term
investments, equity securities, long-term receivables and long-term debt, are
reasonable estimates of their related fair values. The carrying amount of cash
and cash equivalents and short-term investments approximates fair value because
of the short maturity of those instruments. The fair value of equity securities
are based upon quoted market prices. The fair value of long-term receivables is
estimated by discounting the expected future cash flows at interest rates
commensurate with the creditworthiness of customers and other third parties. The
fair value of long-term debt is estimated based on quoted market prices for
similar instruments and current rates offered to the Company for similar debt
with the same remaining maturities.
Contract revenues
The Company's revenues result from contract services performed for
commercial customers and 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 these 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. The Company
also derives revenues from software license fees, maintenance contracts and
registration services. Software license fees are
F-7
<PAGE> 39
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recognized when the software has been shipped and there are no significant
obligations remaining. Revenues from maintenance contracts are recognized over
the term of the respective contracts as maintenance services are provided.
Revenues from registration services are recognized on a straight-line basis over
the life of the registration term. 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 on U.S.
Government contracts, 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 1997. Contract revenues on U.S. Government contracts have been recorded
in amounts that are expected to be realized upon final settlement.
Cash and cash equivalents
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less. Of the $189,387,000 and $45,279,000 total cash
and cash equivalents at January 31, 1998 and 1997, respectively, $175,821,000
and $16,161,000, respectively, was invested in commercial paper, institutional
money market funds and time deposits.
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, 1998, the Company had $175,821,000
in debt securities classified as cash equivalents held to maturity, $40,200,000
of debt securities classified as available for sale which are included in other
current assets and $5,768,000 of equity securities classified as available for
sale which are included in other assets. As of January 31, 1997, the Company had
$16,161,000 in debt securities classified as cash equivalents held to maturity.
Gross unrealized losses on the Company's available for sale securities were
$3,691,000 as of January 31, 1998.
Restricted cash
The Company's majority-owned subsidiary Network Solutions, Inc. ("NSI") had
an agreement with the National Science Foundation ("NSF") which required NSI to
set aside 30% of the cash collections from domain name registrations to be
reinvested for the enhancement of the intellectual infrastructure of the
Internet. On March 12, 1998, effective April 1, 1998, the NSF amended the
agreement to eliminate this requirement and reduce domain name registration
fees. 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
F-8
<PAGE> 40
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Goodwill and other intangible assets
Goodwill represents the excess of the purchase cost over the fair value of
net assets acquired in an acquisition. Goodwill and other identifiable
intangible assets are amortized on a straight line method generally over three
to fifteen years. The carrying value of the Company's goodwill and other
intangible assets are 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 goodwill and other intangible assets amounted to $16,653,000,
$16,839,000 and $11,044,000 in 1998, 1997 and 1996, respectively. Accumulated
amortization was $60,523,000 and $43,870,000 at January 31, 1998 and 1997,
respectively.
During 1998 and 1997, there was evidence that events and changes in
circumstances made recovery of certain goodwill unlikely. It was estimated that
$2,878,000 and $6,154,000 of the carrying value of goodwill was impaired;
accordingly, those amounts were charged to income in 1998 and 1997,
respectively, and included in selling, general and administrative 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
Effective February 1, 1996, the Company adopted Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" and
elected 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. 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, are presented in Note L.
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. A general public market for the Company's
F-9
<PAGE> 41
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock does not exist. Periodic determinations of the price of the common
stock are made by the Board of Directors pursuant to a valuation process which
includes a stock price formula. Valuation input from an independent appraisal
firm is one of the factors considered by the Board of Directors in establishing
the stock price. The Board of Directors believes that the valuation process
results in a value which represents a fair market value for the Class A Common
Stock within a broad range of financial criteria. The Board of Directors
reserves the right to alter the formula and valuation process.
The Company adopted SFAS No. 128, "Earnings per Share," which establishes
standards for computing and presenting earnings per share ("EPS"). Dual
presentation of basic and diluted EPS for all periods presented is required.
Accordingly, EPS has been restated for 1997 and 1996 to conform with the new
standard (Note K). Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding. Diluted EPS is computed similar to basic EPS except that the
weighted average number of shares of common stock outstanding is increased to
include the effect of stock options and other stock awards granted to employees
under stock-based compensation plans that were outstanding during the period.
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, 1998, the Company had
approximately $8,359,000 of foreign currency forward exchange contracts in
British pounds sterling, French francs, German marks, Australian dollars and
Spanish pesetas outstanding with net deferred gains of $103,000.
In January 1997, the Company entered into forward treasury lock agreements
for a total of $200,000,000. Such agreements were entered into to manage
exposure to fluctuations in interest rates on an anticipated, probable issuance
of debt that was to be used to finance the acquisition of Bell Communications
Research, Inc. ("Bellcore"). The agreements terminated in January 1998 resulting
in losses. Due to changes in market conditions, an unexpected decline in
interest rates and availability of cash, in January 1998, the Company only
issued ten year fixed rate notes with a principal amount of $100,000,000.
Therefore, a loss of $9,047,000 was recorded as other expense upon termination
of the agreement and a loss of $9,356,000 was deferred, included in long-term
debt and is being amortized to interest expense over the life of the fixed rate
notes (Note J).
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents,
short-term investments, foreign currency forward exchange contracts and long-
term receivables.
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 principal customers are the Regional Bell Operating
Companies, various agencies of the U.S. Government and commercial customers
engaged in work for the U.S. government. The credit risk with the U.S.
Government is limited and the financial strength of the Regional Bell Operating
Companies limits the risk on those receivables.
F-10
<PAGE> 42
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 highly inflationary economies (INTESA and SAIC de Mexico) 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. Revenues, expenses, gains and losses are translated at the average
exchange rate for the period, and non-monetary assets and liabilities are
translated at historical rates. Resulting remeasurement gains or losses of these
foreign subsidiaries are recognized in the consolidated results of operations.
Recently issued accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in the
financial statements and will be adopted by the Company in 1999. SFAS No. 131
establishes new standards for reporting operating segment information in annual
financial statements and reporting selected information about operating segments
in interim financial statements. The Company will adopt SFAS No. 131 for the
year ending January 31, 1999 and the interim period ending April 30, 2000. In
February 1998, SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" was issued and revises disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. The Company will adopt SFAS No. 132 in 1999. Since
these statements address disclosure and reporting issues, adoption of the
statements will not have a material effect on the Company's consolidated
financial position or results of operations.
Issuance of stock by subsidiary
Gains or losses on issuances of unissued shares of stock by a subsidiary
are recorded directly to additional paid-in capital. On October 1, 1997, the
Company and its subsidiary NSI completed an initial public offering of 3,795,000
shares of NSI Class A Common Stock. The initial offering price was $18 per share
with net proceeds to the Company of $63,528,000 resulting in a gain of
$60,664,000 which was recorded as additional paid-in capital. Prior to the
offering, NSI was a wholly-owned subsidiary of the Company. Upon completion of
the offering, the Company has a 76% ownership interest in NSI, which represents
97% of the combined voting power of the outstanding common stock. NSI provides
Internet domain name registration services and Intranet consulting and network
design and implementation services.
Reclassifications
Certain amounts from previous years have been reclassified in the
consolidated financial statements to conform to the 1998 presentation.
NOTE B -- ACQUISITIONS AND INVESTMENTS IN AFFILIATES:
The carrying value of the Company's equity investments was $28,990,000 and
$28,979,000 at January 31, 1998 and 1997, respectively, which includes the
unamortized excess of the Company's investments over its equity in the
underlying net assets of $10,891,000 and $13,333,000, respectively.
The Company has made acquisitions of certain business assets and companies
which have been accounted for by the purchase method of accounting. The
operations of the companies and businesses
F-11
<PAGE> 43
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 allocated to
goodwill.
On November 14, 1997, the Company completed its acquisition of all the
issued and outstanding common stock of Bellcore, a global provider of
communications software, engineering, and professional services, pursuant to a
definitive acquisition agreement dated November 20, 1996, as amended. Bellcore
was previously owned by the Regional Bell Operating Companies ("RBOCs"), which
include Ameritech, Bell Atlantic, Bell South, NYNEX, Pacific Telesis Group, SBC
Communications, and US WEST or their affiliates. The aggregate purchase price
was approximately $467,133,000, including deferred transaction costs, and was
funded from the Company's available cash on hand and from bank borrowings,
including borrowings under the Company's revolving credit facilities (Note F).
The Company is in final negotiations and does not anticipate a material change
to the purchase price or assets acquired and liabilities assumed. The
acquisition is being accounted for under the purchase method of accounting and
the results of operations for Bellcore have been included in the financial
statements from the date of acquisition. The purchase price has been allocated
to the assets acquired and liabilities assumed based upon their estimated fair
values. The excess purchase price over the net book value of assets acquired has
been allocated to other identifiable intangible assets and goodwill, which will
be amortized on a straight-line basis over periods of three to fifteen years.
Following is a summary of the purchase price allocation to record assets
and liabilities at estimated fair value (dollar amounts in thousands):
<TABLE>
<S> <C>
Cash payment to Bellcore owners............................. $ 459,100
Deferred acquisition costs................................ 8,033
---------
Total purchase price...................................... 467,133
---------
Elimination of book value of net assets acquired:
Common Stock........................................... (128,199)
Accumulated deficit.................................... 45,645
Other stockholders' equity............................. (5,548)
---------
Net equity............................................. (88,102)
---------
Excess of purchase price over net book value........... $ 379,031
=========
Allocation of excess purchase price over net book value:
Amount assigned to property and equipment.............. $ 12,946
Amount assigned to land and buildings.................. 45,787
Amount assigned to excess pension plan assets at fair
value over the projected benefit obligation........... 398,235
Deferred tax assets -- non-current..................... 15,202
Deferred tax liabilities -- non-current................ (219,893)
Amount assigned to OPEB liabilities in excess of the
fair value of plan assets............................. (38,123)
Other adjustments, net of deferred taxes............... (3,159)
Amount assigned to identifiable intangible assets...... 105,900
Amount assigned to goodwill............................ 62,136
---------
$ 379,031
=========
</TABLE>
F-12
<PAGE> 44
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited pro forma summary information presents the
consolidated results of operations as if the acquisition had been completed at
the beginning of the periods presented and are not necessarily indicative of the
results of operations of the consolidated Company that might have occurred had
the acquisition been completed at the beginning of the periods specified, nor
are they necessarily indicative of future operating results. Up to the date of
closing, Bellcore derived its revenues principally from the RBOCs, who operated
in a regulatory environment, under service agreements which provided for
recovery of certain regulatory costs, including return on investment.
Furthermore, Bellcore's net income had been based on a statutory return on its
asset base while owned by the RBOCs. In addition to reflecting Bellcore's
results of operations while owned by the RBOCs, the pro forma amounts give
effect to certain adjustments, including the amortization of intangibles and
goodwill, additional depreciation expense, increased interest expense and income
tax effects.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------
1998 1997
----------- -----------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C>
Revenues............................................ $3,934,411 $3,412,075
========== ==========
Net income.......................................... $ 66,037 $ 28,595
========== ==========
Basic earnings per share............................ $ 1.29 $ .58
========== ==========
Diluted earnings per share.......................... $ 1.20 $ .55
========== ==========
</TABLE>
NOTE C -- BUSINESS SEGMENT INFORMATION:
The Company provides diversified professional and technical services
involving the application of scientific expertise, together with computer and
systems technology, to solve complex technical problems for a broad range of
government and commercial customers, both in the U.S. and abroad. 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 historically been classified into two broad
segments: Technical Services and Products. The Technical Services segment is
further classified between the National Security, Health, Environment, Energy,
Telecommunications, Commercial Information Technology and Other business areas.
The Telecommunications and Commercial Information Technology business areas were
reported in the Other business area in 1997 and 1996 and have been reclassified
to conform with the 1998 presentation. Other business areas include
transportation and space. In 1998, 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.
Technical Services consist of basic and applied research services; design
and development of computer software; systems integration; systems engineering;
technical operational and management support services; environmental
engineering; design and integration of network systems; technical engineering
and consulting support services; and development of new and existing systems,
polices, concepts and programs.
Products include custom designed and standard hardware and software
products such as automatic equipment identification technology, sensors and
nondestructive imaging instruments. These products typically incorporate Company
developed hardware and software, as well as hardware and software manufactured
by others.
F-13
<PAGE> 45
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Industry segment information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Contract revenues:
Technical Services --
National Security................. $1,148,150 $1,047,831 $ 967,797
Health............................ 361,773 333,294 304,225
Environment....................... 292,940 266,673 279,143
Energy............................ 106,880 107,690 136,610
Telecommunications................ 259,062 27,304 27,864
Commercial Information
Technology...................... 430,003 105,598 45,146
Other............................. 420,419 368,338 263,073
Products............................. 70,124 145,496 131,799
---------- ---------- ----------
Total revenues......................... $3,089,351 $2,402,224 $2,155,657
========== ========== ==========
Operating income (loss):
Technical Services --
National Security................. $ 48,396 $ 54,117 $ 48,720
Health............................ 28,773 23,948 18,612
Environment....................... 13,328 5,624 12,313
Energy............................ 5,026 6,092 7,174
Telecommunications................ 29,223 3,213 2,087
Commercial Information
Technology...................... 28,284 (6,406) 194
Other............................. 13,247 21,012 11,631
Products............................. (1,358) 8,341 6,001
---------- ---------- ----------
Operating income....................... $ 164,919 $ 115,941 $ 106,732
========== ========== ==========
Identifiable assets:
Technical Services --
National Security................. $ 286,639 $ 218,415 $ 212,376
Health............................ 94,606 146,307 118,456
Environment....................... 63,300 60,659 71,130
Energy............................ 33,562 23,648 31,007
Telecommunications................ 1,013,010 3,026 5,887
Commercial Information
Technology...................... 391,038 116,894 18,524
Other............................. 133,104 114,126 83,082
Products............................. 32,133 55,195 58,632
---------- ---------- ----------
2,047,392 738,270 599,094
Corporate and other assets............. 367,842 274,192 260,196
---------- ---------- ----------
Total assets........................... $2,415,234 $1,012,462 $ 859,290
========== ========== ==========
</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.
Certain wholly-owned and majority-owned subsidiaries operate in a particular
industry segment, and therefore, all of their assets are identifiable to that
particular industry segment. Identifiable assets of certain other operations
F-14
<PAGE> 46
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
consist of receivables, inventories and intangible assets. All other assets of
these operations 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 certain industry segments for similar
reasons.
During 1998, 1997 and 1996, approximately 66%, 79% and 83%, 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. In 1996, approximately 10% of the Company's consolidated
revenues were derived from one U.S. Government contract in the Health business
area, which was 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 1998 and 1997.
Revenues, operating income and identifiable assets from international
subsidiaries were $312,412,000, $14,888,000 and $245,096,000, respectively, in
1998. Such amounts were not material in 1997 and 1996. Revenues, operating
income and identifiable assets from domestic operations were $2,776,939,000,
$150,031,000 and $1,802,296,000 in 1998. Corporate and other assets were
$367,842,000 in 1998.
NOTE D -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
JANUARY 31
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Contracts-in-process, less progress payments of $315 at
January 31, 1997........................................ $ 5,095 $ 13,161
Raw materials............................................. 7,376 20,822
-------- --------
$ 12,471 $ 33,983
======== ========
Prepaid expenses and other current assets:
Prepaid expenses.......................................... $ 21,916 $ 10,936
Short-term investments.................................... 40,200
Other..................................................... 13,730 6,456
-------- --------
$ 75,846 $ 17,392
======== ========
Property and equipment at cost:
Computers and other equipment............................. $335,674 $182,160
Office furniture and fixtures............................. 30,911 20,291
Leasehold improvements.................................... 59,234 17,064
-------- --------
425,819 219,515
Less accumulated depreciation and amortization............ 137,537 130,488
-------- --------
$288,282 $ 89,027
======== ========
Land and buildings at cost:
Buildings and improvements................................ $167,437 $ 87,235
Land...................................................... 45,259 22,275
Land held for future use.................................. 702 702
-------- --------
213,398 110,212
Less accumulated depreciation and amortization............ 17,864 13,444
-------- --------
$195,534 $ 96,768
======== ========
Other assets:
Investment in affiliates.................................. $ 28,990 $ 28,979
Related party receivable (Note H)......................... 51,135
Other long-term receivables............................... 31,765
Other..................................................... 9,343 26,904
-------- --------
$121,233 $ 55,883
======== ========
</TABLE>
F-15
<PAGE> 47
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
JANUARY 31
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable and accrued liabilities:
Accounts payable.......................................... $178,315 $112,560
Other accrued liabilities................................. 264,364 94,578
Collections in excess of revenues on uncompleted
contracts............................................... 305,352 66,343
-------- --------
$748,031 $273,481
======== ========
Accrued payroll and employee benefits:
Salaries, bonuses and amounts withheld from employees'
compensation............................................ $154,244 $ 63,018
Accrued vacation.......................................... 82,922 52,138
Accrued contributions to employee benefit plans........... 25,242 16,078
-------- --------
$262,408 $131,234
======== ========
Other long-term liabilities:
Other postretirement benefits............................. $124,423
Accrued pension liability................................. 40,954
Accrued other employee benefits........................... 22,062
Deferred revenue.......................................... 26,897 $ 9,439
Deferred compensation..................................... 23,245 19,664
Other..................................................... 76,096 11
-------- --------
$313,677 $ 29,114
======== ========
</TABLE>
NOTE E -- RECEIVABLES:
Receivables consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
--------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Receivables, primarily U.S. Government and RBOCs, less
allowance for doubtful accounts of $36,184 and $18,048 at
January 31, 1998 and 1997, respectively:
Billed...................................................... $652,644 $435,864
Unbilled, less progress payments of $17,141 and $17,291 at
January 31, 1998 and 1997, respectively................... 132,349 101,326
Contract retentions......................................... 25,392 25,760
-------- --------
$810,385 $562,950
======== ========
</TABLE>
Unbilled receivables at January 31, 1998 and 1997 include $15,247,000 and
$13,976,000, 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. These amounts have been included
in Technical Services revenues. 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.
Contract retentions are billed when the Company has negotiated final indirect
rates with the U.S. Government and, once billed, are subject to audit and
approval by outside third parties. Consequently, the timing of collection of
retention balances is outside the Company's control. Based on the Company's
historical experience, the majority of the retention balance is expected to be
collected beyond one year.
NOTE F -- REVOLVING CREDIT FACILITIES:
In August 1997, the Company entered into two new credit facilities
("Facilities") totaling $900,000,000 with a group of financial institutions
which provide for (i) a five-year reducing revolving credit facility of up to
$700,000,000 and (ii) a 364-day revolving credit facility of up to $200,000,000.
These Facilities were entered
F-16
<PAGE> 48
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
into to provide funding for the acquisition of Bellcore and for general
corporate purposes and replaced the $105,000,000 unsecured revolving credit loan
agreements. In January 1998, upon issuance of long-term notes (Note J), the
Company terminated the 364-day revolving credit facility. Borrowings under the
remaining $700,000,000 facility ("Credit Facility") are unsecured and bear
interest, at the Company's option, at various rates based on the base rate, bid
rate or on margins over the CD rate or LIBOR. The Company pays a facility fee on
the total commitment amount. Certain financial covenants required by the Credit
Facility, such as, requiring the Company to maintain certain levels of net worth
and an interest coverage ratio, as well as limitation on indebtedness have been
maintained as of January 31, 1998.
There were no balances outstanding under any credit agreements at January
31, 1998 and 1997. As of January 31, 1998, the entire $700,000,000 was available
under the most restrictive debt covenants of the credit facility. The maximum
amounts outstanding were $320,000,000, $31,000,000 and $43,000,000 in 1998, 1997
and 1996, respectively. The average amount outstanding was $38,228,000,
$2,299,000 and $9,380,000 during 1998, 1997 and 1996, respectively. The weighted
average interest rate in 1998, 1997 and 1996 was 6.0%, 5.9% and 6.4%
respectively, based upon average daily balances.
NOTE G -- EMPLOYEE BENEFIT PLANS:
The Company has 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 $18,929,000, $10,167,000 and $23,355,000
for 1998, 1997 and 1996, respectively.
The Company has an Employee Stock Retirement Plan ("ESRP"), formerly known
as the Employee Stock Ownership Plan, in which eligible employees participate.
Cash contributions to the ESRP 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 ESRP are the same as the PSRP. Shares of Company
common stock distributed from the ESRP 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, 1998, the ESRP held 15,681,000 shares of
Class A Common Stock and 30,000 shares of Class B Common Stock with a combined
fair value of $619,467,000. Contributions charged to income under the Plan were
$22,072,000, $29,492,000 and $10,259,000 for 1998, 1997 and 1996, 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 $14,454,000, $9,567,000 and $11,535,000
were charged to income in 1998, 1997 and 1996, 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.
In connection with the acquisition of Bellcore, the Company also sponsors
two contributory savings plans which allow eligible Bellcore employees to defer
a portion of their pre-tax income through contributions and contribute a portion
of their income on an after-tax basis. Such deferrals are fully vested, are not
taxable to the participant until distributed upon termination, retirement,
permanent disability or death and may be matched by the Company. The Company's
matching contributions charged to income were $2,800,000 in 1998.
The Company has two principal bonus compensation plans, the Bonus
Compensation Plan and the Success Sharing Plan ("SSP"), which provide for
bonuses to reward outstanding performance. The SSP was assumed in connection
with the acquisition of Bellcore in 1998. Bonuses are paid in the form of cash,
fully
F-17
<PAGE> 49
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
vested shares of Class A Common Stock or vesting shares of Class A Common Stock.
Awards of vesting shares of Class A common stock vest at the rate of 20%, 20%,
20% and 40% after one, two, three and four years, respectively. The amounts
charged to income under these plans were $49,587,000, $32,359,000 and
$25,868,000 for 1998, 1997 and 1996, respectively.
The Company has a Stock Compensation Plan and 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 which is included in stockholders' equity. The unearned
amounts are amortized to expense over the vesting period. The amounts charged to
income under these plans were $1,688,000, $1,282,000 and $686,000 for 1998, 1997
and 1996, respectively.
The Company also has an Employee Stock Purchase Plan ("ESPP") which allows
eligible employees to purchase shares of the Company's Class A Common Stock,
with the Company contributing currently 10% of the existing fair market value.
There are no charges to income under this plan. However, the proforma effect on
net income and earnings per share of compensation expense under SFAS No. 123,
"Accounting for Stock-Based Compensation" has been disclosed in Note L.
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 (7.0% in 1998). Deferred balances will
generally be paid upon the later of the attainment of age 65, ten years of plan
participation or retirement, unless participants obtain approval for 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.
NOTE H -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
In connection with the acquisition of Bellcore, the Company assumed assets
and liabilities related to two noncontributory defined benefit pensions plans
covering eligible management and support staff employees of Bellcore. The
Company accounts for these benefit plans in accordance with SFAS No. 87,
"Employers' Accounting for Pensions" ("SFAS No. 87"). Benefits are based on a
stated percentage of final average pay formula for the management plan and a
flat-dollar amount per years of service for the support staff plan. All of the
assets of the plans, which are primarily equity and fixed income securities, are
held in a master trust administered by the Company. In general, the Company's
policy is to fund these plans based on legal requirements, tax considerations
and investment opportunities.
F-18
<PAGE> 50
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net pension income for the two plans consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Service cost................................................ $ 5,183
Interest cost on projected benefit obligation............... 14,753
Return on plan assets....................................... (60,084)
Net amortization and deferral............................... 33,387
Other....................................................... 63
-----------
Net pension income.......................................... $ (6,698)
===========
</TABLE>
The following sets forth the plans' funded status and amounts recorded in
the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
JANUARY 31, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$779,669.................................................. $ 867,512
===========
Projected benefit obligation................................ (1,019,628)
Plan assets at fair value................................... 1,474,418
-----------
Plan assets in excess of projected benefit obligation....... 454,790
Unrecognized net gain....................................... (30,682)
-----------
Prepaid pension assets...................................... $ 424,108
===========
</TABLE>
The assumptions used in determining the actuarial present value of the
projected benefit obligation were as follows: 5% graded weighted average annual
rate of increase in compensation levels, 7% discount rate and 9% rate of return
on assets.
In addition to assuming the assets and liabilities of the Bellcore pension
plans, the Company also assumed assets and liabilities for postretirement health
and life insurance benefits for retired U.S. employees and their dependents. The
Company accounts for these benefit plans in accordance with SFAS No. 106
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS
No. 106"). Plan assets are held in two Voluntary Employee Benefit Association
trusts. In general, the Company's policy is to annually contribute to the trusts
an amount determined by management, limited in part by tax limitations.
Net postretirement benefits expense for the plans consisted of the
following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998
----------------------------------
HEALTH LIFE INSURANCE TOTAL
------ --------------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Future service cost............................... $ 744 $ 175 $ 919
Interest cost..................................... 2,066 499 2,565
Return on plan assets............................. (555) (1,830) (2,385)
Net amortization and deferral..................... 414 1,029 1,443
------ ------- -------
Net postretirement benefits expense............... $2,669 $ (127) $ 2,542
====== ======= =======
</TABLE>
F-19
<PAGE> 51
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the plans' funded status and amounts recorded in
the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
JANUARY 31, 1998
--------------------------------------
HEALTH LIFE INSURANCE TOTAL
--------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation
Retirees......................................... $ (63,720) $(17,520) $ (81,240)
Other fully eligible participants................ (4,080) (120) (4,200)
Other active participants........................ (74,696) (16,775) (91,471)
--------- -------- ---------
(142,496) (34,415) (176,911)
Plan assets at fair value.......................... 12,489 44,243 56,732
--------- -------- ---------
Plan assets less than accumulated benefit
obligation....................................... (130,007) 9,828 (120,179)
Unrecognized net gain.............................. (1,219) (1,003) (2,222)
--------- -------- ---------
Accrued postretirement benefits.................... $(131,226) $ 8,825 $(122,401)
========= ======== =========
</TABLE>
The assumptions used in determining the actuarial present value of
projected benefit obligation were as follows: 5% graded weighted average annual
rate of increase in compensation levels, 7% discount rate and 8.2% long-term
weighted average rate of return on assets. The assumed health care trend rates
used to measure the expected cost of benefits covered by the plan was 8% in
1998. This rate is assumed to decrease 1/2% a year to 5% in 2004 and remain at
that level thereafter. A one-percentage point increase in the assumed health
care trend rates would increase the accumulated postretirement benefit
obligations by $22,100,000 and the total of the service and interest cost
components of net postretirement benefits expense by $500,000.
On January 2, 1997, approximately 1,500 employees transferred from PDVSA to
INTESA. Under Venezuelan law, INTESA assumed the existing employee benefit
plans, including a defined benefit pension plan. Under the terms of the joint
venture agreement, PDVSA agreed to fund the projected benefit obligation of the
pension plan and the accumulated postretirement benefit obligation of the
postretirement benefit plans over 10 years. The obligation of PDVSA to fund
these benefits has been reflected as a related party receivable and included in
other assets in the Company's consolidated balance sheet. The plans are
accounted for in accordance with the requirements of SFAS No. 87 and SFAS No.
106.
Benefits are based upon years of service and compensation during the twelve
months of accredited service earned immediately before retirement. All of the
assets of the pension plan, receivable and cash, are not currently held in a
trust. PDVSA has agreed to fund this obligation by December 31, 2006 either
through direct payments to INTESA or direct contributions to a trust.
Net pension expense consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31,
1998
-----------
(IN
THOUSANDS)
<S> <C>
Service cost................................................ $ 3,308
Interest cost on projected benefit obligation............... 12,953
-------
Pension expense............................................. $16,261
=======
</TABLE>
F-20
<PAGE> 52
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following sets forth the plan's funded status and amounts recorded in
the Company's consolidated balance sheet:
<TABLE>
<CAPTION>
JANUARY 31,
1998
-----------
(IN
THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$9,185.................................................... $(23,352)
Projected compensation increases............................ (30,346)
--------
Projected benefit obligation................................ (53,698)
Plan assets at fair value...................................
--------
Projected benefit obligation in excess of plan assets....... (53,698)
Other....................................................... (34)
Unrecognized prior service cost............................. 1,999
Unrecognized transition asset............................... 6,150
--------
Accrued pension liability................................... $(45,583)
========
</TABLE>
The assumptions used in determining the actuarial present value of the
projected benefit obligation were as follows: increase in future compensation
levels of 7%, weighted-average discount rate of 10% and rate of return on assets
of 12%.
In addition to the pension benefits described above, certain postretirement
benefits were also transferred to INTESA for health and life insurance benefits
for the PDVSA employees who transferred to INTESA. Eligibility for the plans and
participant cost sharing is dependent upon the participant's age at retirement,
years of service and retirement date. The Company accounts for these benefit
plans in accordance with SFAS No. 106. The accrued postretirement benefits
liability and net postretirement benefits expense were $2,022,000 and $318,000,
respectively, as of and for the year ended January 31, 1998.
NOTE I -- INCOME TAXES:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------
1998 1997 1996
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $ 87,755 $ 56,258 $36,281
State............................................. 21,097 13,374 8,693
Foreign........................................... 8,397 767 347
Deferred:
Federal........................................... (35,880) (17,113) (158)
State............................................. (6,641) (3,718) (82)
Foreign........................................... (1,029) (39) (63)
-------- -------- -------
$ 73,699 $ 49,529 $45,018
======== ======== =======
</TABLE>
F-21
<PAGE> 53
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
---------------------
1998 1997
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Income recognition:
Contractually billable method............................. $ 75,023 $ 25,787
Completed contract method................................. 2,118 2,165
Accrued vacation pay........................................ 24,241 18,872
Deferred compensation....................................... 14,743 9,511
Vesting stock bonuses....................................... 11,539 7,782
Accrued liabilities......................................... 7,079 5
State taxes................................................. 8,538
Other....................................................... 4,947 5,433
--------- --------
Total deferred tax assets......................... 148,228 69,555
--------- --------
Employee benefit plan contributions......................... (125,653) (9,581)
Depreciation and amortization............................... (61,942) (2,390)
Foreign Earnings............................................ (7,450) (181)
Other....................................................... (2,757) (2,478)
--------- --------
Total deferred tax liabilities.................... (197,802) (14,630)
--------- --------
Net deferred tax asset (liability).......................... $ (49,574) $ 54,925
========= ========
</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
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amount computed at statutory rate..................... $55,472 $39,623 $35,810
State income taxes, net of federal tax benefit........ 9,396 6,276 5,597
Nondeductible meals and entertainment................. 3,143 2,567 2,409
Losses of foreign subsidiaries........................ 3,113 987 305
Revision of prior years' tax estimates................ (589) (1,875) (371)
Other................................................. 3,164 1,951 1,268
------- ------- -------
$73,699 $49,529 $45,018
======= ======= =======
</TABLE>
Other assets include deferred income taxes of $17,770,000 at January 31,
1997. Income taxes paid in 1998, 1997 and 1996 amounted to $82,905,000,
$59,196,000 and $32,785,000, respectively.
F-22
<PAGE> 54
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J -- LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
6.75% Notes payable......................................... $ 89,800
Capital lease obligations................................... 55,897 $ 2,516
Mortgages payable collateralized by real property........... 6,830 19,214
Other notes payable......................................... 26,443 12,585
-------- -------
178,970 34,315
Less current portion........................................ 33,012 19,088
-------- -------
$145,958 $15,227
======== =======
</TABLE>
In January 1998, the Company issued $100,000,000 of 6.75% notes ("6.75%
Notes") under a shelf registration statement filed with the Securities and
Exchange Commission. The 6.75% Notes are due February 1, 2008 with interest
payable semi-annually beginning August 1, 1998 and were issued with a nominal
discount. The Company used the proceeds to repay certain short-term
indebtedness, including obligations assumed in connection with the acquisition
of Bellcore and for general corporate purposes. The Company amortizes the note
discount, underwriter's fees and commissions and the loss on the forward
treasury lock agreement (Note A) to interest expense which results in an
effective interest rate of 8.3% over the term of the 6.75% Notes. The Company is
subject to certain restrictions such as limitations on liens, on sale and
leaseback transactions and on consolidation, merger, and sale of assets. As of
January 31, 1998, the Company was in compliance with the restrictions.
During 1997, the Company assumed a $6,919,000 mortgage note in connection
with the purchase of land and a building. Terms of the note include quarterly
payments of principal and interest until December 2016. Interest is adjusted
annually and was 6.8% in 1998. Additionally, the Company has various other notes
payable with interest rates from 4.3% to 8.0% that are due over the next eleven
years.
Maturities of long-term debt, excluding capital lease obligations, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 (IN THOUSANDS)
---------------------- --------------
<S> <C>
1999........................................................ $ 13,502
2000........................................................ 12,043
2001........................................................ 300
2002........................................................ 324
2003........................................................ 276
2004 and after.............................................. 96,628
--------
$123,073
========
</TABLE>
F-23
<PAGE> 55
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- EARNINGS PER SHARE:
A summary of the elements included in the computation of basic and diluted
EPS is as follows (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
---------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------------------- -------------------------------
PER-SHARE PER-SHARE PER-SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- ------ --------- ---------- ------ --------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income........... $84,794 $63,680 $57,296
Basic EPS............ 51,349 $1.65 49,157 $1.30 48,143 $1.19
===== ===== =====
Dilutive Securities:
Stock options...... 3,412 2,498 2,083
Other stock
awards........... 45 83 59
------ ------ ------
Diluted EPS.......... 54,806 $1.55 51,738 $1.23 50,285 $1.14
====== ===== ====== ===== ====== =====
</TABLE>
For 1998, 1997 and 1996, 22,000, 4,000 and 7,000 options outstanding were
not included in the computation of diluted EPS because the exercise price was
greater than the average market price of the common shares and their effect
would be antidilutive.
NOTE L -- COMMON STOCK AND OPTIONS:
The Company has options outstanding under two stock option plans, the 1995
Stock Option Plan ("1995 Plan") and the 1992 Stock Option Plan ("1992 Plan").
Under the 1995 Plan and 1992 Plan, 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 under these two plans generally become exercisable 20%,
20%, 20%, and 40% after one, two, three and four years. No options have been
granted under the 1992 Plan after July 31, 1995, the date the 1992 plan
terminated. The Company makes no charge to income in connection with these
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 1998, 1997 and
1996 and for shares issued under the ESPP in 1998, consistent with the
methodology prescribed by SFAS No. 123, net income in 1998, 1997 and 1996 would
have been reduced by $10,328,000, $4,797,000 and $2,273,000, respectively. Basic
earnings per share would have been reduced by $.20, $.10 and $.05 per share in
1998, 1997 and 1996, respectively, and diluted earnings per share would have
been reduced by $.17, $.08 and $.04 per share in 1998, 1997 and 1996,
respectively. These amounts were determined using weighted-average per share
fair values of options granted in 1998, 1997 and 1996 of $7.88, $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 1998, 1997 and 1996; no dividend yield, no volatility, risk free
interest rates ranging from 5.3% to 9.3% 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-24
<PAGE> 56
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, 1998, 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, 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
Options granted.................... 4,647 $29.75
Options canceled................... (629) $19.22
Options exercised.................. (2,619) $12.26
------
January 31, 1998..................... 14,228 $20.80 4,380
======
</TABLE>
As of January 31, 1998, 17,764,000 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 441,000 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 fair market value at the date such shares are
purchased or options are granted.
A summary of options outstanding as of January 31, 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
RANGE OF OPTIONS AVERAGE REMAINING OPTIONS WEIGHTED-AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- -------------- ---------------- ----------- ----------------
(OPTIONS OUTSTANDING AND EXERCISABLE, IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
$12.01 to $13.12..... 1,359 $12.37 .5 1,359 $12.37
$14.19 to $15.07..... 2,344 $14.38 1.4 1,338 $14.38
$15.72 to $18.27..... 2,794 $16.33 2.4 1,066 $16.34
$19.33 to $22.83..... 3,226 $20.27 3.4 617 $20.29
$25.96 to $39.13..... 4,505 $29.82 4.6
------ -----
14,228 4,380
====== =====
</TABLE>
NOTE M -- LEASES:
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 operating leases. Rental expenses for facilities and
equipment totaled $90,012,000, $68,334,000 and $63,282,000 in 1998, 1997 and
1996, respectively.
F-25
<PAGE> 57
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a seven year operating lease for a general purpose office
building, with an option 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 to an unrelated buyer are below specified amounts. The maximum
supplemental rental payment which could be required is $28,809,000. On February
2, 1998, the Company entered into an operating lease for land and general
purpose office facilities with an initial term of five and one-half years and an
option for the Company to purchase the property. 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 property to an unrelated buyer are
below specified amounts. The maximum supplemental rental payment which could be
required is $43,040,000.
Assets acquired under capital leases and included in property and
equipment, and land and buildings consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
-------------------
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Computers and other equipment............................... $ 65,016 $ 2,370
Office furniture and fixtures............................... 777 109
Buildings and improvements.................................. 1,760 1,760
-------- -------
67,553 4,239
Less accumulated amortization............................... (13,384) (2,272)
-------- -------
$ 54,169 $ 1,967
======== =======
</TABLE>
Minimum rental commitments, primarily for facilities, under all
non-cancelable operating leases and capital leases in effect at January 31,
1998, as well as the operating lease entered into on February 2, 1998, are
payable as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 CAPITAL OPERATING
---------------------- -------- ---------
<S> <C> <C>
1999........................................................ $ 28,215 $ 73,025
2000........................................................ 25,506 56,951
2001........................................................ 16,613 43,122
2002........................................................ 813 34,779
2003........................................................ 28,902
2004 and after.............................................. 30,127
-------- --------
Total minimum lease payments................................ 71,147 $266,906
========
Amount representing interest................................ (15,250)
--------
Present value of net minimum capital lease payments......... 55,897
Current portion............................................. (19,510)
--------
Long-term obligations under capital leases at January 31,
1998...................................................... $ 36,387
========
</TABLE>
The Company's joint venture, INTESA, had capital lease obligations totaling
$49,951,000, of which $16,432,000 was classified as current portion of long-term
debt as of January 31, 1998. These capital lease obligations of the joint
venture are non-recourse debt to the Company.
NOTE N -- COMMITMENTS AND CONTINGENCIES:
Other commitments at January 31, 1998 include outstanding letters of credit
aggregating $27,930,000, principally related to guarantees on contracts with
commercial and foreign customers, and outstanding surety bonds aggregating
$124,419,000, principally related to performance and payment type bonds.
F-26
<PAGE> 58
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 O -- SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Charges to costs and expenses for depreciation and amortization of
buildings, property and equipment and capital leases were $52,021,000,
$31,790,000 and $25,956,000 for 1998, 1997 and 1996, respectively.
The Company expensed $23,202,000, $11,145,000 and $10,258,000 of
independent research and development costs during 1998, 1997 and 1996,
respectively.
Total interest paid in 1998, 1997 and 1996 amounted to $8,786,000,
$3,495,000 and $2,746,000, respectively.
The components of other (income) expense, net, in the accompanying
consolidated statement of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income.................................... $(12,752) $(1,453) $(1,288)
Loss on treasury lock agreement.................... 9,047
Gain on sale of certain business assets............ (6,341)
Equity in income of unconsolidated affiliates...... (1,326) (2,253) (233)
Other (income) expense, net........................ (4,492) 1,513 1,410
-------- ------- -------
$(15,864) $(2,193) $ (111)
======== ======= =======
</TABLE>
F-27
<PAGE> 1
EXHIBIT 10.A
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1984 BONUS COMPENSATION PLAN
SECTION I
PURPOSE
1.01 Purpose. The purpose of the 1984 Bonus Compensation Plan (the "Plan")
is to further the success of the Company by providing special
financial rewards in addition to regular salaries to those officers,
directors, and employees of the Company and its subsidiaries most
responsible for the continued success of the Company.
SECTION II
DEFINITIONS
2.01 Unless otherwise required by the context, the terms used in the Plan
shall have the meanings set forth in this Section II.
2.02 Annual Salary. "Annual Salary" means an officer's, director's, or
employee's total wages (including paid absences) during the
Performance Year, exclusive of any bonus or other fringe benefits that
such person may receive.
2.03 Board of Directors. "Board of Directors" means the Board of Directors
of the Company.
2.04 Bonus Compensation Rate. "Bonus Compensation Rate" means the Bonus
Compensation Rate negotiated with the Federal Government as an element
of the Company's Fringe Rate.
2.05 Committee. "Committee" means the Bonus Compensation Committee of the
Board of Directors of the Company as referred to in Section IX of the
Plan.
2.06 Common Stock. "Common Stock" means the common stock, $.05 par value,
of the Company, or in the event the common stock of the Company shall
consist of more than one class, then it shall mean the class of such
common stock as shall be designated by the Board of Directors.
1
<PAGE> 2
2.07 Company. "Company" shall mean Science Applications International
Corporation and any Subsidiary of Science Applications International
Corporation which shall be designated from time to time by the Board
of Directors or the Committee as being eligible to participate in the
Plan.
2.08 Eligible Compensation. "Eligible Compensation" means the total annual
salaries of all officers, directors and employees of the Company and
its subsidiaries.
2.09 Fiscal Year. "Fiscal Year" shall mean the fiscal year of the Company.
2.10 Fringe Rate. "Fringe Rate" means the rate which the Company shall be
entitled to charge for employee fringe benefits under contracts with
the Federal Government as such rate shall be negotiated from time to
time.
2.11 Group. "Group" means the major operating groups of the Company as such
shall be designated by the Company's management from time to time.
2.12 Group Bonus Fund. "Group Bonus Fund" means the aggregate amount which
may be allocated to any particular Group for the payment of bonuses
under the Plan with regard to any Performance Year.
2.13 Group Labor Dollars. "Group Labor Dollars" means aggregate base
salaries paid by any Group, whether direct or indirect, exclusive of
amounts attributable to fringe benefits but before reduction of any
amount on account of (i) any withholding, such as income taxes or
social security taxes, (ii) health and welfare payments, or (iii) any
moving and relocation reimbursements.
2.14 Group Planned Financial Performance. "Group Planned Financial
Performance" means the planned performance for any Group with regard
to any Performance Year as set forth in the approved annual plan for
that Group.
2.15 Group Planned Profit Rate. "Group Planned Profit Rate" is a rate
determined by dividing the Group Profit set forth in the Group Planned
Financial Performance by the Group Revenue set forth in the Group
Planned Financial Performance.
2.16 Group Profit. "Group Profit" means the profit before tax attributable
to any Group which shall be determined in accordance with the
Company's accounting practices and shall be Net Fees attributable to
that Group less Unallowables, interest charges attributable to that
Group and net unfavorable Rate Variances. In the case of net favorable
Rate Variances, the amount of such variances shall be added to Net
Fees for the Group. Rates for which the Rate Variances shall be
computed shall include the Group's overhead expenses, bid and proposal
expenses, general and administrative expenses attributable to the
Group and sick leave. Rate Variances shall be calculated
2
<PAGE> 3
from the rates approved in the Group's annual plan. Other income or
expenses attributable to the Group shall be added or deducted as
appropriate.
2.17 Group Revenues. "Group Revenues" means revenues attributable to each
Group as determined in accordance with the Company's accounting
practices.
2.18 Net Fees. "Net Fees" means negotiated contract fees adjusted for
contract overruns and underruns.
2.19 Operating Committee. "Operating Committee" shall mean the Operating
Committee of the Board of Directors.
2.20 Participant. A "Participant" shall mean each such person who is
selected to receive a bonus under the Plan. Every officer, director or
employee of the Company or its subsidiaries shall be eligible to
receive a bonus under the Plan.
2.21 Performance Year. "Performance Year" means the Fiscal Year during
which the performance of the Company or a Group is used to determine
the amounts of awards which may be available under the Plan.
2.22 President. "President" means the person serving in the office of the
president of the Company if the Board of Directors has not designated
another officer to be the chief executive officer of the Company. If,
however, the Board of Directors shall have designated another officer
of the Company to be the chief executive officer of the Company, then
the person designated as such chief executive officer shall be deemed
to be the President for the purposes of the Plan.
2.23 President's Bonus Fund. "President's Bonus Fund" means that portion of
the Company Bonus Fund which may be awarded as bonuses under the Plan
by the President in regard to any Performance Year as provided in
Section V of the Plan.
2.24 Profit. "Profit" means the net income of the Company for any
Performance Year as certified by the Company's independent public
accountants before provision for federal taxes and incentive
compensation awards under the Plan.
2.25 Rate Variances. "Rate Variances" means variances from the rates
established for overhead expenses, bid and proposal expenses, general
and administrative expenses and sick leave expenses as set forth in
the approved annual plan for the Group for the Performance Year.
2.26 Spot Bonus. "Spot Bonus" means special bonuses payable to individuals
pursuant to Section VII of the Plan and which are intended to reward
such individuals for extraordinary efforts or special achievements on
a timely basis.
3
<PAGE> 4
2.27 Unallowables. "Unallowables" means costs incurred by the Company which
are not deemed to be reimbursable costs pursuant to the Company's
Contracts with the Federal Government.
SECTION III
COMPANY BONUS FUND
3.01 Company Bonus Fund. The Company Bonus Fund for each Performance Year
shall be an amount not in excess of 7% of Eligible Compensation for
such Performance Year and shall be the aggregate of the Group Bonus
Funds, the President's Bonus Fund and any additional funds allocated
from Profit as the Operating Committee shall determine. The Board of
Directors shall have the authority to change the percentage of
Eligible Compensation which shall be used to determine the maximum
amount of the Company Bonus Fund from time to time.
3.02 Composition of Company Bonus Fund. The Company Bonus Fund shall be
comprised of the aggregate of the Group Bonus Funds and the
President's Bonus Fund. The Group Bonus Funds shall constitute 70% of
the Company Bonus Fund and the President's Bonus Fund shall constitute
30% of the Company Bonus Fund. Notwithstanding the foregoing, the
President's Bonus Fund may be increased by any additional funds
allocated from Profit as the Operating Committee shall determine.
4.01 General Policy. The determination of the amount and distribution of
the Group Bonus Fund is intended to reflect and reward the performance
of each of the Company's various Groups as well as the overall
performance of the Company. As an aide in accomplishing this aim, a
Group Bonus Formula shall be used to determine the amount of each
Group's Group Bonus Fund for each Performance Year. The amount of the
Group Bonus Fund as calculated pursuant to the Group Bonus Formula is
intended merely to provide a guide in determining the amount of the
Group Bonus Fund actually established for each Group for each
Performance Year. The Committee shall have the authority to establish
for each Group the actual amount of that Group's Group Bonus Fund
which amount may be equal to, in excess of or less than the amount of
the Group Bonus Fund which would be determined under the Group Bonus
Formula. In exercising this discretion, the Committee shall consider,
among other things, the Company's overall financial performance, and
other special situations in the Performance Year.
4
<PAGE> 5
4.02 Group Bonus Formula. The Group Bonus Formula is intended to reflect
the following criteria: (i) a minimum Group Bonus Fund for each Group
so that individual performance within the Group may be rewarded
notwithstanding the Group's overall performance; (ii) a maximum amount
of Group Bonus Fund for each Group so as to avoid an inordinate drain
on the Company's profit; (iii) a provision for awarding bonuses to a
Group for Group Profit exceeding 3% of Group Revenue while providing
greater incentive for Group Profit exceeding 6% of Group Revenue; (iv)
a procedure for an automatic adjustment to reflect the Bonus
Compensation Rate negotiated as an element of the Company's Fringe
Rate Agreement with the Federal Government; and (v) a procedure for
relating each Group's Group Bonus Fund to such Group's Group Planned
Financial Performance. Accordingly, the Group Bonus Formula is
expressed as follows:
B = .0238L + .3 {R(P/R - .06)} when P >= .06R and B <= .061L
B = .01L {1 + 46(P/R - .03)} when .03R >= P < .06R
B = .01L when P < .03R
where: B represents the Group Bonus Fund, L represents Group Labor
Dollars, P represents Group Profits, and R represents Group Revenues.
The minimum Group Bonus Fund is represented by 1% of Group Labor
Dollars and the maximum Group Bonus Fund is represented by 6.1% of
Group Labor Dollars. An illustration of the application of the Group
Bonus Formula assuming various Group Profits ranging from 3% through
12% of Group Revenue is attached as Table I and Table II to the Plan.
If, at the beginning of any Performance Year, the Bonus Compensation
Rate, the Fringe Rate, or the Group Planned Profit Rate change, then
the numerical coefficients set forth in the Group Bonus Formula may be
adjusted so that the aggregate Group Bonus Funds do not exceed the
amount permitted under the Company Bonus Fund.
SECTION V
PRESIDENT'S BONUS FUND
5.01 Purpose of President's Bonus Fund. The President's Bonus Fund is
primarily intended to provide awards to deserving Participants (i) in
the Company's top level of management, (ii) engaged in Corporate
Development activities, (iii) serving in the Office of the President,
and (iv) serving in Corporate Administration. The President's Bonus
Fund may also be utilized to provide bonus awards to especially
deserving Participants who are not otherwise rewarded, to encourage
stock redistribution, to
5
<PAGE> 6
correct any inequities in the amount of the Group Bonus Funds of the
various Groups, or for other special awards.
5.02 Amount of President's Bonus Fund. The President's Bonus Fund for any
Performance Year is determined indirectly as a function of the
aggregate amount of the Group Bonus Funds for the Performance Year.
The President's Bonus Fund shall be an amount equal to 30% of the
Company Bonus Fund with the aggregate of the Group Bonus Funds to be
an amount equal to 70% of the Company Bonus Fund. Notwithstanding the
foregoing, the President's Bonus Fund may be increased by any
additional funds allocated from Profit as the Operating Committee
shall determine.
SECTION VI
DISTRIBUTION OF COMPANY BONUS FUND
6.01 Group Bonus Fund Recommendations. Within 45 days following the end of
the Performance Year and/or from time to time during the Performance
Year, each Group Manager shall submit to the Committee written
recommendations for the payment of bonuses to members of that Group
Manager's Group out of the Group's Group Bonus Fund. The total amount
of such bonus recommendations shall be based upon application of the
Group Bonus Formula to the Company's financial statements for the
Performance Year.
6.02 President's Bonus Fund Recommendations. Within 45 days following the
end of the Performance Year and/or from time to time during the
Performance Year, the President shall submit to the Committee written
recommendations for the payment of bonuses to Participants who are to
receive bonuses paid out of the President's Bonus Fund.
6.03 Internal Group Administration. Each Group Manager shall be responsible
for the implementation and operation of the Plan within that Group
Manager's Group. The method of such implementation and operation
within the Group is not prescribed by the Plan. The Group Manager may
implement the distribution of payments under the Plan within the Group
to meet the business goals of that Group; however, the total bonuses
payable within the Group must be made within the limitations set forth
in the Plan. If a Group Manager elects to apply the Group Bonus
Formula or a similar formula to the administration of the Plan within
the Group so as to allocate the Group's Group Bonus Fund between
different divisions, operations or other identifiable entities within
the Group, consideration must be given to the overhead rate
differentials between those entities due to the allocation of
management and administration overhead. Consideration must also be
given to the need to reward individuals for technical performance for
work unrelated to financial performance.
6
<PAGE> 7
6.04 Approvals. All individual bonuses to be awarded from the Group Bonus
Fund must be recommended in writing by the Group Manager to the
Committee and all individual bonuses to be awarded out of the
President's Bonus Fund must be in writing from the President to the
Committee. The Committee must approve all individual bonuses awarded
out of the Group Bonus Fund and the President's Bonus Fund except that
any bonus payable to the President must be approved by the Board of
Directors and any bonus payable to the other Committee members must be
approved by the President. Notwithstanding the foregoing, no member of
the Committee shall be eligible to receive a bonus that is payable in
Common Stock. No individual shall be advised of a bonus recommendation
until such bonus shall have been approved by the Group Manager or the
President, as appropriate, and the Committee.
6.05 Recommendation Format. Written bonus recommendations submitted by the
Group Manager or the President to the Committee may be in memorandum
form or on an appropriate recommendation form as prescribed by the
Committee from time to time.
SECTION VII
SPOT BONUSES
7.01 Spot Bonus Awards. Spot Bonuses may be awarded under the Plan at any
time. Spot Bonuses shall be awarded by the Group Manager or the
President (i) to reward extraordinary effort or special achievement
for which the timeliness of the award is particularly important, (ii)
are payable in cash only and in amounts of $1,000 or less, (iii) are
normally deliverable within one week, and (iv) require the prior
written approval of only the Group Manager in regard to Spot Bonuses
to be payable to a Participant in the Group Manager's Group or by the
President in regard to Spot Bonuses to be payable to any other
Participant. The award of a Spot Bonus by the Group Manager or the
President will be subsequently reviewed by the Committee.
7.02 Accounting for Spot Bonuses. Spot Bonuses paid during the Performance
Year will be charged to the Group's 1% minimum Group Bonus Fund or the
President's Bonus Fund, as appropriate, for the Performance Year.
SECTION VIII
PAYMENT OF BONUSES
8.01 Time of Payment. Payment of the annual bonus awards shall be made as
soon as practicable after the decision by the Committee to make
payment of any bonus. Bonus
7
<PAGE> 8
awards made during the Performance Year shall be charged to the
Company Bonus Fund or the President's Bonus Fund as appropriate for
such Performance Year pursuant to the provisions of Section 3.01.
Payment of Spot Bonuses shall be made within seven working days
following the date of approval of such Spot Bonus by the Group Manager
or the President.
8.02 Form of Payment. Bonuses awarded under the Plan, except for Spot
Bonuses, shall be payable in cash or Common Stock or a combination of
cash and Common Stock within the sole discretion of the Committee.
8.03 Stock Restriction Agreement. To the extent that any bonus awarded
under the Plan is paid in Common Stock, as a condition to the receipt
of such bonus, the Participant shall be required to execute and
deliver a stock restriction agreement in such form and upon such terms
and conditions, including, but not limited to, the granting of a right
of first refusal to the Company regarding such Common Stock and a
right on the part of the Company to repurchase such Common Stock from
the Participant upon the Participant's termination of affiliation with
the Company, as the Committee, in its sole discretion, shall deem
appropriate.
8.04 Forfeiture of Shares. To the extent that any bonus awarded under the
Plan is paid in shares of Common Stock, such shares may be issued
subject to forfeiture, in whole or in part, in accordance with a
vesting schedule which the Committee may, in its sole discretion,
establish.
8.05 Valuing Common Stock. To the extent that bonuses awarded under the
Plan are paid in Common Stock, the per share value of such Common
Stock shall be based upon the Formula Price for the Common Stock in
effect at the time the bonus is awarded. The bonus will be deemed to
have been awarded on the date the Committee approves the granting of
the bonus.
8.06 Individual Bonus Awards. Any bonus award to a Participant with respect
to a Performance Year, other than a Spot Bonus, shall generally be
made within the following guidelines.
<TABLE>
<CAPTION>
Category of
Participant's Minimum Amount Maximum Amount
Employment of Bonus (if any) of Bonus
- -------------------- -------------------- --------------------
<S> <C> <C>
Operations Manager 5% of Annual Salary 25% of Annual Salary
Division Manager 5% of Annual Salary 20% of Annual Salary
Others 1 Week's Salary 15% of Annual Salary
</TABLE>
8
<PAGE> 9
Recommendations for bonus awards outside these guidelines must be
accompanied by a written justification from the Group Manager or the
President unless such recommendation has been previously coordinated
with the Committee.
SECTION IX
ADMINISTRATION
9.01 The Committee. The Plan shall be administered by the Committee which
shall consist of not less than two directors appointed by the Board of
Directors, each of whom shall satisfy the requirements of Rule 16b-3,
as amended, under the Securities Exchange Act of 1934 (the "Exchange
Act"). The Committee may appoint a separate committee with respect to
Participants who are not subject to Section 16 of the Exchange Act.
9.02 Authority of the Committee. The Committee shall be authorized to
interpret the terms and provisions of the Plan and to adopt such rules
and regulations for the administration of the Plan as it may, in its
sole discretion, deem advisable. Without limiting the generality of
the foregoing, and subject to the terms, provisions and conditions of
the Plan, the Committee is authorized to:
(a) Approve the Participants who shall receive bonus awards
under the Plan.
(b) Prescribe the form, which shall be consistent with the Plan,
of the documents, if any, evidencing awards granted under
the Plan, including the stock restriction agreement referred
to in Section 8.03 of the Plan.
(c) Approve the amount of bonuses to be awarded to any
Participant under the Plan and the form of payment of such
bonuses.
SECTION X
AMENDMENT OR TERMINATION
10.01 Amendment or Termination. The Plan may, at any time or from time to
time, be amended, or may, at any time, be terminated, by either the
stockholders of the Company or by the Board of Directors subject only
to the provisions of Section 10.02 below.
10.02 Restriction on Amendment or Termination. No amendment or termination
of the Plan by either the stockholders of the Company or the Board of
Directors shall, without the
9
<PAGE> 10
Participant's consent, affect any bonus award theretofore made to such
Participant under the Plan.
SECTION XI
MISCELLANEOUS
11.01 Certain Conditions and Limitations. The award of a bonus under the
Plan may be effected only if the Committee determines that the award
or the payment of such award complies with applicable securities and
other laws. The Company may, but shall not be required to, register or
qualify under applicable securities laws, at the Company's expense,
any or all of the interests in the Plan and shares of Common Stock
awarded or paid pursuant to the Plan.
11.02 Other Compensation or Incentive Arrangements. The Plan is not intended
as, and shall not be deemed a substitute for, or preclude continuance
or establishment of, incentive compensation, profit participation or
bonus plans of subsidiaries, divisions, or other operating entities of
the Company or any other plan, practice, or arrangement for the
payment of compensation or fringe benefits, including, without
limitation, commissions, prizes, production or similar bonuses,
retirement, profit sharing, group insurance, stock purchase or stock
bonus plans or any other bonus plans or arrangements, that may now or
hereafter be in effect for employees generally or any group or class
of employees or employee, and any such plan, practice or arrangement
may be continued or authorized and payments thereunder made
independently of the Plan.
11.03 Continuation of Employment. Nothing contained in the Plan, or in the
award of any bonus pursuant to the Plan, shall confer upon any
employee any right to continue in the employ of the Company or
interfere in any way with the right of the Company to reduce such
employee's compensation from the rate in existence at the time of the
granting of a bonus under the Plan.
11.04 No Vested Interest in the Plan. No Participant nor any employee of the
Company, nor any person claiming under or through any of them, nor any
other person, shall have any right or interest, whether vested or
otherwise, in the Plan or its continuance, or in or to the payment of
any award under the Plan, whether such award be vested, contingent or
otherwise, unless and until all the terms and conditions of the Plan
or any rules and regulations of the Committee thereunder and of any
instrument executed pursuant thereto affecting such award and its
payment, shall be fully complied with as specifically provided in the
Plan and the rules and regulations of the Committee thereunder. No
rights under the Plan, contingent or otherwise, shall be assignable or
subject to any encumbrance, pledge or charge of any nature, except as
may be specifically authorized by the Committee.
10
<PAGE> 11
11.05 Issuance of Common Stock. Any shares of Common Stock as payment, in
whole or in part, of any bonus awarded under the Plan may be purchased
by the Company in the limited internal market established and
maintained by the Company or may be issued from the treasury stock of
the Company or from the authorized but unissued Common Stock of the
Company.
11.06 Non-Transferability. Except as specifically provided in the Plan, no
interest in or payment under the Plan shall be transferable by the
Participant other than by will or by the laws of descent and
distribution.
11.07 Tax Withholding. The Company shall have the right to deduct from any
payment of bonuses awarded under the Plan or from any other
compensation payable to the Participant receiving such bonus, any sums
required by Federal, state or local tax law to be withheld with
respect to such bonus payment. There is no obligation under the Plan
that any Participant or other person be advised of the existence of
any such tax or the amount which the Company will be so required to
withhold.
11.08 Term of the Plan. Subject to approval by a majority of the holders of
the outstanding common stock of the Company, the Plan is effective as
of February 1, 1984.
11.09 Governing Law. The Plan, and any awards made under the Plan, shall be
governed by, and be construed in accordance with, the laws of the
State of Delaware.
11
<PAGE> 12
TABLE I
GROUP BONUS FORMULA ILLUSTRATION
ASSUMING GROUP REVENUE OF $10M & GROUP LABOR DOLLARS OF $4.2M
<TABLE>
<CAPTION>
Group Profit as a % of Group Revenue
(Dollars in Thousands)
-------------------------------------------------------------------------------------------
3%
& less 4% 5% 6% 8% 10% 12%
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Group Revenues ............... $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000
Costs at Provisional
Rates .................... 9,200 9,200 9,200 9,200 9,200 9,200 9,200
-------------------------------------------------------------------------------------------
Net Fees ..................... $ 800 $ 800 $ 800 $ 800 $ 800 $ 800 $ 800
Unallowables ................. -5 -5 -5 -5 -5 -5 -5
Interest ..................... -100 -100 -100 -100 -100 -100 -100
Overhead Variance ............ -300 -225 -150 -75 +75 +225 +400
B&P Variance ................. -55 -40 -25 -10 +20 +50 +75
G&A Variance ................. -30 -20 -10 -- +20 +20 +20
Sickleave Variance ........... -10 -10 -10 -10 0 +20 +20
Other ........................ -- -- -- -- -10 -10 -10
- -------------------------------------------------------------------------------------------------------------------------------
Group Profit Before
Taxes .................... $ 300 $ 400 $ 500 $ 600 $ 800 $ 1,000 $ 1,200
===========================================================================================
% of Revenues ................ 3% 4% 5% 6% 8% 10% 12%
- -------------------------------------------------------------------------------------------------------------------------------
(A) Bonus Base
($4.2M x .01) ............ $ 42 $ 42 $ 42 $ 42 $ 42 $ 42 $ 42
- -------------------------------------------------------------------------------------------------------------------------------
(B) Earnable
Add: 46(P/R - .03) Base ...... $ -- $ 19 $ 39 $ 58 $ 58 $ 58 $ 58
Add: 30% Profit 6% ........... -- -- -- -- 60 120 180
- -------------------------------------------------------------------------------------------------------------------------------
(B) Total Earned ............. $ -- $ 19 $ 39 $ 58 $ 118 $ 178 $ 238
(A+B) Total Group Bonus Fund . 42 61 81 100 160 220 280
Total Group Bonus Funds
to be Distributed ........ 42 61 81 100 160 220 256
- -------------------------------------------------------------------------------------------------------------------------------
Bonus Distributed as a %
of Group Labor Dollars ... 1.0% 1.5% 1.9% 2.4% 3.8% 5.2% 6.1%
</TABLE>
12
<PAGE> 13
TABLE II
GROUP BONUS FUND GENERATED PER GROUP BONUS FORMULA
($10 MILLION GROUP REVENUE WITH TOTAL GROUP LABOR DOLLARS OF $4.2 MILLION)
[GRAPH]
GROUP PROFIT BEFORE TAXES AS A PERCENTAGE OF GROUP REVENUE
<PAGE> 1
EXHIBIT 10.B
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1992 STOCK OPTION PLAN
1. PURPOSE
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1992 Stock Option
Plan (the "Plan"). The purpose of the Plan is to advance the interests of the
Company and its stockholders by providing a means by which the Company and its
Subsidiaries shall be able to attract and retain qualified key employees,
directors and consultants and provide such personnel with an opportunity to
participate in the increased value of the Company which their effort, initiative
and skill have helped produce.
2. DEFINITIONS
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Class A Common Stock of the Company,
par value $.01.
(d) "Committee" shall mean the Company's Stock Option Committee
responsible for administering the Plan.
(e) "Employee/Optionee" shall mean an Optionee who is an employee of the
Company or any Subsidiary.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Price" shall mean the price per share at which an Option
may be exercised, as determined by the Committee and as specified in the
Optionee's option agreement.
(h) "Formula Price" shall mean the price per share of Common Stock as
established by the Board from time to time.
(i) "Option" shall mean an option to purchase Common Stock granted
pursuant to the Plan.
(j) "Optionee" shall mean any person who holds an Option pursuant to the
Plan.
1
<PAGE> 2
(k) "Plan" shall mean this Science Applications International
Corporation 1992 Stock Option Plan, as it may be amended from time to time.
(l) "Purchase Price" shall mean at any particular time the Exercise
Price times the number of shares for which an Option is being exercised.
(m) "Subsidiary" as used in the Plan means any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations, other than the last corporation in such chain, owns at
least fifty percent (50%) of the total voting power in one of the other
corporations in such chain.
3. ADMINISTRATION
(a) The Committee. The Plan shall be administered by the Committee which
shall consist of not less than two directors appointed by the Board, each of
whom shall satisfy the requirements of Rule 16b-3, as amended, of the Exchange
Act. No member of the Committee shall be liable for any action or determination
in respect thereto, if made in good faith. The Committee may appoint a separate
committee with respect to Optionees who are not subject to Section 16 of the
Exchange Act.
(b) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion and on behalf of the
Company:
(i) to grant Options;
(ii) to determine the Exercise Price per share of Options to be
granted;
(iii) to determine the individuals to whom, and the time or times at
which, Options shall be granted and the number of shares for which an
Option will be exercisable;
(iv) to interpret the Plan;
(v) to prescribe, amend, and rescind rules and regulations
relating to the Plan;
(vi) to determine the terms and provisions of each Option granted
and, with the consent of the Optionee, to modify or amend each Option;
(vii) to accelerate or defer, with the consent of the Optionee, the
exercise date of any Option;
(viii) with the consent of the Optionee, to reprice, cancel and
regrant, or otherwise adjust the Exercise Price of an Option previously
granted by the Committee; and
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(ix) to make all other determinations deemed necessary or advisable
for the administration of the Plan.
(c) Committee Discretion. In exercising its authority, the Committee
shall have the broadest possible discretion and the Committee's determinations
under the Plan made in good faith shall be binding and conclusive on Optionees
and other persons claiming entitlements under the Plan. In no event shall a
Committee determination with respect to a particular Optionee or provision of
the Plan be binding with respect to any other Optionee (even if similarly
situated) nor with respect to any future determinations regarding the same or
other provisions of the Plan.
4. ELIGIBILITY
The individuals who shall be eligible to participate in the Plan and to
receive Options hereunder shall be such key employees, directors and consultants
of the Company and its Subsidiaries as the Committee shall from time to time
determine. The Committee may designate one or more directors who are not
eligible for participation in the Plan for a specified period of time. No Option
shall be granted to any person who, at the time the Option is granted, owns
(including stock owned by application of the constructive ownership rules of
Section 425(d) of the Code) stock possessing more than 10% of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary.
5. STOCK SUBJECT TO THE PLAN
Options may be granted permitting the purchase of the aggregate of not
more than 12,000,000 shares of the Company's Common Stock, subject to adjustment
pursuant to Section 10 hereof. These shares may consist either in whole or in
part of shares of the Company's authorized but unissued Common Stock or shares
of the Company's authorized and issued Common Stock reacquired by the Company
and held in its treasury. If an Option granted under this Plan is surrendered,
expires or for any other reason ceases to be exercisable in whole or in part,
the shares which were subject to any such Option but as to which the Option
ceases to be exercisable shall be available for Options to be granted under the
Plan.
6. STOCK OPTIONS
(a) Non-Qualified Options. The Options granted pursuant to the Plan
shall be non-qualified stock options and specifically not incentive stock
options as that term is used in the Code.
(b) Option Agreements. Options shall be evidenced by written option
agreements between the Optionee and the Company in such form as the Committee
shall from time to time determine. No Option or purported Option shall be a
valid and binding obligation of the Company unless previously granted by the
Committee and evidenced in writing by such an option agreement. Appropriate
officers of the Company are hereby authorized to execute and deliver option
agreements in the name of the Company, as directed from time to time by the
Committee.
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(c) Exercise Price. The Exercise Price at which Options may be granted
under the Plan shall be not less than one hundred percent (100%) of the fair
market value of the Common Stock on the day the Option is granted, but may be
less than the Exercise Price or Prices of previously granted Options, whether in
effect, canceled or expired. As long as the Company's Common Stock is not listed
on any national securities exchange or traded on a regular basis (as determined
by the Company's Board or a Committee of the Board to which the Board has
delegated the authority to make such determination) on the over-the-counter
market, fair market value may be taken as the Formula Price as in effect at the
date of grant.
(d) Date of Grant. The Committee shall, after it approves the granting
of an Option to a participant, cause the participant to be notified of such
action. The date on which the Committee approves the granting of an Option shall
be considered the date on which such Option is granted.
(e) Terms of Exercise. The right to purchase shares covered by any
Option or Options under the Plan shall be exercisable only in accordance with
the terms and conditions of the grant to such Optionee. The Committee may, in
its discretion, provide that such Option or Options may be exercised in whole or
in part in installments, cumulative or otherwise, for any period or periods of
time specified by the Committee of not more than ten years from the date of the
grant of the Option. Subject to the provisions of Paragraph 9, that portion of
an Option which is exercisable or an installment basis may not be exercised
prior to the expiration of the applicable installment period.
(f) Non-Transferability. An Option granted under the Plan may not be
transferred except by will or the laws of descent and distribution and, during
the lifetime of the Optionee to whom granted, may be exercised only by such
Optionee or his conservator or other legal representative.
7. EXPIRATION AND TERMINATION
(a) Expiration of Option. Each Option and all rights and obligations
thereunder shall, subject to the provisions of Paragraph 9, expire on a date to
be determined by the Committee, such date, however, in no event to be later than
ten (10) years from the date an Option is granted.
(b) Termination of Employment or Affiliation. Subject to the provisions
of Paragraph 9, that portion of an Option which is exercisable on an installment
basis may not be exercised unless the Optionee shall continue in the employ or
affiliation of the Company or any of its Subsidiaries during the entire period
to which such installment relates. Except as set forth below in Paragraphs 7(c)
through (e) or otherwise set forth in an option agreement, all Options granted
to an Optionee under this Plan shall terminate and no longer be exercisable as
of the date such Optionee ceases to be employed or affiliated with the Company
or any Subsidiary; provided, however, the Committee in its discretion may extend
the period of time that such Optionee may exercise such Optionee's Options, but
in no event may the Committee extend such period of time
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<PAGE> 5
beyond the expiration date of the Options or beyond ten (10) years from the date
of grant of such Options.
(c) Termination Due to Retirement or Permanent Total Disability. In the
event an Employee/Optionee's employment with the Company or any Subsidiary shall
terminate as the result of normal retirement, permanent total disability or
early retirement under the terms of a retirement or pension plan maintained by
the Company and in which such Employee/Optionee is a participant, such
Employee/Optionee may, at any time within ninety (90) days after such
termination of employment, exercise such Employee/Optionee's Options to the
extent that the Employee/Optionee was entitled to exercise them on the date of
such termination of employment, unless such Options would expire pursuant to
their terms at an earlier date, in which case such Options shall remain
exercisable only until the earlier expiration date.
(d) Death. If an Optionee dies while in the employ or affiliation of the
Company or of a Subsidiary without having fully exercised such Optionee's
Options, such Options may, within one (1) year of the Optionee's death (or
within such shorter period as may be specified in the Option by the Committee),
be exercised by the person or persons to whom the Optionee's rights under the
Option shall pass by will or by the applicable laws of descent and distribution
to the extent that such deceased Optionee was entitled to exercise the Options
on the date of death, unless such Options would expire pursuant to their terms
at an earlier date, in which case such Options shall remain exercisable only
until the earlier expiration date.
(e) Leaves of Absence. An Employee/Optionee who is on a leave of absence
pursuant to the terms of the Company's Administrative Policy No. B-11 "Unpaid
Personal Leave of Absence" or any amended or replacement policy thereof, shall
not, during the period of any such absence be deemed, by virtue of such absence
alone, to have terminated such Employee/Optionee's employment with the Company
or any Subsidiary except as the Committee may otherwise expressly provide.
Except as otherwise determined by the Committee, unless such Employee/Optionee
is on a Medical Leave (as hereinafter defined), all rights which such
Employee/Optionee would have had to exercise Options granted hereunder will be
suspended during the period of such leave of absence. Upon such
Employee/Optionee's return to the Company or any Subsidiary all rights to
exercise Options shall be restored to the extent such Options are exercisable at
that time. The Committee in its discretion may permit the exercise, while on a
leave of absence, of Options which would otherwise expire or may defer the
expiration date of such Options, but not beyond ten (10) years from their date
of grant. An Employee/Optionee who is on a Medical Leave shall have all rights
to exercise such Employee/Optionee's Options that such Employee/Optionee would
have had if such Employee/Optionee were not on a Medical Leave. For purposes of
this Paragraph 7(e), "Medical Leave" shall be defined as a leave of absence for
medical reasons which shall begin after ninety-one (91) consecutive calendar
days of total disability leave and shall remain in effect until the earlier of a
release by the attending physician for the Employee/Optionee to return to work
or until the termination of employment.
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<PAGE> 6
8. EXERCISE OF OPTIONS
(a) The Purchase Price shall be paid in full when the Option is
exercised. The Purchase Price may be paid in whole or in part in (i) cash or
(ii) whole shares of Common Stock of the Company evidenced by negotiable
certificates, valued at the Formula Price in effect on the date of exercise;
provided, however, that unless an exception is granted by the Secretary of this
Corporation, shares of Common Stock of the Company acquired through the exercise
of a stock option must have been owned by the Optionee for at least six months
before such shares of Common Stock may be used to pay the Purchase Price. The
Company or any Subsidiary shall be entitled to deduct from other compensation
payable to each Optionee any sums required by federal, state or local tax law to
be withheld with respect to the exercise of an Option but, in the alternative,
may require the Optionee or other person exercising the Option to pay, or the
Optionee or such other persons may pay, such sums to the employer corporation at
the time of such exercise. The Committee shall have the authority in its
discretion to allow withholding on exercise of an Option to be satisfied by
withholding from the shares to be issued upon the exercise of the Option a
number of shares, valued at the Formula Price in effect on the date of exercise
of the Option, equal in value to the withholding requirement.
(b) An Optionee shall have no rights as a shareholder of the Company
with respect to any shares for which his or her Option is exercised until the
date of exercise of such Option and the issuance of a stock certificate for such
shares. No adjustment shall be made for dividends, ordinary or extraordinary or
whether in currency, securities or other property, distributions, or other
rights for which the record date is prior to the date such stock certificate is
issued.
9. CHANGE IN CONTROL
Notwithstanding any provision of Paragraph 7 above to the contrary, any
Option granted pursuant to the Plan shall, in the case of a Change In Control
(as hereinafter defined) of the Company, become fully exercisable as to all
shares of Common Stock to which it relates from and after the date of such
Change In Control. For purposes of this Paragraph 9, the term "Change in
Control" shall be deemed to occur upon any "person" (as defined in Section 13(d)
of the Exchange Act), other than the Company or any Subsidiary or employee
benefit plan or trust maintained by the Company or any Subsidiary, becoming the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of more than 25% of the Common Stock of the Company outstanding
at such time, without the prior approval of the Board.
10. CAPITAL ADJUSTMENTS
The aggregate number of shares of the Company's Common Stock subject to
this Plan, the maximum number of shares as to which Options may be granted to
any one Optionee hereunder, and the number of shares and the Exercise Price
shall be appropriately adjusted, as determined by the Committee in its
discretion, for any increase or decrease in the number of shares of Common Stock
which the Company has issued resulting from any stock split, stock dividend,
combination
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of shares or any other change, or any exchange for other securities or any
reclassification, reorganization, redesignation, recapitalization, or otherwise.
11. NO EMPLOYMENT OBLIGATION
An Employee/Optionee's employment with the Company or a Subsidiary is not
for any specified term and may be terminated by such Employee/Optionee or by the
Company or a Subsidiary at any time, for any reason, with or without cause.
Nothing in this Plan or in any option agreement pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of, or affiliation
with, the Company or a Subsidiary nor constitute any promise or commitment by
the Company or a Subsidiary regarding future positions, future work assignments,
future compensation or any other term or condition of employment or affiliation.
12. GOVERNMENT AND STOCK EXCHANGE REGULATIONS
The Company shall not be required to issue any shares upon the exercise of
any Option unless and until the Company has fully complied with any then
applicable requirements by the Securities and Exchange Commission, the
California Corporations Commissioner, or other regulatory agencies having
jurisdiction, and of any exchanges upon which Common Stock of the Company may be
listed.
Upon the exercise of an Option at a time when there is not in effect a
registration statement under the Securities Act of 1933 or a similar statute
(the "Act") relating to the stock issuable upon exercise thereof and available
for delivery a prospectus meeting the requirements of Section 10(a)(3) of said
Act, or if the rules or interpretations of the Securities and Exchange
Commission so require, the stock may be issued only if the holder represents and
warrants in writing to the Company that the shares purchased are being acquired
for investment and not with a view to distribution thereof.
13. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board or the Operating Committee of the Board may at any time suspend
or terminate the Plan and may amend it from time to time in such respects as the
Board or the Operating Committee may deem advisable in order that Options
granted thereunder shall conform to any change in the law, or in any other
respect which the Board or the Operating Committee may deem to be in the best
interests of the Company; provided, however, that no such amendment shall,
without the approval of the holders of outstanding shares of the Company having
a majority of the general voting power, (i) except as specified in Paragraph 10,
increase the maximum number of shares for which Options may be granted under the
Plan, (ii) change the provisions of Paragraph 6(c) relating to the establishment
of the Exercise Price other than to change the manner of determination the fair
market value of the Company's Common Stock to conform with any then applicable
provisions of the Code or regulations issued thereunder, or (iii) permit the
granting
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of Options to members of the Committee. No Option may be granted during any
suspension, or after termination of the Plan.
14. NO IMPLIED RIGHTS OR OBLIGATIONS
The Company, in establishing and maintaining this Plan as a voluntary and
unilateral undertaking, expressly disavows the creation of any rights in
Optionees or others claiming entitlements under the Plan or any obligations on
the part of the Company, any Subsidiary or the Committee, except as expressly
provided herein.
15. EFFECTIVE DATE
The effective date of the Plan shall be July 10, 1992.
16. TERMINATION DATE
Unless the Plan shall have been previously terminated by the Board or the
Operating Committee of the Board, the Plan shall terminate on July 31, 1995,
except as to Options theretofore granted and outstanding under the Plan at that
date, and no Option shall be granted after that date.
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EXHIBIT 10.C
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
STOCK COMPENSATION PLAN
Effective as of January 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
PURPOSE........................................................................1
ARTICLE I DEFINITIONS ...............................................................1
1.1 Account ................................................................1
1.2 Award ..................................................................1
1.3 Awarding Authority .....................................................1
1.4 Beneficiary ............................................................1
1.5 Board ..................................................................1
1.6 Committee ..............................................................1
1.7 Company.................................................................1
1.8 Company Stock ..........................................................1
1.9 Distribution ...........................................................2
1.10 Employee ...............................................................2
1.11 Participant ............................................................2
1.12 Plan ...................................................................2
1.13 Share Unit .............................................................2
1.14 Trust ..................................................................2
1.15 Trustee ................................................................2
ARTICLE II PARTICIPATION AND AWARDS ..................................................2
2.1 Designation by Awarding Authority ......................................2
2.2 Awarding Authority to Make Awards ......................................2
2.3 Awards to be Held in Trust .............................................2
2.4 Vesting and Forfeiture .................................................3
ARTICLE III TRUST FUND.................................................................3
3.1 Trust Fund Established..................................................3
3.2 Company, Committee and Trustee
Not Responsible for Adequacy of Fund ...................................3
ARTICLE IV ACCOUNTING PROCEDURES .....................................................4
4.1 Committee to Maintain Accounts .........................................4
4.2 Accounting Procedures ..................................................4
4.3 Invasion of Trust by Creditors .........................................4
4.4 Trust Expenses..........................................................4
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE V RIGHTS IN ACQUIRED STOCK .................................................4
5.1 Power to Vote Stock Rests with Trustee .................................4
5.2 Tender Offers ..........................................................4
5.3 Dividends ..............................................................4
ARTICLE VI DISTRIBUTION OF ACCOUNTS .................................................5
6.1 Time of Distribution ...................................................5
6.2 Form of Distribution ...................................................5
6.3 Beneficiary Designation ................................................5
6.4 Distribution to Guardian ...............................................6
6.5 Withholding of Taxes....................................................6
ARTICLE VII ACCELERATION OF DISTRIBUTION AND VESTING .................................6
7.1 Termination of Employment or Death .....................................6
7.2 Change in Control ......................................................6
7.3 Hardship ...............................................................7
ARTICLE VIII PLAN TERMINATION AND AMENDMENT ...........................................7
8.1 Termination and Amendment ..............................................7
ARTICLE IX PLAN ADMINISTRATION ......................................................7
9.1 Committee ..............................................................7
9.2 Committee Powers .......................................................8
9.3 Plan Expenses ..........................................................9
9.4 Reliance Upon Documents and Opinions ...................................9
9.5 Requirement of Proof ..................................................10
9.6 Limitation on Liability ...............................................10
9.7 Indemnification .......................................................10
ARTICLE X MISCELLANEOUS PROVISIONS ................................................11
10.1 Restrictions on Plan Interest .........................................11
10.2 No Enlargement of Employee Rights .....................................11
10.3 Rights of Repurchase and
First Refusal for the Company..........................................12
10.4 Mailing of Payments ...................................................12
10.5 Inability to Locate Participant or Beneficiary ........................12
10.6 Governing Law .........................................................12
10.7 Records ...............................................................12
10.8 Illegality of Particular Provision ....................................12
10.9 Receipt or Release ....................................................12
10.10 Arbitration .......................................................... 13
</TABLE>
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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
STOCK COMPENSATION PLAN
PURPOSE
This Plan is an unfunded compensation arrangement established effective on
April 3, 1996 by Science Applications International Corporation ("SAIC") to make
deferred awards of company stock to selected employees.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in the Plan they shall have the
meaning specified below, unless the context indicates clearly to the contrary.
1.1 Account. The bookkeeping account established for an Employee
pursuant to Article IV to record the number of Share Units awarded to the
Employee and the vesting thereof.
1.2 Award. The award of Share Units in the Trust to an Employee pursuant
to the Plan.
1.3 Awarding Authority. The individual or group of individuals appointed
by the Board to make Awards pursuant to the Plan.
1.4 Beneficiary. The person or persons properly designated by the
Participant, in accordance with Section 6.3, to receive the benefits provided
herein upon death of the Participant.
1.5 Board. The Board of Directors of Science Applications International
Corporation.
1.6 Committee. The committee appointed by the Board to administer the
Plan. Members of the Committee shall be eligible to receive Awards under the
Plan at the discretion of the Awarding Authority.
1.7 Company. Science Applications International Corporation, a Delaware
corporation, and any subsidiary thereof, the participation in this Plan of the
Employees of which is approved by the Awarding Authority.
1.8 Company Stock. The Class A Common Stock of Science Applications
International Corporation.
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1.9 Distribution. Payment of the vested balance in a Participant's
Account from the Trust to the Participant or the Participant's Beneficiary.
1.10 Employee. A salaried employee of the Company.
1.11 Participant. An Employee designated by the Committee to receive an
Award under the Plan.
1.12 Plan. The Science Applications International Corporation Stock
Compensation Plan as set forth herein and as amended from time to time by the
Board.
1.13 Share Unit. The interest of a Participant in a share of Company
Stock held in the Participant's Account in the Trust.
1.14 Trust. The Science Applications International Corporation Stock
Compensation Plan Trust established by the Company to hold all assets awarded to
Participants under the Plan.
1.15 Trustee. State Street Bank or such successor trustee as shall be
appointed pursuant to the Trust.
ARTICLE II
PARTICIPATION AND AWARDS
2.1 Designation by Awarding Authority. The Awarding Authority in its
sole discretion shall designate those Employees who are to receive Awards under
the Plan. The Awarding Authority's designation of an Employee for a particular
Award shall not require the Awarding Authority to make any further Awards to
such Employee.
2.2 Awarding Authority to Make Awards. The Awarding Authority shall make
Awards under the Plan by determining a number of Share Units to be credited to
those Employees whom the Awarding Authority has selected for participation in
the Plan corresponding to a specified number of shares of Company Stock
allocated in the Trust to such Employees, and by establishing an Account in
favor of such Employees in accordance with Article IV to hold such Share Units.
A separate Account shall be established for each Award. Each Account shall be
subject to a vesting schedule specified by the Awarding Authority. The amount,
timing and vesting of each Award shall be decided in the Awarding Authority's
sole discretion, and the Awarding Authority may apply different terms to Awards
made to different Employees as well as to different Awards made to the same
Employee.
2.3 Awards to be Held in Trust. Within a reasonable period of time
following the date of an Award, SAIC shall contribute to the Trust Company Stock
or an amount of money sufficient
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to purchase shares of Company Stock corresponding to the Share Units made in
such Award. The Trustee shall apply such contribution toward the purchase of
Company Stock in accordance with the directions of the Committee and the terms
of the Trust. To the extent any such Award is made to an Employee of an
affiliate of SAIC, SAIC may charge the cost of the corresponding Trust
contribution to such affiliate as agreed between SAIC and the affiliate.
2.4 Vesting and Forfeiture. Each Account shall be subject to a vesting
schedule, not to exceed seven (7) years, established by the Awarding Authority.
Vesting shall cease upon termination of the Participant's employment with the
Company for any reason other than the death of the Participant. For purposes of
the Plan, an Employee's leave of absence exceeding thirty (30) days other than
(i) a leave of absence caused by the Employee's disability, as defined under the
terms of any of the Company's short-term or long-term disability plans, (ii) a
qualified military leave as determined by the Committee, or (iii) a family or
medical leave covered by federal or state family/medical leave acts, shall be
considered a termination of employment effective on the thirtieth day of such
leave of absence. An Employee's change in status to that of consulting employee
shall also be considered a termination of employment for purposes of the Plan.
Further, an Employee's change in status to a part-time Employee, which status
exists for an aggregate period or periods (whether or not consecutive) of six
months, shall be considered a termination of employment as of the end of such
six-month period. For this purpose "part-time Employee" shall mean an Employee
whose scheduled work week is less than 30 hours. In the event of death of a
Participant, all of the Participant's Account(s) shall become immediately
vested. The unvested portion of a Participant's Accounts upon a termination of
employment shall be immediately forfeited by the Participant, and the shares of
Company Stock represented by such unvested portion shall be returned to the
Company or reallocated in accordance with the Committee's directions and the
terms of the Trust.
ARTICLE III
TRUST FUND
3.1 Trust Fund Established. The Company has established the Trust
pursuant to a trust agreement under which the Trustee will hold and administer
in trust all assets deposited with the Trustee in accordance with the terms of
this Plan. The Board shall have the authority to select and remove the Trustee
to act under the Trust agreement, and to enter into new or amended trust
agreements as it deems advisable.
3.2 Company, Committee and Trustee Not Responsible for Adequacy of Trust
Fund. Neither the Company, Committee nor Trustee shall be liable or responsible
for the adequacy of the Trust Fund to meet and discharge any or all payments and
liabilities hereunder. All Plan benefits will be paid only from the Trust
assets, and neither the Company, the Committee nor the Trustee shall have any
duty or liability to furnish the Trust with any funds, securities or other
assets except as expressly provided in Section 2.3 hereof.
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<PAGE> 7
ARTICLE IV
ACCOUNTING PROCEDURES
4.1 Committee to Maintain Accounts. The Committee shall open and
maintain a separate Account with respect to each Award made under the Plan for
purposes of keeping a record of the assets held in Trust for each Participant
and for recording the vesting status of each Award.
4.2 Accounting Procedures. The Committee shall establish and may amend
from time to time accounting procedures for the purpose of making allocations,
Distributions, valuations and adjustments to Accounts provided for in this
Article IV. A Participant or Beneficiary shall have no contractual or other
right to have a particular accounting procedure or convention apply, or continue
to apply, and the Committee shall be free to alter any such procedure or
convention without obligation to any Participant or Beneficiary.
4.3 Invasion of Trust by Creditors. If assets of the Trust should be
reduced due to action of the Company's Creditors, as provided in the Trust
document, the Committee shall reduce each Account on a pro rata basis to reflect
such reduction in Trust assets, and the Company shall have no obligation to
replace such lost assets.
4.4 Trust Expenses. Expenses of the Trust which are not paid by the
Company shall be applied to reduce each Account on a pro rata basis.
ARTICLE V
RIGHTS IN ACQUIRED STOCK
5.1 Power to Vote Stock Rests With Trustee. The power to vote any stock
held by the Trustee shall rest solely with the Trustee, who shall vote such
stock in the same proportion that the other shareholders vote their shares of
Company Stock. For purposes of this Section 5.1, Company Stock shall include
both Class A and Class B Common Stock.
5.2 Tender Offers. In the case of a tender offer for the Company Stock,
the Trustee shall tender the shares of Company Stock held by the Trust only if
more than fifty percent (50%) of the shares of Company Stock held outside the
Trust are tendered by the shareholders.
5.3 Dividends. All dividends on Company Stock held in Trust shall be
held by the Trustee and reinvested as directed by the Committee. The Committee
shall allocate such dividends among the Accounts pro rata to the shares
allocated to each Account.
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<PAGE> 8
ARTICLE VI
DISTRIBUTION OF ACCOUNTS
6.1 Time of Distribution. Subject to the acceleration provisions of
Article VII, a Participant's Account shall be Distributed as follows:
(a) If the Participant files an election in a manner prescribed by
the Committee within ninety (90) days following the date of the Award contained
in the Account, the Participant's Account shall be distributed as it becomes
vested, with each payment to be made within a reasonable period of time
following the date of vesting of the portion of the Account to be paid.
(b) If the Participant fails to make the election described in
subsection (a), the Participant's Account shall be distributed in full within a
reasonable period of time following the seventh anniversary of the date of the
Award contained in such Account.
6.2 Form of Distribution. Distributions shall be made in the form of
Company Stock or cash, or part Company Stock and part cash, as the Committee
shall determine in its sole discretion.
6.3 Beneficiary Designation.
(a) Upon forms provided by the Committee, each Participant shall
designate in writing the Beneficiary or Beneficiaries whom such Participant
desires to receive the benefits of this Plan, if any, payable in the event of
such Participant's death. A Participant may from time to time change his or her
designated Beneficiary or Beneficiaries without the consent of such Beneficiary
or Beneficiaries by filing a new designation in writing with the Committee;
provided, however, that if a married Participant wishes to designate an
individual other than his or her spouse as Beneficiary, such designation shall
not be effective unless consented to in writing by the spouse. Notwithstanding
the foregoing, spousal consent shall not be necessary if it is established to
the satisfaction of the Committee that there is no spouse of the Participant or
that the required consent cannot be obtained because the spouse cannot be
located or is legally incompetent. The Company may rely upon the designation of
Beneficiary or Beneficiaries last filed by the Participant in accordance with
the terms of this Plan.
(b) If the designated Beneficiary does not survive the
Participant, or if there is no valid Beneficiary designation, amounts payable
under the Plan shall be paid to the Participant's spouse, or if there is no
surviving spouse, then to the duly appointed and currently acting personal
representative of the Participant's estate. If there is no personal
representative of the Participant's estate duly appointed and acting in that
capacity within sixty (60) days after the Participant's death, then all payments
due under the Plan shall be payable to the person or persons who can verify by
affidavit or court order to the satisfaction of the Committee that they are
legally entitled to receive
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<PAGE> 9
the benefits specified hereunder pursuant to the laws of intestate succession or
other statutory provision in effect at the Participant's death in the state in
which the Participant resided.
6.4 Distribution to Guardian. If the Committee shall find that any
person to whom any payment is payable under this Plan is unable to care for his
or her affairs because of illness or accident, or is a minor, a payment due
(unless a prior claim therefor shall have been made by a duly appointed guardian
or other legal representative) may be paid to the spouse, a child, a parent, or
a brother or sister, or to any custodian, conservator or other fiduciary
responsible for the management and control of such person's financial affairs in
such manner and proportions as the Committee may determine. Any such payment
shall be a complete discharge of the liabilities of the Trust under this Plan.
6.5 Withholding of Taxes. To the extent any Distribution from the Trust
is subject to withholding taxes, the Committee may require, as a condition to
the payment of such Distribution, that the Participant or Beneficiary who is
eligible for the Distribution:
(a) make payment to the Company in the form of a check for such
withholding taxes; or
(b) consent to the withholding of shares of Company Stock by the
Trustee sufficient in value to satisfy such withholding taxes, in which case
such shares shall be delivered to the Company which shall make the appropriate
tax withholding.
The Committee may offer either or both of these options to the Participant or
Beneficiary in the Committee's sole discretion.
ARTICLE VII
ACCELERATION OF DISTRIBUTION AND VESTING
7.1 Termination of Employment or Death. Unless sooner distributed in
accordance with Section 6.1, the vested portion of a Participant's Accounts
shall be distributed from the Trust as soon as practicable following termination
of the Participant's employment with the Company for any reason, including
death. Termination of employment shall include certain leaves of absence and
changes in status as specified in Section 2.4. The Participant and Beneficiary
shall forfeit any unvested portion of the Accounts at the time of such
termination or death.
7.2 Change in Control. Every Account shall become fully vested and shall
be immediately distributed to the Participants to whom such Accounts belong,
upon the occurrence of a Change in Control (as hereinafter defined) of the
Company. A Change in Control shall be deemed to occur upon any "person" (as
defined in Section 3(a)(9) of the Securities Exchange Act of 1934), other than
the Company, any subsidiary or any employee benefit plan or trust maintained by
the Company or subsidiary becoming the beneficial owner (as defined in Rule
13d-3 under the
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<PAGE> 10
Securities Exchange Act of 1934), directly or indirectly, of more than 25% of
the Company Stock outstanding at such time, without the prior approval of the
Board. For purposes of the foregoing, a subsidiary is any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations, other than the last corporation in such chain, owns at least fifty
percent (50%) of the total voting power in one of the other corporations in such
chain.
7.3 Hardship. Notwithstanding the provisions of Section 6.1 hereof, a
Participant shall be entitled to request a hardship Distribution of all or any
portion of the vested portion of his or her Account(s). A Participant must make
a written request for a hardship Distribution, stating the reasons such
withdrawal is necessary because of a financial hardship. The Committee, in its
sole discretion, shall determine whether or not to grant the hardship
Distribution of such Participant's Account(s) and, in so doing, may rely on the
Participant's statements, and a hardship Distribution may be approved without
further investigation unless the Committee has reason to believe such statements
are false.
ARTICLE VIII
PLAN TERMINATION AND AMENDMENT
8.1 Termination and Amendments. The Plan shall continue until all
amounts have been distributed in accordance with the terms of the Plan.
Notwithstanding the foregoing sentence, the Board retains the right to amend or
terminate the Plan for any reason, including but not limited to adverse changes
in accounting rules or tax laws or the bankruptcy, receivership or dissolution
of the Company. In the event of a Plan amendment or termination, benefits will
either be paid out when due under the terms of the Plan or as soon as possible
as determined by the Committee in its sole discretion. To the extent feasible,
the Committee shall use its best efforts to avoid adversely affecting the rights
of any existing Participants in the Plan, but the Committee shall be under no
specific duty or obligation in this regard.
ARTICLE IX
PLAN ADMINISTRATION
9.1 Committee. The Plan shall be administered by the Committee. Subject
to the provisions of the Plan and the authority granted hereunder to the
Awarding Authority, the Committee shall have exclusive power to determine the
manner and time of Awards and payment of benefits to the extent herein provided
and to exercise any other discretionary powers granted to the Committee pursuant
to the Plan. The decisions or determinations by the Committee shall be final and
binding upon all parties, including shareholders, Participants and other
Employees. Without limiting the generality of the foregoing, the Committee shall
have the authority to determine whether a termination of employment has occurred
for purposes of the Plan's vesting
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<PAGE> 11
and forfeiture provisions, and such determinations need not be uniformly applied
as among Employees. The Committee shall have the authority to interpret the
Plan, to make factual findings and determinations, to adopt and revise rules and
regulations relating to the Plan and to make any other determinations which it
believes necessary or advisable for the administration of the Plan. The
Committee's discretion in these matters shall be as broad and unfettered as
permitted by law.
9.2 Committee Powers. The Committee shall have all powers necessary to
supervise the administration of the Plan and control its operations. In addition
to any powers and authority conferred on the Committee elsewhere in the Plan or
by law, the Committee shall have, by way of illustration and not by way of
limitation, the following powers and authority:
(a) To designate agents to carry out responsibilities relating to
the Plan;
(b) To employ such legal, actuarial, medical, accounting, clerical
and other assistance as it may deem appropriate in carrying out the provisions
of this Plan;
(c) To administer, interpret, construe and apply this Plan and to
decide all questions which may arise or which may be raised under this Plan by
any Employee, Participant, Beneficiary or other person whomsoever, including but
not limited to all questions relating to eligibility to participate in the Plan,
determination of Awards and the amount of benefits to which any Participant may
be entitled;
(d) To establish rules and procedures from time to time for the
conduct of its business and for the administration and effectuation of its
responsibilities under the Plan;
(e) To establish claims procedures, and to make forms available
for filing of such claims, and to provide the name of the person or persons with
whom such claims should be filed. The Committee shall establish procedures for
action upon claims initially made and the communication of a decision to the
claimant promptly and, in any event, not later than sixty (60) days after the
date of the claim; the claim may be deemed by the claimant to have been denied
for purposes of further review described below in the event a written decision
is not furnished to the claimant within such sixty (60) day period. Every claim
for benefits which is denied shall be denied by written notice setting forth in
a manner calculated to be understood by the claimant (1) the specific reason or
reasons for the denial, (2) specific reference to any provisions of this Plan on
which denial is based, (3) description of any additional material or information
necessary for the claimant to perfect his claim with an explanation of why such
material or information is necessary, and (4) an explanation of the procedure
for further reviewing the denial of the claim under the Plan. The Committee
shall establish a procedure for review of claim denials, such review to be
undertaken by the Committee. The review given after denial of any claim shall be
a full and fair review with the claimant or his duly authorized representative
having one hundred eighty (180) days after receipt of denial of his claim to
request such review, having the right to review all pertinent documents and the
right to submit issues and comments in writing. The Committee shall establish a
procedure for issuance of a decision by the Committee not later than
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<PAGE> 12
sixty (60) days after receipt of a request for review from a claimant unless
special circumstances, such as the need to hold a hearing, require a longer
period of time, in which case a decision shall be rendered as soon as possible
but not later than one hundred twenty (120) days after receipt of the claimant's
request for review. The decision on review shall be in writing and shall include
specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific reference to any provisions of this
Plan on which the decision is based; and
(f) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate, or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants and their beneficiaries. All discretionary powers conferred
upon the Committee shall be absolute.
9.3 Plan Expenses. Members of the Committee shall serve as such without
compensation from the Plan, but may receive compensation from the Company for so
serving. All Plan administration expenses shall be borne by the Company or the
Trust as determined by the Committee in its sole discretion.
9.4 Reliance Upon Documents and Opinions.
(a) The members of the Committee, the Board, and the Company shall
be entitled to rely upon any:
(i) Tables, valuations, computations, estimates,
certificates, opinions and reports furnished by any consultant, or firm or
corporation which employs one or more consultants or advisors; and
(ii) Computations, estimates and reports furnished by any
consultants or consulting firms.
(b) The members of the Committee, the Board, and the Company shall
be fully protected and shall not be liable in any manner whatsoever for anything
done or action taken or suffered in reliance upon any such consultant, firm, or
corporation which employs one or more consultants or counsel.
(c) Any and all such things done or such actions taken or suffered
by the Committee, the Board, and the Company in so relying shall be conclusive
and binding on all Employees, Participants, Beneficiaries and any other persons
whomsoever, except as otherwise provided by law.
(d) The Committee may, but is not required to, rely upon all
records of the Company with respect to any matter or thing whatsoever, and may
likewise treat such records as
- 9 -
<PAGE> 13
conclusive with respect to all Employees, Participants, Beneficiaries and any
other persons whomsoever, except as otherwise provided by law.
9.5 Requirement of Proof. The Committee, the Board, or the Company may
require satisfactory proof of any matter under this Plan from or with respect to
any Employee, Participant or Beneficiary, and no such person shall acquire any
rights or be entitled to receive any benefits under this Plan until such proof
shall be furnished as so required.
9.6 Limitation on Liability. No employee or director of the Company and
no other person shall be subject to any liability by reason of or arising from
his or her participation in the establishment or administration or operation of
the Plan unless he or she acts fraudulently or in bad faith.
9.7 Indemnification.
(a) To the extent permitted by law, the Company shall indemnify
each member of the Awarding Authority, of the Committee, and any other employee
or director of the Company who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed proceeding, whether civil,
criminal, administrative, or investigative, by reason of his or her conduct in
the performance in connection with the establishment or administration of the
Plan or any amendment or termination of the Plan.
(b) This indemnification shall apply against expenses including,
without limitation, attorneys fees and any expenses of establishing a right to
indemnification hereunder, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding, except in
relation to matters as to which he or she has acted fraudulently or in bad faith
in the performance of such duties.
(c) The termination of any proceeding by judgment, order,
settlement, conviction, upon a plea of nolo contendere or its equivalent shall
not, in and of itself, create a presumption that the person acted fraudulently
or in bad faith in the performance of his or her duties.
(d) Expenses incurred in defending any such proceeding may be
advanced by the Company prior to the final disposition of such proceeding, upon
receipt of an undertaking by or on behalf of the recipient to repay such amount,
unless it shall be determined ultimately that the recipient is entitled to be
indemnified as authorized in this Section 9.7.
(e) The right of indemnification set forth in this Section 9.7
shall be in addition to any other right to which any Awarding Authority member,
Committee member or other person may be entitled as a matter of law, by
corporate bylaws or otherwise.
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<PAGE> 14
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Restrictions on Plan Interest.
(a) A Participant's interest in this Plan shall be limited to his
or her Account in the Trust and he or she shall have no other interest in any
assets of the Company nor any right as against the Company, Awarding Authority
or Committee for payment of benefits under this Plan.
(b) None of the benefits, payments, proceeds, claims or rights
hereunder of any Participant or Beneficiary shall be subject to any claim of any
creditor of such Participant or Beneficiary and in particular the same shall not
be subject to attachment, garnishment, or other legal process by any creditor of
such Participant or Beneficiary.
(c) A Participant or Beneficiary shall not have any right to
alienate, anticipate, commute, pledge, encumber, or assign any of the benefits
or payments or proceeds which he or she may expect to receive, contingently or
otherwise, under the Plan.
(d) A Participant's and Beneficiary's interest in this Plan and
his or her Account in the Trust are subject to the claims of the Company's
creditors as provided in the Trust. Each Participant and Beneficiary shall,
however, be considered a general creditor of the Company with respect to the
assets held in his or her Account in the Trust, so that if the Company should
become insolvent, the Participant or Beneficiary will have a claim against the
Trust assets equal to that of the Company's other general creditors (regardless
of whether such assets are removed from the trust by a trustee in bankruptcy).
10.2 No Enlargement of Employee Rights.
(a) This Plan is strictly a voluntary undertaking on the part of
the Company and shall not be deemed to constitute a contract between the Company
and any Employee, or to be consideration for, or an inducement to, or a
condition of, the employment of any Employee.
(b) An Employee's employment with the Company is not for any
specified term and may be terminated by such Employee or by the Company at any
time for any reason, with or without cause. Nothing in this Plan or in any
agreement pursuant to this Plan shall confer upon any Employee or Participant
any right to continue in the employ of or affiliation with the Company nor
constitute any promise or commitment by the Company regarding future positions,
future work assignments, future compensation or any other term or condition of
employment or affiliation.
(c) No person shall have any right to any benefits under this
Plan, except to the extent expressly provided herein.
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<PAGE> 15
(d) The Plan is not intended to nor shall it be deemed to be a
Plan providing retirement income or resulting in the deferral of income by
employees for periods extending to the termination of covered employment or
beyond.
10.3 Rights of Repurchase and First Refusal for the Company. Any Company
Stock distributed from the Plan shall be subject to a right of repurchase and
right of first refusal by the Company. The terms and conditions of the right of
repurchase and right of first refusal shall be those applied to Company Stock by
the Certificate of Incorporation of Science Applications International
Corporation, as in effect from time to time.
10.4 Mailing of Payments. All payments under the Plan shall be delivered
in person or mailed to the last address of the Participant (or, in the case of
the death of the Participant to that of any other person entitled to such
payments under the terms of the Plan). Each Participant shall be responsible for
furnishing the Committee with his or her correct current address and the correct
current name and address of his or her Beneficiary.
10.5 Inability to Locate Participant or Beneficiary. In the event that
the Committee is unable to locate a Participant or Beneficiary to whom benefits
are payable hereunder after mailing a notice to the Participant's or
Beneficiary's last known address, and such inability lasts for a period of three
(3) years, then any remaining benefits payable hereunder shall be forfeited to
the Company and no Participant or Beneficiary shall have any right to further
benefits from the Plan, even if subsequently located.
10.6 Governing Law. All legal questions pertaining to the Plan shall be
determined in accordance with the laws of the State of California.
10.7 Records. The records of the Company with respect to the Plan shall
be conclusive on all Participants, Beneficiaries, and all other persons
whomsoever.
10.8 Illegality of Particular Provision. If any particular provision of
this Plan shall be found to be illegal or unenforceable, such provision shall
not affect the other provisions thereof, but the Plan shall be construed in all
respect as if such invalid provision were omitted.
10.9 Receipt or Release. Any payment to any Participant or Beneficiary in
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Awarding Authority, the Committee
and the Company, and the Committee may require such Participant or Beneficiary,
as a condition precedent to such payment, to execute a receipt and release to
such effect.
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<PAGE> 16
10.10 Arbitration. The Committee's written decision on review of a denial
of benefits, as provided in Section 9.2(e), shall be final, conclusive and
binding on all Participants, Beneficiaries and Employees of the Company.
Notwithstanding the foregoing, any person disputing such a written decision
shall submit such dispute to binding Arbitration pursuant to the rules of the
American Arbitration Association, to be held in San Diego County. The losing
party in such arbitration proceedings shall bear the costs of arbitration, and
each party shall bear its own attorneys' fees.
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<PAGE> 1
EXHIBIT 10.D
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
MANAGEMENT STOCK COMPENSATION PLAN
Effective as of January 1, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
PURPOSE .......................................................................1
ARTICLE I DEFINITIONS ...............................................................1
1.1 Account ................................................................1
1.2 Award ..................................................................1
1.3 Awarding Authority .....................................................1
1.4 Beneficiary ............................................................1
1.5 Board ..................................................................1
1.6 Committee ..............................................................1
1.7 Company.................................................................1
1.8 Company Stock ..........................................................1
1.9 Distribution ...........................................................1
1.10 Employee ...............................................................2
1.11 Participant ............................................................2
1.12 Plan ...................................................................2
1.13 Share Unit .............................................................2
1.14 Trust ..................................................................2
1.15 Trustee ................................................................2
ARTICLE II PARTICIPATION AND AWARDS ..................................................2
2.1 Designation by Awarding Authority ......................................2
2.2 Awarding Authority to Make Awards ......................................2
2.3 Awards to be Held in Trust .............................................2
2.4 Vesting and Forfeiture .................................................3
ARTICLE III TRUST FUND.................................................................3
3.1 Trust Fund Established .................................................3
3.2 Company, Committee and Trustee
Not Responsible for Adequacy of Trust Fund .............................3
ARTICLE IV ACCOUNTING PROCEDURES .....................................................4
4.1 Committee to Maintain Accounts .........................................4
4.2 Accounting Procedures ..................................................4
4.3 Invasion of Trust by Creditors .........................................4
4.4 Trust Expenses .........................................................4
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE V RIGHTS IN ACQUIRED STOCK .................................................4
5.1 Power to Vote Stock Rests with Trustee .................................4
5.2 Tender Offers ..........................................................4
5.3 Dividends ..............................................................4
ARTICLE VI DISTRIBUTION OF ACCOUNTS .................................................5
6.1 Time of Distribution ...................................................5
6.2 Form of Distribution ...................................................5
6.3 Beneficiary Designation ................................................5
6.4 Distribution to Guardian ...............................................6
6.5 Withholding of Taxes....................................................6
ARTICLE VII ACCELERATION OF DISTRIBUTION AND VESTING .................................6
7.1 Termination of Employment or Death .....................................6
7.2 Change in Control ......................................................6
7.3 Hardship ...............................................................7
ARTICLE VIII PLAN TERMINATION AND AMENDMENT ...........................................7
8.1 Termination and Amendments .............................................7
ARTICLE IX PLAN ADMINISTRATION ......................................................7
9.1 Committee ..............................................................7
9.2 Committee Powers .......................................................8
9.3 Plan Expenses ..........................................................9
9.4 Reliance Upon Documents and Opinions ...................................9
9.5 Requirement of Proof ..................................................10
9.6 Limitation on Liability ...............................................10
9.7 Indemnification .......................................................10
ARTICLE X MISCELLANEOUS PROVISIONS ................................................11
10.1 Restrictions on Plan Interest .........................................11
10.2 No Enlargement of Employee Rights .....................................11
10.3 Rights of Repurchase and
First Refusal for the Company..........................................12
10.4 Mailing of Payments ...................................................12
10.5 Inability to Locate Participant or Beneficiary ........................12
10.6 Governing Law .........................................................12
10.7 Records ...............................................................12
10.8 Illegality of Particular Provision ....................................12
10.9 Receipt or Release ....................................................12
10.10 Arbitration ...........................................................13
</TABLE>
ii
<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
MANAGEMENT STOCK COMPENSATION PLAN
PURPOSE
This Plan is an unfunded compensation arrangement established effective on
April 3, 1996, by Science Applications International Corporation ("SAIC") to
make deferred awards of company stock to selected management and highly
compensated employees.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in the Plan they shall have the
meaning specified below, unless the context indicates clearly to the contrary.
1.1 Account. The bookkeeping account established for an Employee
pursuant to Article IV to record the number of Share Units awarded to the
Employee and the vesting thereof.
1.2 Award. The award of Share Units in the Trust to an Employee pursuant
to the Plan.
1.3 Awarding Authority. The individual or group of individuals appointed
by the Board to make Awards pursuant to the Plan.
1.4 Beneficiary. The person or persons properly designated by the
Participant, in accordance with Section 6.3, to receive the benefits provided
herein upon death of the Participant.
1.5 Board. The Board of Directors of Science Applications International
Corporation.
1.6 Committee. The committee appointed by the Board to administer the
Plan. Members of the Committee shall be eligible to receive Awards under the
Plan at the discretion of the Awarding Authority.
1.7 Company. Science Applications International Corporation, a Delaware
corporation, and any subsidiary thereof, the participation in this Plan of the
Employees of which is approved by the Awarding Authority.
1.8 Company Stock. The Class A Common Stock of Science Applications
International Corporation.
1.9 Distribution. Payment of the vested balance in a Participant's
Account from the Trust to the Participant or the Participant's Beneficiary.
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<PAGE> 5
1.10 Employee. A management or highly compensated employee of the
Company, as determined by the Committee.
1.11 Participant. An Employee designated by the Committee to receive an
Award under the Plan.
1.12 Plan. The Science Applications International Corporation Stock
Compensation Plan for Management Employees as set forth herein and as amended
from time to time by the Board.
1.13 Share Unit. The interest of a Participant in a share of Company
Stock held in the Participant's Account in the Trust.
1.14 Trust. The Science Applications International Corporation Stock
Compensation Plan Trust established by the Company to hold all assets awarded to
Participants under the Plan.
1.15 Trustee. State Street Bank or such successor trustee as shall be
appointed pursuant to the Trust.
ARTICLE II
PARTICIPATION AND AWARDS
2.1 Designation by Awarding Authority. The Awarding Authority in its
sole discretion shall designate those Employees who are to receive Awards under
the Plan. The Awarding Authority's designation of an Employee for a particular
Award shall not require the Awarding Authority to make any further Awards to
such Employee.
2.2 Awarding Authority to Make Awards. The Awarding Authority shall make
Awards under the Plan by determining a number of Share Units to be credited to
those Employees whom the Awarding Authority has selected for participation in
the Plan corresponding to a specified number of shares of Company Stock
allocated in the Trust to such Employees, and by establishing an Account in
favor of such Employees in accordance with Article IV to hold such Share Units.
A separate Account shall be established for each Award. Each Account shall be
subject to a vesting schedule specified by the Awarding Authority. The amount,
timing and vesting of each Award shall be decided in the Awarding Authority's
sole discretion, and the Awarding Authority may apply different terms to Awards
made to different Employees as well as to different Awards made to the same
Employee.
2.3 Awards to be Held in Trust. Within a reasonable period of time
following the date of an Award, SAIC shall contribute to the Trust Company Stock
or an amount of money sufficient to purchase shares of Company Stock
corresponding to the Share Units made in such Award. The Trustee shall apply
such contribution toward the purchase of Company Stock in accordance with the
directions of the Committee and the terms of the Trust. To the extent any such
Award is made
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<PAGE> 6
to an Employee of an affiliate of SAIC, SAIC may charge the cost of the
corresponding Trust contribution to such affiliate as agreed between SAIC and
the affiliate.
2.4 Vesting and Forfeiture. Each Account shall be subject to a vesting
schedule, not to exceed seven (7) years, established by the Awarding Authority.
Vesting shall cease upon termination of the Participant's employment with the
Company for any reason other than the death of the Participant. For purposes of
the Plan, an Employee's leave of absence exceeding thirty (30) days other than
(i) a leave of absence caused by the Employee's disability, as defined under the
terms of any of the Company's short-term or long-term disability plans, (ii) a
qualified military leave as determined by the Committee, or (iii) a family or
medical leave covered by federal or state family/medical leave acts, shall be
considered a termination of employment effective on the thirtieth day of such
leave of absence. An Employee's change in status to that of consulting employee
shall also be considered a termination of employment for purposes of the Plan.
Further, an Employee's change in status to a part-time Employee, which status
exists for an aggregate period or periods (whether or not consecutive) of six
months, shall be considered a termination of employment as of the end of such
six-month period. For this purpose "part-time Employee" shall mean an Employee
whose scheduled work week is less than 30 hours. In the event of the death of a
Participant, all of the Participant's Accounts shall become immediately vested.
The unvested portion of a Participant's Accounts upon termination of employment
shall be immediately forfeited by the Participant, and the shares of Company
Stock represented by such unvested portion shall be returned to the Company or
reallocated in accordance with the Committee's directions and the terms of the
Trust.
ARTICLE III
TRUST FUND
3.1 Trust Fund Established. The Company has established the Trust
pursuant to a trust agreement under which the Trustee will hold and administer
in trust all assets deposited with the Trustee in accordance with the terms of
this Plan. The Board shall have the authority to select and remove the Trustee
to act under the Trust agreement, and to enter into new or amended trust
agreements as it deems advisable.
3.2 Company, Committee and Trustee Not Responsible for Adequacy of Trust
Fund. Neither the Company, Committee nor Trustee shall be liable or responsible
for the adequacy of the Trust Fund to meet and discharge any or all payments and
liabilities hereunder. All Plan benefits will be paid only from the Trust
assets, and neither the Company, the Committee nor the Trustee shall have any
duty or liability to furnish the Trust with any funds, securities or other
assets except as expressly provided in Section 2.3 hereof.
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<PAGE> 7
ARTICLE IV
ACCOUNTING PROCEDURES
4.1 Committee to Maintain Accounts. The Committee shall open and
maintain a separate Account with respect to each Award made under the Plan for
purposes of keeping a record of the assets held in Trust for each Participant
and for recording the vesting status of each Award.
4.2 Accounting Procedures. The Committee shall establish and may amend
from time to time accounting procedures for the purpose of making allocations,
Distributions, valuations and adjustments to Accounts provided for in this
Article IV. A Participant or Beneficiary shall have no contractual or other
right to have a particular accounting procedure or convention apply, or continue
to apply, and the Committee shall be free to alter any such procedure or
convention without obligation to any Participant or Beneficiary.
4.3 Invasion of Trust by Creditors. If assets of the Trust should be
reduced due to action of the Company's Creditors, as provided in the Trust
document, the Committee shall reduce each Account on a pro rata basis to reflect
such reduction in Trust assets, and the Company shall have no obligation to
replace such lost assets.
4.4 Trust Expenses. Expenses of the Trust which are not paid by the
Company shall be applied to reduce each Account on a pro rata basis.
ARTICLE V
RIGHTS IN ACQUIRED STOCK
5.1 Power to Vote Stock Rests With Trustee. The power to vote any stock
held by the Trustee shall rest solely with the Trustee, who shall vote such
stock in the same proportion that the other shareholders vote their shares of
Company Stock. For purposes of this Section 5.1, Company Stock shall include
both Class A and Class B Common Stock.
5.2 Tender Offers. In the case of a tender offer for the Company Stock,
the Trustee shall tender the shares of Company Stock held by the Trust only if
more than fifty percent (50%) of the shares of Company Stock held outside the
Trust are tendered by the shareholders.
5.3 Dividends. All dividends on Company Stock held in Trust shall be
held by the Trustee and reinvested as directed by the Committee. The Committee
shall allocate such dividends among the Accounts pro rata to the shares
allocated to each Account.
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<PAGE> 8
ARTICLE VI
DISTRIBUTION OF ACCOUNTS
6.1 Time of Distribution. Subject to the acceleration provisions of
Article VII, a Participant's Account shall be Distributed as follows:
(a) The vested portion of the Participant's Account shall be
distributed within a reasonable period of time following the date (i) it becomes
vested, or (ii) the Participant's employment with the Company terminates
(including upon a leave of absence or change in status as specified in Section
2.4), as elected by the Participant in a manner prescribed by the Committee
within ninety (90) days following the date of the Award contained in the
Account. Such election shall be irrevocable.
(b) If the Participant fails to make the election described in
subsection (a), the Participant's Account shall be distributed in full within a
reasonable period of time following the seventh anniversary of the date of the
Award contained in such Account.
6.2 Form of Distribution. Distributions shall be made in the form of
Company Stock or cash, or part Company Stock and part cash, as the Committee
shall determine in its sole discretion.
6.3 Beneficiary Designation.
(a) Upon forms provided by the Committee, each Participant shall
designate in writing the Beneficiary or Beneficiaries whom such Participant
desires to receive the benefits of this Plan, if any, payable in the event of
such Participant's death. A Participant may from time to time change his or her
designated Beneficiary or Beneficiaries without the consent of such Beneficiary
or Beneficiaries by filing a new designation in writing with the Committee;
provided, however, that if a married Participant wishes to designate an
individual other than his or her spouse as Beneficiary, such designation shall
not be effective unless consented to in writing by the spouse. Notwithstanding
the foregoing, spousal consent shall not be necessary if it is established to
the satisfaction of the Committee that there is no spouse of the Participant or
that the required consent cannot be obtained because the spouse cannot be
located or is legally incompetent. The Company may rely upon the designation of
Beneficiary or Beneficiaries last filed by the Participant in accordance with
the terms of this Plan.
(b) If the designated Beneficiary does not survive the
Participant, or if there is no valid Beneficiary designation, amounts payable
under the Plan shall be paid to the Participant's spouse, or if there is no
surviving spouse, then to the duly appointed and currently acting personal
representative of the Participant's estate. If there is no personal
representative of the Participant's estate duly appointed and acting in that
capacity within sixty (60) days after the Participant's death, then all payments
due under the Plan shall be payable to the person or persons who can verify by
affidavit or court order to the satisfaction of the Committee that they are
legally entitled to receive
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<PAGE> 9
the benefits specified hereunder pursuant to the laws of intestate succession or
other statutory provision in effect at the Participant's death in the state in
which the Participant resided.
6.4 Distribution to Guardian. If the Committee shall find that any
person to whom any payment is payable under this Plan is unable to care for his
or her affairs because of illness or accident, or is a minor, a payment due
(unless a prior claim therefor shall have been made by a duly appointed guardian
or other legal representative) may be paid to the spouse, a child, a parent, or
a brother or sister, or to any custodian, conservator or other fiduciary
responsible for the management and control of such person's financial affairs in
such manner and proportions as the Committee may determine. Any such payment
shall be a complete discharge of the liabilities of the Trust under this Plan.
6.5 Withholding of Taxes. To the extent any Distribution from the Trust
is subject to withholding taxes, the Committee may require, as a condition to
the payment of such Distribution, that the Participant or Beneficiary who is
eligible for the Distribution:
(a) make payment to the Company in the form of a check for such
withholding taxes; or
(b) consent to the withholding of shares of Company Stock by the
Trustee sufficient in value to satisfy such withholding taxes, in which case
such shares shall be delivered to the Company which shall make the appropriate
tax withholding.
The Committee may offer either or both of these options to the Participant or
Beneficiary in the Committee's sole discretion.
ARTICLE VII
ACCELERATION OF DISTRIBUTION AND VESTING
7.1 Termination of Employment or Death. Unless sooner distributed in
accordance with Section 6.1, and notwithstanding any provision to the contrary
in Section 6.1, the vested portion of a Participant's Accounts shall be
distributed from the Trust as soon as practicable following termination of the
Participant's employment with the Company for any reason, including death.
Termination of employment shall include certain leaves of absence and changes in
status as specified in Section 2.4. The Participant and Beneficiary shall
forfeit any unvested portion of the Accounts at the time of such termination or
death.
7.2 Change in Control. Every Account shall become fully vested and shall
be immediately distributed to the Participants to whom such Accounts belong,
upon the occurrence of a Change in Control (as hereinafter defined) of the
Company. A Change in Control shall be deemed to occur upon any "person" (as
defined in Section 3(a)(9) of the Securities Exchange Act of 1934), other than
the Company, a subsidiary or any employee benefit plan or trust maintained
by the Company or a subsidiary becoming the beneficial owner (as defined in Rule
13d-3 under
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<PAGE> 10
the Securities Exchange Act of 1934), directly or indirectly, of more than 25%
of the Company Stock outstanding at such time, without the prior approval of the
Board. For purposes of the foregoing, a subsidiary is any corporation in an
unbroken chain of corporations beginning with the Company if each of the
corporations, other than the last corporation in such chain, owns at least fifty
percent (50%) of the total voting power in one of the other corporations in such
chain.
7.3 Hardship. Notwithstanding the provisions of Section 6.1 hereof, a
Participant shall be entitled to request a hardship Distribution of all or any
portion of the vested portion of his or her Account(s). A Participant must make
a written request for a hardship Distribution, stating the reasons such
withdrawal is necessary because of a financial hardship. The Committee, in its
sole discretion, shall determine whether or not to grant the hardship
Distribution of such Participant's Account(s) and, in so doing, may rely on the
Participant's statements, and a hardship Distribution and vesting acceleration
may be approved without further investigation unless the Committee has reason to
believe such statements are false.
ARTICLE VIII
PLAN TERMINATION AND AMENDMENT
8.1 Termination and Amendments. The Plan shall continue until all
amounts have been distributed in accordance with the terms of the Plan.
Notwithstanding the foregoing sentence, the Board retains the right to amend or
terminate the Plan for any reason, including but not limited to adverse changes
in accounting rules or tax laws or the bankruptcy, receivership or dissolution
of the Company. In the event of a Plan amendment or termination, benefits will
either be paid out when due under the terms of the Plan or as soon as possible
as determined by the Committee in its sole discretion. To the extent feasible,
the Committee shall use its best efforts to avoid adversely affecting the rights
of any existing Participants in the Plan, but the Committee shall be under no
specific duty or obligation in this regard.
ARTICLE IX
PLAN ADMINISTRATION
9.1 Committee. The Plan shall be administered by the Committee. Subject
to the provisions of the Plan and the authority granted hereunder to the
Awarding Authority, the Committee shall have exclusive power to determine the
manner and time of Awards and payment of benefits to the extent herein provided
and to exercise any other discretionary powers granted to the Committee pursuant
to the Plan. The decisions or determinations by the Committee shall be final and
binding upon all parties, including shareholders, Participants and other
Employees. Without limiting the generality of the foregoing, the Committee shall
have the authority to determine whether a termination of employment has occurred
for purposes of the Plan's vesting and forfeiture provisions, and such
determinations need not be uniformly applied as among Employees. The Committee
shall have the authority to interpret the Plan, to make factual findings
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and determinations, to adopt and revise rules and regulations relating to the
Plan and to make any other determinations which it believes necessary or
advisable for the administration of the Plan. The Committee's discretion in
these matters shall be as broad and unfettered as permitted by law.
9.2 Committee Powers. The Committee shall have all powers necessary to
supervise the administration of the Plan and control its operations. In addition
to any powers and authority conferred on the Committee elsewhere in the Plan or
by law, the Committee shall have, by way of illustration and not by way of
limitation, the following powers and authority:
(a) To designate agents to carry out responsibilities relating to
the Plan;
(b) To employ such legal, actuarial, medical, accounting, clerical
and other assistance as it may deem appropriate in carrying out the provisions
of this Plan;
(c) To administer, interpret, construe and apply this Plan and to
decide all questions which may arise or which may be raised under this Plan by
any Employee, Participant, Beneficiary or other person whomsoever, including but
not limited to all questions relating to eligibility to participate in the Plan,
determination of Awards and the amount of benefits to which any Participant may
be entitled;
(d) To establish rules and procedures from time to time for the
conduct of its business and for the administration and effectuation of its
responsibilities under the Plan;
(e) To establish claims procedures, and to make forms available
for filing of such claims, and to provide the name of the person or persons with
whom such claims should be filed. The Committee shall establish procedures for
action upon claims initially made and the communication of a decision to the
claimant promptly and, in any event, not later than sixty (60) days after the
date of the claim; the claim may be deemed by the claimant to have been denied
for purposes of further review described below in the event a written decision
is not furnished to the claimant within such sixty (60) day period. Every claim
for benefits which is denied shall be denied by written notice setting forth in
a manner calculated to be understood by the claimant (1) the specific reason or
reasons for the denial, (2) specific reference to any provisions of this Plan on
which denial is based, (3) description of any additional material or information
necessary for the claimant to perfect his claim with an explanation of why such
material or information is necessary, and (4) an explanation of the procedure
for further reviewing the denial of the claim under the Plan. The Committee
shall establish a procedure for review of claim denials, such review to be
undertaken by the Committee. The review given after denial of any claim shall be
a full and fair review with the claimant or his duly authorized representative
having one hundred eighty (180) days after receipt of denial of his claim to
request such review, having the right to review all pertinent documents and the
right to submit issues and comments in writing. The Committee shall establish a
procedure for issuance of a decision by the Committee not later than sixty (60)
days after receipt of a request for review from a claimant unless special
circumstances, such as the need to hold a hearing, require a longer period of
time, in which case a decision shall be rendered as soon as possible but not
later than one hundred twenty (120) days after receipt of the claimant's request
for review. The decision on review shall be in writing and shall include
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<PAGE> 12
specific reasons for the decision written in a manner calculated to be
understood by the claimant with specific reference to any provisions of this
Plan on which the decision is based; and
(f) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate, or convenient in the efficient
administration of the Plan.
Any action taken in good faith by the Committee in the exercise of
authority conferred upon it by this Plan shall be conclusive and binding upon
the Participants and their beneficiaries. All discretionary powers conferred
upon the Committee shall be absolute.
9.3 Plan Expenses. Members of the Committee shall serve as such without
compensation from the Plan, but may receive compensation from the Company for so
serving. All Plan administration expenses shall be borne by the Company or the
Trust as determined by the Committee in its sole discretion.
9.4 Reliance Upon Documents and Opinions.
(a) The members of the Committee, the Board, and the Company shall
be entitled to rely upon any:
(i) Tables, valuations, computations, estimates,
certificates, opinions and reports furnished by any consultant, or firm or
corporation which employs one or more consultants or advisors; and
(ii) Computations, estimates and reports furnished by any
consultants or consulting firms.
(b) The members of the Committee, the Board, and the Company shall
be fully protected and shall not be liable in any manner whatsoever for anything
done or action taken or suffered in reliance upon any such consultant, firm, or
corporation which employs one or more consultants or counsel.
(c) Any and all such things done or such actions taken or suffered
by the Committee, the Board, and the Company in so relying shall be conclusive
and binding on all Employees, Participants, Beneficiaries and any other persons
whomsoever, except as otherwise provided by law.
(d) The Committee may, but is not required to, rely upon all
records of the Company with respect to any matter or thing whatsoever, and may
likewise treat such records as conclusive with respect to all Employees,
Participants, Beneficiaries and any other persons whomsoever, except as
otherwise provided by law.
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9.5 Requirement of Proof. The Committee, the Board, or the Company may
require satisfactory proof of any matter under this Plan from or with respect to
any Employee, Participant or Beneficiary, and no such person shall acquire any
rights or be entitled to receive any benefits under this Plan until such proof
shall be furnished as so required.
9.6 Limitation on Liability. No employee or director of the Company and
no other person shall be subject to any liability by reason of or arising from
his or her participation in the establishment or administration or operation of
the Plan unless he or she acts fraudulently or in bad faith.
9.7 Indemnification.
(a) To the extent permitted by law, the Company shall indemnify
each member of the Awarding Authority, of the Committee, and any other employee
or director of the Company who was or is a party, or is threatened to be made a
party, to any threatened, pending or completed proceeding, whether civil,
criminal, administrative, or investigative, by reason of his or her conduct in
the performance in connection with the establishment or administration of the
Plan or any amendment or termination of the Plan.
(b) This indemnification shall apply against expenses including,
without limitation, attorneys fees and any expenses of establishing a right to
indemnification hereunder, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding, except in
relation to matters as to which he or she has acted fraudulently or in bad faith
in the performance of such duties.
(c) The termination of any proceeding by judgment, order,
settlement, conviction, upon a plea of nolo contendere or its equivalent shall
not, in and of itself, create a presumption that the person acted fraudulently
or in bad faith in the performance of his or her duties.
(d) Expenses incurred in defending any such proceeding may be
advanced by the Company prior to the final disposition of such proceeding, upon
receipt of an undertaking by or on behalf of the recipient to repay such amount,
unless it shall be determined ultimately that the recipient is entitled to be
indemnified as authorized in this Section 9.7.
(e) The right of indemnification set forth in this Section 9.7
shall be in addition to any other right to which any Awarding Authority member,
Committee member or other person may be entitled as a matter of law, by
corporate bylaws or otherwise.
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ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Restrictions on Plan Interest.
(a) A Participant's interest in this Plan shall be limited to his
or her Account in the Trust and he or she shall have no other interest in any
assets of the Company nor any right as against the Company, Awarding Authority
or Committee for payment of benefits under this Plan.
(b) None of the benefits, payments, proceeds, claims or rights
hereunder of any Participant or Beneficiary shall be subject to any claim of any
creditor of such Participant or Beneficiary and in particular the same shall not
be subject to attachment, garnishment, or other legal process by any creditor of
such Participant or Beneficiary.
(c) A Participant or Beneficiary shall not have any right to
alienate, anticipate, commute, pledge, encumber, or assign any of the benefits
or payments or proceeds which he or she may expect to receive, contingently or
otherwise, under the Plan.
(d) A Participant's and Beneficiary's interest in this Plan and
his or her Account in the Trust are subject to the claims of the Company's
creditors as provided in the Trust. Each Participant and Beneficiary shall,
however, be considered a general creditor of the Company with respect to the
assets held in his or her Account in the Trust, so that if the Company should
become insolvent, the Participant or Beneficiary will have a claim against the
Trust assets equal to that of the Company's other general creditors (regardless
of whether such assets are removed from the trust by a trustee in bankruptcy).
10.2 No Enlargement of Employee Rights.
(a) This Plan is strictly a voluntary undertaking on the part of
the Company and shall not be deemed to constitute a contract between the Company
and any Employee, or to be consideration for, or an inducement to, or a
condition of, the employment of any Employee.
(b) An Employee's employment with the Company is not for any
specified term and may be terminated by such Employee or by the Company at any
time for any reason, with or without cause. Nothing in this Plan or in any
agreement pursuant to this Plan shall confer upon any Employee or Participant
any right to continue in the employ of or affiliation with the Company nor
constitute any promise or commitment by the Company regarding future positions,
future work assignments, future compensation or any other term or condition of
employment or affiliation.
(c) No person shall have any right to any benefits under this
Plan, except to the extent expressly provided herein.
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<PAGE> 15
(d) The Plan is not intended to nor shall it be deemed to be a
Plan providing retirement income or resulting in the deferral of income by
employees for periods extending to the termination of covered employment or
beyond.
10.3 Rights of Repurchase and First Refusal for the Company. Any Company
Stock distributed from the Plan shall be subject to a right of repurchase and
right of first refusal by the Company. The terms and conditions of the right of
repurchase and right of first refusal shall be those applied to Company Stock by
the Certificate of Incorporation of Science Applications International
Corporation, as in effect from time to time.
10.4 Mailing of Payments. All payments under the Plan shall be delivered
in person or mailed to the last address of the Participant (or, in the case of
the death of the Participant to that of any other person entitled to such
payments under the terms of the Plan). Each Participant shall be responsible for
furnishing the Committee with his or her correct current address and the correct
current name and address of his or her Beneficiary.
10.5 Inability to Locate Participant or Beneficiary. In the event that
the Committee is unable to locate a Participant or Beneficiary to whom benefits
are payable hereunder after mailing a notice to the Participant's or
Beneficiary's last known address, and such inability lasts for a period of three
(3) years, then any remaining benefits payable hereunder shall be forfeited to
the Company and no Participant or Beneficiary shall have any right to further
benefits from the Plan, even if subsequently located.
10.6 Governing Law. All legal questions pertaining to the Plan shall be
determined in accordance with the laws of the State of California.
10.7 Records. The records of the Company with respect to the Plan shall
be conclusive on all Participants, Beneficiaries, and all other persons
whomsoever.
10.8 Illegality of Particular Provision. If any particular provision of
this Plan shall be found to be illegal or unenforceable, such provision shall
not affect the other provisions thereof, but the Plan shall be construed in all
respect as if such invalid provision were omitted.
10.9 Receipt or Release. Any payment to any Participant or Beneficiary in
accordance with the provisions of this Plan shall, to the extent thereof, be in
full satisfaction of all claims against the Awarding Authority, the Committee
and the Company, and the Committee may require such Participant or Beneficiary,
as a condition precedent to such payment, to execute a receipt and release to
such effect.
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10.10 Arbitration. The Committee's written decision on review of a denial
of benefits, as provided in Section 9.2(e), shall be final, conclusive and
binding on all Participants, Beneficiaries and Employees of the Company.
Notwithstanding the foregoing, any person disputing such a written decision
shall submit such dispute to binding Arbitration pursuant to the rules of the
American Arbitration Association, to be held in San Diego County. The losing
party in such arbitration proceedings shall bear the costs of arbitration, and
each party shall bear its own attorneys' fees.
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EXHIBIT 10(f)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1995 STOCK OPTION PLAN
1. PURPOSE
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1995 Stock Option
Plan (the "Plan"). The purpose of the Plan is to advance the interests of the
Company and its stockholders by providing a means by which the Company and its
Subsidiaries can attract and retain qualified key employees, directors and
consultants and provide such personnel with an opportunity to participate in the
increased value of the Company which their effort, initiative and skill have
helped produce.
2. DEFINITIONS
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the Class A Common Stock of the Company,
par value $.01.
(d) "Committee" shall mean the Company's Stock Option Committee
responsible for administering the Plan.
(e) "Employee/Optionee" shall mean an Optionee who is an employee of the
Company or any Subsidiary.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Exercise Price" shall mean the price per share at which an Option
may be exercised, as determined by the Committee and as specified in the
Optionee's option agreement.
(h) "Formula Price" shall mean the price per share of Common Stock as
established by the Board from time to time.
(i) "Option" shall mean an option to purchase Common Stock granted
pursuant to the Plan.
(j) "Optionee" shall mean any person who holds an Option pursuant to the
Plan.
(k) "Plan" shall mean this Science Applications International
Corporation 1995 Stock Option Plan, as it may be amended from time to time.
1
amended 10/2/96
<PAGE> 2
(l) "Purchase Price" shall mean at any particular time the Exercise
Price times the number of shares for which an Option is being exercised.
(m) "Subsidiary" as used in the Plan means any corporation (other than
the Company) in an unbroken chain of corporations beginning with the Company if
each of the corporations, other than the last corporation in such chain, owns at
least fifty percent (50%) of the total voting power in one of the other
corporations in such chain.
3. ADMINISTRATION
(a) The Committee. The Plan shall be administered by the Committee which
shall consist of not less than two directors appointed by the Board, each of
whom shall satisfy the requirements of Rule 16b-3, as amended, of the Exchange
Act. No member of the Committee shall be liable for any action or determination
in respect thereto, if made in good faith. The Committee may appoint a separate
committee with respect to Optionees who are not subject to Section 16 of the
Exchange Act.
(b) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its discretion and on behalf of the
Company:
(i) to grant Options;
(ii) to determine whether the Options granted are intended to be
incentive stock options or non-qualified stock options;
(iii) to determine the Exercise Price per share of Options to be
granted;
(iv) to determine the individuals to whom, and the time or times
at which, Options shall be granted and the number of shares for which an
Option will be exercisable;
(v) to interpret the Plan;
(vi) to prescribe, amend, and rescind rules and regulations
relating to the Plan;
(vii) to determine the terms and provisions of each Option
granted and, with the consent of the Optionee, to modify or amend each
Option;
(viii) to accelerate or defer, with the consent of the Optionee,
the exercise date of any Option;
(ix) with the consent of the Optionee, to reprice, cancel and
regrant, or otherwise adjust the Exercise Price of an Option previously
granted by the Committee; and
(x) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
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<PAGE> 3
(c) Committee Discretion. In exercising its authority, the Committee
shall have the broadest possible discretion and the Committee's determinations
under the Plan made in good faith shall be binding and conclusive on Optionees
and other persons claiming entitlements under the Plan. In no event shall a
Committee determination with respect to a particular Optionee or provision of
the Plan be binding with respect to any other Optionee (even if similarly
situated) nor with respect to any future determinations regarding the same or
other provisions of the Plan.
4. ELIGIBILITY
(a) General. The individuals who shall be eligible to participate in the
Plan and to receive Options hereunder shall be such key employees, directors and
consultants of the Company and its Subsidiaries as the Committee shall from time
to time determine. The Committee may designate one or more directors who are not
eligible for participation in the Plan for a specified period of time. No Option
shall be granted to any person who, at the time the Option is granted, owns
(including stock owned by application of the constructive ownership rules of
Section 425(d) of the Code) stock possessing more than 10% of the total combined
voting power or value of all classes of stock of the Company or any Subsidiary.
(b) Incentive Stock Options. No Option which is designated as an
incentive stock option shall be granted to any person who, at the time the
Option is granted, is not an employee of the Company or a Subsidiary. The
aggregate fair market value (determined as of the time the Option is granted) of
the Common Stock with respect to which Options designated as incentive stock
options are exercisable for the first time by an employee shall not exceed
$100,000 during any calendar year (under all plans of the Company or any
Subsidiary which provide for the granting of an incentive stock option).
5. STOCK SUBJECT TO THE PLAN
Options may be granted permitting the purchase of the aggregate of not
more than 12,000,000 shares of the Company's Common Stock, subject to adjustment
pursuant to Section 10 hereof. These shares may consist either in whole or in
part of shares of the Company's authorized but unissued Common Stock or shares
of the Company's authorized and issued Common Stock reacquired by the Company
and held in its treasury. If an Option granted under this Plan is surrendered,
expires or for any other reason ceases to be exercisable in whole or in part,
the shares which were subject to any such Option but as to which the Option
ceases to be exercisable shall be available for Options to be granted under the
Plan.
6. STOCK OPTIONS
(a) Options. The Options granted pursuant to the Plan may be "incentive
stock options" within the meaning of Section 422 of the Code or non-qualified
stock options. Options designated to be incentive stock options shall be
designated as such in the option agreements evidencing such Options.
3
<PAGE> 4
(b) Option Agreements. Options shall be evidenced by written option
agreements between the Optionee and the Company in such form as the Committee
shall from time to time determine. No Option or purported Option shall be a
valid and binding obligation of the Company unless previously granted by the
Committee and evidenced in writing by such an option agreement. If an option
agreement is not executed by the Optionee and returned to the Company within the
time prescribed in the option agreement, the Option evidenced thereby will be
forfeited and the option agreement will be null and void. Appropriate officers
of the Company are hereby authorized to execute and deliver option agreements in
the name of the Company, as directed from time to time by the Committee.
(c) Exercise Price. The Exercise Price at which Options may be granted
under the Plan shall be not less than one hundred percent (100%) of the fair
market value of the Common Stock on the day the Option is granted, but may be
less than the Exercise Price or Prices of previously granted Options, whether in
effect, canceled or expired. As long as the Company's Common Stock is not listed
on any national securities exchange or traded on a regular basis (as determined
by the Company's Board or a Committee of the Board to which the Board has
delegated the authority to make such determination) on the over-the-counter
market, fair market value may be taken as the Formula Price as in effect at the
date of grant.
(d) Date of Grant. The Committee shall, after it approves the granting
of an Option to a participant, cause the participant to be notified of such
action. The date on which the Committee approves the granting of an Option shall
be considered the date on which such Option is granted.
(e) Terms of Exercise. The right to purchase shares covered by any
Option or Options under the Plan shall be exercisable only in accordance with
the terms and conditions of the grant to such Optionee. The Committee may, in
its discretion, provide that such Option or Options may be exercised in whole or
in part, in installments, cumulative or otherwise, for any period or periods of
time specified by the Committee of not more than ten years from the date of the
grant of the Option. Subject to the provisions of Paragraph 9, that portion of
an Option which is exercisable on an installment basis may not be exercised
prior to the expiration of the applicable installment period.
(f) Non-Transferability. An Option granted under the Plan may not be
transferred except by will or the laws of descent and distribution and, during
the lifetime of the Optionee to whom granted, may be exercised only by such
Optionee or his conservator or other legal representative.
(g) Limit on Option Grants. In no event may any single Optionee receive
Option grants for more than 500,000 shares of Common Stock in the aggregate.
7. EXPIRATION AND TERMINATION
(a) Expiration of Option. Each Option and all rights and obligations
thereunder shall, subject to the provisions of Paragraph 9, expire on a date to
be determined by the Committee, such date, however, in no event to be later than
ten (10) years from the date an Option is granted.
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<PAGE> 5
(b) Termination of Employment or Affiliation. Subject to the provisions
of Paragraph 9, that portion of an Option which is exercisable on an installment
basis may not be exercised unless the Optionee shall continue in the employ or
affiliation of the Company or any of its Subsidiaries during the entire period
to which such installment relates. Except as set forth below in Paragraphs 7(c)
through (e) or otherwise set forth in an option agreement, all Options granted
to an Optionee under this Plan shall terminate and no longer be exercisable as
of the date such Optionee ceases to be employed or affiliated with the Company
or any Subsidiary; provided, however, the Committee in its discretion may extend
the period of time that such Optionee may exercise such Optionee's Options, but
in no event may the Committee extend such period of time beyond the expiration
date of the Options or beyond ten (10) years from the date of grant of such
Options.
(c) Termination Due to Retirement or Permanent Total Disability. In the
event an Employee/Optionee's employment with the Company or any Subsidiary shall
terminate as the result of normal retirement, permanent total disability or
early retirement under the terms of a retirement or pension plan maintained by
the Company and in which such Employee/Optionee is a participant, such
Employee/Optionee may, at any time within ninety (90) days after such
termination of employment, exercise such Employee/Optionee's Options to the
extent that the Employee/Optionee was entitled to exercise them on the date of
such termination of employment, unless such Options would expire pursuant to
their terms at an earlier date, in which case such Options shall remain
exercisable only until the earlier expiration date.
(d) Death. If an Optionee dies while in the employ or affiliation of the
Company or of a Subsidiary without having fully exercised such Optionee's
Options, such Options may, within one (1) year of the Optionee's death (or
within such shorter period as may be specified in the Option by the Committee),
be exercised by the beneficiary designated pursuant to Paragraph 8(c), or if
there is no such surviving beneficiary, by the person or persons to whom the
Optionee's rights under the Option shall pass by will or by the applicable laws
of descent and distribution to the extent that such deceased Optionee was
entitled to exercise the Options on the date of death, unless such Options would
expire pursuant to their terms at an earlier date, in which case such Options
shall remain exercisable only until the earlier expiration date.
(e) Leaves of Absence. An Employee/Optionee who is on a leave of absence
pursuant to the terms of the Company's Administrative Policy No. B-11 "Unpaid
Personal Leave of Absence" or any amended or replacement policy thereof, shall
not, during the period of any such absence be deemed, by virtue of such absence
alone, to have terminated such Employee/Optionee's employment with the Company
or any Subsidiary except as the Committee may otherwise expressly provide.
Except as otherwise determined by the Committee, or unless otherwise required by
applicable law, unless such Employee/Optionee is on a Medical Leave (as
hereinafter defined), all rights which such Employee/Optionee would have had to
exercise Options granted hereunder will be suspended during the period of such
leave of absence. Upon such Employee/Optionee's return to the Company or any
Subsidiary, all rights to exercise Options shall be restored to the extent such
Options are exercisable at that time. The Committee in its discretion may permit
the exercise, while on a leave of absence, of Options which would otherwise
expire or may defer the expiration date of such Options, but not beyond ten (10)
years from their date of grant. An Employee/Optionee who is on a Medical Leave
shall have all rights to exercise such Employee/Optionee's Options that such
Employee/Optionee
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<PAGE> 6
would have had if such Employee/Optionee were not on a Medical Leave. For
purposes of this Paragraph 7(e), "Medical Leave" shall be defined as a leave of
absence for medical reasons which shall begin after ninety-one (91) consecutive
calendar days of total disability leave and shall remain in effect until the
earlier of a release by the attending physician for the Employee/Optionee to
return to work or until the termination of employment. In the case of incentive
stock options which would otherwise cease to be incentive stock options during a
leave of absence by virtue of the operation of Treasury Regulations Section
1.421(7)(h)(2), the Committee, in its sole discretion, may permit exercise of
the incentive stock option while on such a leave of absence or may permit
conversion of such incentive stock option to a non-qualified stock option with
otherwise identical terms.
8. EXERCISE OF OPTIONS
(a) The Purchase Price shall be paid in full when the Option is
exercised. The Purchase Price may be paid in whole or in part in (i) cash or
(ii) whole shares of Common Stock of the Company evidenced by negotiable
certificates, valued at the Formula Price in effect on the date of exercise;
provided, however, that unless an exception is granted by the Secretary of this
Corporation, shares of Common Stock of the Company acquired through the exercise
of a stock option must have been owned by the Optionee for at least six months
before such shares of Common Stock may be used to pay the Purchase Price. The
Company or any Subsidiary shall be entitled to deduct from other compensation
payable to each Optionee any sums required by federal, state or local tax law to
be withheld with respect to the exercise of an Option but, in the alternative,
may require the Optionee or other person exercising the Option to pay, or the
Optionee or such other persons may pay, such sums to the employer corporation at
the time of such exercise. The Committee shall have the authority in its
discretion to allow withholding on exercise of an Option to be satisfied by
withholding from the shares to be issued upon the exercise of the Option a
number of shares, valued at the Formula Price in effect on the date of exercise
of the Option, equal in value to the withholding requirement.
(b) An Optionee shall have no rights as a shareholder of the Company
with respect to any shares for which his or her Option is exercisable until the
date of exercise of such Option and the issuance of a stock certificate for such
shares. No adjustment shall be made for dividends, ordinary or extraordinary or
whether in currency, securities or other property, distributions, or other
rights for which the record date is prior to the date such stock certificate is
issued.
(c) Each Optionee may name a beneficiary or beneficiaries (who may be
named contingently or successively) to whom the right to exercise Options
following the Optionee's death (as provided in Paragraph 7(d)) shall pass. Each
designation will revoke any prior designations by the same Optionee, shall be on
a form prescribed by the Committee, and shall be effective only when filed by
the Optionee in writing with the Committee during the lifetime of the Optionee.
In the absence of any such designation, the right to exercise any unexercised
Options following the death of the Optionee shall pass to the person or persons
to whom the Optionee's rights under the Option pass by will or by the applicable
laws of descent and distribution.
9. CHANGE IN CONTROL
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<PAGE> 7
Notwithstanding any provision of Paragraph 7 above to the contrary but
subject to the provisions of Paragraph 4(b) above, any Option granted pursuant
to the Plan shall, in the case of a Change In Control (as hereinafter defined)
of the Company, become fully exercisable as to all shares of Common Stock to
which it relates from and after the date of such Change In Control. For purposes
of this Paragraph 9, the term "Change in Control" shall be deemed to occur upon
any "person" (as defined in Section 13(d) of the Exchange Act), other than the
Company or any Subsidiary or employee benefit plan or trust maintained by the
Company or any Subsidiary, becoming the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of more than 25% of the
Common Stock of the Company outstanding at such time, without the prior approval
of the Board. If the provisions of this Paragraph 9 are limited by the $100,000
limit of Paragraph 4(b) above, the acceleration of exercisability provided under
this Paragraph 9 shall be first applied to those incentive stock options having
the lowest Exercise Price. Any remaining Options which would have become
exercisable but for the $100,000 limit shall become exercisable on the first
date on which they may become exercisable without exceeding the $100,000 limit.
10. LOANS
The Company may, but shall not be obligated to, provide to any Optionee
a loan or guarantee on behalf of any Optionee a loan to facilitate the exercise
of Options on such terms and conditions as agreed to by the Committee.
11. CAPITAL ADJUSTMENTS
The aggregate number of shares of the Company's Common Stock subject to
this Plan, the maximum number of shares as to which Options may be granted to
any one Optionee hereunder, and the number of shares and the Exercise Price
shall be appropriately adjusted, as determined by the Committee in its
discretion, for any increase or decrease in the number of shares of Common Stock
which the Company has issued resulting from any stock split, stock dividend,
combination of shares or any other change, or any exchange for other securities
or any reclassification, reorganization, redesignation, recapitalization, or
otherwise.
12. NO EMPLOYMENT OBLIGATION
An Employee/Optionee's employment with the Company or a Subsidiary is
not for any specified term and may be terminated by such Employee/Optionee or by
the Company or a Subsidiary at any time, for any reason, with or without cause.
Nothing in this Plan or in any option agreement pursuant to this Plan shall
confer upon any Optionee any right to continue in the employ of, or affiliation
with, the Company or a Subsidiary nor constitute any promise or commitment by
the Company or a Subsidiary regarding future positions, future work assignments,
future compensation or any other term or condition of employment or affiliation.
13. GOVERNMENT AND STOCK EXCHANGE REGULATIONS
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<PAGE> 8
The Company shall not be required to issue any shares upon the exercise
of any Option unless and until the Company has fully complied with any then
applicable requirements by the Securities and Exchange Commission, the
California Corporations Commissioner, or other regulatory agencies having
jurisdiction, and of any exchanges upon which Common Stock of the Company may be
listed.
Upon the exercise of an Option at a time when there is not in effect a
registration statement under the Securities Act of 1933 or a similar statute
(the "Act") relating to the stock issuable upon exercise thereof and available
for delivery a prospectus meeting the requirements of Section 10(a)(3) of said
Act, or if the rules or interpretations of the Securities and Exchange
Commission so require, the stock may be issued only if the holder represents and
warrants in writing to the Company that the shares purchased are being acquired
for investment and not with a view to distribution thereof.
14. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board or the Operating Committee of the Board may at any time
suspend or terminate the Plan and may amend it from time to time in such
respects as the Board or the Operating Committee may deem advisable in order
that Options granted thereunder shall conform to any change in the law, or in
any other respect which the Board or the Operating Committee may deem to be in
the best interests of the Company; provided, however, that no such amendment
shall, without the approval of a majority of the voting power of the capital
stock of the Company present or represented and entitled to vote at a duly
constituted meeting of the stockholders, (i) increase the maximum number of
shares for which Options may be granted under the Plan, except as specified in
Paragraph 11, (ii) change the provisions of Paragraph 6(c) relating to the
establishment of the Exercise Price other than to change the manner of
determination the fair market value of the Company's Common Stock to conform
with any then applicable provisions of the Code or regulations issued
thereunder, or (iii) permit the granting of Options to members of the Committee.
No Option may be granted during any suspension, or after termination of the
Plan.
15. NO IMPLIED RIGHTS OR OBLIGATIONS
The Company, in establishing and maintaining this Plan as a voluntary
and unilateral undertaking, expressly disavows the creation of any rights in
Optionees or others claiming entitlements under the Plan or any obligations on
the part of the Company, any Subsidiary or the Committee, except as expressly
provided herein.
16. EMPLOYEES BASED OUTSIDE OF THE UNITED STATES
Notwithstanding any provision of the Plan to the contrary, in order to
foster and promote achievement of the purposes of the Plan or to comply with
provisions of laws or regulations in other countries in which the Company and
its subsidiaries operate or have employees, the Committee, in its sole
discretion, shall have the power and authority to (i) determine which employees
employed outside the United States are eligible to participate in the Plan, (ii)
modify the terms and conditions of any Options granted to employees who are
employed outside the United States and (iii) establish
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<PAGE> 9
subplans, modified option exercise procedures and other terms and procedures to
the extent such actions may be necessary or advisable.
17. EFFECTIVE DATE
The effective date of the Plan shall be July 14, 1995.
18. TERMINATION DATE
Unless the Plan shall have been previously terminated by the Board or
the Operating Committee of the Board, the Plan shall terminate on July 31, 1998,
except as to Options theretofore granted and outstanding under the Plan at that
date, and no Option shall be granted after that date.
19. GOVERNING LAW
The Plan and all option agreements shall be construed in accordance with
and governed by the laws of the State of Delaware.
9
<PAGE> 1
EXHIBIT 10.G
KEYSTAFF DEFERRAL PLAN
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
(Effective January 1, 1997)
<PAGE> 2
KEYSTAFF DEFERRAL PLAN
OF
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1. Purpose
1.1 The purpose of this Plan is to provide a means to enhance the
Company's capacity to attract and retain outstanding directors and
executives in key positions by assisting them in meeting their
future financial security objectives.
2. Definitions
2.1 Whenever the following terms are used in this document and the
attached Plan Agreement, they shall have the meaning specified
below.
2.2 "Deferral Account" shall mean a bookkeeping account established by
the Company for each Participant, in which shall be recorded the
amounts deferred in accordance with this Plan and the attached
Agreement. The Company shall credit to each Participant's Deferral
Account an amount equal to the compensation which otherwise would
have been paid had the Participant not elected to defer
compensation. Such credits shall be made at the time compensation
would have been paid to the Participant. The Deferral Account shall
also receive quarterly earnings credits in accordance with
provisions of Section 5.
Separate Deferral Accounts shall be established to record amounts
deferred (and earnings credits thereon) with respect to Plan Years
beginning before and after December 31, 1990, to be referred to
herein as Pre-1991 Deferral Accounts and Post-1990 Deferral
Accounts, respectively. Except as otherwise stated herein,
references to Deferral Account(s) shall include both the Pre-1991
and Post-1990 Deferral Account(s).
2.3 "Anniversary Date" shall be the last day of a Plan Year.
2.4 "Beneficiary" shall mean the person or persons, or the estate of a
Participant, entitled to receive any benefits under this Plan upon
the death of a Participant.
2.5 "Ceiling Excess Earnings" shall mean, for each Pre-1991 Deferral
Account, the difference between the Participant's Pre-1991 Deferral
Account if interest had been credited at a rate of Moody's plus 5%
in each Plan Year and the Participant's actual current Pre-1991
Deferral Account.
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<PAGE> 3
A separate calculation of Ceiling Excess Earnings shall be made with
respect to post-1990 Deferral Account(s) using a rate of Moody's
plus 3%.
2.6 "Commitment Period" shall mean that period of time beginning with
the subsequent Plan Year and extending for a number of Plan Years as
determined from time to time by the Committee.
2.7 "Covered Compensation" shall mean a Director's compensation, as a
Director of the Company, excluding expenses reimbursed, or an
Executive's merit bonus in each Plan Year. The Committee, in its
sole discretion, shall determine what constitutes a merit bonus.
2.8 "Committee" shall mean the administrative Committee appointed to
manage and administer the Plan in accordance with the provisions of
this Plan.
2.9 "Company" shall mean SCIENCE APPLICATIONS INTERNATIONAL CORPORATION,
its subsidiaries, or any successor.
2.10 "Director" shall mean any person not in regular full-time employment
of the Company serving on the Board of Directors of SCIENCE
APPLICATIONS INTERNATIONAL CORPORATION.
2.11 "Early Retirement Date" shall mean the date that the Participant
attains his or her fifty-fifth (55th) birthday.
2.12 "Effective Date" shall be January 1, 1986.
2.13 "Employer" shall mean the Company and any subsidiary having one or
more employees who are eligible to participate in the Plan and have
been selected by the Committee to participate. Where the context
dictates, the term "Employer" as used herein refers to the
particular Employer which has entered into a Plan Agreement with a
specific Participant.
2.14 "Executive" shall mean any person in the employment of the Company
who is determined by the Committee to be serving in an executive
capacity, excluding those persons meeting the definition set forth
in Section 2.10.
2.15 "Master Plan Document" is this legal instrument containing the
provisions of the Plan.
2.16 "Moody's Seasoned Corporate Bond Rate," sometimes referred to as
"Moody's," is an economic indicator; an arithmetic average of yields
of representative bonds: industrials, public utilities, AAA, AA, A
and BAA. For
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<PAGE> 4
Plan purposes, Moody's Rate shall be determined by the Committee
based on financial services or publications selected by the
Committee.
2.17 "Normal Retirement Date" shall mean the date that the Participant
attains his or her sixty-fifth (65th) birthday.
2.18 "Participant" shall mean any Executive or Director who elects to
participate in the Keystaff Deferral Plan, signs a Plan Agreement,
and is accepted into the Plan.
2.19 "Plan" shall mean the Keystaff Deferral Plan of the Employer which
shall be evidenced by this instrument and by each Plan Agreement.
2.20 "Plan Agreement" shall mean the written agreement(s) entered into
from time to time by and between an Employer and a Participant. A
separate Plan Agreement shall be entered into with respect to the
Pre-1991 Deferral Account and Post-1990 Deferral Account of a
Participant.
2.21 "Plan Year" shall begin on January 1 of each year.
2.22 "Retirement" and "Retire" shall mean severance from employment with
the Employer at or after the attainment of (i) age fifty-five (55)
and ten (10) years of Plan participation or (ii) age sixty-five
(65). The Committee shall have the sole discretion to determine
whether Retirement has occurred in the case of an Executive who
becomes a consulting employee or who continues to be affiliated with
the Company as a consultant or under some other status.
2.23 "Termination of Employment" shall mean cessation of regular
employment, voluntarily or involuntarily, but excluding Retirement
or death, as determined by the Committee in its sole discretion. In
the case of a Director, "Termination of Employment" shall mean the
Director's ceasing to be a Director of the Company. The Committee
shall have the sole discretion to determine (i) whether a change in
status (e.g., from employee to consultant, from employee to
consulting employee, or from director to employee, consulting
employee or consultant) shall be considered a Termination of
Employment, (ii) whether a leave of absence shall be considered a
Termination of Employment, and (iii) when a consultant or consulting
employee will be considered to have a Termination of Employment.
3. Eligibility
3.1 The Committee will determine which Executives and Directors of the
Company are eligible to participate in the Plan.
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<PAGE> 5
4. Deferral Commitments
4.1 Deferral Elections
Each Executive and Director who wishes to participate in the Plan
must elect, prior to the first Plan Year of the Participant's
eligibility, to defer during each year of the Commitment Period a
fixed percentage of the Participant's Covered Compensation. This
election will be irrevocable and binding upon the Participant,
except as provided in Section 4.2, "Changes to Deferral Elections."
Participants may elect to defer up to 100% but not less than 10% of
Covered Compensation, in whole percentages, but not less than $1,000
(before reductions, if any, under Section 4.2.1).
With respect to the Post-1990 Deferral Account elections, the
Committee shall specify annual election periods during which
irrevocable deferral elections by Participants shall be made.
4.2 Changes to Deferral Elections
4.2.1 The maximum allowable total deferral of Covered Compensation for all
Participants under this Plan for any Plan Year will be determined by
the Committee. In the event that Participant deferral elections are
estimated to result in this maximum being exceeded, the following
method will be used to reduce Participant deferral percentages so
that the total estimated deferral is less than the maximum
allowable.
a) All Executives who have elected to defer more than 50% of
Covered Compensation will be reduced, on an equal percentage
basis, but not below 50% of Covered Compensation or $5,000,
whichever is greater.
b) If after implementation of subsection (a) above, the total
deferral is still greater than the maximum allowable total
deferral, all Executives' percentage deferrals will be reduced
on an equal percentage basis until the maximum allowable total
deferral is achieved.
4.2.2 In the event that a Participant rescinds, in whole or in part, his
or her election to defer a percentage of Covered Compensation in any
Plan Year, the Participant may not defer any Covered Compensation
for the balance of the Plan Year, nor in the following Plan Year.
4.2.3 The Committee, in its sole discretion, may elect to terminate the
Plan at any time pursuant to Section 9; in such event, deferrals
will cease effective as of the termination date.
4
<PAGE> 6
4.3 Rollover of Balances from Current Deferred Compensation Plan
4.3.1 Participants who hold a balance in the Company's current Deferred
Compensation Plan may elect to transfer that balance on a
bookkeeping basis into this Plan at the beginning of the first Plan
Year.
5. Earnings on Participants' Accounts
5.1 Base Earnings on Deferral
5.1.1 Covered Compensation deferred by a Participant shall be credited to
the Participant's Deferral Account as of the date of deferral.
Interest in each Plan Year will be credited quarterly on the average
Deferral Account balance for that quarter. The rate of interest
applied to the Pre-1991 Deferral Account shall be at a base rate
equivalent to an annual rate equal to Moody's Rate, and the rate
applicable to the Post-1990 Deferral Account shall be at a base rate
equivalent to an annual rate equal to the Moody's Rate less 1%. In
each case, the Moody's Rate in effect on each Anniversary Date shall
be used to determine the applicable rate of interest applied during
the subsequent Plan Year.
5.2 Earnings on Rollover Balances
5.2.1 The portion of a Participant's Pre-1991 Deferral Account resulting
from the transfer of a balance from the Company's current Deferred
Compensation Plan will be credited quarterly with a rate of interest
equivalent to 60% of the interest rate announced by Bank of America
as its "prime rate" on the previous Anniversary Date for the first
four (4) Plan Years. After the fourth Plan Anniversary Date, this
portion of the Pre-1991 Deferral Account will be credited with
interest quarterly at an effective annual rate equal to Moody's Rate
plus 9% until the cumulative interest equals that amount of interest
which would have been credited assuming that Moody's Rate had been
used since Plan inception. At that time, the distinction between
portions of the Pre-1991 Deferral Account from deferrals and from
transfers will cease to exist.
5.3 Additional Earnings
5.3.1 The Committee may, in its sole discretion, determine whether and in
what amount additional earnings shall be allocated to Participants'
Deferral Accounts. It is anticipated, but not guaranteed, that for
Pre-1991 Deferral Accounts, additional earnings will be allocated
beginning with the 10th Anniversary Date of the Plan and that for
Post-1990 Deferral Accounts, additional earnings will be allocated
beginning on January 1, 2001. Whether additional earnings will be
credited and their amount will depend upon several factors,
including the Company's future tax rate and its after-tax return on
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<PAGE> 7
investments. Additional earnings in any Plan Year, if any, as
determined by the Committee, will be allocated to each Participant's
Deferral Account (except as otherwise provided in Section 6.1.3 and
except for Deferral Accounts of Participants who have had a
Termination of Employment prior to ten years of participation in the
Plan) by the ratio of the Participant's Ceiling Excess Earnings to
the sum of all Participants' Ceiling Excess Earnings as of the end
of the Plan Year, with such additional earnings and Ceiling Excess
Earnings calculated separately for Pre-1991 and Post-1990 Deferral
Accounts.
6. Payout of Participants' Accounts
6.1 Early Withdrawal Option
6.1.1 Participants may elect a one-time early withdrawal of up to 75% of
their Pre-1991 and/or Post-1990 Deferral Account(s) to be paid
within 90 days following any Anniversary Date starting with the
seventh Anniversary Date of Plan participation.
6.1.2 Participants shall make an annual election prior to each Anniversary
Date starting with the 6th Anniversary Date whether to continue
their deferral for one or more years or to receive the early
withdrawal payment following the subsequent Anniversary Date.
6.1.3 Participants who elect the one-time early withdrawal of up to 75% of
their Pre-1991 and/or Post-1990 Deferral Account(s) pursuant to
this Section 6.1 shall not be entitled to receive additional
earnings, if any, otherwise allocable under Section 5.3.1 to the
remaining portion of their applicable Deferral Account(s) from which
the withdrawal is made.
6.2 Termination Payouts
6.2.1 A Participant who has a Termination of Employment prior to one year
of Plan Participation shall receive an amount equal to his or her
Deferral Account, less any credited earnings. Payment shall be make
in a lump sum within twelve months following Termination of
Employment.
6.2.2 A Participant who has a Termination of Employment after one year of
Plan Participation but prior to 10 years of Plan participation shall
receive payment in a lump sum within twelve months following
Termination of Employment equal to his or her Deferral Account(s) as
of the most recent quarterly valuation.
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<PAGE> 8
6.2.3 A Participant who has a Termination of Employment after 10 years of
Plan participation shall be subject and entitled to the Normal
Payout provisions set forth in Section 6.4.
6.3 Survivor Payouts
6.3.1 If a Participant dies before Normal Payout commences and the Plan
Agreement is in effect at the time of death, the Employer shall make
a Survivor Payout, as defined in Section 6.3.2, to the designated
Beneficiary.
6.3.2 The Survivor Payout shall consist of the Participant's Deferral
Account(s) at the time of death.
6.3.3 The Survivor Payout shall be paid in a lump sum to the Beneficiary
within twelve months following verification of the Participant's
death.
6.3.4 Notwithstanding subsection 6.3.3 above, a Participant may elect on
the Beneficiary form provided by the Committee that the Survivor
Payout be made over a 20-, 40-, or 60-quarter period rather than as
a lump sum.
6.4 Normal Payouts
6.4.1 Normal Payouts shall commence at age sixty-five (65), Retirement or
ten (10) years of Plan participation, whichever is the latest to
occur.
6.4.2 A Participant who Retires may request that Normal Payout commence
upon such Retirement. The Committee in its sole discretion may grant
such request in the event that the Participant demonstrates
financial need and the cash flow of the Company permits such early
commencement.
6.4.3 The Participant shall elect to receive the Normal Payout over a 20-,
40- or 60- quarter period. The first payment will commence within 90
days of the quarter end following Retirement.
6.4.4 If a Participant does not elect a payout option, the payments shall
be over a 20-quarter period.
6.4.5 Normal Payout shall consist of the Participant's Deferral Account(s)
spread equally over the elected payout period. Earnings, and
additional earnings, if applicable, as provided in Subsection 5.3.1,
shall continue to be credited to the remaining Deferral Account(s)
during the payout period and shall be estimated so that
approximately equal payments can be made.
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<PAGE> 9
6.4.6 If a Participant dies during the Normal Payout period, Normal Payout
shall continue as scheduled to the Participant's Beneficiary.
6.4.7 The election provided in Section 6.4.3 shall be made during the
initial Commitment Period of Plan participation and shall become
irrevocable at the end of such period.
6.5 Payment for Notification of Death
6.5.1 If a Participant dies following either Retirement or Termination of
Employment, the Company will pay a $5,000 notification payment of a
lump sum to the Participant's Beneficiary within 90 days of the
quarter end following verification of the Participant's death.
7. Beneficiary Designation
7.1 Upon forms provided by the Committee, each Participant shall
designate in writing the Beneficiary or Beneficiaries whom such
Participant desires to receive the benefits of this Plan, payable
under Sections 6.3, 6.4 and/or 6.5, in the event of such
Participant's death.
7.2 A Participant may from time to time change his or her designated
Beneficiary or Beneficiaries without the consent of such Beneficiary
or Beneficiaries by filing a new designation in writing with the
Committee.
7.3 If a married Participant wishes to designate an individual other
than his or her spouse as Beneficiary, such designation shall not be
effective (i.e., the surviving spouse shall be treated as the sole
Beneficiary) unless consented to in writing by the spouse, which
consent shall acknowledge the effect of the designation and be
witnessed by a member of the Committee (or an individual designated
by the Committee) or acknowledged before a notary public.
Notwithstanding the foregoing, spousal consent shall not be
necessary if it is established to the satisfaction of the Committee
that there is no spouse of the Participant or that the required
consent cannot be obtained because the spouse cannot be located. The
Company may rely upon the designation of Beneficiary or
Beneficiaries last filed by the Participant in accordance with the
terms of this Plan.
7.4 If the designated Beneficiary does not survive the Participant, or
if there is no valid Beneficiary designation, amounts payable under
the Plan shall be paid to the Participant's spouse, or if there is
no surviving spouse, then to the duly appointed and currently acting
personal representative of the Participant's estate. If there is no
personal representative of the Participant's estate duly appointed
and acting in that capacity within 60 days after the Participant's
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<PAGE> 10
death, then all payments due under the Plan shall be payable to the
person or persons who can verify affidavit or court order to the
satisfaction of the Committee that they are legally entitled to
receive the benefits specified hereunder pursuant to the laws of
interstate succession or other statutory provision in effect at the
Participant's death in the state in which the Participant resided.
7.5 In the event any amount is payable under the Plan to a minor,
payment shall not be made to the minor, but instead shall be paid to
that person's then living parent(s) to act as custodian, or, if no
parent of that person is living, to a custodian selected by the
Committee to hold the funds for the minor under the Uniform
Transfers to Minors Act, or similar law, in effect in the
jurisdiction in which the minor resides.
8. Acceleration Provisions
8.1 Notwithstanding the provisions of Section 6 hereof, a Participant
shall be entitled to request a hardship withdrawal of all or any
portion of their Deferral Account or acceleration of payments of
their Deferral Account if payments have already commenced under the
payout option selected by the Participant. A Participant must make a
written request to the Committee for a hardship withdrawal or
request for accelerated payment, stating the reasons such withdrawal
or acceleration is necessary because of a financial hardship. The
Committee, in its sole discretion, shall determine whether or not to
grant the Participant's request and, in so doing, may rely on the
Participant's statements, and a hardship withdrawal or accelerated
payment may be approved without further investigation unless the
Committee has reason to believe such statements are false.
The Participant shall specify from which of their Deferral
Account(s) (i.e., Pre-1991 or Post-1990, or both) the hardship
withdrawal shall be taken.
8.2 The Committee, acting in its sole discretion, may determine to
accelerate, in whole or in part, payments of some or all Deferral
Account(s) (including Deferral Account(s) as to which payments have
not yet commenced) in the event of a threatened or actual change in
control of the Company, or in the event that a change in the legal,
accounting, or tax treatment of amounts deferred under the Plan are
altered in a manner which would potentially subject the Company, the
Participants, or both, to adverse tax or administrative burdens.
9
<PAGE> 11
9. Amendment and Termination of Plan
9.1 The Company may, at its absolute and sole discretion, amend or
terminate the Plan at any time.
9.2 In the event of Company-initiated Plan termination, Participants'
entire Deferral Account(s), including credited interest, will be
paid to Participants within twelve months of the quarter end
following Plan termination.
10. Nature of Accounts
10.1 All amounts credited to the Deferral Account(s) shall remain the
sole property of the Company and shall be usable by it as part of
its general funds for any legal purpose whatsoever. The Deferral
Account(s) shall exist only as bookkeeping entries for the purpose
of facilitating the computation of earnings credits hereunder and
such Deferral Account(s) shall not constitute trust funds, escrow
accounts, or any other form of asset segregation in favor of anyone
other than the Company. No participant shall have any interest in
any specific asset of the Company by virtue of this Plan and each
Participant's rights under this Plan shall at all times be limited
to those of a general unsecured creditor of the Company.
Although sometimes referred to in this Plan as "interest," amounts
credited to Deferral Account(s) pursuant to Section 5.1, 5.2 and 5.3
may be treated as compensation for tax and payroll withholding
purposes, pursuant to applicable Internal Revenue Code and Treasury
regulation requirements.
11. Limitation on Rights of Participants
11.1 If a Participant is an employee of the Company, such employment is
not for any specific term and may be terminated by the Participant
or Company at any time, for any reason, with or without cause.
Neither this Plan nor any election to defer compensation hereunder
shall be held or construed to confer on any person any legal right
to be continued as an employee, consultant or Director of the
Company; nor to constitute any promise or commitment by the Company
regarding future positions, future work assignments, future
compensation or any other term or condition of employment or
affiliation.
12. Non-Transferability
12.1 No right to payment under this Plan shall be subject to
anticipation, alienation, sale, assignment, pledge, encumbrance, or
charge and any attempt to anticipate, alienate, sell, assign,
pledge, encumber, or charge the same shall be void. No
10
<PAGE> 12
right to payment shall in any manner be liable for, or subject to,
the debts, contracts, liabilities or torts of the person entitled
thereto.
13. Restriction Against Assignment
13.1 The Participant or Beneficiary shall not have the power to transfer,
assign, anticipate, modify, or otherwise encumber in any manner
whatsoever any of the payments that will become due pursuant to this
Plan, nor shall said payments be subject to attachment, garnishment
or execution, or be transferable by operation of law in event of
bankruptcy or insolvency.
14. Binding Effect
14.1 The Plan Agreement or Agreements attached hereto, when executed,
is/are solely between the Company and the Participant. The
Participant and any Beneficiary shall have recourse only against the
Company for its enforcement, and any Plan Agreement shall be binding
upon the Beneficiary, heirs, and personal representative of the
Participant and upon the successors and assigns of the Company.
15. Settlement of Disputes
15.1 If any disputes arise with regard to the interpretation of any of
the provisions of this Plan or with regard to the amount of any
payments due under this Plan and the Agreement, the Committee shall
make any resolution of such disputes which it deems, in its sole
discretion, to be in the best interest of the Company and the
Participants. Any such determinations made by the Committee shall be
final and binding on all Participants in the Plan.
15.2 The Committee shall adopt procedures, consistent with Section 503 of
the Employee Retirement Income Security Act of 1974, with respect to
notice to Participants of claims denied under the Plan and review of
denied claims.
16. Administration
16.1 The Plan shall be administered by the Committee, as appointed by the
President of the Company.
11
<PAGE> 13
17. Forfeiture
Any payment due to a Participant hereunder which is not claimed by the
Participant, his or her Beneficiary, his or her estate or other person
legally entitled thereto within four years after becoming payable shall be
forfeited and canceled and shall remain with the Company and no other
person shall have any right thereto or interest therein. The Company shall
have no duty under this Agreement to give notice to any person other than
the Participant or his or her designated Beneficiary that amounts are
payable hereunder.
12
<PAGE> 1
EXHIBIT 10(k)
January 18, 1996
Admiral William A. Owens, USN
Vice Chairman of the Joint Chiefs of Staff
Quarters 8
Fort Myer, VA 22211
Dear Bill:
Based upon our discussions, I am pleased to offer you a position in the senior
management of Science Applications International Corporation (SAIC) commencing
March 4, 1996. You will be reporting to me in our San Diego office at a weekly
starting salary of $6,730.77 which is equivalent to a rate of $350,000 per year.
At our January 12, 1996, Board of Directors meeting, you were elected as a Class
III Director and Vice Chairman of the Board effective March 4, 1996. As a Class
III Director, your term of office will continue through July 12, 1996, when we
have our annual stockholders meeting. Your name will be placed in nomination at
that time for a three-year term of office.
Initially, I would like you to work with me and other senior managers to
determine the future strategic business direction of the Company, and to develop
and execute tactical plans to build the Company's business in key areas.
Specifically, I look forward to your playing a major role in expanding our
overseas business and in coordinating internally our joint military activities.
In the latter undertaking, our Military Policy and Operations Research Group
will be available to assist you. You will also assist me in organizing the
Company's structure to best service our customers, and to provide career
recognition to our key managers and employees.
As a senior Manager and Board member, you will also participate in our Executive
Bonus Compensation Plan. The program provides bonus compensation to our
Executive Managers based on performance. Your minimum annual bonus for the first
three years of your employment will be $350,000, with the first payment made in
April 1996. With respect to the first bonus payment, $300,000 of the bonus
payment will be deferred pursuant to the terms of the SAIC Executive Deferred
Stock Compensation Plan.
Your base salary of $350,000 per year and your minimum annual bonuses of
$350,000 are guaranteed for the first three years of your employment ending
February 28, 1999. These payments totaling $2,100,000 are guaranteed unless you
decide to terminate your employment with the Company, or are terminated for
cause. In the event you are terminated at the end of your first three years of
employment with the Company, your SAIC stock will be repurchased. For purposes
of this cash repurchase, the Company will treat all unvested options and stock
that you hold as fully vested on the date of your termination; with the
exception of unvested shares
<PAGE> 2
William A. Owens
Page 2
January 18, 1996
granted under the Management Stock Compensation Plan. For purposes of this
agreement, termination for cause is defined as an action by you which involves
willful misfeasance or gross negligence in connection with the performance of
your assigned duties, or conviction of a criminal offense. I assume your
discussions with Steve Rabb have familiarized you with the Company's fringe
benefit programs. In addition, you will receive the following executive benefits
from the Company.
Twenty vacation days per year
Automobile allowance of $825 per month plus reasonable
operating expenses
Reimbursement for reasonable travel and entertainment expenses
Reimbursement for membership in two social clubs approved by me
Reimbursement for reasonable relocation expenses incurred
in your move to San Diego
As we have discussed, I will review and approve on a case by case basis, certain
outside activities which will benefit SAIC, such as speaking engagements and
directorships, and you will be allowed to retain payments for these services
assuming SAIC is not charged for your time and reimbursed for all expenses
incurred related to these activities.
In addition, your employment is contingent upon the following documents being
completed, signed, and returned on your first day of work:
Invention, Copyright and Confidentiality Agreement
Education Summary and Pre-Employment Statement
Mutual Agreement to Arbitrate Claims
Standards of Business Ethics and Conduct Certification
Employment Eligibility Certification (I-9) (w/required documents)
SAIC has a strong policy against employee use of illegal drugs and substance
abuse. As discussed, your employment offer is contingent upon your successfully
passing a medical laboratory screen for illegal drugs. Although the use of
illegal drugs or substances can be cause for termination should you become
employed by SAIC, it is understood that you or the Company may terminate this
employment relationship at any time with or without cause or notice.
<PAGE> 3
William A. Owens
Page 3
January 18, 1996
This employment offer is effective through February 10, 1996, and contingent
upon your having provided me with a copy of a letter from the Department of
Defense's Designated Agency Ethics Official which states that the terms of this
offer are consistent with and permitted by all applicable statutes and
regulations. I request that you indicate your acceptance by signing the enclosed
duplicate employment offer letter, and returning it and the letter from the
Department of Defense's Designated Agency Ethics Official to my attention. If
you have any questions, feel free to call me at (619) 546-6658 or Dan Baldwin at
(619) 546-6338. The terms of this offer letter are to be considered strictly
confidential and are not to be discussed with anyone other than Department of
Defense officials without the express permission of Science Applications
International Corporation.
We look forward to your early acceptance of this offer and to a mutually
rewarding association.
Sincerely,
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
S/ J.R. BEYSTER
- ----------------------------
J.R. Beyster
Chairman and CEO
I accept the terms and conditions of this employment offer.
S/ WILLIAM A. OWENS January 20, 1996
- ------------------- ----------------
(Name) (Date)
<PAGE> 4
EXHIBIT 10(l)
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT is entered into on March 30, 1998, by and between Science
Applications International Corporation ("SAIC") and William A. Owens ("Owens").
WHEREAS, SAIC and Owens have heretofore entered into an employment
agreement dated January 18, 1996, (the "Employment Agreement") which provided
for a three-year term of employment ending February 28, 1999; and
WHEREAS, the Employment Agreement also provided certain remedies for
Owens in the event he was terminated without cause on or before the end of the
three-year term of employment; and
WHEREAS, SAIC and Owens have agreed that, with the decision of SAIC's
founder to remain active for an additional two years and in the absence of
specific assurances of Owens becoming SAIC's Chief Executive Officer in the near
term, it is not in either party's interests to extend the term of Owens'
employment beyond February 28, 1999; and
WHEREAS, the parties believe it is in their best interests to effect an
orderly transition upon the termination of the term of the Employment Agreement
and set forth herein any remaining obligations, other than those related to the
protection of SAIC's trade secrets and other proprietary materials, relating to
Owens' employment by SAIC;
NOW THEREFORE, in consideration of the foregoing, and the mutual
promises and covenants set forth below, SAIC and Owens agree to amend the
Employment Agreement by adding the following terms:
1. On or about March 30, 1998, SAIC and Owens will issue a joint press
release to the effect that, based upon the plans by SAIC's Chief Executive
Officer to continue his term of office for an additional two-year period, Owens
has elected to seek employment elsewhere, as he had joined SAIC with the
expectation that its Chief Executive Officer would have elected to retire by
this time.
2. Owens will submit his resignation as Vice Chairman and a member of
the SAIC Board of Directors effective as of April 9, 1998, and as President &
Chief Operating Officer effective as of June 1, 1998, but will continue as a
regular full-time employee under the terms set forth below.
3. During the period of March 24, 1998, through August 1, 1998, Owens
will work with SAIC's management to transition his responsibilities, but he will
also be free to seek alternative employment if it does not unreasonably
interfere with the orderly transition of his responsibilities.
4. Beginning on August 1, 1998, and continuing through August 1, 1999,
Owens will be free to expend his full time and energies in search of alternative
employment. During said period, and the preceding four-month period, the Company
will provide office space and the support of an administrative assistant to the
extent that Owens needs such services in connection with his employment search.
In connection with Owens' employment search, SAIC's executive officers agree to
provide positive employment references, or to refer any such inquiries to the
Chairman of SAIC's Board of Directors, who will provide positive employment
references, and
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<PAGE> 5
further agree not to otherwise disparage Owens to any third party.
5. Regardless of whether Owens has accepted or has begun employment
elsewhere, until August 1, 1999, Owens will continue to be paid his salary of
$33,333 per month (payable in biweekly installments, less taxes and other
applicable withholdings) and continue to receive comprehensive leave accruals,
medical and dental benefits, and retirement plan contributions in accordance
with the tems and conditions of such plans and programs. Owens will also be
eligible to receive a pro rata bonus for his efforts during the period of
February 1, 1998, through August 1, 1998, in an amount not to exceed 50% of his
salary for said period. In the event that Owens has secured another position
prior to August 1, 1999, he may elect to receive the continuing salary described
above as a lump sum payment, less applicable taxes and other withholdings. If
Owens makes such an election, SAIC will no longer be responsible for providing
comprehensive leave, medical and dental benefits, and retirement plan
contributions described above.
6. SAIC will pay Owens the sum of $140,000 to compensate Owens for the
closing costs, commissions, tax payments, and any loss associated with the sale
of his personal residence. This amount will be payable on August 1, 1998.
7. On February 1, 1999, with the exception of unvested shares granted
under the Management Stock Compensation Plan, all of Owens' unvested SAIC Class
A Common Stock and options to acquire such stock, will become fully vested. On
or before February 28, 1999, at Owens election, he will be allowed to exercise
any outstanding options he may have to acquire shares of SAIC Class A Common
Stock (Owens currently has options to acquire 95,000 shares) and, provided that
Owens does not disparage SAIC or its executive officers or recruit SAIC
employees, SAIC will allow him to retain the stock realized as option proceeds
as well as any other shares of SAIC Class A Common Stock that he may own at the
time for up to five years under the terms of a contract attached hereto and
identified as Exhibit I.
8. Owens will remain affiliated with SAIC, provided that Owens does not
disparage SAIC or its executive officers or recruit SAIC employees, until he
reaches the age of 59-1/2 in order to respond to any questions that SAIC
management may have with respect to matters which may have been under his
purview, provided that any such inquiries do not interfere with his then current
employment or involve an unreasonable amount of time. The payments and benefits
provided to Owens herein shall be the compensation for such services. As a
result of his continuing affiliation with and services to SAIC, Owens will be
able to remain a participant in SAIC's Key Executive Deferred Stock Compensation
Plan until he reaches the age of 59-1/2, at which time he will begin receiving
the ten-year distribution of the amounts he has deferred into the Key Executive
Deferred Stock Compensation Plan in accordance with the terms of such plan.
9. All account balances that Owens may have in SAIC's Management Stock
Compensation Plan, Stock Compensation Plan, Profit Sharing Retirement Plan,
CODA, and Employee Stock Retirement Plan will be governed by the terms of said
plans.
10.This Amendment is a complete statement of all agreements and
understandings of the parties with respect to the rights and obligations which
Owens and SAIC have to each other with respect to Owens' employment and the
termination of that employment. Notwithstanding the preceding sentence, the
continuing obligations that Owens may have to SAIC to protect its trade secrets
and other proprietary materials under separate agreements with SAIC and SAIC's
obligations of indemnity to Owens under its Certificate of Incorporation and
Bylaws shall not be extinguished by this Amendment. Upon the performance by SAIC
of its obligations to Owens under this Amendment, SAIC shall have no further
obligation or liability to Owens.
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<PAGE> 6
IN WITNESS WEHREOF, the parties hereto have executed this agreement
effective on the date first above written.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION WILLIAM A. OWENS
By: S/ J.ROBERT BEYSTER S/ WILLIAM A. OWENS
------------------------------- -------------------
J. Robert Beyster
Chairman & CEO
3
<PAGE> 7
Exhibit I
ALUMNI STOCK AGREEMENT
This ALUMNI Stock Agreement ("Agreement") dated March 30, 1998 is made
by and between William A. Owens ("ALUMNI") and Science Applications
International Corporation, a Delaware corporation ("SAIC").
RECITALS
WHEREAS, ALUMNI was employed by SAIC until February 28, 1999 (the
"Termination Date"); 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;
provided however that, if ALUMNI disparages SAIC or its executive officers, or
recruits SAIC employees, SAIC's rights of repurchase may be exercised at any
time upon sixty (60) days notice of the Formula Price in effect on the date of
the notice.
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.
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<PAGE> 8
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.
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: /s/ J. D. HEIPT
-----------------------------
J. D. Heipt
Senior Vice President
for Administration
"ALUMNI" /s/ WILLIAM A. OWENS
------------------------------------
Signature
William A. Owens
------------------------------------
Printed Name
2
<PAGE> 1
EXHIBIT 10(l)-1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of December 18, 1997, by and among Bell Communications Research, Inc., a
Delaware Corporation ("Bellcore"), Science Applications International
Corporation, a Delaware corporation ("SAIC"), and Richard C. Smith, Jr.
("Officer").
RECITALS
WHEREAS, Bellcore is a wholly-owned subsidiary of SAIC; and
WHEREAS, Bellcore desires to employ Officer as its Chief
Executive Officer, and Officer desires to accept employment as Bellcore's Chief
Executive Officer; and
WHEREAS, each party wishes to set forth the provisions and
conditions upon which Officer will be employed by Bellcore;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties agree as follows:
1. BASIC AGREEMENT. Bellcore shall employ Officer, and Officer
shall accept employment with Bellcore, subject to the provisions and conditions
set forth in this Agreement.
2. TERM OF EMPLOYMENT. Officer's employment with Bellcore
pursuant to this Agreement shall commence on the later of (a) January 2, 1998
and (b) the date which is thirty (30) days after execution of this Agreement
(hereinafter, the "Effective Date") and shall continue until a date designated
as the date of termination of Officer's employment with Bellcore in a written
notice of termination delivered by either Officer or Bellcore to the other party
at least thirty (30) days prior to the date so designated.
3. EMPLOYMENT DUTIES; EMPLOYMENT AT-WILL.
3.1 Employment and Duties. Officer shall serve as
Bellcore's Chief Executive Officer. Officer's authority shall be superior to
that of all other officers of Bellcore, excluding only the Chairman and
Vice-Chairman of Bellcore's Board of Directors. Officer at all times shall be
subject to the policies and direction of Bellcore's Board of Directors and shall
report to the Chairman of Bellcore's Board of Directors. During Officer's
employment with Bellcore, Officer shall render exclusive and full-time services
to SAIC and Bellcore and shall perform such duties as reasonably may be expected
of the incumbent of his position. Officer further agrees to perform his duties
faithfully, diligently and to the best of his ability and to act solely in the
best interests of Bellcore and SAIC in connection with his employment with
Bellcore. Officer shall not accept or undertake any position as consultant,
director or advisor to any other company,
1
<PAGE> 2
person or business entity or association without the prior written approval of
SAIC's Vice President for Administration.
3.2 Employment-At-Will. Officer understands and agrees that he
is an employee-at-will, and that his employment may be terminated by Bellcore at
any time, with or without Cause (as hereinafter defined), subject only to
Bellcore's obligation (if any) to provide those benefits set forth under
paragraph 4.6 hereof.
4. COMPENSATION.
4.1 Inducement Stock Award.
(a) Grant of SAIC Common Stock. As consideration (i) for
Officer's agreement to accept employment with Bellcore and for Officer's
performance of the Officer Covenants (as defined in Section 6), and (ii) to
compensate Officer for the loss of vesting stock and options granted or awarded
to Officer by his previous employer, SAIC shall cause to be irrevocably
deposited in trust for the benefit of Officer and his beneficiaries, under the
terms set forth in paragraph 4.1(b) below, vesting shares of SAIC's Class A
Common Stock ("Common Stock") having a value of $1,500,000.00, determined by
reference to the formula price for each share of Common Stock (as determined by
SAIC's Board of Directors) (the "Formula Price") in effect as of the Effective
Date (hereinafter, the "Inducement Stock Award"). (Such trust shall be referred
to hereinafter as the "Rabbi Trust.") The Inducement Stock Award shall be
deposited in the Rabbi Trust within [thirty (30) days] following the Effective
Date.
(b) Terms of Rabbi Trust: Distribution. The instrument
governing the Rabbi Trust (hereinafter, the "Trust Instrument"), to the extent
reasonably necessary to assure that SAIC's obligations with respect to the
Inducement Stock Award will continue to be treated as "unfunded" for purposes of
the Employee Retirement Income Security Act ("ERISA") and the Internal Revenue
Code of 1986, as amended (the "Code"), shall provide that upon insolvency of
SAIC the assets of the Rabbi Trust will be subject to the claims of SAIC's
general creditors. The Trust Instrument shall provide that in other respects the
assets of the Rabbi Trust will be maintained for the exclusive benefit of
Officer and his beneficiaries, and will otherwise be subject to all fiduciary
and other requirements of applicable state trust law. The Trust Instrument shall
provide for the distribution of the Inducement Stock Award in accordance with
its terms and conditions.
4.2 Base Salary. Commencing upon the Effective Date, and
continuing until approximately April, 1999 (following completion of SAIC's
fiscal year ending approximately January 31, 1999), as consideration for
performance of Officer's duties as set forth in Section 3 of this Agreement,
Bellcore shall pay to Officer a base salary at the rate of $500,000.00 per
annum, which shall be payable in installments in accordance with Bellcore's
standard practices and procedures. Following completion of SAIC's fiscal year
ending approximately January 31, 1999 (in approximately April, 1999), Officer's
base salary shall be re-evaluated and determined by Bellcore's Board of
Directors.
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<PAGE> 3
4.3 Bonus Compensation.
(a) Annual Incentive Bonus. Bellcore shall pay to Officer,
with respect to each SAIC fiscal year beginning with the fiscal year ending
approximately January 31, 1999, an annual incentive bonus in such amount as
shall be determined by Bellcore's Board of Directors, in its sole discretion,
subject to Officer's continued employment on the date such bonus is paid.
Officer's target incentive bonus with respect to each such fiscal year shall be
$500,000.00 per annum ("Target Amount") based upon the attainment of performance
criteria established by SAIC as described in Section 5 of this Agreement.
(b) Form of Payment. Officer's annual incentive bonus
shall be paid in (i) cash, (ii) fully vested shares ("Vested Shares"), of Common
Stock, and(or) (iii) vesting shares ("Vesting Shares") of Common Stock, in such
portions as Bellcore's Board of Directors deems appropriate; provided, however,
that (1) not more than fifty percent (50%) of Officer's incentive bonus shall be
paid in cash and (2) not more than fifty percent (50%) of Officer's annual
incentive bonus will be paid in Vesting Shares unless Officer elects in advance
to receive a greater portion of his annual incentive bonus in Vesting Shares.
(c) Time of Payment. Officer's annual incentive bonus
shall be paid at such time as SAIC or Bellcore pays annual incentive bonuses to
other similarly situated employees, which customarily occurs within sixty (60)
days following completion of the fiscal year with respect to which such bonuses
relate.
(d) Vesting Schedule. Vesting Shares shall be granted in
accordance with the provisions and conditions of the Bellcore Stock Incentive
Plan and shall be subject to Bellcore's standard Bonus Compensation Stock
Restriction Agreement as it may be in effect from time to time ("Restriction
Agreement"), which shall be substantially in the form of Exhibit 4.3(d) attached
hereto, and shall vest according to the following schedule: (i) twenty percent
(20%) of such Vesting Shares shall vest upon the first, second and third
anniversaries of the award of such Vesting Shares; and (ii) forty percent (40%)
of such Vesting Shares shall vest upon the fourth anniversary of the award of
such Vesting Shares.
4.4 Stock Options.
(a) Initial Inducement Option Award. As consideration for
Officer's performance of the Officer Covenants, and in order to induce Officer
to accept employment with Bellcore, as soon as practicable following the
Effective Date, SAIC shall grant (or cause Bellcore to grant) to Officer vesting
options to purchase 40,000 shares of Common Stock ("Vesting Options").
(b) Annual Option Award. Concurrently with payment of
Officer's annual bonus for SAIC fiscal year 1999 and for each SAIC fiscal year
thereafter, SAIC shall grant (or cause Bellcore to grant) to Officer additional
Vesting Options in such amounts as SAIC or Bellcore deems appropriate. Officer's
target annual Vesting Option award shall be 30,000 Vesting Options based upon
the attainment of performance criteria established by SAIC and Bellcore pursuant
to Section 6 of this Agreement.
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<PAGE> 4
(c) Option Terms. All Vesting Options shall be awarded in
accordance with SAIC's standard practices and procedures and pursuant to the
provisions of SAIC's 1995 Stock Option Plan, as amended, and shall be subject to
SAIC's standard Non-Qualified Stock Option Agreement and Confirmation, as it may
be in effect from time to time ("Standard Option Agreement"), which currently is
in the form of Exhibit 4.4(c) attached hereto. Vesting Options shall vest in
accordance with the provisions of such Standard Option Agreement, which
currently provides that (i) twenty percent (20%) of such Vesting Options shall
vest at the end of each of the first, second and third anniversaries of the
award with respect thereto, and (ii) forty percent (40%) of such Vesting Options
shall vest on the fourth anniversary of such award.
4.5 Additional Employee Benefits.
(a) Relocation Expenses. Officer shall be entitled to
reimbursement of expenses incurred in connection with relocation of his family
and principal residence to New Jersey in accordance with SAIC's standard
relocation policy.
(b) Company Automobile. Bellcore shall provide Officer
with a company vehicle or an automobile allowance in accordance with Bellcore's
officer automobile policy as it may be amended from time to time, but only for
such time as Bellcore continues to maintain such policy.
(c) Deferral Programs. Officer shall be entitled to
participate in such salary and (or) bonus deferral plans or programs as may be
maintained by Bellcore during the term of Officer's employment with Bellcore.
(d) Health and Welfare Benefits. Except as set forth in
this paragraph 4.5, Officer shall be eligible, during and subsequent to his
employment, only for (i) the standard health and welfare benefits, including
medical, dental, disability and group life and disability insurance, which
generally are made available to all Bellcore employees, and (ii) for such other
employee benefit plans, including Bellcore's non-qualified benefit plans, as are
set forth on Exhibit 4.5(d) or as otherwise may be approved by SAIC in writing.
Officer acknowledges and agrees that only the base salary payable pursuant to
paragraph 4.2 and the cash portion of the annual incentive bonus payable
pursuant to paragraph 4.3 shall be credited for purposes of determining the
benefits payable to Officer under any of Bellcore's pension plans which are set
forth on Exhibit 4.5(d).
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4.6 Termination of Employment; Severance Payment.
(a) No Termination Allowance Plan Benefits. Officer shall
not be eligible for a payment under Bellcore's Termination Allowance Plan or any
other severance plan or program maintained by Bellcore. In lieu thereof, Officer
will be eligible only for the severance benefits determined under this paragraph
4.6. Upon termination of Officer's employment with Bellcore for any reason, all
rights and entitlements of Officer under this Agreement (other than the right to
receive the severance benefits determined under this paragraph 4.6) immediately
shall terminate.
(b) Severance Payments. If, at any time, Officer is
involuntarily terminated without Cause (as defined in paragraph 4.8) or is
subject to Constructive Termination (as defined below), Officer shall be
entitled:
(i) to receive a severance payment equal to Two
Million Dollars ($2,000,000.00), which shall be payable in twenty-four (24)
equal monthly installments of $83,333.33, and which shall be subject to
deductions and tax withholding pursuant to paragraph 4.7;
(ii) to receive an additional severance payment, with
respect to any Vesting Options which have not yet vested as of the date of
termination of Officer's employment with Bellcore ("Unvested Options"), equal to
the product of (A) the amount by which the Formula Price of the Common Stock in
effect as of the date of termination of Officer's employment with Bellcore
exceeds the exercise price of such Unvested Options and (B) the number of shares
of Common Stock covered by such Unvested Options.
(c) Rights Upon Termination. Upon any termination of
Officer's employment with Bellcore, for whatever reason, Officer shall be
entitled to:
(i) base salary through the date of such termination;
(ii) the balance of any incentive and compensation
awards earned and payable (but not yet paid), in accordance with (1) the terms
of the plan or program under which such incentive or compensation awards are
made or (2) Bellcore's custom and practice;
(iii) the right to exercise any outstanding stock
options which have vested in accordance with their terms;
(iv) rights under any outstanding stock awards which
have vested in accordance with their terms;
(v) a lump-sum payment in respect of accrued but
unused vacation days (determined in accordance with Bellcore's standard
practices and procedures) at his base salary rate on the date of such
termination;
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(vi) other benefits (if any), except as provided
herein, in accordance with applicable plans, programs and arrangements of
Bellcore, including COBRA; and
(vii) a payment with respect to any Vesting Shares
(but only those Vesting Shares) which Officer has elected to receive or to have
deposited into the Rabbi Trust in lieu of cash or fully vested shares of Common
Stock, specifically including but not limited to Vesting Shares deposited into
the Rabbi Trust with respect to the Inducement Stock Award and Annual Bonus
which Officer has deferred (hereinafter, the "Elective Vesting Stock"), equal to
the product of (A) the Formula Price of Common Stock (in effect as of the date
of termination of Officer's employment with Bellcore) and (B) the number of
shares of Elective Vesting Stock which have not yet vested as of the date of
termination of Officer's employment with Bellcore.
(d) Certain Additional Payments by Bellcore.
(i) Anything in this Agreement to the contrary
notwithstanding, if it shall be determined that any payment or distribution by
or on behalf of Bellcore and SAIC (collectively, the "Company") to or for the
benefit of Officer as a result of a Change In Control (as defined below),
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise, but determined without regard to any additional
payments required under this paragraph 4.6(d) (a "Payment"), would be subject to
the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), or any interest or penalties are incurred by Officer with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
Officer shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by Officer of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes and Excise Tax imposed upon the
Gross-Up Payment, Officer retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(ii) Subject to the provisions of paragraph
4.6(d)(iii) and (iv) below, all determinations required to be made under this
paragraph 4.6(d), including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
accounting firm selected by the Company (the "Accounting Firm"). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Within 30
days after receipt of notice from Officer that there has been a Payment, or such
earlier time as is requested by the Company, the Accounting Firm shall make all
determinations required under this paragraph 4.6(d), shall provide to the
Company and Officer a written report setting forth such determinations, together
with detailed supporting calculations, and, if the Accounting Firm determines
that no Excise Tax is payable, shall deliver the Accounting Opinion to Officer.
Any Gross-Up Payment, as determined pursuant to this paragraph 4.6(d), shall be
paid by the Company to Officer within 30 days after receipt of the Accounting
Firm's determination. Subject to the remainder of this paragraph 4.6(d), any
determination by the Accounting Firm shall be binding upon the Company and
Officer; provided, however, that Officer shall only be
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bound to the extent that the determinations of the Accounting Firm hereunder are
reasonable and reasonably supported by applicable law. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Gross-Up Payments which will not have been made by the company should have been
made ("Underpayment"), consistent with the calculations required to be made
hereunder. If it ultimately is determined in accordance with the procedures set
forth in paragraph 4.6(d)(iii) that Officer is required to make a payment of any
Excise Tax, the Accounting Firm shall reasonably determine the amount of the
Underpayment (if any) that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of Officer. In determining
the reasonableness of Accounting Firm's determinations hereunder, and the effect
thereof, Officer shall be provided a reasonable opportunity to review such
determinations with Accounting Firm and Officer's tax counsel.
(iii) Officer shall notify the Company in writing of
any claims by the Internal Revenue Service that, if successful, would result in
the imposition of any Excise Tax. Such notification shall be given as soon as
practicable but no later than 30 calendar days after Officer actually receives
notice in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid; provided,
however, that the failure of Officer to Notify the Company of such claim (or to
provide any required information with respect thereto) shall not affect any
rights granted to Officer under this paragraph 4.6(d) except to the extent that
the Company is materially prejudiced in the defense of such claim as a direct
result of such failure. Officer shall not pay such claim prior to the expiration
of the 30-day period following the date on which he gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies Officer in writing
prior to the expiration of such period that it desires to contest such claim,
Officer shall:
A. give the company any information reasonably
requested by the Company relating to such claim;
B. take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney selected by the Company and reasonably acceptable to
Officer
C. cooperate with the Company in good faith in order
effectively to contest such claim; and
D. if the Company elects not to assume and control the
defense of such claim, permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold Officer harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation
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and payment of costs and expenses. Without limiting the foregoing provisions of
this paragraph 4.6(d), the Company shall have the right, at its sole option, to
assume the defense of and control all proceedings in connection with such
contest, in which case it may pursue of forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may either direct Officer to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and Officer
agrees to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs Officer to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to Officer, to the extent not previously
advanced pursuant to this paragraph 4.6(d), on an interest-free basis and shall
indemnify and hold Officer harmless, on an after-tax basis, from any Excise Tax
or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and provided further that any extension of the statute of
limitations relating to payment of taxes for the taxable year of Officer with
respect to which such contested amount is claimed to be due is limited solely to
such contested amount. Furthermore, the Company's right to assume the defense of
and control the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and Officer shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(iv) If, after the receipt by Officer of an amount
advanced by the Company pursuant to paragraph 4.6(d) Officer becomes entitled to
receive any refund with respect to such claim, Officer promptly shall pay to the
Company the amount of such refund (together with any interest paid of credited
thereon after taxes applicable thereto). In addition, in the case of any refund
of an advanced amount that Officer is required to repay to the Company pursuant
to the preceding sentence, Officer shall also repay to the Company the amount of
any additional payment received by Officer from the Company in respect of taxes
on such advanced amount, to the extent Officer is entitled to a refund of (or
has yet paid) such taxes. If, after the receipt by Officer of an amount advanced
by the Company pursuant to paragraph 4.6(d)(iii), a determination is made that
Officer is not entitled to a refund with respect to such claim and the Company
does not notify Officer in writing of its intent to contest such denial or
refund prior to the expiration of 60 days after such determination, then such
advance shall, to the extent of such denial, be forgiven and shall not be
required to be repaid and the amount of forgiven advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
(v) For purposes of this paragraph 4.6(d), Change in
Control will be deemed to have occurred for purposes hereof, if (i) a change of
stock ownership of the Company of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and any successor Item of
a similar nature has occurred; or (ii) the acquisition of beneficial ownership,
directly or indirectly, by any person, other than in the capacity of an
underwriter, (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities occurs; or
(iii) during any period of two consecutive years, a majority of the Board of
Directors ceases, for any reason, to consist of Continuing Directors; provided
that a Change In Control will not be deemed to have occurred for purposes hereof
with respect to any
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person meeting the requirements of clauses (i) and (ii) of Rule 13d-1(b)(1)
promulgated under the Securities Exchange Act of 1934, as amended. As used
herein, "continuing Director" shall mean a member of the Board of Directors (i)
as of the beginning of the relevant two year period or (ii) who was nominated or
appointed (before initial election as a director) to serve as a director by a
majority of the then Continuing Directors. Notwithstanding anything contained
herein to the contrary, a Change In Control will not be deemed to have occurred
for purposes hereof when within any 12 month period a majority of the Board of
Directors resigns and the replacement directors (the "New Directors") are
nominated or appointed by the remaining members of the Board of Directors.
(e) No Offset. Upon any termination of his employment with
Bellcore, Officer shall be under no obligation to seek employment elsewhere, and
there shall be no offset against amounts due to Officer under this Agreement on
account of any remuneration or other benefit attributable to any subsequent
employment that he may obtain.
(f) No Penalty. The parties agree that the amounts payable
to Officer pursuant to this Section 4.6 are in the nature of severance payments
considered to be reasonable by SAIC and Bellcore and are not in the nature of a
penalty.
(g) Time For Payment. The payments provided in Section
4.6(b) and 4.6(c) shall be payable to Officer within thirty (30) days following
termination of his employment with Bellcore.
(h) Exclusive Remedy. Officer shall be entitled to receive
the severance benefits described in paragraph 4.6(b) only under the
circumstances described in paragraph 4.6(b). Officer's right to receive the
severance payments described in paragraph 4.6(b) and the rights described in
paragraph 4.6(c) shall constitute Officer's sole and exclusive rights and
remedies for and with respect to such termination without Cause or Constructive
Termination.
4.7 Deductions and Tax Withholding. All payments and benefits
made or provided to Officer pursuant to this Agreement shall be subject to all
customary deductions and withholding, including, without limitation, withholding
for Social Security and other federal, state and local taxes, as Bellcore and
SAIC reasonably shall determine.
4.8 For Cause Termination. For purposes of this Agreement, an
event or occurrence constituting "Cause" for termination shall include the
following:
(a) Failure of Officer either (1) substantially to perform
the employment duties and responsibilities assigned to him by Bellcore's Board
of Directors or (2) to comply with reasonable requests made by SAIC or Bellcore
which are materially related to Officer's performance of his employment duties
and responsibilities, in either case after being given written notice of and a
reasonable opportunity to cure such failure, if curable; or
(b) Officer engages in conduct that (i) is illegal or that
contributes willful gross neglect or willful gross misconduct (including without
limitation sexual harassment, race,
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sex or age discrimination or intentional fraud) and (ii) that results in
material harm to Bellcore or SAIC; or
(c) Drunkenness or use of drugs or any controlled
substance which (1) interferes with Employee's ability to perform any of his
duties and responsibilities to SAIC or Bellcore, or (2) violates SAIC's
Administrative Policy A-18 "Drug and Substance Abuse," a copy of which is
attached hereto as Exhibit 4.8(c); or
(d) Officer's conviction of a felony or of any crime
involving fraud or misrepresentation.
4.9 Constructive Termination. For purposes of this Agreement, the
term "Constructive Termination" shall mean a termination of Officer's employment
with Bellcore at his initiative following the occurrence, without his prior
written consent, of (1) a reduction of Officer's then current base salary (other
than as part of an across-the-board reduction applicable to Bellcore's senior
management officers), or (2) the material diminution of Officer's
responsibilities, as they exist on the date of execution of this Agreement;
provided, however, that:
(a) Officer specifically acknowledges and agrees that
removal of Officer as Chief Executive Officer of Bellcore shall not constitute
Constructive Termination of Officer if SAIC assigns Officer duties and
responsibilities of equal importance and stature within SAIC or any of its other
subsidiaries; and
(b) Constructive Termination shall be deemed to have
occurred pursuant to clause (2) of this paragraph 4.9 above only if (i) Officer,
immediately following those events which, in Officer's opinion, constitute a
material diminution of his responsibilities, shall have delivered to SAIC and to
Bellcore's Board of Directors written notice specifying in reasonable detail the
facts and circumstances which he believes constitute such material diminution of
his responsibilities, and (ii) the parties, for a period of not less than ninety
(90) days, in good faith shall have attempted to agree upon responsibilities
which are commensurate with Officer's capabilities.
4.10 Indemnification. Officer shall be indemnified with respect
to any claim arising out of performance of his duties hereunder to the fullest
extent permitted or authorized by Bellcore's certificate of incorporation,
bylaws, Board resolutions, or the laws of the state of Delaware, against any and
all costs, expenses, liabilities and losses (including, without limitation,
attorney's fees, judgments, interest expenses of investigation, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement) incurred
or suffered by Officer in connection therewith, and such indemnification shall
continue as to Officer even if he has ceased to be a director, member, employee,
agent, manager, consultant or representative of any such person, and shall inure
to the benefit of Officer's successors and assigns.
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5. PERFORMANCE CRITERIA AND CAREER DEVELOPMENT.
5.1 Bellcore Performance Criteria. Officer's annual
performance review shall occur as promptly as possible after completion of each
SAIC fiscal year beginning in approximately April, 1998. Bellcore's Board of
Directors shall establish performance objectives, including revenue, profit,
cash flow, marketing, sales and human resource goals. Bellcore and SAIC shall
establish quantitative goals and objectives for Officer's performance on an
annual basis, which shall include increases in Bellcore's revenues, profits,
sales and cash flow over each prior year's performance.
5.2 SAIC Performance Criteria. Officer's performance also
shall be evaluated based upon his cooperation and participation as a member of
SAIC's executive team, led by Dr. J. R. Beyster, in accomplishing SAIC's major
strategic goals and objectives for Bellcore, including without limitation (1)
recruiting senior telecommunications executives to Bellcore or SAIC, (2)
organizing Bellcore and SAIC in a flexible manner enabling them to meet market
demands and utilize company resources most efficiently, and (3) assisting with
integration of Bellcore and SAIC administrative functions.
6. OFFICER COVENANTS.
6.1 Non-Competition.
(a) Covenants Not to Compete. During the period of
Officer's employment with Bellcore and for an additional period commencing upon
the date of voluntary or involuntary termination (whether for Cause or
otherwise) of Officer's employment with Bellcore and continuing until the date
which is one (1) year following voluntary or involuntary termination (whether
for Cause or otherwise) of Officer's employment with Bellcore (the "Restricted
Period"), Officer shall not, without Bellcore's and SAIC's prior written
consent, anywhere in the United States, (i) engage in Bellcore's or SAIC's
business for his own account, or (ii) enter the employ of, or render any
services to a Conflicting Organization (as defined below) as an individual
partner, shareholder, officer, director, principal, agent, employee, trustee or
consultant, or in any other relationship or capacity. Notwithstanding the
foregoing, Officer may own, directly or indirectly, solely as a passive
investment, securities of any person or entity which are publicly traded on any
national securities exchange or in the over-the-counter market if Officer (A) is
not a controlling person of, or a member of a group which controls, such
Conflicting Organization and (B) does not own, directly or indirectly, one
percent (1%) or more of any class of securities of such Conflicting
Organization.
(b) Conflicting Organization. For purposes of paragraph
6.1(a), the term "Conflicting Organization" shall mean (i) any of Ameritech
Services, Inc., Bell Atlantic NSI Holdings, Inc., BellSouth Telecommunications,
Inc., Pacific Bell, Southwestern Bell Telephone Company, Telesector Resources
Group, Inc., U. S. West Communications, Inc., or any of their respective parent
companies, subsidiaries or affiliates, or (ii) any person or organization which
(A) is engaged in or about to become engaged in conducting research, development
of products or services or offering or marketing products or services which
compete or are intended to compete with the research, products or services of
Bellcore or SAIC, or (B) if Officer rendered
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services to such person or organization potentially would involve the use or
disclosure of confidential information as described in paragraph 6.2.
(c) Excluded Activities. Notwithstanding the foregoing,
this paragraph 6.1 shall not apply to activities (i) engaged in by a non-profit
research foundation or a similar non-profit organization, or (ii) engaged in by
a government agency.
6.2 Confidential Information. Prior to, during and after the
Restricted Period, Officer shall keep secret and retain in strictest confidence,
and shall not use for the benefit of himself or others except in connection with
the business and affairs of Bellcore or SAIC, all confidential matters of
Bellcore, SAIC and their affiliates or subsidiaries, including, but not limited
to, trade "know-how," trade secrets, customer and supplier lists, pricing
policies, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans, new personnel
acquisition plans, and other confidential information regarding the business
affairs of Bellcore, SAIC and either of their affiliates or subsidiaries learned
by Officer at any time, and shall not disclose them to anyone outside Bellcore,
SAIC and their affiliates or subsidiaries, either during or after employment by
Bellcore, except (a) as required in the course of performing duties hereunder,
(b) with Bellcore's or SAIC's express written consent, or (c) when required to
do so by a court of law, by any governmental agency having supervisory authority
over the business of Bellcore or SAIC or by any administrative or legislative
body (including a committee thereof) with apparent jurisdiction to order him to
divulge, disclose or make accessible such information; provided, however, that
Officer shall have given to Bellcore and SAIC notice of, and an opportunity to
contest, any such requirement. For this purpose, information known or available
generally to the public or within the trade or industry of Bellcore or SAIC
shall not be deemed to be confidential matters unless such information is or
becomes known to the public or the trade or industry as a result of a breach by
Officer of the provisions of this paragraph 6.2.
6.3 Property of Bellcore. All memoranda, notes, lists, records,
and other documents (and all copies thereof), in Officer's possession or
custody, including but not limited to such items stored in computer memories, on
microfilm or by any other means, made or compiled by or on behalf of Officer or
made available to Officer concerning the (as applicable) business of SAIC,
Bellcore or any of their (as applicable) affiliates or subsidiaries (other than
personal rolodexes, personal tax, financial and correspondence files, and
similar personal files), are and shall be SAIC's or Bellcore's property and
shall be delivered to SAIC or Bellcore promptly upon the termination of
Officer's employment with Bellcore, or at any other time on request.
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6.4 Employees of Bellcore or SAIC.
(a) Non-Solicitation. During the Restricted Period,
Officer shall not directly or indirectly hire or attempt to hire, any person who
he knows or reasonably should know is an employee of SAIC, Bellcore or their
affiliates or subsidiaries. During the Restricted Period, Officer shall not hire
any person who is known to Officer or reasonably should be known to Officer to
have been employed by SAIC, Bellcore or any of their affiliates or subsidiaries
within one year of such hire.
(b) Excluded Hires. Notwithstanding the foregoing, it
shall not be a violation of this paragraph 6.4 if one of Officer's subordinates
hires or attempts to hire a person described in this paragraph 6.4 if Officer
has no knowledge of such action before it takes place.
6.5 Intellectual Property.
(a) Assignment of Inventions. Officer hereby assigns and
agrees to assign to Bellcore, its successors and assigns, all his right, title
and interest in and to all inventions, discoveries, improvements, ideas,
computer or other apparatus programs and related documentation, and other works
of authorship (hereinafter, "innovations"), whether or not patentable,
copyrightable or susceptible to other forms of protection which, during the
period of his employment with Bellcore or by its successors in business, he has
made, conceived, created or developed, either solely or jointly with others, in
the course of such employment or with the use of Bellcore's time, material or
facilities, or relating to any subject matter with which Bellcore is then
actively involved.
(b) Disclosure. Officer further agrees, without charge to
Bellcore, but at its expense: (i) promptly to disclose any such innovations,
(ii) promptly, upon request, to execute a specific assignment to Bellcore of all
rights, title and interest to such innovations, including priority rights
arising from patent applications, and (iii) to do anything else legally and
ethically required to secure patents, copyrights or other forms of protection
for such innovations in the United States, and in other countries, both during
and after his employment with Bellcore.
6.6 Rights and Remedies Upon Breach. If Officer breaches, or
threatens to commit a breach of, any of the provisions of Section 6 of this
Agreement ("Officer Covenants"), Bellcore shall have the following rights and
remedies, each of which rights and remedies shall be independent of the other
and severally enforceable, and all of which rights and remedies shall be in
addition to, and not in lieu of, any other rights and remedies available to SAIC
or Bellcore under law or in equity:
(a) The right and remedy to have the Officer Covenants
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed that any such breach or threatened breach will cause
irreparable injury to SAIC and Bellcore and that money damages will not provide
adequate remedy to SAIC or Bellcore; and
(b) The right and remedy to require Officer to account for
and pay over to SAIC or Bellcore all compensation, profits, monies, accruals,
increments or other benefits
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derived or received by Officer as the result of any transactions constituting a
breach of any of the Officer Covenants.
6.7 Severability of Covenants; Blue-Penciling. The parties
acknowledge and agree that the Officer Covenants are reasonable and necessary,
in light of (i) Officer's unique position, responsibility and knowledge of the
operations of Bellcore, (ii) the global nature of Bellcore's and SAIC's
businesses, and (iii) the unfair advantage that Officer's knowledge and
expertise concerning Bellcore and its business would afford to a Conflicting
Organization. In addition, the parties acknowledge and agree that the Officer
Covenants will not impair Officer's ability to earn a livelihood, particularly
in view of the substantial payments to be made hereunder. Nevertheless, if any
court determines that any of the Officer Covenants, or any part thereof, is
unenforceable because of the duration or geographical scope of such provision,
such court shall have the power to reduce the duration or scope of such
provision, as the case may be, and, in its reduced form, such provision then
shall be enforceable and shall be enforced. Furthermore, if any court determines
that any of the Officer Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Officer Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid portions.
7. SAIC Guarantee. SAIC unconditionally guarantees prompt performance
of Bellcore's obligations under this Agreement.
8. Non-Disclosure Agreement. The terms of this Agreement, including
but not limited to the nature and amounts of any compensation or benefits in the
event of a termination of Officer's employment, shall be kept confidential and
not disclosed to anyone or any entity except each party may disclose same to
their respective attorneys, financial advisors and governmental entities which
have a need to know such information. Bellcore may also disclose such
information to its Board of Directors.
9. Entire Agreement. This Agreement shall contain the final, complete
and exclusive agreement and understanding of the parties with respect to the
subject matter hereof. It may not be modified orally, but only by a written
agreement signed by all parties hereto. If and to the extent any provision of
this Agreement is in conflict or inconsistent with any of the employee benefit
plans identified in Exhibit 4.5(d), this Agreement shall govern and control.
10. Controlling Law. All questions concerning the validity and
operation of this Agreement and the performance of the obligations imposed upon
the parties. hereunder shall be governed by the laws of the State of New Jersey.
11. Assignments. Bellcore and SAIC each shall have the right to assign
this Agreement and to delegate all rights, duties and obligations hereunder, to
any affiliate, successor or subsidiary of Bellcore or SAIC. except for SAIC's
guarantee pursuant to Section 7 hereof, which shall continue in the event of any
such assignment. Officer agrees that this Agreement is personal to him and his
rights and interest hereunder may not be assigned, nor may his obligations and
duties hereunder be delegated.
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12. Cumulative Remedies; No Waiver. Each and all of the several rights
and remedies provided in this Agreement, or by law or in equity, shall be
cumulative, and no one of them shall be exclusive of any other right or remedy,
and the exercise of any one of such rights or remedies shall not be deemed a
waiver or, or an election to exercise, any other such right or remedy. No waiver
of any term or condition of this Agreement shall be construed as a waiver of any
other term or condition; nor shall any waiver of any default hereunder be
construed as a waiver of any other default hereunder.
13. Notices. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been duly given if delivered by hand, telecopy or mailed, certified or
registered mail with postage prepaid to the address for each party set forth on
the signature page of this Agreement, or to such other address as such party may
specify in writing.
14. Representation By Counsel; Interpretation. Each party to this
Agreement has been represented by counsel or has been afforded the opportunity
to be represented by counsel in connection with this Agreement and the
relationships contemplated by this Agreement. Accordingly, any rule of law or
any legal decision that would require interpretation of any claimed ambiguities
in this Agreement against the party that drafted it has no application and is
expressly waived. The captions and headings to the paragraphs and sections of
this Agreement are for reference purposes only and shall not be considered in
interpreting this Agreement. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties.
15. Costs And Expenses. Each party to this Agreement shall pay all
costs and expenses incurred by such party in the negotiation and preparation of
this Agreement.
16. Arbitration. Officer and Bellcore each shall enter into an
arbitration agreement which shall contain substantially the same provisions and
conditions as are included in SAIC's standard Mutual Agreement to Arbitrate
Claims, which is attached hereto as Exhibit 16.
IN WITNESS WHEREOF, the parties have executed this Agreement on this
18 day of December, 1997.
OFFICER:
S/ RICHARD C. SMITH, JR.
- -----------------------------------
Richard C. Smith, Jr.
Address:
1023 Westover Road
Kansas City, MO 64113
[Signatures continued on next page]
15
<PAGE> 16
BELLCORE:
Bell Communications Research, Inc.
By: S/ JOHN GLANCY
---------------------------------------------------
John Glancy,Vice Chairman of the Board of Directors
Address:
445 South Street
Morristown, NJ 07960-6438
SAIC:
Science Applications International Corporation
By: S/ WILLIAM A. ROPER, JR.
---------------------------------------------------
William A. Roper, Jr., Chief Financial Officer
Address:
1241 Cave Street
La Jolla, CA 92037
16
<PAGE> 17
EXHIBIT 10(l)-2
BONUS COMPENSATION STOCK RESTRICTION AGREEMENT
THIS BONUS COMPENSATION STOCK RESTRICTION AGREEMENT ("Agreement") is entered
into by and between SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, a Delaware
corporation ("SAIC" or "Company"), and the undersigned ("Stockholder"), who is
affiliated with Company or a subsidiary of Company ("Subsidiary") as an employee
or director.
WHEREAS, subject to the stockholder executing and returning this agreement to
the Company's Stock Programs Department within 120 days from the Commencement
Date, the Company has agreed to provide the above stated number of shares SAIC
Class A Common Stock ("Bonus Stock") to the Stockholder pursuant to the
Company's 1984 Bonus Compensation Plan and Stockholder has agreed that the
ownership interest in such stock shall be subject to the terms and conditions
hereinafter set forth. NOW, THEREFORE, in consideration of the foregoing, the
parties have agreed to the following:
1. VESTING SCHEDULE. In the event Stockholder's affiliation
with Company or any of its subsidiaries as an employee or director is
terminated, for any reason, including death, any unvested shares of Bonus Stock
shall automatically revert to Company without compensation as of the date of
such termination of affiliation in accordance with the following vesting
schedule:
(a) Prior to the first-year anniversary of the Commencement
Date of this Agreement, all of the Bonus Stock shall be
subject to reversion.
(b) After the first-year anniversary of the Commencement
Date, 20% of the Bonus Stock shall be vested and the
balance shall be subject to reversion.
(c) After the second-year anniversary of the Commencement
Date, an additional 20% of the Bonus Stock shall be
vested and the balance shall be subject to reversion
(d) After the third-year anniversary of the Commencement
Date, an additional 20% of the Bonus Stock shall be
vested and the balance shall be subject to reversion
(e) After the fourth-year anniversary of the Commencement
Date, the final 40% of said Stock shall be vested.
The Company does not issue fractional shares and if the application of the
foregoing vesting schedule results in a fraction of a share being vested, such
fractional share shall be deemed to be subject to reversion. Stockholder shall
not sell, transfer, assign, hypothecate, pledge, grant a security interest in,
or in any other way alienate any of the Bonus Stock, or any interest or right
therein, which is subject to reversion to Company. If shares of Bonus Stock
revert in accordance with the foregoing vesting schedule, such shares shall
automatically be deemed to have been transferred to Company, shall no longer be
outstanding and all rights of Stockholder shall immediately terminate with
respect to such shares. In the event of such reversion, Stockholder agrees to
promptly return the stock certificates(s) that includes the reverted shares to
Company. Upon return of such stock certificate(s), Company will issue a new
stock certificate to Stockholder for the vested shares, if any, and to the
extent that they are not repurchased by Company pursuant to its right to
repurchase as set forth in Article Fourth of the Company's Restated Certificate
of Incorporation.
Notwithstanding the foregoing, if Stockholder has not returned such stock
certificate(s) within sixty(60) days following the date the Bonus Stock reverted
to Company, in whole or in part, Stockholder hereby appoints Company or its
agents to take all such action needed to effect the cancellation of such stock
certificate(s).
2. FORFEITURE OF STOCK. In the event Stockholder fails to
execute and return this agreement within 120 days from the Commencement Date,
the shares granted pursuant to this agreement shall be forfeited.
3. RIGHTS, RESTRICTIONS AND LIMITATIONS. All shares of Bonus
Stock issued to Stockholder pursuant to this Agreement are subject to the
rights, restrictions and limitations set forth in Article Fourth of the
Company's Restated Certificate of Incorporation.
4. RESTRICTIONS UNDER SECURITIES LAW. All shares of Bonus
Stock covered by this Agreement are subject to any restrictions which may be
imposed under applicable state and federal securities laws and are subject to
obtaining all necessary consents which may be required by, or any condition
which may be imposed in accordance with, applicable state and federal securities
laws or regulations.
5. INVESTMENT. Stockholder agrees that any and all shares of
Bonus Stock acquired hereunder shall be acquired for investment and not for
distribution.
6. EMPLOYMENT AT WILL. Stockholder's employment with Company
is not for any specified term and may be terminated by Stockholder or Company at
any time for any reason. Stockholder further acknowledges that this Agreement,
despite the fact Stockholder is required to hold the Bonus Stock not yet vested
for up to four years, does not constitute a promise or commitment by Company
regarding any future employment, work assignments, compensation, or any other
term or condition of employment.
7. CAPITAL ADJUSTMENTS. The formula price and number of shares
shall be appropriately adjusted for any increase or decrease in the number of
shares of stock which Company has issued and outstanding resulting from any
stock split, stock dividend, combination of shares or any other change, or any
exchange for other securities or any reclassification, reorganization,
redesignation, recapitalization or otherwise.
<PAGE> 18
8. INCORPORATION OF BONUS COMPENSATION PLAN. The Bonus Stock
granted hereby, is granted pursuant to the Company's 1984 Bonus Compensation
Plan (the "Plan"), and all terms and conditions of which are hereby made a part
hereof and are incorporated herein by reference. In the event of any
inconsistency between the terms and conditions contained herein and those set
forth in the Plan, the terms and conditionals of the Plan shall prevail.
9. MISCELLANEOUS. This Agreement contains the entire agreement
of the parties with respect to its subject matter. This Agreement shall be
binding upon and shall inure to the benefit of the respective parties, the
successors and assigns of Company, and to the heirs, legatees and personal
representatives of Stockholder.
10. GOVERNING LAW. This agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware
without reference to such state's principles of conflict of laws.
11. NOTICE OF RESTRICTION. The parties agree that any stock
certificate(s) issued representing the Bonus Stock granted hereunder shall
contain a legend indicating that such stock is subject to the restrictions of
this Agreement.
12. ALTERATIONS. Stockholder acknowledges that signing this
Agreement constitutes an unequivocal acceptance of this Agreement and any
attempted modification or deletion will have no force and effect upon the
Company's right to enforce the terms and conditions heretofore stated.
IN WITNESS WHEREOF, Stockholder has executed this Agreement
effective as of the year and day above written.
- ----------------------------- ---------------------------
Signature Date
Please sign and return. A copy for your files will be returned
with your stock certificate. THIS AGREEMENT MUST BE SIGNED AND RETURNED WITHIN
120 DAYS OR THE AWARD WILL BE FORFEITED
SAIC: 3-95.
<PAGE> 19
EXHIBIT 10(l)-3
NON-QUALIFIED STOCK OPTION AGREEMENT AND CONFIRMATION
1995 STOCK OPTION PLAN
THIS AGREEMENT is entered into as of the above stated Grant Date by and between
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION, a Delaware corporation (the
"Company"), and the undersigned, who is affiliated with the Company or a
subsidiary of the Company ("Subsidiary") as an employee, director or consultant
("Optionee").
RECITALS
WHEREAS the Company's Board of Directors has approved the granting to Optionee
of an option to purchase shares of the Company's Class A Common Stock, $.01 par
value per share ("Stock"), in the belief that the interests of the Company and
Optionee will be advanced by encouraging and enabling Optionee to acquire a
proprietary interest in the Company.
NOW, THEREFORE, in consideration of the mutual promises herein set forth, it is
agreed:
1. GRANT OF OPTION; NUMBER OF SHARES; OPTION PRICE. Subject to Optionee
executing and returning this Agreement to the Company's Stock Programs
Department within 120 days from the Grant Date (unless such delay is approved by
the Stock Option Committee, in its sole unreviewable discretion, upon a finding
of good cause), the Company hereby grants to Optionee an option to purchase, on
the terms and conditions herein set forth, all or any part of the number of
shares of Stock ("Option Shares"), at the purchase price per share ("Option
Price") both set forth above. In the event Optionee fails to execute and return
this Agreement as provided above, the option will be forfeited and this
Agreement will be null and void.
2. TERM OF OPTION. This option shall expire five (5) years from the Grant Date
of this Agreement, except as and to the extent that the term of the option may
sooner terminate as provided in Section 4 hereof. Notice of termination or
expiration shall not be the responsibility of the Company.
1
<PAGE> 20
3. EXERCISE OF OPTION. The right to exercise the option shall be in accordance
with the following schedule:
(a) The option may not be exercised in whole or in part at any time prior
to the first-year anniversary of the Grant Date.
(b) The option may be exercised as to 20% of the Option Shares after the
first-year anniversary of the Grant Date.
(c) The option may be exercised as to an additional 20% of the Option
Shares after the second-year anniversary of the Grant Date.
(d) The option may be exercised as to an additional 20% of the Option
Shares after the third-year anniversary of the Grant Date.
(e) The option may be exercised as to an additional 40% of the Option
Shares after the fourth-year anniversary of the Grant Date.
The rights to exercise the option, as specified in the preceding schedule, shall
be cumulative. Optionee may buy all, or from time to time, any part of the
maximum number of Option Shares which are then exercisable, but in no case may
Optionee exercise the option in regard to any fraction of a share. Except as set
forth in Section 4(c) below, this option shall be exercisable only by Optionee.
4. TERMINATION OF OPTION. If Optionee shall cease to be affiliated with the
Company or a Subsidiary as an employee, director or consultant, this option
shall terminate in accordance with the following:
(a) If Optionee ceases to be affiliated with the Company or a Subsidiary
and such affiliation ceases for any reason other than death,
retirement or permanent total disability, Optionee may exercise this
option within the thirty (30) day period following such cessation of
affiliation, but only to the extent that this option was exercisable
at the date of such cessation of affiliation.
(b) If Optionee is an employee and ceases to be affiliated with the
Company or a Subsidiary and such affiliation ceases as a result of
Optionee's normal retirement, permanent total disability or early
retirement under the terms of a retirement or pension plan maintained
by the Company or a Subsidiary and in which Optionee is a participant,
Optionee may exercise this option within the ninety (90) day period
following such cessation of affiliation, but only to the extent that
this option
2
<PAGE> 21
was exercisable at the date of such cessation of affiliation.
(c) If Optionee ceases to be affiliated with the Company or a Subsidiary
and such affiliation ceases as a result of Optionee's death, this
option may be exercised within the one (1) year period following such
death, and then only by the beneficiary designated by Optionee or by
the person or persons to whom Optionee's rights under this option
shall pass by Optionee's will or by the laws of descent and
distribution, but only to the extent that this option was exercisable
at the date of Optionee's death.
(d) If Optionee is an employee of the Company or a Subsidiary and is on a
leave of absence pursuant to the terms of The Company's Administrative
Policy No. B-11 "Unpaid Personal Leave of Absence", Optionee shall not
during the period of such absence be deemed, by virtue of such absence
alone, to have terminated Optionee's employment with the Company or a
Subsidiary. Unless Optionee is on a Medical Leave (as hereinafter
defined), all rights which Optionee would have had to exercise the
option will be suspended during the period of such leave of absence.
Upon Optionee's return to the Company or a Subsidiary, all rights to
exercise the option shall be restored to the extent the option is
exercisable at that time. If Optionee is on a Medical Leave, Optionee
shall have all rights to exercise the option that Optionee would have
had if Optionee were not on a Medical Leave. For purposes of this
Section 4(d), "Medical Leave" shall be defined as a leave of absence
for medical reasons which shall begin after ninety-one (91)
consecutive calendar days of total disability leave and shall remain
in effect until the earlier of a release by the attending physician
for Optionee to return to work or until the termination of employment.
(e) If any portion of the option granted hereunder is not exercised by the
end of the applicable period specified in (a), (b) or (c) of this
Section 4, any such unexercised portion and all of Optionee's rights
with respect thereto shall terminate at the end of such period. In no
event shall this option or any portion thereof be exercisable beyond
the five (5) year term stated in Section 2.
5. RIGHTS, RESTRICTIONS AND LIMITATIONS. All shares of stock issued upon the
exercise of this option are subject to the rights, restrictions and limitations
set forth in Article Fourth of the Company's Restated Certificate of
Incorporation, as amended.
3
<PAGE> 22
6. RESTRICTIONS UNDER SECURITIES LAW. All shares of Stock covered by this
Agreement are subject to any restrictions which may be imposed under applicable
state and federal securities laws and are subject to obtaining all necessary
consents which may be required by, or any condition which may be imposed in
accordance with, applicable state and federal securities laws or regulations.
7. INVESTMENT. Optionee agrees that any and all shares of Stock purchased upon
the exercise of this option shall be acquired for investment and not for
distribution.
8. CAPITAL ADJUSTMENT. The Option Price and the number of Option Shares shall be
appropriately adjusted for any increase or decrease in the number of shares of
Stock which the Company has issued and outstanding resulting from any stock
split, stock dividend, combination of shares or any other change, or any
exchange for other securities or any reclassification, reorganization,
redesignation, recapitalization or otherwise.
9. INCORPORATION OF STOCK OPTION PLAN. The option granted hereby is granted
pursuant to the Company's 1995 Stock Option Plan ("Plan"), all the terms and
conditions of which are hereby made a part hereof and are incorporated herein by
reference. In the event of any inconsistency between the terms and conditions
contained herein and those set forth in the Plan, the terms and conditions of
the Plan shall prevail.
10. EMPLOYMENT AT WILL. If Optionee is an employee of the Company or a
Subsidiary, such employment is not for any specified term and may be terminated
by employee or by the Company or a Subsidiary at any time, for any reason, with
or without cause. Nothing in this Agreement or the Plan shall confer upon
Optionee any right to continue in the employ of, or affiliation with, the
Company or a Subsidiary nor constitute any promise or commitment by the Company
or a Subsidiary regarding future positions, future work assignments, future
compensation or any other term or condition of employment or affiliation.
11. MISCELLANEOUS. This Agreement contains the entire agreement between the
parties with respect to its subject matter. This Agreement shall be binding upon
and shall inure to the benefit of the respective parties, the successors and
assigns of the Company, and the heirs, legatees and personal representatives of
Optionee. Optionee acknowledges that signing this Agreement constitutes an
unequivocal acceptance of this Agreement and any attempted modifications or
deletions will have no force or effect upon the Company's right to enforce the
terms and conditions stated herein.
12. GOVERNING LAW. This Agreement shall be governed by, construed and enforced
in accordance with the laws of the State of Delaware without reference to such
state's principles of conflict of laws.
4
<PAGE> 23
IN WITNESS WHEREOF, THE UNDERSIGNED OPTIONEE HEREBY AGREES TO ALL THE TERMS AND
CONDITIONS OF THIS AGREEMENT, ACKNOWLEDGES RECEIPT OF THE 1995 STOCK OPTION PLAN
AND HEREBY ACKNOWLEDGES THAT THIS AGREEMENT SHALL NOT BE BINDING ON THE COMPANY
UNTIL AN UNALTERED COPY OF THIS AGREEMENT HAS BEEN SIGNED BY THE OPTIONEE,
RETURNED TO, RECEIVED AND APPROVED BY THE COMPANY.
- ---------------------------------------- --------------------
Signature of Optionee Date
5
<PAGE> 24
Exhibit 10 (l)-4
Officer shall be entitled to participate in the following employee benefit
plans, or successors plans, but only for as long as and to the extent that
Bellcore maintains such plans for the benefit of similarly situated Bellcore
employees:
1. Officer Non-Qualified Pension Plan
2. Mid-Career Pension Plan
3. Officer Supplemental Savings Plan
4. Officer Supplementary Death Benefit Plan
5. Officer Long Term Disability and Survivor Protection Plan
6. Senior Management Financial Counseling Program
7. Officer Company-Provided Automobile Program
<PAGE> 25
EXHIBIT 10(l)-5
A-18
DRUG & SUBSTANCE ABUSE 5
5/15/95
APPROVAL J.D. HEIPT, SENIOR VICE PRESIDENT-ADMINISTRATION PAGE 1 OF 5
1.0 PURPOSE:
To achieve a work force and a work environment free of illicit drugs
and substance abuse by establishing a strong policy against such
practices. The risk to national security, employee safety, and
corporate integrity associated with illicit drugs and substance abuse
is especially high because of the nature of the Company's business and
its employee ownership base. These risks can be lowered and the
interests of employee shareholders better protected by implementing a
responsible program for the prevention of illicit use of drugs and
substance abuse.
2.0 SCOPE:
This policy applies to all employees of Science Applications
International Corporation (SAIC) and its subsidiaries.
3.0 POLICY:
SAIC expects employees to refrain from the illicit use of drugs and
substance abuse. Such practices are contrary to the protection of
national security, the maintenance of health and safety of the work
force, and the performance of superior work expected of all SAIC
employees. SAIC encourages employees engaged in the illicit use of
drugs or substance abuse to obtain treatment or seek employment
elsewhere. Employees found to be involved with illicit drugs or
substance abuse will be subject to disciplinary action up to and
including termination of employment. The use of alcohol in conjunction
with company functions in a manner that encourages abuse or endangers
persons or property is prohibited.
4.0 DEFINITIONS:
4.1 ILLICIT DRUGS refers to substances controlled under the Federal
Controlled Substances Act as amended.
4.2 INVOLVEMENT WITH ILLICIT DRUGS refers to the possession, purchase,
sale, or exchange of illicit drugs; to the illegal or non-prescription
use of illicit drugs; or to the presence of illicit drugs in any
screening performed under this policy.
4.3 SUBSTANCE ABUSE refers to the excessive use or misuse of any drug,
including prescription drugs, or alcohol in a manner that has an
adverse impact on job performance.
<PAGE> 26
A-18
DRUG & SUBSTANCE ABUSE 5
5/15/95
J.D. HEIPT, SENIOR VICE PRESIDENT-ADMINISTRATION PAGE 2 OF 5
4.4 SCREENING refers to the process by which an individual
demonstrates the absence (or presence) of illicit drugs in
his or her body by submitting, through procedures prescribed
by SAIC, a urine sample for illicit drug testing by an
independent laboratory designated by SAIC. Any specimen
designated as positive must have been evaluated by at least
two analytically distinct methodologies.
4.5 FITNESS FOR DUTY EXAMINATION refers to an examination
conducted by an SAIC approved medical doctor who has the
discretion as to which test(s) to administer to determine
what drug or substance, if any, the employee is using. These
tests include, but are not limited to, physical examination,
blood alcohol test, urinalysis, and/or breathalyzer.
5.0 EMPLOYEE ASSISTANCE PROGRAM:
It is SAIC's desire to assist those who may be involved with illicit
drug use or substance abuse to refrain from such activity. In this
connection, SAIC has established and maintains an Employee Assistance
Program (EAP) as an adjunct to the SAIC Medical Benefits Plan for the
purpose of providing confidential professional assistance to employees
and members of their families concerning personal or emotional
problems. These include drug and substance abuse. Voluntary submission
for counseling or treatment through the EAP will be a private matter
between the employee and the treatment provider unless the employee
specifically authorizes the release of this confidential information
to his or her supervisor. However, participation in a treatment or
recovery program will not relieve an employee from the requirement of
satisfactory job performance. The Company will provide management
training in the procedures for identifying and referring to the EAP
employees who might be suffering from personal problems that could
signal possible substance abuse.
6.0 PRE-EMPLOYMENT SCREENING:
6.1 All offers of SAIC employment will be contingent on the
applicant's complying with SAIC's screening requirements.
6.2 Prospective employees who fail the pre-employment screening
are not eligible to become affiliated with SAIC as
consultants, temporaries, payrollees, or other employee
leasing agencies.
<PAGE> 27
A-18
DRUG & SUBSTANCE ABUSE 5
5/15/95
J.D. HEIPT, SENIOR VICE PRESIDENT-ADMINISTRATION PAGE 3 OF 5
6.3 Pre-employment screening will not be applicable in the case
of individuals who become employed by SAIC as a result of a
merger or acquisition of a business or enterprise.
6.4 Pre-employment screening may be applicable in the case of
individuals who are employed by SAIC in a foreign country
where such testing is contractually required and not
otherwise prohibited by applicable law.
7.0 EMPLOYEE SCREENING:
7.1 SAIC employees and affiliated personnel such as consultants,
payrollees, temporaries, or other employee leasing agencies
will be subject to screening when required by SAIC Company
Policy, federal law, regulations, executive orders, or by
the terms of contracts entered into by SAIC. Detailed
procedures implementing such requirements will be provided
to affected operations as appropriate.
7.2 Any employee who refuses to comply with a properly
authorized screening requirement under 7.1 will be
ineligible to work in positions subject to such
requirements. If no suitable alternative work assignment is
available, the employee will be subject to layoff. Any
employee who fails to pass a screening requirement under 7.1
will be ineligible to remain in any position subject to such
screening requirement and will be subject to disciplinary
action up to and including termination of employment.
7.3 Any employee who is suspected of being involved with drug or
substance abuse under 8.1 may be instructed to submit to a
fitness for duty examination. The examining physician will
be informed of the reasons for the referral of the employee
by the referring SAIC manager. Based upon the examination
and/or test results, the medical doctor will render an
opinion whether the employee is fit for duty. Any employee
who fails to pass a screening and/or fitness for duty
examination requirement under 8.1 may be ineligible to
remain in his or her position and will be subject to
disciplinary action up to and including termination of
employment. Should an employee, who is suspected of being
involved with drug or substance abuse under 8.1, refuse to
submit to a fitness for duty examination, management will be
forced to determine what disciplinary action, if any, is
appropriate based on information then available, including
any documentation of employee's refusal to submit to an
examination.
<PAGE> 28
A-18
DRUG & SUBSTANCE ABUSE 5
5/15/95
J.D. HEIPT, SENIOR VICE PRESIDENT-ADMINISTRATION PAGE 4 OF 5
8.0 REASONABLE SUSPICION SCREENING:
8.1 Screening, which may include a fitness for duty examination,
will be required of an existing employee when, at the
determination of SAIC management in coordination with the
Regional/Sector/Group Human Resource office, Corporate Human
Resources, and the Legal Department, reasonable suspicion
exists that an employee may be involved with illicit drugs
or may be under the influence of illicit drugs or substance
abuse while at work. Such suspicion is determined on a
case-by-case basis in regard to the specific facts and
circumstances involved. Reasonable suspicion may be inferred
from, among other things:
8.1.1 Involvement by the employee in a work place
accident or an incident or other circumstances
which resulted in, or could have resulted in,
personal injury or damage to property, and in
which a supervisory employee reasonably suspects
that the employee was impaired by illicit drugs or
substance abuse at the time the acts or omissions
contributed to the occurrence of the accident,
incident, circumstances; or
8.1.2 Evidence of illicit drug involvement or behavior
of an employee which causes a supervisory employee
to have reasonable belief, based upon observation
of the employee's speech, hearing, motor
coordination, judgment, appearance, odors, or
other observable factors, that the employee is
impaired by illicit drugs or substance abuse. In
all instances where this belief is based primarily
on second party observation, the supervisor shall
make every reasonable effort to confirm these
observations directly.
9.0 FOLLOW-UP SCREENING:
Screening may be requested by an employee or may be required of an
employee by SAIC management as part of an abatement or a
rehabilitation/counseling treatment program for substance abuse. Such
follow-up screening may be on an unannounced schedule for a period of
time specified as part of the abatement or rehabilitation/counseling
treatment program.
10.0 RESCREENING:
Any individual whose drug test screens positive for illicit drug
content may request, through Corporate Human Resources, a written copy
of the test results. The individual may also request that the same
urine specimen be retested by another laboratory approved by SAIC.
<PAGE> 29
A-18
DRUG & SUBSTANCE ABUSE 5
5/15/95
J.D. HEIPT, SENIOR VICE PRESIDENT-ADMINISTRATION PAGE 5 OF 5
11.0 SPECIMEN ADULTERATION:
Any individual whose urine specimen test result indicates that it has
been adulterated or diluted will be deemed to have failed to comply
with the screening requirement and to have failed to pass the required
screening.
12.0 CONFIDENTIALITY:
All information and records concerning individual screening results
shall be kept confidential and maintained separate from employee
personnel files. Only the designated senior personnel managers and
other members of management with a need to know shall have access to
individual screening results.
13.0 RIGHT OF SEARCH ON COMPANY PROPERTY:
SAIC reserves the right to enter, search, and inspect all personal
hand-carried articles as well as Company property, including but not
limited to lockers, desks, Company vehicles, and any materials
transmitted in Company mail or shipment channels, whether sealed or
locked, at any time, without the employee's specific consent.
<PAGE> 30
EXHIBIT 10(l)-6
SAIC EMPLOYMENT ARBITRATION RULES AND PROCEDURES
1. DEMAND FOR ARBITRATION
Any party to an Arbitration Agreement may initiate arbitration by
serving upon the other party, either personally or by mail, a
completed Mediation/Arbitration Request Form (Attachment A to the SAIC
Employee Dispute Resolution Guide). (See Rule 7[K] hereof). A copy of
the Mediation/Arbitration Request Form must be promptly sent by SAIC
to the appropriate AAA office. If on the date, the Mediation/
Arbitration Request Form is received by SAIC, any claim, if asserted
in a civil action, would have been barred by the applicable Statute of
Limitations, then the claim shall be deemed barred for purposes of
arbitration.
An arbitration also is initiated by the receipt by AAA of an order
from a court compelling arbitration. For purposes of the Statute of
Limitations, the arbitration is deemed initiated as of the date of
issuance of the court order, not any other date (such as the date of
the commencement of the judicial proceedings that led to the order).
2. SELECTING THE ARBITRATOR
Promptly upon receipt of the completed Mediation/Arbitration Request
Form, AAA will provide each party with an identical list of seven (7)
prospective arbitrators from its panel of labor and employment
arbitrators. (For purposes of arbitrator selection, all defendants,
whether or not separately represented, shall be deemed to be one
party). Within fifteen (15) working days from receipt of the AAA list,
the parties or their representatives will meet or participate in a
teleconference to select an arbitrator in the following manner. Each
party shall alternately strike the name of any arbitrator on the list
to which it objects. The party initiating the claim will strike first.
If a party does not timely participate in such meeting or
teleconference, all persons on the list will be deemed acceptable to
the non-responding party. If after striking, no mutually acceptable
arbitrator exists, a new list of seven (7) prospective arbitrators
shall be issued by AAA. Each party shall alternately strike one of the
arbitrators from the list until only one arbitrator remains. The party
asserting the claim will strike first. If the arbitrator named
declines or is or becomes unable to serve, or if for any reason the
appointment cannot be made from the submitted lists, the selection
process shall be repeated from the beginning.
3. HEARING DATE
The arbitrator will promptly set a hearing date and time and will mail
written notice to each of the parties at least sixty (60) days in
advance of the hearing unless the parties otherwise agree or mutually
waive notice.
4. ADMINISTRATIVE CONFERENCE (AS NECESSARY)
Once an arbitrator is selected, the parties may request or the
arbitrator may require one or more administrative conference(s). Such
conference is for the purpose of setting procedure, managing
discovery, exchanging witness and expert lists, narrowing the issues
in dispute, or such other matters as may be deemed necessary or
expedient by the arbitrator for the efficient administration and
hearing of the dispute.
In complex cases, the arbitrator will assist the parties in defining
the issues and obtaining stipulations where possible.
1
<PAGE> 31
MEDIATION/ARBITRATION REQUEST FORM
VIOLATION OF LAW:
Indicate below any federal, state or local law, statute, regulation or ordinance
you claim the Company has violated.
OTHER:
Indicate below the basis of any other claims that involve a legally protected
right.
Please note that your claim(s) must involve legally protected rights to be
eligible for arbitration or mediation. See pages 8 and 12 of the Employee
Dispute Resolution Guide (the "Guide").
3. Indicate other stages (if any) in the Dispute Resolution process used
to hear your claims:
Management Review
Appeals Committee
Mediation
4. Indicate the amount of your claims (i.e., the amount of damages you
seek to recover) and/or describe any other relief you seek:
Amount of Claims:
Description of Other Relief Sought:
5. Indicate the amount of the filing or processing fee enclosed:
Please note that a check payable to "SAIC" in the amount of the
applicable filing or processing fee is required before mediation or
arbitration can be initiated. For mediation, the processing fee is
$50.00. For arbitration, the filing fee is 50% of the applicable, then
current AAA employment arbitration filing fee. The schedule showing
the AAA employment arbitration filing fees in effect on January 31,
1994 is attached to the SAIC Employment Arbitration Rules and
Procedures (Attachment C to the Guide).
Employee represents that he or she has a dispute that is eligible for
mediation under the Guide or arbitration pursuant to the Mutual
Agreement to Arbitrate Claims (Attachment B to the Guide), and is
submitting the dispute for resolution.
Date_________ Employee's Signature_________________________
MediationlArbitration Request Form received on this date._____________
Received by Corporate Regional HR Director____________________________
Arb-Req.Frm
2
<PAGE> 32
Exhibit 10(l)-7
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
That certain Employment Agreement dated December 18, 1997 ("Employment
Agreement"), by and among Science Applications International Corporation, a
Delaware corporation ("SAIC"), Bell Communications Research, Inc., a Delaware
corporation ("Bellcore"), and Richard C. Smith ("Officer"), is hereby amended by
this First Amendment to Employment Agreement dated February 2, 1998 ("First
Amendment") in the following particulars only:
1. Effective Date. The Effective Date of the Employment Agreement was
January 5, 1998.
2. Inducement Stock Award. Paragraph 4.1 of the Employment Agreement is
hereby amended and restated in its entirety as follows:
4.1 Inducement Stock Award.
(a) Grant of SAIC Common Stock. As consideration (i) for
Officer's agreement to accept employment with Bellcore and for
Officer's performance of the Officer Covenants (as defined in
Section 6), and (ii) to compensate Officer for the loss of
vesting stock and options granted or awarded to Officer by his
previous employer, SAIC shall cause to be irrevocably deposited
in trust for the benefit of Officer and his beneficiaries, under
the terms set forth in paragraph 4.1(b) below, vesting shares of
SAIC's Class A Common Stock ("Common Stock") having a value of
$1,500,000.00, determined by reference to the formula price for
each share of Common Stock (as determined by SAIC's Board of
Directors) (the "Formula Price") in effect as of the Effective
Date (hereinafter, the "Inducement Stock Award"). (Such trust
shall be referred to hereinafter as the "Rabbi Trust.") The
Inducement Stock Award shall be deposited in the Rabbi Trust
within ninety (90) days following the Effective Date.
(b) Terms of Rabbi Trust: Distribution. The instrument
governing the Rabbi Trust (hereinafter, the "Trust Instrument"),
to the extent reasonably necessary to assure that SAIC's
obligations with respect to the Inducement Stock Award will
continue to be treated as "unfunded" for purposes of the
Employee Retirement Income Security Act ("ERISA") and the
Internal Revenue Code of 1986, as amended (the "Code"), shall
provide that upon insolvency of SAIC the assets of the Rabbi
Trust will be subject to the claims of SAIC's general creditors.
The Trust Instrument shall provide that in other respects the
assets of the Rabbi Trust attributable to the Inducement Stock
Award will be maintained for the exclusive benefit of Officer
and his beneficiaries, and will otherwise be subject to all
fiduciary and other
1
<PAGE> 33
requirements of applicable state trust law. The Trust Instrument
shall provide for the distribution of the Inducement Stock Award
in accordance with its terms and conditions.
3. Inducement Stock Options. Paragraph 4.4(a) of the Employment
Agreement is hereby amended by adding the following sentence to the end of
Paragraph 4.4(a):
Such Vesting Options will provide for an exercise price at the
Formula Price in effect on the date they are issued.
4. Counterparts. This First Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument. Signature by telecopy
shall be sufficient to evidence a party's intention to be bound hereby, provided
that such party forwards his or her original signature to the other parties by
first class mail or overnight delivery service.
5. Legal Effect. Except as amended by this First Amendment, the
Employment Agreement shall remain in full force and effect.
6. Governing Law. This First Amendment and the legal relations among the
parties hereto shall be governed by and construed in accordance with the laws of
New Jersey.
7. Headings. The headings of the Sections and Articles of this First
Amendment are inserted for convenience only and shall not constitute a part
hereof or affect in any way the meaning or interpretation of this First
Amendment.
8. Representation by Counsel; Interpretation. Each party to this First
Amendment has been represented by counsel or has had the opportunity to review
this First Amendment and to discuss the transactions contemplated hereby with
counsel of its choice. Accordingly, any rule of law or any legal decision that
would require interpretation of any claimed ambiguities in this First Amendment
against the party that drafted it has no application and any such right is
expressly waived. The provisions of this First Amendment shall be interpreted in
a reasonable manner to effect the intent of the parties hereto.
"SAIC" SCIENCE APPLICATIONS INTERNATIONAL
CORPORATION
By: S/ WILLIAM A. ROPER
-----------------------------------------
William A. Roper, Chief Financial Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
2
<PAGE> 34
"Bellcore" BELL COMMUNICATIONS RESEARCH, INC.
By: S/ JOHN E. GLANCY
------------------------------------------
John E. Glancy, Vice Chairman of the Board
of Directors
"Officer" S/ RICHARD C. SMITH
----------------------------------------------
Richard C. Smith
3
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C>
AMSEC Corporation Delaware
Andrew Palmer & Associates Limited (wholly-owned by
SAIC Limited) England
AW Software und Technologie GmbH Austria
Bell Communications Research, Inc. Delaware
Bull, Inc. California
Campus Point Realty Corporation California
Environmental Restoration Systems, Inc. Delaware
General Sciences Corporation Delaware
Hicks & Associates, Inc. Delaware
JHK & Associates, Inc. dba TransCore Delaware
JMD Development Corporation dba JDA California
Network Solutions, Inc. Delaware
Pathology Associates International Corporation Delaware
PT Science Applications International Corporation Indonesia Indonesia
R.E. Wright Environmental, Inc. Delaware
Sachse Engineering Associates, Inc. California
SAIC (Bermuda) Ltd. Bermuda
SAIC Colombia, Limitada Colombia
SAIC Commercial Enterprises, Inc. California
SAIC de Mexico, S.A. de C.V. Mexico
SAIC Engineering, Inc. California
SAIC Engineering of North Carolina, Inc. North Carolina
SAIC Engineering of Ohio, Inc. Ohio
SAIC Europe Limited England
SAIC Global Technology Corporation Delaware
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C>
SAIC in Novosibirsk Russia
SAIC Limited (subsidiary of SAIC Europe Limited) England
SAIC - MIR Russia
SAIC Services Delaware
SAIC Ukraine Corporation Delaware
Science Applications (Greece) Ltd. Greece
Science Applications International (Barbados) Corporation Barbados
Science Applications International Corporation (SAIC Canada) Canada
Science Applications International Corporation de Venezuela, S.A. Venezuela
Science Applications International Corporation (Singapore) Pte. Ltd. Singapore
Science Applications International Deutschland GmbH Germany
Science Applications International, Europe S.A. France
Science Applications International Pty. Ltd. Australia
Science Applications International Technology California
Syntonic Technology, Inc. dba TransCore Delaware
Systems Control Technology, Inc. Delaware
Tenth Mountain Systems, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-26025 and
No. 333-37117) and Form S-4 (No. 333-51523) and in the Registration Statements
on Form S-8 (No. 333-34335 and No. 333-40251) of Science Applications
International Corporation of our report dated April 3, 1998 appearing on page
F-2 of this Annual Report on Form 10-K. We also hereby consent to the
incorporation by reference in the Prospectuses constituting part of the
Registration Statements on Form S-3 (No. 333-26025 and No. 333-37117) and Form
S-4 (No. 333-51523) and in the Registration Statements on Form S-8 (No.
333-34335 and No. 333-40251) of Science Applications International Corporation
of our report dated February 27, 1998 relating to the Science Applications
International Corporation Employee Stock Purchase Plan appearing on page F-2 of
Exhibit 28 (a) of this Annual Report on Form 10-K. We also hereby consent to the
incorporation by reference in the Prospectuses constituting part of the
Registration Statements on Form S-3 (No. 333-26025 and No. 333-37117) and Form
S-4 (No. 333-51523) and in the Registration Statements on Form S-8 (No.
333-34335 and No. 333-40251) of Science Applications International Corporation
of our report dated April 3, 1998 relating to the Science Applications
International Corporation Cash or Deferred Arrangement appearing on page F-2 of
Exhibit 28 (b) of this Annual Report on Form 10-K. We also hereby consent to the
incorporation by reference in the Prospectuses constituting part of the
Registration Statements on Form S-3 (No. 333-26025 and No. 333-37117) and Form
S-4 (No. 333-51523) and in the Registration Statements on Form S-8 (No.
333-34335 and No. 333-40251) of Science Applications International Corporation
of our report dated April 3, 1998 relating to the TransCore Retirement Savings
Plan appearing on page F-2 of Exhibit 28 (c) of this Annual Report on Form 10-K.
We also hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-26025 and
No. 333-37117) and Form S-4 (No. 333-51523) and in the Registration Statements
on Form S-8 (No. 333-34335 and No. 333-40251) of Science Applications
International Corporation of our report dated April 3, 1998 relating to the Bell
Communications Research Savings and Security Plan appearing on page F-2 of
Exhibit 28 (d) of this Annual Report on Form 10-K. We also hereby consent to the
incorporation by reference in the Prospectuses constituting part of the
Registration Statements on Form S-3 (No. 333-26025 and No. 333-37117) and Form
S-4 (No. 333-51523) and in the Registration Statements on Form S-8 (No.
333-34335 and No. 333-40251) of Science Applications International Corporation
of our report dated April 3, 1998 relating to the Bell Communications Research
Savings Plan For Salaried Employees appearing on page F-2 of Exhibit 28 (e) of
this Annual Report on Form 10-K.
PRICE WATERHOUSE LLP
San Diego, California
April 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND
CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 1998 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-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 214,731
<SECURITIES> 40,200
<RECEIVABLES> 810,385
<ALLOWANCES> 36,184
<INVENTORY> 12,471
<CURRENT-ASSETS> 1,175,800
<PP&E> 639,217
<DEPRECIATION> 155,401
<TOTAL-ASSETS> 2,415,234
<CURRENT-LIABILITIES> 1,081,212
<BONDS> 145,958
0
0
<COMMON> 535
<OTHER-SE> 754,243
<TOTAL-LIABILITY-AND-EQUITY> 2,415,234
<SALES> 0
<TOTAL-REVENUES> 3,089,351
<CGS> 0
<TOTAL-COSTS> 2,623,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,682
<INCOME-PRETAX> 158,493
<INCOME-TAX> 73,699
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,794
<EPS-PRIMARY> 1.65<F1>
<EPS-DILUTED> 1.55
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE COMPANY'S FINANCIAL DATA SCHEDULE HAS BEEN RESTATED FOR THE ADOPTION OF
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE." THIS
SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR
THE INTERIM PERIODS ENDED APRIL 30, 1997, JULY 31, 1997 AND OCTOBER 31, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1998 JAN-31-1998
<PERIOD-START> FEB-01-1997 FEB-01-1997 FEB-01-1997
<PERIOD-END> APR-30-1997 JUL-31-1997 OCT-31-1997
<CASH> 173,093 212,916 327,482
<SECURITIES> 0 0 0
<RECEIVABLES> 507,021 542,434 554,710
<ALLOWANCES> 19,427 15,815 15,155
<INVENTORY> 15,571 16,378 13,327
<CURRENT-ASSETS> 750,032 837,288 973,007
<PP&E> 341,173 347,889 354,826
<DEPRECIATION> 140,120 145,670 137,042
<TOTAL-ASSETS> 1,064,704 1,147,940 1,288,870
<CURRENT-LIABILITIES> 453,546 510,508 548,730
<BONDS> 50,786 51,526 71,911
0 0 0
0 512 0
<COMMON> 508 582,699 514
<OTHER-SE> 558,776 0 663,297
<TOTAL-LIABILITY-AND-EQUITY> 1,064,704 1,147,940 1,288,870
<SALES> 0 0 0
<TOTAL-REVENUES> 624,527 1,325,488 2,039,896
<CGS> 0 0 0
<TOTAL-COSTS> 545,786 1,161,585 1,783,205
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 2,853 0
<INTEREST-EXPENSE> 1,545 63,998 4,541
<INCOME-PRETAX> 30,685 28,799 99,076
<INCOME-TAX> 13,809 0 44,584
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 16,876 35,199 54,492
<EPS-PRIMARY> 0.33<F1> 0.69 1.07
<EPS-DILUTED> 0.32 0.65 1.01
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE COMPANY'S FINANCIAL DATA SCHEDULE HAS BEEN RESTATED FOR THE
ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER
SHARE." THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND
CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 1996.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 25,794
<SECURITIES> 7,654
<RECEIVABLES> 500,201
<ALLOWANCES> 1,878
<INVENTORY> 40,097
<CURRENT-ASSETS> 594,227
<PP&E> 278,523
<DEPRECIATION> 121,238
<TOTAL-ASSETS> 859,290
<CURRENT-LIABILITIES> 367,042
<BONDS> 33,151
0
0
<COMMON> 486
<OTHER-SE> 458,611
<TOTAL-LIABILITY-AND-EQUITY> 859,290
<SALES> 0
<TOTAL-REVENUES> 2,155,657
<CGS> 0
<TOTAL-COSTS> 1,875,072
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,529
<INCOME-PRETAX> 102,314
<INCOME-TAX> 45,018
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,296
<EPS-PRIMARY> 1.19<F1>
<EPS-DILUTED> 1.14
<FN>
<F1> For Purposes of This Exhibit, Primary means Basic.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE COMPANY'S FINANCIAL DATA SCHEDULE HAS BEEN RESTATED FOR THE ADOPTION OF
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128 "EARNINGS PER SHARE." THIS
SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS FOR
THE INTERIM PERIODS ENDED APRIL 30, 1996, JULY 31, 1996, OCTOBER 31, 1996 AND
YEAR ENDED JANUARY 31, 1997.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1997 JAN-31-1997 JAN-31-1997
<PERIOD-START> FEB-01-1996 FEB-01-1996 FEB-01-1996 FEB-01-1996
<PERIOD-END> APR-30-1996 JUL-31-1996 OCT-31-1996 JAN-31-1997
<CASH> 46,226 45,484 56,739 59,735
<SECURITIES> 0 0 0 0
<RECEIVABLES> 466,206 498,696 549,441 567,534
<ALLOWANCES> 0 0 0 18,048
<INVENTORY> 35,194 39,658 38,835 33,983
<CURRENT-ASSETS> 576,388 614,550 677,643 711,215
<PP&E> 285,700 309,781 323,362 329,727
<DEPRECIATION> 123,787 130,011 137,816 143,932
<TOTAL-ASSETS> 834,307 902,170 971,969 1,012,462
<CURRENT-LIABILITIES> 322,438 389,900 422,389 440,662
<BONDS> 35,135 30,098 42,345 44,341
0 0 0 0
0 0 0 0
<COMMON> 493 489 495 496
<OTHER-SE> 476,241 481,683 506,740 526,963
<TOTAL-LIABILITY-AND-EQUITY> 834,307 902,170 971,969 1,012,462
<SALES> 0 0 0 0
<TOTAL-REVENUES> 516,921 1,117,517 1,754,327 2,402,224
<CGS> 0 0 0 0
<TOTAL-COSTS> 451,853 974,641 1,531,597 0
<OTHER-EXPENSES> 1,064 0 0 2,092,254
<LOSS-PROVISION> 0 0 0 4,925
<INTEREST-EXPENSE> 0 2,432 3,705 0
<INCOME-PRETAX> 23,387 50,094 82,432 113,209
<INCOME-TAX> 10,290 21,916 36,064 49,529
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 13,097 28,178 46,368 63,680
<EPS-PRIMARY> .27 .58<F1> .95 1.30
<EPS-DILUTED> .26 .55 .90 1.23
<FN>
<F1>For Purposes of This Exhibit, Primary means Basic.
</FN>
</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, 1998
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 27, 1998 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, 1998 and 1997 F-3
Statement of Changes in Net Assets
Available for Benefits for the years ended
January 31, 1998, 1997, and 1996 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, 1998 and 1997, and the changes in net assets available for
benefits for each of the three years in the period ended January 31, 1998, 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 27, 1998
F - 2
<PAGE> 5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
Statement of Net Assets Available for Benefits
<TABLE>
<CAPTION>
=========== ===========
01/31/98 1/31/97
=========== ===========
<S> <C> <C>
ASSETS:
Investments at fair value:
SAIC Class A Common Stock $10,059,000 $ 6,093,000
(Cost $8,933,000 and $5,367,000 respectively)
Receivables:
Participant contributions withheld 978,000 32,000
Employer contributions receivable 109,000 2,000
----------- -----------
Net Assets Available for Benefits $11,146,000 $ 6,127,000
=========== ===========
</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
============ ============ ============
01/31/98 1/31/97 1/31/96
============ ============ ============
<S> <C> <C> <C>
Unrealized appreciation of
investments in SAIC Common Stock $ 1,126,000 $ 726,000 $ 164,000
Realized appreciation of shares distributed 155,000 71,000 116,000
Participant contributions 11,090,000 6,980,000 5,263,000
Employer contributions 1,236,000 370,000 279,000
Benefits paid (8,588,000) (5,949,000) (5,855,000)
============ ============ ============
Decrease/Increase in net assets 5,019,000 2,198,000 (33,000)
Net assets at beginning of year 6,127,000 3,929,000 3,962,000
============ ============ ============
Net Assets at End of Year $ 11,146,000 $ 6,127,000 $ 3,929,000
============ ============ ============
</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, 1998 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). In 1996, the Company paid or accrued 5% of the
purchase price and the remaining 95% was paid out of participant contributions.
In April 1997 the Board of Directors authorized an increase in company
contributions to 10% of the purchase price. The remaining 90% is paid out of the
participant contributions. 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% 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, 1998, 872,847 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, 1998 and 1997, the fair market value per
share was $39.13 and $25.96, respectively, for Class A Common Stock. The number
of shares held by the Plan was 257,053 and 234,693 on January 31, 1998 and 1997,
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, 1998 and 1997 were $10,059,000 and
$6,093,000, 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, 1998, 1997, and 1996, 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, 1997
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 4-15-98 /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
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants F-2
Financial Statements:
Statement of Net Assets Available for Benefits F-3
Statement of Changes in Net Assets Available for Benefits F-4
Notes to Financial Statements F-5 - F-13
Additional Information:*
Schedule I - Schedule of Assets Held for Investment Purposes F-14
Schedule II - Schedule of Loans or Fixed Income Obligations F-15
Schedule III- Schedule of Reportable Transactions F-16
</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.
F-1
<PAGE> 4
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, 1997 and 1996, 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 audit 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
April 3, 1998
F-2
<PAGE> 5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1997 1996
------------ ------------
<S> <C> <C>
Assets
Investments, at fair market value:
Mutual funds $412,896,000 $310,573,000
SAIC Common Stock 264,309,000 159,670,000
Short-term investments 296,000 348,000
Participant loans 21,569,000 17,000,000
------------ ------------
699,070,000 487,591,000
------------ ------------
Receivables:
Participant contributions 2,599,000 2,161,000
Company contributions 1,362,000 650,000
Interest income 4,000
------------ ------------
3,961,000 2,815,000
------------ ------------
Total assets 703,031,000 490,406,000
------------ ------------
Liabilities
Accrued Plan expenses 88,000 52,000
------------ ------------
Net assets available for benefits $702,943,000 $490,354,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 6
Science Applicatons International Corporation
Cash or Deferred Arrangement
Statement of Changes in Net Assets Available for Benefits
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
December 31,
1997 1996
------------ ------------
<S> <C> <C>
Additions to net assets Investment income:
Mutual funds:
Dividends and interest $ 34,349,000 $ 19,708,000
Realized gain 8,726,000 4,722,000
Unrealized appreciation 19,930,000 18,677,000
SAIC Common Stock:
Realized gain -- --
Unrealized appreciation 87,106,000 30,082,000
Interest 1,405,000 1,218,000
Participant contributions 77,427,000 66,555,000
Company contributions 15,168,000 9,625,000
------------ ------------
Total additions 244,111,000 150,587,000
------------ ------------
Deductions from net assets
Distributions to participants 31,371,000 25,164,000
Plan expenses 151,000 163,000
------------ ------------
Total deductions 31,522,000 25,327,000
------------ ------------
Net increase 212,589,000 125,260,000
Net assets at beginning of year 490,354,000 365,094,000
------------ ------------
Net assets at end of year $702,943,000 $490,354,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 7
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 for the years ended December
31, 1997 and 1996. Amounts deferred by participants, including rollovers from
qualified plans, totaled $77,427,000 and $66,555,000 for the years ended
December 31, 1997 and 1996, 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. In 1997 and 1996,
the Company contributed 50% and 30%, respectively, 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 $15,168,000 and $9,625,000, respectively.
During 1997 and 1996, the Company matching contribution was allocated to the
SAIC 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. The Company
made no additional contributions for the benefit non-highly compensated
participants during 1997 and 1996.
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 up to 50% of their vested plan balance, up to a
maximum of $50,000, excluding amounts included in the SAIC Stock Fund. 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.
F-5
<PAGE> 8
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 employee deferral portion of the Deferred Fund
account is 100% vested at all times. 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 1997 or 1996.
INVESTMENT PROGRAMS
The investment programs offered to participants in the Deferred Fund allow
participants to choose among thirteen investment funds 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 Stock Fund can be exchanged into one of the Vanguard Funds subject
to certain restrictions.
THE VANGUARD FUNDS OFFERED 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.
F-6
<PAGE> 9
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, 1997 and 1996, the fair market value of the Company's Class A
Common Stock was $34.78 per share and $22.83 per share and the Plan held
approximately 7,599,000 shares and 6,994,000 shares, respectively.
It is the policy of the Committee to keep the SAIC 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
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 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).
F-7
<PAGE> 10
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,
1997 1996
------------ ------------
INVESTMENT FUND
<S> <C> <C>
Vanguard GNMA $ 4,465,000 $ 2,816,000
Vanguard Index 12,396,000 6,816,000
Vanguard Prime 7,514,000 4,598,000
Vanguard STFED 3,453,000 1,926,000
Vanguard Wellesley 5,011,000 2,727,000
Vanguard Windsor 21,776,000 12,725,000
Vanguard Intl. Growth 5,179,000 2,687,000
Vanguard U.S. Growth 4,276,000 2,171,000
Vanguard Int. Corporate Bond 265,000 124,000
Vanguard LS Income 94,000 91,000
Vanguard LS Cons. Growth 166,000 31,000
Vanguard LS Mod. Growth 367,000 173,000
Vanguard LS Growth 891,000 381,000
SAIC CODA Stock 36,053,000 19,290,000
Participant Loans 2,771,000 871,000
------------ ------------
Total $104,677,000 57,427,000
============ ============
</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 $88,000 and
$52,000 were paid or accrued to the Trustee by the Plan during 1997 and 1996,
respectively. Other Plan expenses totaling $63,000 and $111,000 were paid or
accrued by the Plan during 1997 and 1996, 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.
F-8
<PAGE> 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. Accordingly, the Plan is not
subject to Federal income taxes.
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, 1997 and 1996, are summarized below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------------------------
NUMBER NUMBER
INVESTMENT SALES OF UNITS OF SALES COST PROCEEDS
<S> <C> <C> <C> <C>
State Street Bank & Trust
Short-Term Investment Fund 627,000 64 $ 62,659,000 $62,659,000
INVESTMENT PURCHASES
State Street Bank & Trust
Short-Term Investment Fund 626,000 66 $62,618,000
SAIC Class A Common Stock 612,000 4 $17,713,000
</TABLE>
<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>
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND
Financial information by investment fund as of December 31, 1997 and 1996, and
for the years then ended are shown on the following pages.
F-9
<PAGE> 12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1997
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX 500 PRIME WELLESLEY WINDSOR INT'L GROWTH
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $ 22,141,000 $ 90,256,000 $ 37,244,000 $ 33,775,000 $ 134,811,000 $ 28,870,000
SAIC Common Stock
Short-term investments
Participant loans
------------ ------------ ------------ ------------ ------------- ------------
22,141,000 90,256,000 37,244,000 33,775,000 134,811,000 28,870,000
------------ ------------ ------------ ------------ ------------- ------------
Receivables:
Participant contributions 81,000 446,000 730,000 165,000 521,000 182,000
Company contributions 1,305,000
Interest income
------------ ------------ ------------ ------------ ------------- ------------
81,000 446,000 2,035,000 165,000 521,000 182,000
------------ ------------ ------------ ------------ ------------- ------------
Total assets 22,222,000 90,702,000 39,279,000 33,940,000 135,332,000 29,052,000
------------ ------------ ------------ ------------ ------------- ------------
LIABILITIES
Accrued Plan expenses
------------ ------------ ------------ ------------ ------------- ------------
Net assets available
for benefits $ 22,222,000 $ 90,702,000 $ 39,279,000 $ 33,940,000 $ 135,332,000 $ 29,052,000
============ ============ ============ ============ ============= ============
<CAPTION>
VANGUARD VANGUARD
VANGUARD VANGUARD VANGUARD VANGUARD LS CONS. LS MOD.
U.S. GROWTH INT. CORP. STFED LS INCOME GROWTH GROWTH
------------ ----------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $ 30,388,000 $ 2,471,000 $ 15,450,000 $ 676,000 $ 2,615,000 $ 5,675,000
SAIC Common Stock
Short-term investments
Participant loans
------------ ----------- ------------ ---------- ------------ ------------
30,388,000 2,471,000 15,450,000 676,000 2,615,000 5,675,000
------------ ----------- ------------ ---------- ------------ ------------
Receivables:
Participant contributions 217,000 14,000 62,000 21,000 60,000
Company contributions
Interest income
------------ ----------- ------------ ---------- ------------ ------------
217,000 14,000 62,000 21,000 60,000
------------ ----------- ------------ ---------- ------------ ------------
Total assets 30,605,000 2,485,000 15,512,000 676,000 2,636,000 5,735,000
============ =========== ============ ========== ============ ============
LIABILITIES
Accrued Plan expenses
------------ ----------- ------------ ---------- ------------ ------------
Net assets available
for benefits $ 30,605,000 $ 2,485,000 $ 15,512,000 $ 676,000 $ 2,636,000 $ 5,735,000
------------ ----------- ------------ ---------- ------------ ------------
<CAPTION>
VANGUARD SAIC COMMON PARTICIPANT STATE STREET
LS GROWTH STOCK LOANS STIF TOTAL
------------ -------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $ 8,347,000 $ 177,000 $ 412,896,000
SAIC Common Stock 264,309,000 264,309,000
Short-term investments $ 296,000 296,000
Participant loans $ 21,569,000 21,569,000
------------ -------------- ------------- ------------ -------------
8,347,000 264,486,000 21,569,000 296,000 699,070,000
------------ -------------- ------------- ------------ -------------
Receivables:
Participant contributions 100,000 2,599,000
Company contributions 57,000 1,362,000
Interest income
------------ -------------- ------------- ------------ -------------
100,000 57,000 3,961,000
------------ -------------- ------------- ------------ -------------
Total assets 8,447,000 264,486,000 21,569,000 353,000 703,031,000
------------ -------------- ------------- ------------ -------------
LIABILITIES
Accrued Plan expenses 88,000 88,000
------------ -------------- ------------- ------------ -------------
Net assets available
for benefits $ 8,447,000 $ 264,486,000 $ 21,569,000 $ 265,000 $ 702,943,000
============ ============== ============= ============ =============
</TABLE>
F-10
<PAGE> 13
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS AT DECEMBER 31, 1996
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX 500 PRIME WELLESLEY WINDSOR INT'L GROWTH
------------- ------------ ------------ ------------ ------------- -------------
<S> <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
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
------------- ------------ ------------ ------------ ------------- -------------
Receivables:
Participant contributions
Company contributions
Interest income
------------- ------------ ------------ ------------ ------------- -------------
------------- ------------ ------------ ------------ ------------- -------------
Total assets 19,620,000 58,841,000 31,364,000 26,138,000 102,219,000 25,170,000
------------- ------------ ------------ ------------ ------------- -------------
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
============= ============ ============ ============ ============= =============
<CAPTION>
VANGUARD VANGUARD
VANGUARD VANGUARD VANGUARD VANGUARD LS CONS. LS MOD.
U.S. GROWTH INT. CORP. STFED LS INCOME GROWTH GROWTH
------------- ----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $ 19,558,000 $ 1,538,000 $ 14,494,000 $ 455,000 $ 1,197,000 $ 2,384,000
SAIC Common Stock
Short-term investments
Participant loans
------------- ----------- ------------ ------------ ------------ -----------
19,558,000 1,538,000 14,494,000 455,000 1,197,000 2,384,000
------------- ----------- ------------ ------------ ------------ -----------
Receivables:
Participant contributions
Company contributions
Interest income
------------- ----------- ------------ ------------ ------------ -----------
------------- ----------- ------------ ------------ ------------ -----------
Total assets 19,558,000 1,538,000 14,494,000 455,000 1,197,000 2,384,000
------------- ----------- ------------ ------------ ------------ -----------
LIABILITIES
Accrued Plan expenses
------------- ----------- ------------ ------------ ------------ -----------
Net assets available
for benefits $ 19,558,000 $ 1,538,000 $ 14,494,000 $ 455,000 $ 1,197,000 $ 2,384,000
============= =========== ============ ============ ============ ===========
<CAPTION>
VANGUARD SAIC COMMON PARTICIPANT STATE STREET
LS GROWTH STOCK LOANS STIF TOTAL
------------ ---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments:
Mutual funds $ 3,946,000 $ 3,649,000 $ 310,573,000
SAIC Common Stock 159,670,000 159,670,000
Short-term investments $ 348,000 348,000
Participant loans $ 17,000,000 17,000,000
------------ ---------------- ------------ ------------- -------------
3,946,000 163,319,000 17,000,000 348,000 487,591,000
------------ ---------------- ------------ ------------- -------------
Receivables:
Participant contributions 2,161,000 2,161,000
Company contributions 650,000 650,000
Interest income 4,000 4,000
------------ ---------------- ------------ ------------- -------------
650,000 2,165,000 2,815,000
------------ ---------------- ------------ ------------- -------------
Total assets 3,946,000 163,969,000 17,000,000 2,513,000 490,406,000
------------ ---------------- ------------ ------------- -------------
LIABILITIES
Accrued Plan expenses 52,000 52,000
------------ ---------------- ------------ ------------- -------------
Net assets available
for benefits $ 3,946,000 $ 163,969,000 $ 17,000,000 $ 2,461,000 $ 490,354,000
============ ================ ============ ============= =============
</TABLE>
F-11
<PAGE> 14
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1997
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX 500 PRIME WELLESLEY WINDSOR INT'L GROWTH
------------ ------------ ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 1,436,000 $ 1,830,000 $ 1,683,000 $ 3,671,000 $ 21,478,000 $ 1,234,000
Realized gain (loss) 55,000 3,310,000 102,000 468,000 2,702,000 866,000
Unrealized (depreciation)
appreciation 374,000 15,705,000 18,000 1,321,000 (1,003,000) (1,212,000)
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 2,089,000 10,260,000 16,445,000 4,081,000 12,698,000 4,702,000
Company contributions 15,139,000
------------ ------------ ------------- ------------ ------------- -------------
Total additions 3,954,000 31,105,000 33,387,000 9,541,000 35,875,000 5,590,000
------------ ------------ ------------- ------------ ------------- -------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 1,073,000 3,660,000 3,143,000 1,485,000 5,793,000 1,730,000
Plan expenses
------------ ------------ ------------- ------------ ------------- -------------
Total deductions 1,073,000 3,660,000 3,143,000 1,485,000 5,793,000 1,730,000
------------ ------------ ------------- ------------ ------------- -------------
Net increase prior to exchanges 2,881,000 27,445,000 30,244,000 8,056,000 30,082,000 3,860,000
Exchanges (279,000) 4,416,000 (22,329,000) (254,000) 3,031,000 22,000
------------ ------------ ------------- ------------ ------------- -------------
Net increase (decrease) 2,602,000 31,861,000 7,915,000 7,802,000 33,113,000 3,882,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 19,620,000 58,841,000 31,364,000 26,138,000 102,219,000 25,170,000
------------ ------------ ------------- ------------ ------------- -------------
End of year $ 22,222,000 $ 90,702,000 $ 39,279,000 $ 33,940,000 $ 135,332,000 $ 29,052,000
============ ============ ============= ============ ============= =============
<CAPTION>
VANGUARD VANGUARD
VANGUARD VANGUARD VANGUARD VANGUARD LS CONS. LS MOD.
U.S. GROWTH INT. CORP. STFED LS INCOME GROWTH GROWTH
------------ ----------- ------------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 1,173,000 $ 119,000 $ 903,000 $ 43,000 $ 128,000 $ 252,000
Realized gain (loss) 980,000 3,000 (14,000) 26,000 34,000 66,000
Unrealized (depreciation)
appreciation 3,364,000 35,000 45,000 29,000 136,000 415,000
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 5,037,000 326,000 1,629,000 141,000 427,000 1,225,000
Company contributions
------------ ----------- ------------ ---------- ----------- -----------
Total additions 10,554,000 483,000 2,563,000 239,000 725,000 1,958,000
------------ ----------- ------------ ---------- ----------- -----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 1,291,000 106,000 798,000 164,000 217,000 434,000
Plan expenses
------------ ----------- ------------ ---------- ----------- -----------
Total deductions 1,291,000 106,000 798,000 164,000 217,000 434,000
------------ ----------- ------------ ---------- ----------- -----------
Net increase prior to exchanges 9,263,000 377,000 1,765,000 75,000 508,000 1,524,000
Exchanges 1,784,000 570,000 (747,000) 146,000 931,000 1,827,000
------------ ----------- ------------ ---------- ----------- -----------
Net increase (decrease) 11,047,000 947,000 1,018,000 221,000 1,439,000 3,351,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 19,558,000 1,538,000 14,494,000 455,000 1,197,000 2,384,000
------------ ----------- ------------ ---------- ----------- -----------
End of year $ 30,605,000 $ 2,485,000 $ 15,512,000 $ 676,000 $ 2,636,000 $ 5,735,000
============ =========== ============ ========== =========== ===========
<CAPTION>
VANGUARD SAIC COMMON PARTICIPANT STATE STREET
LS GROWTH STOCK LOANS STIF TOTAL
----------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 328,000 $ 71,000 $ 34,349,000
Realized gain (loss) 128,000 8,726,000
Unrealized (depreciation)
appreciation 703,000 19,930,000
SAIC Common Stock:
Realized gain -
Unrealized appreciation 87,106,000 87,106,000
Interest $ 1,347,000 $ 58,000 1,405,000
Participant contributions 2,135,000 497,000 183,000 15,552,000 77,427,000
Company contributions 29,000 15,168,000
----------- ------------- ------------ ------------- -------------
Total additions 3,294,000 87,674,000 1,530,000 15,639,000 244,111,000
----------- ------------- ------------ ------------- -------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 339,000 10,419,000 719,000 31,371,000
Plan expenses 151,000 151,000
----------- ------------- ------------ ------------- -------------
Total deductions 339,000 10,419,000 719,000 151,000 31,522,000
----------- ------------- ------------ ------------- -------------
Net increase prior to exchanges 2,955,000 77,255,000 811,000 15,488,000 212,589,000
Exchanges 1,546,000 23,262,000 3,758,000 (17,684,000) -
----------- ------------- ------------ ------------- -------------
Net increase (decrease) 4,501,000 100,517,000 4,569,000 (2,196,000) 212,589,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 3,946,000 163,969,000 17,000,000 2,461,000 490,354,000
----------- ------------- ------------ ------------- -------------
End of year $ 8,447,000 $ 264,486,000 $ 21,569,000 $ 265,000 $ 702,943,000
=========== ============= ============ ============= =============
</TABLE>
F-12
<PAGE> 15
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FINANCIAL INFORMATION BY INVESTMENT FUND - CONTINUED
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED DECEMBER 31, 1996
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD
GNMA INDEX 500 PRIME WELLESLEY WINDSOR INT'L GROWTH
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 1,346,000 $ 1,222,000 $ 1,518,000 $ 2,101,000 $ 9,744,000 $ 1,073,000
Realized gain (loss) 47,000 1,805,000 329,000 1,489,000 586,000
Unrealized (depreciation)
appreciation (430,000) 7,089,000 (204,000) 9,608,000 1,304,000
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
Company contributions
------------ ------------ ------------ ------------ ------------- ------------
Total additions 3,395,000 18,155,000 4,772,000 6,658,000 32,502,000 7,325,000
------------ ------------ ------------ ------------ ------------- ------------
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
Plan expenses
------------ ------------ ------------ ------------ ------------- ------------
Total deductions 1,074,000 2,880,000 2,825,000 1,666,000 5,086,000 1,322,000
------------ ------------ ------------ ------------ ------------- ------------
Net increase prior to exchanges 2,321,000 15,275,000 1,947,000 4,992,000 27,416,000 6,003,000
Exchanges (2,011,000) 4,078,000 (265,000) (1,877,000) (2,193,000) 1,082,000
------------ ------------ ------------ ------------ ------------- ------------
Net increase (decrease) 310,000 19,353,000 1,682,000 3,115,000 25,223,000 7,085,000
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
------------ ------------ ------------ ------------ ------------- ------------
End of year $ 19,620,000 $ 58,841,000 $ 31,364,000 $ 26,138,000 $ 102,219,000 $ 25,170,000
============ ============ ============ ============ ============= ============
<CAPTION>
VANGUARD VANGUARD
VANGUARD VANGUARD VANGUARD VANGUARD LS CONS. LS MOD.
U.S. GROWTH INT. CORP. STFED LS INCOME GROWTH GROWTH
------------ ----------- ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 1,423,000 $ 87,000 $ 874,000 $ 16,000 $ 53,000 $ 105,000
Realized gain (loss) 459,000 (1,000) (20,000) 1,000 2,000 6,000
Unrealized (depreciation)
appreciation 1,245,000 (46,000) (185,000) (4,000) 20,000 79,000
SAIC Common Stock:
Realized gain
Unrealized appreciation
Interest
Participant contributions 3,268,000 256,000 1,914,000 30,000 162,000 473,000
Company contributions
------------ ----------- ------------ --------- ----------- -----------
Total additions 6,395,000 296,000 2,583,000 43,000 237,000 663,000
------------ ----------- ------------ --------- ----------- -----------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 666,000 30,000 1,155,000 21,000 2,000 23,000
Plan expenses
------------ ----------- ------------ --------- ----------- -----------
Total deductions 666,000 30,000 1,155,000 21,000 2,000 23,000
------------ ----------- ------------ --------- ----------- -----------
Net increase prior to exchanges 5,729,000 266,000 1,428,000 22,000 235,000 640,000
Exchanges 5,744,000 187,000 (1,680,000) 433,000 962,000 1,744,000
------------ ----------- ------------ --------- ----------- -----------
Net increase (decrease) 11,473,000 453,000 (252,000) 455,000 1,197,000 2,384,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 8,085,000 1,085,000 14,746,000 - - -
------------ ----------- ------------ --------- ----------- -----------
End of year $ 19,558,000 $ 1,538,000 $ 14,494,000 $ 455,000 $ 1,197,000 $ 2,384,000
============ =========== ============ ========= =========== ===========
<CAPTION>
VANGUARD SAIC COMMON PARTICIPANT STATE STREET
LS GROWTH STOCK LOANS STIF TOTAL
----------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS
Investment income:
Mutual funds:
Dividends and interest $ 146,000 $ 19,708,000
Realized gain (loss) 19,000 4,722,000
Unrealized (depreciation)
appreciation 201,000 18,677,000
SAIC Common Stock:
Realized gain -
Unrealized appreciation $ 30,082,000 30,082,000
Interest 131,000 $ 1,038,000 $ 49,000 1,218,000
Participant contributions 776,000 11,446,000 14,050,000 66,555,000
Company contributions 9,575,000 50,000 9,625,000
----------- ------------- ------------ ------------ -------------
Total additions 1,142,000 51,234,000 1,038,000 14,149,000 150,587,000
----------- ------------- ------------ ------------ -------------
DEDUCTIONS FROM NET ASSETS
Distributions to participants 15,000 7,916,000 483,000 25,164,000
Plan expenses 163,000 163,000
----------- ------------- ------------ ------------ -------------
Total deductions 15,000 7,916,000 483,000 163,000 25,327,000
----------- ------------- ------------ ------------ -------------
Net increase prior to exchanges 1,127,000 43,318,000 555,000 13,986,000 125,260,000
Exchanges 2,819,000 316,000 4,815,000 (14,154,000) -
----------- ------------- ------------ ------------ -------------
Net increase (decrease) 3,946,000 43,634,000 5,370,000 (168,000) 125,260,000
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year - 120,335,000 11,630,000 2,629,000 365,094,000
----------- ------------- ------------ ------------ -------------
End of year $ 3,946,000 $ 163,969,000 $ 17,000,000 $ 2,461,000 $ 490,354,000
=========== ============= ============ ============ =============
</TABLE>
F-13
<PAGE> 16
ADDITIONAL INFORMATION
SCHEDULE I
SCIENCE APPLICATION INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
ITEM 27a FORM 5500 - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
AT DECEMBER 31, 1997
- --------------------------------------------------------------------------------
<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 of
Investment Companies
Vanguard Fixed Income
Securities Fund -
GNMA Portfolio 2,123,000 $ 21,471,000 $ 22,141,000
Vanguard Index Trust -
500 Portfolio 1,002,000 57,415,000 90,256,000
Vanguard Money Market Reserves-
Prime Portfolio 37,421,000 37,421,000 37,421,000
Vanguard/Wellesley
Income Fund 1,545,000 30,773,000 33,775,000
Vanguard/Windsor Fund 7,939,000 122,383,000 134,811,000
Vanguard Int'l Growth Portfolio 1,761,000 26,713,000 28,870,000
Vanguard U.S. Growth Portfolio 1,059,000 24,945,000 30,388,000
Vanguard Int. Term Corporate
Bond Portfolio 249,000 2,442,000 2,471,000
Vanguard Fixed Income
Securities Fund -
Short-Term Federal
Portfolio 1,525,000 15,457,000 15,450,000
Vanguard LIFEStrategy
Income Portfolio 54,000 651,000 676,000
Vanguard LIFEStrategy
Conservative Growth
Portfolio 195,000 2,460,000 2,615,000
Vanguard LIFEStrategy
Moderate Growth Portfolio 383,000 5,181,000 5,675,000
Vanguard LIFEStrategy
Growth Portfolio 520,000 7,443,000 8,347,000
-------------- --------------
354,755,000 412,896,000
Common Stock:
SAIC* Class A 7,599,000 109,484,000 264,309,000
Short-Term Investment:
State Street Bank & Trust Short-Term Investment Fund 296,000 296,000 296,000
Company*
Participant loans Due Jan. 1998 to Dec. 2022; 6% - 12% 4,000 21,569,000 21,569,000
-------------- --------------
$ 486,104,000 $ 699,070,000
============== ==============
</TABLE>
* Represents a party-in-interest.
F-14
<PAGE> 17
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, 1997
<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>
Joyce Tremain $ 6,000 - - $ 6,000
8689 Long Hill Rd.
Rome, NY 13440
Kathryn E. Dayan $ 11,000 - - $ 11,000
12015-4 World Trade Drive
San Diego, CA 92128
Kathryn E. Dayan $ 13,000 - - $ 13,000
12015-4 World Trade Drive
San Diego, CA 92128
</TABLE>
<TABLE>
<CAPTION>
DETAILED DESCRIPTION OF LOSS INCLUDING DATES OF
MAKING AND MATURITY, INTEREST RATE, THE TYPE AND VALUE AMOUNT OVERDUE*
OF COLLATERAL, ANY REGURGITATION OF THE LOAN AND THE ---------------------------
IDENTITY AND ADDRESS OF OBLIGOR TERMS OF THE RENEGOTIATION AND OTHER MATERIAL ITEMS PRINCIPAL INTEREST
<S> <C> <C> <C>
Joyce Tremain Loan date: 4/5/96; Maturity date: 3/23/01; $ 6,000 -
8689 Long Hill Rd. Interest rate: 7%; Collateral: Vested Balance
Rome, NY 13440
Kathryn E. Dayan Loan date: 4/19/96; Maturity date: 4/6/01; $ 11,000 -
12015-4 World Trade Drive Interest rate: 7%; Collateral: Vested Balance
San Diego, CA 92128
Kathryn E. Dayan Loan date: 5/26/95; Maturity date: 4/24/20; $ 13,000 -
12015-4 World Trade Drive Interest rate: 9%; Collateral: Vested Balance
San Diego, CA 92128
</TABLE>
* During 1998, 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, 1997.
F-15
<PAGE> 18
ADDITIONAL INFORMATION
SCHEDULE III
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
ITEM 27d FORM 5500 - SCHEDULE OF REPORTABLE TRANSACTIONS*
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NUMBER OF PURCHASE SELLING LEASE
PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE PRICE RENTAL
<S> <C> <C> <C> <C> <C>
State Street Bank Short-Term Investment
& Trust Fund 66 $ 62,618,000
State Street Bank Short-Term Investment
& Trust Fund 64 $ 62,659,000
</TABLE>
<TABLE>
<CAPTION>
CURRENT
VALUE ON
EXPENSE COST OF TRANSACTION NET GAIN
PARTY INVOLVED INCURRED ASSET DATE OR LOSS
<S> <C> <C> <C> <C>
State Street Bank
& Trust $ 62,618,000
State Street Bank
& Trust $ 62,659,000 $ 62,659,000 $ -
</TABLE>
* Transactions or series of transactions in excess of 5 percent of the
current value of the Plan's assets as of December 31, 1996 as defined in
Section 2520.103-6 of the Department of Labor Rules and Regulations for
Reporting and Disclosure under ERISA.
F-16
<PAGE> 1
EXHIBIT 28 (c)
Securities and Exchange Commission
Washington, D.C. 20549
Form 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the calendar year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
TRANSCORE RETIREMENT SAVINGS PLAN
---------------------------------
(Full title of the plan)
7611 Derry Street
Harrisburg, PA 17111
Plan's telephone number, including area code (717) 561-2400
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)
Registrant's telephone number, including area code (619) 546-6000
<PAGE> 2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustee (or other persons who administer the Plan) have duly caused this
annual report to be signed on its behalf by the undersigned hereunto duly
authorized.
TRANSCORE RETIREMENT SAVINGS PLAN
Date: April 23, 1998 BY:/s/ JOHN M. WORTHINGTON
--------------------------------------
John M. Worthington
Senior Vice President and
Chief Operating Officer
<PAGE> 3
TRANSCORE RETIREMENT SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Accountants F-2
Financial Statements:
Statements of Net Assets Available for Plan Benefits, with Fund Information
as of December 31, 1997 and 1996 F-3-F-4
Statements of Changes in Net Assets Available for Plan Benefits, with Fund
Information for the Years Ended December 31, 1997 and 1996 F-5-F-6
Notes to Financial Statements F-7-F-10
Additional Information*:
Schedule I: Schedule of Assets Held for Investment Purposes at
December 31, 1997 F-11
Schedule II: Schedule of Loans or Fixed Income Obligations at
December 31, 1997 F-12
Schedule III: Schedule of Reportable Transactions for the Year Ended
December 31, 1997 F-13
</TABLE>
* Other supplemental 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.
F-1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Plan Administrator and Participants
of the TransCore Retirement Savings 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 TransCore Retirement Savings Plan (the Plan) at December 31, 1997, and
the changes in net assets available for benefits for the year 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 audit. We
conducted our audit 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
audit provides a reasonable basis for the opinion expressed above. The financial
statements of the TransCore Retirement Savings Plan for the year ended December
31, 1996 were audited by other independent accountants whose report dated June
23, 1997 expressed an unqualified opinion on those statements.
Our audit was performed 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 audit 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
April 3, 1998
F-2
<PAGE> 5
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
----------------------------------------------------------------------------------
MONEY
SHORT-TERM LONG-TERM MARKET WELLESLEY
FEDERAL GNMA CORPORATE PRIME INCOME WELLINGTON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value
Science Applications International
Corporation Common Stock
(cost $1,392,907)
Vanguard Mutual Funds
(aggregate cost $7,684,316) $ 153,289 $ 230,780 $ 968,620 $ 737,374 $ 495,658 $ 2,634,417
Short-term investments and cash
(cost $77,650)
Loans to participants - principal
balance
----------- ----------- ----------- ----------- ----------- -----------
Net assets available for
plan benefits $ 153,289 $ 230,780 $ 968,620 $ 737,374 $ 495,658 $ 2,634,417
=========== =========== =========== =========== =========== ===========
Unit or share values (Note 2) $ 10.13 $ 10.43 $ 9.26 $ 1.00 $ 21.86 $ 29.45
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1997
- -------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
INDEX INTERNATIONAL SAIC
500 WINDSOR II GROWTH LOAN COMMON
PORTFOLIO FUND PORTFOLIO FUND STOCK TOTAL
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair value
Science Applications International
Corporation Common Stock $ 2,563,314 $ 2,563,314
(cost $1,392,907)
Vanguard Mutual Funds
(aggregate cost $7,684,316) $ 1,368,292 $ 1,750,943 $ 699,077 9,038,450
Short-term investments and cash 77,983 77,983
(cost $77,650)
Loans to participants - principal
balance $ 87,480 87,480
----------- ----------- ----------- ----------- ----------- -----------
Net assets available for
plan benefits $ 1,368,292 $ 1,750,943 $ 699,077 $ 87,480 $ 2,641,297 $11,767,227
=========== =========== =========== =========== =========== ===========
Unit or share values (Note 2) $ 90.07 $ 28.62 $ 16.39 $ 34.78
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the financial statements
F-3
<PAGE> 6
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
---------------------------------------------------------------------------------------
MONEY
SHORT-TERM LONG-TERM MARKET WELLESLEY INDEX
FEDERAL GNMA CORPORATE PRIME INCOME WELLINGTON 500
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND PORTFOLIO
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Investments, at fair value
Science Applications International
Corporation Common Stock
(cost $1,292,490)
Vanguard Mutual Funds
(aggregate cost $5,556,829) $ 114,064 $ 142,664 $ 895,224 $ 662,276 $ 394,655 $2,038,251 $ 637,352
Short-term investments and cash
Loans to participants -
principal balance
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets available for plan
benefits $ 114,064 $ 142,664 $ 895,224 $ 662,276 $ 394,655 $2,038,251 $ 637,352
========== ========== ========== ========== ========== ========== ==========
Unit or share values (Note 2) $ 10.13 $ 10.22 $ 9.26 $ 1.00 $ 20.51 $ 26.15 $ 69.16
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
---------------------------------------------------------------------------------------
INTERNATIONAL SAIC
WINDSOR II GROWTH LOAN COMMON
FUND PORTFOLIO FUND STOCK TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Investments, at fair value
Science Applications International
Corporation Common Stock $1,681,467 $1,681,467
(cost $1,292,490)
Vanguard Mutual Funds
(aggregate cost $5,556,829) $ 930,975 $ 510,143 6,325,604
Short-term investments and cash
Loans to participants -
principal balance $ 78,618 78,618
---------- ---------- ---------- ---------- ----------
Net assets available for plan
benefits $ 930,975 $ 510,143 $ 78,618 $1,681,467 $8,085,689
========== ========== ========== ========== ==========
Unit or share values (Note 2) $ 23.83 $ 16.46 $ 22.83
========== ========== ==========
</TABLE>
See accompanying notes to the financial statements
F-4
<PAGE> 7
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
---------------------------------------------------------------------------------
MONEY
SHORT-TERM LONG-TERM MARKET WELLESLEY
FEDERAL GNMA CORPORATE PRIME INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Investment income:
Interest
Dividends $ 8,330 $ 12,709 $ 70,346 $ 36,331 $ 54,610
Net appreciation (depreciation) in
fair value of investments 412 4,077 47,723 30,294
------------ ------------ ------------ ------------ ------------
Total investment income 8,742 16,786 118,069 36,331 84,904
Contributions:
TransCore Company Contributions 8,810 11,813 20,538 24,109 23,042
Participant Contributions 31,430 41,242 68,823 80,321 87,831
Rollover Contributions 4,818 21,468 29,821 3,926
------------ ------------ ------------ ------------ ------------
Total additions 53,800 91,309 207,430 170,582 199,703
------------ ------------ ------------ ------------ ------------
Withdrawals (8,415) (9,272) (83,688) (26,684) (3,675)
Net transfers among funds (6,160) 6,079 (50,346) (68,800) (95,025)
------------ ------------ ------------ ------------ ------------
Net increase 39,225 88,116 73,396 75,098 101,003
Net assets available for plan benefits:
Beginning of year 114,064 142,664 895,224 662,276 394,655
------------ ------------ ------------ ------------ ------------
End of year $ 153,289 $ 230,780 $ 968,620 $ 737,374 $ 495,658
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
-------------------------------------------------------------------------------------------
INDEX INTERNATIONAL SAIC
WELLINGTON 500 WINDSOR II GROWTH LOAN COMMON
FUND PORTFOLIO FUND PORTFOLIO FUND STOCK
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 6,051
Dividends $ 221,363 $ 26,075 $ 154,631 $ 29,254
Net appreciation (depreciation) in
fair value of investments 257,960 245,064 211,482 (17,145) $ 892,863
------------ ------------ ------------ ------------ ------------ ------------
Total investment income 479,323 271,139 366,113 12,109 6,051 892,863
Contributions:
TransCore Company Contributions 60,293 81,923 93,641 35,341 64,327
Participant Contributions 232,456 350,700 388,771 146,388 243,369
Rollover Contributions 16,287 58,868 56,110 15,415 39,015
------------ ------------ ------------ ------------ ------------ ------------
Total additions 788,359 762,630 904,635 209,253 6,051 1,239,574
------------ ------------ ------------ ------------ ------------ ------------
Withdrawals (192,213) (145,176) (176,640) (7,450) (13,207) (285,368)
Net transfers among funds 20 113,486 91,973 (12,869) 16,018 5,624
------------ ------------ ------------ ------------ ------------ ------------
Net increase 596,166 730,940 819,968 188,934 8,862 959,830
Net assets available for plan benefits:
Beginning of year 2,038,251 637,352 930,975 510,143 78,618 1,681,467
------------ ------------ ------------ ------------ ------------ ------------
End of year $ 2,634,417 $ 1,368,292 $ 1,750,943 $ 699,077 $ 87,480 $ 2,641,297
============ ============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------------
TOTAL
------------
<S> <C>
Investment income:
Interest $ 6,051
Dividends 613,649
Net appreciation (depreciation) in
fair value of investments 1,672,730
------------
Total investment income 2,292,430
Contributions:
TransCore Company Contributions 423,837
Participant Contributions 1,671,331
Rollover Contributions 245,728
------------
Total additions 4,633,326
------------
Withdrawals ) (951,788)
Net transfers among funds
------------
Net increase 3,681,538
Net assets available for plan benefits:
Beginning of year 8,085,689
------------
End of year $ 11,767,227
============
</TABLE>
See accompanying notes to the financial statements
F-5
<PAGE> 8
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
-----------------------------------------------------------------------------------------------
MONEY
SHORT-TERM LONG-TERM MARKET WELLESLEY
FEDERAL GNMA CORPORATE PRIME INCOME WELLINGTON
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO FUND FUND
------------- ------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest
Dividends $ 6,672 $ 9,130 $ 83,583 $ 34,155 $ 34,908 $ 156,599
Net appreciation (depreciation)
in fair value of investments (1,413) (2,399) (77,531) (1,409) 123,401
--------- --------- --------- --------- --------- -----------
Total investment income 5,259 6,731 6,052 34,155 33,499 280,000
Contributions:
TransCore Company Contributions 5,668 6,918 22,552 26,482 14,671 42,646
Participant Contributions 21,535 23,944 75,819 91,449 56,321 159,421
Rollover Contributions 972 33,735 55,671
--------- --------- --------- --------- --------- -----------
Total additions 33,434 37,593 104,423 185,821 104,491 537,738
--------- --------- --------- --------- --------- -----------
Withdrawals (3,392) (4,002) (21,655) (19,622) (19,111) (79,968)
Net transfers among funds (27,349) (15,727) (219,651) (161,144) (166,565) (192,045)
--------- --------- --------- --------- --------- -----------
Net increase (decrease) 2,693 17,864 (136,883) 5,055 (81,185) 265,725
Net assets available for plan
benefits:
Beginning of year 111,371 124,800 1,032,107 657,221 475,840 1,772,526
--------- --------- --------- --------- --------- -----------
End of year $ 114,064 $ 142,664 $ 895,224 $ 662,276 $ 394,655 $ 2,038,251
========= ========= ========= ========= ========= ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
FUND INFORMATION
------------------------------------------------------------------------------------------
INDEX INTERNATIONAL SAIC
500 WINDSOR II GROWTH LOAN COMMON
PORTFOLIO FUND PORTFOLIO FUND STOCK TOTAL
------------ ------------- ------------- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest $ 5,793 $ 5,793
Dividends $ 12,207 $ 58,631 $ 21,305 417,190
Net appreciation (depreciation)
in fair value of investments 84,223 83,202 32,339 $ 229,729 470,142
--------- --------- --------- -------- ----------- -----------
Total investment income 96,430 141,833 53,644 5,793 229,729 893,125
Contributions:
TransCore Company Contributions 26,549 37,095 17,080 6,289 205,950
Participant Contributions 109,947 149,284 68,519 22,776 779,015
Rollover Contributions 53,784 75,895 31,910 49,919 301,886
--------- --------- --------- -------- ----------- -----------
Total additions 286,710 404,107 171,153 5,793 308,713 2,179,976
--------- --------- --------- -------- ----------- -----------
Withdrawals (9,735) (15,405) (8,924) (9,083) (36,104) (227,001)
Net transfers among funds 47,479 114,818 27,145 22,576 570,463
--------- --------- --------- -------- ----------- -----------
Net increase (decrease) 324,454 503,520 189,374 19,286 843,072 1,952,975
Net assets available for plan benefits:
Beginning of year 312,898 427,455 320,769 59,332 838,395 6,132,714
--------- --------- --------- -------- ----------- -----------
End of year $ 637,352 $ 930,975 $ 510,143 $ 78,618 $ 1,681,467 $ 8,085,689
========= ========= ========= ======== =========== ===========
</TABLE>
See accompanying notes to the financial statements
F-6
<PAGE> 9
TRANSCORE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF RETIREMENT SAVINGS PLAN
THE PLAN
The following description of the TransCore Retirement Savings Plan (the "Plan")
provides only general information. Participants should refer to the Plan
agreement for a more comprehensive description of the Plan's provisions.
The Plan is a defined contribution plan which became effective January 1, 1986.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA) and the Internal Revenue Code.
The purpose of the Plan is to encourage and assist employees in following a
systematic savings program suited to their individual objectives, and to provide
an opportunity for employees to become stockholders of Science Applications
International Corporation (SAIC). TransCore (the "Company") is a wholly-owned
subsidiary of SAIC. Any employee of the Company who was hired before April 1,
1986 or any employee who has completed at least one year of continuous service,
as determined in accordance with the Company's service rules, or who has been
compensated for 1,000 or more hours in a period of 12 consecutive months is
eligible for participation in the Plan.
Eligible employees may participate in the Plan by authorizing the Company to
make biweekly salary deferrals. The Plan permits participants to elect to defer
up to 15% of compensation. The Company will match 50% of the Participant's
salary deferrals on the first 4% of eligible compensation. At the discretion of
the Board of Directors, the Company may make additional profit-sharing
contributions. All of the above savings and elections are subject to regulatory
and Plan limitations.
Company matching and profit sharing contributions vest as follows:
<TABLE>
<CAPTION>
VESTED
YEARS OF SERVICE PERCENTAGE
---------------- ----------
<S> <C>
Less than one year 0
After one year, but less than two years 20
After two years, but less than three years 40
After three years, but less than four years 60
After four years, but less than five years 80
After five years 100
</TABLE>
A participant with less than five years of service who withdraws any matched
savings will forfeit a portion of related company contributions in accordance
with specific plan provisions. The nonvested portion of the participant's
profit-sharing contribution account is forfeited at the end of the Plan year in
which termination occurs and is reallocated as additional profit-sharing
contributions to the remaining eligible participants. The nonvested portion of
the participant's matching contribution account is forfeited at the
participant's date of termination and is used to reduce future employer matching
contributions to the Plan. Participants who retire may withdraw their vested
balances in a lump sum payment at any time prior to attaining the age of 70 1/2.
Participants may borrow up to one-half of their vested account balances subject
to certain minimum and maximum loan limitations. All approved loans require the
participant to pledge the vested portion of his/her account balance as plan
collateral. The loan must be repaid in regular installments through payroll
deductions over a period not to exceed five years.
F-7
<PAGE> 10
TRANSCORE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
INVESTMENT FUNDS
Participants may allocate contributions among fund options at their discretion.
Participants may transfer balances between all funds with the exception of the
SAIC Common Stock Fund, which can receive amounts only through contributions.
The investment options offered by the Plan are described below:
Vanguard Group Funds
Each of the following mutual funds has its own investment objectives and varying
degrees of risk.
Short-Term Federal Portfolio - Seeks a high level of interest income and
modest fluctuations in share price by investing primarily in short-term
securities issued by the U.S. government and its agencies.
GNMA Portfolio - Seeks a high-level of interest income by investing in a broad
range of mortgage-backed securities issued by the Government National Mortgage
Association.
Long-Term Corporate Portfolio - Seeks a high and stable level of interest
income by investing in a widely diversified group of long-term bonds.
Money Market Prime Portfolio - Seeks interest income and a stable share price
by investing in short-term, high quality money market instruments issued by
financial institutions, non-financial corporations and the U.S. government and
its agencies.
Wellesley Income Fund - Seeks a high level of income and long-term growth of
income by investing in high-quality long-term and intermediate-term bonds and
dividend-paying stocks.
Wellington Fund - Seeks long-term growth of capital and income by investing in
stocks and bonds.
Index 500 Portfolio - Seeks long-term growth of capital by investing in the
shares of companies included in the Standard & Poor's 500 index.
Windsor II Fund - Seeks long-term growth of capital by investing in a
diversified group of out-of-favor stocks of large capitalization companies.
International Growth Portfolio - Seeks long-term growth of capital by
investing in stocks of high quality, seasoned companies outside of the United
States.
Loan Fund
This fund represents the principal balance of amounts loaned to participants.
SAIC Common Stock Fund
This fund purchases shares of SAIC Class A Common stock.
F-8
<PAGE> 11
TRANSCORE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
ADMINISTRATION
The designated Trustee of the Plan is State Street Bank. The administration of
the Plan is vested in the Company which may designate one or more persons to
operate and administer the Plan. Expenses of administering the Plan are paid by
the Company.
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA.
NOTE 2 - SUMMARY ACCOUNTING POLICIES
INVESTMENT VALUATION AND INCOME RECOGNITION
The accompanying financial statements are prepared on the accrual basis of
accounting.
Investments in the Vanguard mutual funds are valued at quoted market prices
which represent the net asset value of shares held by the Plan at year end.
Loans to participants, short-term investments and cash are valued at cost which
approximates fair value. SAIC Common Stock is carried at fair value. A general
public market does not exist for SAIC's Common Stock; therefore, the fair market
value of SAIC's Common Stock is determined pursuant to a stock price formula and
valuation process which includes an appraisal prepared by an independent firm.
Periodic determinations of the fair market value of SAIC's Common Stock are made
by the Board of Directors, with the assistance of the independent appraisal
firm. The Board of Directors of SAIC reserves the right to alter the formula.
Investment income is recorded when earned.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires the Plan Administrator 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 - REALIZED AND UNREALIZED GAINS AND LOSSES
Realized and unrealized gains and losses are calculated based upon the
historical cost of assets. Such gains and losses are computed on a current value
basis for the Form 5500. This difference may result in classification
differences between realized and unrealized gains.
NOTE 4 - INCOME TAX STATUS
The TransCore Retirement Savings Plan is a qualified plan pursuant to Section
401(a) of the Internal Revenue Code ("the Code") and the related Trusts are
exempt from federal taxation under Section 401(a) of the Code. A favorable tax
determination letter dated March 24, 1994 has been received by the Plan. The
Plan has been amended since receiving this determination letter. However, the
Plan Administrator and the Plan's tax counsel believe that the Plan is designed
and currently being operated in compliance with the applicable provisions of the
Code. Accordingly, no provision has been made for federal income taxes in the
accompanying financial statements.
F-9
<PAGE> 12
TRANSCORE RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SUBSEQUENT EVENTS
Effective with the Plan year beginning January 1, 1998, the Vanguard Group will
replace State Street Bank as the Trustee of the Plan.
F-10
<PAGE> 13
ADDITIONAL INFORMATION
SCHEDULE I
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
FORM 5500 ITEM 27(a) - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
- -----------------------------------------------------------------------------------------------------------------------------
IDENTITY OF SHARES CURRENT
ISSUE DESCRIPTION OR UNITS COST VALUE
<S> <C> <C> <C> <C>
Mutual Funds:
The Vanguard Group Vanguard Short-Term Federal 15,132 $ 150,544 $ 153,289
of Investment Portfolio
Companies
Vanguard GNMA Portfolio 22,126 222,739 230,780
Vanguard Long-Term Corporate
Portfolio 104,602 879,164 968,620
Vanguard Money Market Prime
Portfolio 737,374 737,374 737,374
Vanguard Wellesley Income Fund 22,674 444,083 495,658
Vanguard Wellington Fund 89,453 2,062,957 2,634,417
Vanguard Index 500 Portfolio 15,191 1,056,471 1,368,292
Vanguard Windsor II Fund 61,179 1,457,772 1,750,943
Vanguard International Growth
Portfolio 42,653 673,212 699,077
Participant Loans Due July 1998 to Oct. 2002; 87,480 87,480
7.4% - 12%
Common Stock:
Science Applications
International Corporation * Class A Common Stock 73,700 1,392,907 2,563,314
Short-Term Investments 77,983 77,650 77,983
and Cash ----------- ------------
Total Investment Portfolio $ 9,242,353 $ 11,767,227
=========== ============
</TABLE>
* Represents a party-in-interest.
F-11
<PAGE> 14
ADDITIONAL INFORMATION
SCHEDULE II
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
FORM 5500 ITEM 27(b) - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
DECEMBER 31, 1997
- --------------------------------------------------------------------
ORIGINAL AMOUNT RECEIVED UNPAID
IDENTITY AND AMOUNT DURING REPORTING YEAR BALANCE AT
ADDRESS OF OBLIGOR OF LOAN PRINCIPAL INTEREST END OF YEAR
<S> <C> <C> <C> <C>
Russell B Einarson
42 Blueberry Ridge
Westfield, MA 01085 $ 4,907 $ 803 $ 187 $ 2,333
Deborah Hoffman
314 Dimpsey Road
Hallifax, VA 17032 $ 4,400 $ - $ - $ 4,001
</TABLE>
<TABLE>
<CAPTION>
FORM 5500 ITEM 27(B) - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
DECEMBER 31, 1997
- ----------------------------------------------------------------------------------------------
DETAILED DESCRIPTION OF LOANS INCLUDING
DATE OF MAKING AND MATURITY, INTEREST RATE,
THE TYPE AND VALUE OF COLLATERAL, ANY
IDENTITY AND RENEGOTIATION OF THE LOAN AND THE TERMS OF AMOUNT OVERDUE
ADDRESS OF OBLIGOR THE RENEGOTIATION AND OTHER MATERIAL ITEMS PRINCIPAL INTEREST
<S> <C> <C> <C>
Russell B Einarson
42 Blueberry Ridge Loan date: 12/30/94; Maturity date: 1/6/00;
Westfield, MA 01085 Interest rate: 8.3%; Collateral - Vested balance $ 2,333 $ -
Deborah Hoffman
314 Dimpsey Road Loan date: 4/25/95; Maturity date: 7/6/00;
Hallifax, VA 17032 Interest rate: 9%; Collateral - Vested balance $ 4,001 $ -
</TABLE>
F-12
<PAGE> 15
ADDITIONAL INFORMATION
SCHEDULE II
TRANSCORE RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
FORM 5500 ITEM 27(d) - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------
TRANSACTIONS OR SERIES OF TRANSACTIONS IN EXCESS OF 5% OF THE
CURRENT VALUE OF PLAN ASSETS AS OF JANUARY 1, 1997
CONTRACT CURRENT
VALUE/ VALUE ON
PARTY DESCRIPTION NUMBER OF PURCHASE SELLING COST OF TRANSACTION GAIN ON
INVOLVED OF ASSET TRANSACTIONS PRICE PRICE ASSET DATE TRANSACTION
<S> <C> <C> <C> <C> <C> <C> <C>
Vanguard Index 500 Portfolio 8 $ 433,859 $ 433,859
2 $ 459,202 $ 455,525 $ 3,677
Vanguard Windsor II Fund 9 $ 396,693 $ 396,693
1 $ 410,046 $ 407,083 $ 2,963
SAIC SAIC Common Stock Fund 7 $ 198,597 $ 198,597
3 $ 420,955 $ 420,955 $ -
</TABLE>
F-13
<PAGE> 1
EXHIBIT 28.D
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN
(Full Title of Plan)
Bell Communications Research, Inc.
445 South Street, Morristown NJ 07960
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Departmental Benefits Committee of the Bell Communications Research Savings
and Security Plan, duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
DATE 4-11-98 s/ Richard Schooley
-----------------------------------------
Richard Schooley
Chairman, Departmental Benefits Committee
<PAGE> 3
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
----------
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Statements of Net Assets Available for
Benefits, with Fund Information
as of December 31, 1997 and 1996 F-3 - F-4
Statement of Changes in Net Assets Available
for Benefits, with Fund Information
for the years ended December 31, 1997 and 1996 F-5 - F-6
NOTES TO FINANCIAL STATEMENTS F-7 - F-11
SUPPLEMENTAL SCHEDULES:
Schedule I: Item 27a - Schedule of Assets Held for Investment Purposes
as of December 31, 1997 F-12 - F-14
Schedule II: Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1997 F-15
</TABLE>
Other schedules required by Section 2520.103-10 of the Department of Labor Rules
and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974 have been omitted because they are not applicable.
F-1
<PAGE> 4
Report of Independent Accountants
To the Participants and the Administrative Committee
of the Bell Communications Research Savings and Security Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Bell Communications Research Savings and Security Plan (the Plan) at
December 31, 1997 and the changes in net assets available for benefits for the
year 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
The financial statements of the Plan as of and for the year ended December 31,
1996 were audited by other independent accountants whose report dated June 19,
1997 expressed an unqualified opinion on those statements. Their report also
contained an explanatory paragraph on supplemental information required by the
Employee Retirement Income Security Act of 1974 (ERISA).
Our audit was performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
Schedules I and II 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. The fund information in the statement of net assets available
for benefits and the statement of changes in net assets available for benefits
is presented for purposes of additional analysis rather than to present the net
assets available for benefits and the changes in net assets available for
benefits of each fund. Schedules I and II and the fund information have been
subjected to the auditing procedures applied in the audit of the basic financial
statements, and in our opinion, are fairly stated in all material respects in
relation to the basic financial statements taken as a whole.
PRICE WATERHOUSE LLP
New York, New York
April 3, 1998
F-2
<PAGE> 5
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
AS OF DECEMBER 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
SAIC SAIC Telephone Diversified Interest Index International
Stock Exchangeable Equity Telephone Income Trust-500 Growth
Purchase Stock Fund Portfolio Fund Portfolio Portfolio
-------- ----- ---- --------- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $ 2,707
Diversified Telephone Portfolio
common shares $ 285
SAIC common shares $ 155
Shares in registered
investment companies $ 1,318 $ 351
Temporary cash investments $ 14 17 40 4 $ 134
------- ------- ------- ------- ------- ------- -------
14 172 2,747 289 134 1,318 351
Investment contracts with insurance
companies, at contract value: 3,098
------- ------- ------- ------- ------- ------- -------
Total investments 14 172 2,747 289 3,232 1,318 351
Receivables:
Company contributions 60
Loans to participants
Securities 25 2
Interest 4 1
------- ------- ------- ------- ------- ------- -------
Net assets available for benefits $ 74 $ 172 $ 2,776 $ 292 $ 3,232 $ 1,318 $ 351
======= ======= ======= ======= ======= ======= =======
LIABILITIES:
Securities payable 12 11
------- ------- ------- ------- ------- ------- -------
Total liabilities 12 11
------- ------- ------- ------- ------- ------- -------
Net assets available for benefits $ 74 $ 172 $ 2,764 $ 292 $ 3,221 $ 1,318 $ 351
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Vanguard
Vanguard Vanguard Total Bond Vanguard Vanguard
Explorer PRIMECAP Market Wellington Windsor II Loan
Fund Fund Portfolio Fund Fund Fund Total
---- ---- --------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $ 2,707
Diversified Telephone Portfolio
common shares 285
SAIC common shares 155
Shares in registered
investment companies $ 130 $ 503 $ 49 $ 1,081 $ 1,062 4,494
Temporary cash investments 209
------- ------- ------- ------- ------- ------- -------
130 503 49 1,081 1,062 7,850
Investment contracts with insurance
companies, at contract value: 3,098
------- ------- ------- ------- ------- ------- -------
Total investments 130 503 49 1,081 1,062 10,948
Receivables:
Company contributions 60
Loans to participants $ 253 253
Securities 27
Interest 5
------- ------- ------- ------- ------- ------- -------
Net assets available for benefits $ 130 $ 503 $ 49 $ 1,081 $ 1,062 $ 253 $11,293
======= ======= ======= ======= ======= ======= =======
LIABILITIES:
Securities payable 23
------- ------- ------- ------- ------- ------- -------
Total liabilities 23
------- ------- ------- ------- ------- ------- -------
Net assets available for benefits $ 130 $ 503 $ 49 $ 1,081 $ 1,062 $ 253 $11,270
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 6
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
AS OF DECEMBER 31, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
Telephone Diversified Interest Index International Vanguard Vanguard
Equity Telephone Income Trust-500 Growth Explorer PRIMECAP
Fund Portfolio Fund Portfolio Portfolio Fund Fund
---- --------- ---- --------- --------- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $2,749
Diversified Telephone Portfolio
common shares $ 234
Shares in registered
investment companies $ 827 $ 322 $ 68 $ 87
Temporary cash investments 78 4 $ 304
------ ------ ------ ------ ------ ------ ------
2,827 238 304 827 322 68 87
Investment contracts with insurance
companies, at contract value: 3,607
------ ------ ------ ------ ------ ------ ------
Total investments 2,827 238 3,911 827 322 68 87
Receivables:
Company contributions 6 17 4 2 1
Loans to participants
Securities 8 1
Dividends 8 1
------ ------ ------ ------ ------ ------ ------
Net assets available for benefits $2,849 $ 240 $3,928 $ 831 $ 324 $ 68 $ 88
====== ====== ====== ====== ====== ====== ======
LIABILITIES:
Securities payable 3
------ ------ ------ ------ ------ ------ ------
Total liabilities 3
Net assets available for plan benefits $2,846 $ 240 $3,928 $ 831 $ 324 $ 68 $ 88
====== ====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Vanguard
Total Bond Vanguard Vanguard
Market Wellington Windsor II Loan
Portfolio Fund Fund Fund Total
--------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $2,749
Diversified Telephone Portfolio
common shares 234
Shares in registered
investment companies $ 31 $ 782 $ 568 2,685
Temporary cash investments 386
------ ------ ------ ------ ------
31 782 568 6,054
Investment contracts with insurance
companies, at contract value: 3,607
------ ------ ------ ------ ------
Total investments 31 782 568 9,661
Receivables:
Company contributions 3 3 36
Loans to participants $ 272 272
Securities 9
Dividends 9
------ ------ ------ ------ ------
Net assets available for benefits $ 31 $ 785 $ 571 $ 272 $9,987
====== ====== ====== ====== ======
LIABILITIES:
Securities payable 3
------ ------ ------ ------ ------
Total liabilities 3
------ ------ ------ ------
Net assets available for plan benefits $ 31 $ 785 $ 571 $ 272 $9,984
====== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 7
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
SAIC SAIC Telephone Diversified Interest Index International
Stock Exchangeable Equity Telephone Income Trust-500 Growth
Purchase Stock Fund Portfolio Fund Portfolio Portfolio
-------- ----- ---- --------- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net
assets attributable to:
Investment income
Dividends $ 99 $ 6 $ 229 $ 26 $ 15
Interest 3
Net change in appreciation (depreciation)
of investments 998 91 272 (3)
------- ------- ------- ------- ------- ------- -------
Total investment earnings 1,100 97 229 298 12
------- ------- ------- ------- ------- ------- -------
Contributions
Participant $ 1 139 174 120 67
Company 72 41 73 31 13
------- ------- ------- ------- ------- ------- -------
73 180 247 151 80
------- ------- ------- ------- ------- ------- -------
Transfer of participants' balances, net 1 $ 172 (817) (42) (453) 285 5
------- ------- ------- ------- ------- ------- -------
Total additions (deductions) 74 172 463 55 23 734 97
------- ------- ------- ------- ------- ------- -------
Deductions from net assets attributable to:
Distributions to participants 544 3 728 247 70
Administrative expenses 1 2
------- ------- ------- ------- ------- ------- -------
Net increase (decrease) 74 172 (82) 52 (707) 487 27
Net assets available for benefits:
Beginning of year 2,846 240 3,928 831 324
------- ------- ------- ------- ------- ------- -------
End of year $ 74 $ 172 $ 2,764 $ 292 $ 3,221 $ 1,318 $ 351
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Vanguard
Vanguard Vanguard Total Bond Vanguard Vanguard
Explorer PRIMECAP Market Wellington Windsor II Loan
Fund Fund Portfolio Fund Fund Fund Total
---- ---- --------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net
assets attributable to:
Investment income
Dividends $ 12 $ 13 $ 2 $ 91 $ 94 $ 587
Interest $ 20 23
Net change in appreciation (depreciation)
of investments (4) 30 1 108 123 1,616
------- ------- ------- ------- ------- ------- -------
Total investment earnings 8 43 3 199 217 20 2,226
------- ------- ------- ------- ------- ------- -------
Contributions
Participant 16 16 5 47 96 14 695
Company 4 6 2 21 20 283
------- ------- ------- ------- ------- ------- -------
20 22 7 68 116 14 978
------- ------- ------- ------- ------- ------- -------
Transfer of participants' balances, net 49 386 8 228 340 (162)
------- ------- ------- ------- ------- ------- -------
Total additions (deductions) 77 451 18 495 673 (128) 3,204
------- ------- ------- ------- ------- ------- -------
Deductions from net assets attributable to:
Distributions to participants 15 36 199 182 (109) 1,915
Administrative expenses 3
------- ------- ------- ------- ------- ------- -------
Net increase (decrease) 62 415 18 296 491 (19) 1,286
Net assets available for benefits:
Beginning of year 68 88 31 785 571 272 9,984
------- ------- ------- ------- ------- ------- -------
End of year $ 130 $ 503 $ 49 $ 1,081 $ 1,062 $ 253 $11,270
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 8
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
Telephone Diversified Interest Index International Vanguard
Equity Telephone Income Trust-500 Growth Explorer
Fund Portfolio Fund Portfolio Portfolio Fund
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net
assets attributable to:
Investment Income
Dividends $ 122 $ 8 $ 257 $ 17 $ 14 $ 4
Interest 2
Net change in appreciation (depreciation)
of investments (119) (19) 112 24 3
------- ------- ------- ------- ------- -------
Total investment earnings (losses) 5 (11) 257 129 38 7
------- ------- ------- ------- ------- -------
Contributions
Participant 139 225 64 33 9
Company 74 129 34 17 4
------- ------- ------- ------- ------- -------
213 354 98 50 13
------- ------- ------- ------- ------- -------
Transfer of participants' balances, net (144) (18) (279) 241 30 50
------- ------- ------- ------- ------- -------
Total additions (deductions) 74 (29) 332 468 118 70
------- ------- ------- ------- ------- -------
Deductions from net assets attributable to:
Distributions to participants 368 17 607 92 50 2
------- ------- ------- ------- ------- -------
Net increase (decrease) (294) (46) (275) 376 68 68
Net assets available for plan benefits:
Beginning of year 3,140 286 4,203 455 256
------- ------- ------- ------- ------- -------
End of year $ 2,846 $ 240 $ 3,928 $ 831 $ 324 $ 68
======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Vanguard Vanguard
Vanguard Short Term Total Bond Vanguard Vanguard
PRIMECAP Federal Market Wellington Windsor II Loan
Fund Portfolio Portfolio Fund Fund Fund Total
---- --------- --------- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net
assets attributable to:
Investment Income
Dividends $ 3 $ 63 $ 38 $ 526
Interest $ 1 $ 19 22
Net change in appreciation (depreciation)
of investments 7 (1) 42 62 111
------- ------- ------- ------- ------- ------- -------
Total investment earnings (losses) 10 105 100 19 659
------- ------- ------- ------- ------- ------- -------
Contributions
Participant 9 $ 4 51 53 587
Company 4 1 25 24 312
------- ------- ------- ------- ------- ------- -------
13 5 76 77 899
------- ------- ------- ------- ------- ------- -------
Transfer of participants' balances, net 68 (72) 26 126 142 116 286
------- ------- ------- ------- ------- ------- -------
Total additions (deductions) 91 (72) 31 307 319 135 1,844
------- ------- ------- ------- ------- ------- -------
Deductions from net assets attributable to:
Distributions to participants 3 93 102 91 1,425
------- ------- ------- ------- ------- ------- -------
Net increase (decrease) 88 (72) 31 214 217 44 419
Net assets available for plan benefits:
Beginning of year 72 0 571 354 228 9,565
------- ------- ------- ------- ------- ------- -------
End of year $ 88 $ 0 $ 31 $ 785 $ 571 $ 272 $ 9,984
======= ======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 9
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS
----------
A. Plan Description:
The Bell Communications Research Savings and Security Plan (the Plan)
was established by Bell Communications Research (the Company) to
provide a convenient way for non-salaried employees to save on a
regular and long term basis. On November 14, 1997, the Company was sold
to Science Applications International Corporation (SAIC). Prior to the
sale, the Company was owned by the Regional Bell Operating Companies
(RBOC's). Changes to the Plan as a result of the sale are noted below.
The following description of the Plan provides only general
information. Participants should refer to the Plan Prospectus for a
more complete description of the Plan's provisions.
1. General. The Plan is a defined contribution plan covering all
non-salaried employees of the Company who have one month of
service and are age twenty-one or older. It is subject to the
provisions of the Employee Retirement Income Security Act of 1974
(ERISA).
2. Contributions. Each year, participants may contribute up to 16
percent of pretax annual compensation, as defined in the Plan.
Participants may also contribute amounts representing
distributions from other qualified defined benefit or
contribution plans. After one year of service, the Company
contributes 70 percent of the first 6 percent of compensation
that a participant contributes to the Plan. In addition, after
one year of service, the Company makes a contribution of a 1/2
percent of compensation on behalf of each participant. Effective
with the sale of the Company, this automatic contribution is
deposited into the SAIC Stock Purchase Fund until the following
quarterly trade and then into SAIC stock. This fund and related
investment option were also established upon the sale of the
Company. Prior to the sale of the Company, the automatic
contribution was deposited according to each participant's asset
allocation at that time; for participants who did not make a
voluntary contribution, the automatic contribution was deposited
into the Interest Income Fund. The contribution is made during
the first quarter for participant earnings of the previous
calendar year. These automatic Company contributions are
immediately vested. Additional amounts may be contributed at the
option of the Company's Board of Directors. Effective with the
sale of the Company, 50 percent of Company contributions are
invested in SAIC stock and 50 percent are invested in accordance
with each participant's directed allocation. Contributions are
subject to certain IRS limitations.
3. Participant Accounts. Each participant's account is credited with
the participant's contribution and allocations of the Company's
contribution and Fund earnings, and each participant's account is
charged with an allocation of administrative expenses.
Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is
entitled is the benefit that can be provided from the
participant's vested account.
4. Vesting. Participants are immediately vested in their
contributions plus actual earnings thereon. Vesting in the
Company's matching and discretionary contribution plus actual
earnings thereon is based on years of continuous service. A
participant is 100 percent vested after five years of credited
service.
5. Investment Options. The Plan is comprised of the following
investments:
VANGUARD BOND INDEX FUND - Total Bond Market Portfolio:
This participant directed fund invests in United States
treasury obligations, federal agency mortgage backed
obligations and investment grade corporate obligations.
VANGUARD EXPLORER FUND: This participant directed fund
invests in the common stock of a diversified group of small
capitalization companies.
VANGUARD INDEX TRUST - 500 Portfolio: This participant
directed fund invests in all of the 500 stocks that make up
the Standard & Poor's 500 Composite Stock Price Index.
F-7
<PAGE> 10
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS, continued
----------
VANGUARD INTERNATIONAL GROWTH PORTFOLIO: This participant
directed fund invests in the common stocks of companies
based outside of the United States.
VANGUARD / PRIMECAP FUND: This participant directed fund
invests in the common stock of medium capitalization
companies.
VANGUARD / WELLINGTON FUND: This participant directed fund
invests approximately 65 percent of its assets in common
stocks and the remaining 35 percent in bonds.
VANGUARD / WINDSOR II: This participant directed fund
invests in the common stock of large capitalization
companies.
SAIC EXCHANGEABLE STOCK FUND: As previously stated, this
fund was created upon the sale of the Company. This fund
invests primarily in SAIC class A common stock and is
participant directed to the extent that participant
contributions were used to purchase SAIC stock. Also
effective with the sale of the Company, the SAIC
Non-exchangeable Stock Fund, a non-participant directed
fund, was created to exclusively invest 50 percent of the
Company matching contribution in SAIC class A common stock.
There will be no activity in this fund until the next
quarterly SAIC stock trade date which will occur in 1998.
The SAIC STOCK PURCHASE FUND is not a participant directed
investment option; it is a temporary holding fund designed
to hold respective participant and Company contributions
until the following SAIC common stock quarterly trade date.
Pending the quarterly trade, the respective contributions
are invested in the Vanguard Money Market Reserves
Portfolio.
BELLCORE INTEREST INCOME FUND: This participant directed
fund invests primarily in investment contracts issued by
insurance companies and banks.
BELLCORE - DIVERSIFIED TELEPHONE PORTFOLIO STOCK FUND: This
fund invests primarily in common stock and has been frozen
to new participant directed contributions since 1984.
BELLCORE - TELEPHONE EQUITY FUND STOCK FUND: This fund
invests in the common stock of the RBOC's. Upon the sale of
the Company, the fund was frozen to new participant
directed contributions. Additionally, in 1998, the Fund
will be terminated and its assets will be reallocated as
directed by the participants. Any remaining assets will be
reallocated to the Interest Income Fund.
6. Participant Loans Receivable. Participants may borrow from their
fund accounts a minimum of $1,000 up to a maximum of the lesser
of (a) $50,000 less the participant's highest outstanding loan
balance during the preceding one year period; or (b) 50 percent
of their vested account balance. Additionally, effective with the
sale of the Company, loans may not exceed the vested value of the
participant's Plan account less their vested amounts in the SAIC
Stock Fund. Loan transactions are treated as a transfer to (from)
the investment fund from (to) the Loan Fund. Loan terms range
from 12 to 56 months. The loans are secured by the balance in the
participant's account and bear interest at a rate commensurate
with local prevailing rates as determined quarterly by the Plan
administrator. Interest rates ranged from 7 to 10 percent during
1996 and 1997. Principal and interest is paid ratably through
monthly payroll deductions.
7. Payment of Benefits. On termination of service due to death,
disability or retirement, a participant may elect to receive
either a lump-sum amount equal to the value of the participant's
vested interest in his or her account, or annual installments not
to exceed the life expectancy of the participant and spouse, if
applicable. For termination of service due to other reasons, a
participant may receive the value of the vested interest in his
or her account as a lump-sum distribution, or maintain the
account in the Plan.
F-8
<PAGE> 11
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS, continued
----------
8. Forfeited Accounts. Forfeited accounts are used to reduce future
Company contributions. Company contributions were reduced by
$1,000 and $1,300 during 1997 and 1996, respectively.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - The accompanying financial statements have been
prepared on the accrual basis of accounting in accordance with
generally accepted accounting principles.
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.
Investment Valuation and Income Recognition- The Plan's investments are
valued at fair value, except for its investment contracts which are
valued at contract value (Note C).
Shares of registered investment companies are valued at quoted market
prices which represent the net asset value of shares held by the Plan
at year end. Quoted market prices for the value of the common shares of
each company in the Telephone Equity Fund and the Diversified Telephone
Portfolio are obtained on the basis of the closing price on the New
York Stock Exchange on the year end date or, if no sales were made on
that date, at the closing price on the New York Stock Exchange on the
next preceding day on which sales were made.
Participant notes receivable are valued at outstanding principle
balance which approximates fair value.
A general public market for the Company's common stock does not exist;
therefore, the fair 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 value of the common stock are made by the SAIC Board of Directors,
with the assistance of the independent appraisal firm. The SAIC 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 value and the fair value of the
investments at the beginning of the year, or purchase price if
purchased during the year. As of December 31, 1997, the fair value of
the Company's Class A Common Stock was $34.78 per share and the Plan
held approximately 4,458 shares.
It is the policy of the Bell Communications Research Savings and
Security Plan 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 required distributions
and investment changes, investment exchanges out of the SAIC Common
Stock Fund by participants may have to be deferred.
Purchases and sales of securities are reflected as of the trade date.
Investments are valued on a daily basis. Dividend income is recorded on
the ex-dividend date. Interest earned on investments is recorded on the
accrual basis.
Payment of Benefits- Benefits are recorded when paid.
F-9
<PAGE> 12
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS, continued
----------
C. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES:
The plan maintains investments in fully benefit-responsive investment
contracts with a number of insurance companies and banks. (Benefit
responsiveness is the extent to which contract terms permit and require
withdrawals at contract value for benefit payments, loans, or transfers
to other investment options offered to the participants by the
Plan).The accounts are credited with earnings of the underlying
investments (principally bank certificates of deposit, and other fixed
income products) and charged for Plan withdrawals and administrative
expenses. The contracts are included in the financial statements at
contract value, which approximates fair value, as reported to the Plan
by the respective provider. Contract value represents contributions
made under the contract, plus earnings, less plan withdrawals and
administrative expenses. See Item 27a of the supplemental schedules for
a complete list of all contracts held in the fund.
Approximately 27 percent and 39 percent of total net assets at December
31, 1997 and 1996, respectively, were invested in investment contracts.
These contracts are subject to credit risk. If any of the companies
fails to perform on the contracts held, the asset value of the Interest
Income Fund, and therefore the Plan, could be substantially impaired.
D. PARTIES-IN-INTEREST:
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 year ended December
31, 1997 are summarized below:
<TABLE>
<CAPTION>
NUMBER NUMBER OF
OF SHARES TRANSACTIONS COST
------------------------------------
<S> <C> <C> <C>
INVESTMENT PURCHASES
SAIC Class A Common Stock 4,458 1 $155,060
</TABLE>
Certain Plan investments are investment funds; and are shares of mutual
funds managed by The Vanguard Group. Vanguard Fiduciary Trust Company
is the trustee as defined by the Plan, and therefore these transactions
qualify as party-in-interest.
There were no known prohibited transactions with known parties in
interest as defined in ERISA Section 3(14) and regulations thereunder,
including those transactions set forth in ERISA Sections 406 and 407(a)
and Internal Revenue Code Section 4975(c). There was no known
relationship in which The Vanguard Fiduciary Trust Company had any
direct or indirect financial interest which would affect its capacity
to perform the necessary calculations.
Fees paid by the Plan for administrative expenses and investment
management services amounted to $3,000 for 1997. All other Plan
expenses are paid by the Company.
E. PLAN TERMINATION POLICY:
The Company intends to continue the Plan indefinitely, but reserves the
right to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan
termination, participants would become 100 percent vested in their
accounts; Company contributions would not be subject to forfeiture.
F. RECONCILIATION TO FORM 5500:
There are no reconciling items from the Statement of Net Assets
Available for Benefits per the financial statements to the Form 5500.
F-10
<PAGE> 13
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
NOTES TO FINANCIAL STATEMENTS, continued
----------
G. TAX STATUS:
On April 11, 1986, the Internal Revenue Service had determined that the
Plan is qualified under the requirements of Section 401(a) of the
Internal Revenue Code and is exempt from Federal income taxes under
Section 501(a) of the Code. The Plan obtained its latest determination
letter on August 1, 1995, in which the Internal Revenue Service stated
that the Plan, as amended through December 21, 1994, was in compliance
with the applicable requirements of the Internal Revenue Code. The Plan
has been amended since receiving such determination letter. However,
the Plan administrator and the Plan's counsel believe that the Plan is
currently designed and is being operated in compliance with the
applicable requirements of the Internal Revenue Code. Accordingly, no
provision for income taxes has been included in the Plan's financial
statements.
F-11
<PAGE> 14
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
SCHEDULE I: ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
---------------
TELEPHONE EQUITY FUND
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
--------- ------- -------
<S> <C> <C> <C>
Common Shares:
Ameritech Corporation 5,723 $ 196 $ 461
Bell Atlantic Corporation 7,254 354 660
BellSouth Corporation 6,576 178 370
SBC Communications, Inc. 11,652 367 854
US West Communications, Inc. 8,025 210 362
Total Common Shares 1,305 2,707
Temporary cash investments 40 40
------- -------
Total Telephone Equity Fund $ 1,345 $ 2,747
======= =======
</TABLE>
DIVERSIFIED TELEPHONE PORTFOLIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------------------------
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
--------- -------- --------
<S> <C> <C> <C>
Common Shares:
AT&T Corporation 1,006 $ 12 $ 62
Air Touch Communications, Inc. 224 1 9
Ameritech Corporation 412 5 33
Bell Atlantic Corporation 497 10 45
BellSouth Corporation 715 8 40
Lucent Technologies Corporation 326 5 26
NCR Corporation 63 1 2
SBC Communications, Inc. 653 7 48
US West Communications Group, Inc. 263 2 12
US West Media Group 264 2 8
Total Common Shares 53 285
Temporary cash investments 4 4
-------- --------
Total Diversified Telephone Portfolio $ 57 $ 289
======== ========
</TABLE>
F-12
<PAGE> 15
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
SCHEDULE I: ITEM 27A SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES, Continued
----------
INTEREST INCOME FUND
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------
PRINCIPAL CONTRACT
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE FAIR VALUE
--------- --------- ----------
<S> <C> <C> <C>
Contracts with Insurance Companies:
AIG
6.95% due 5/15/01 $ 76 $ 76 $ 76
AIG FP
7.07% due 6/30/01 $ 76 $ 76 $ 76
Bankers Trust Company
6.39% due 12/31/01 $ 130 $ 130 $ 130
Canada Life Insurance Company
5.47% due 12/31/98 $ 137 $ 137 $ 137
Deutche Bank
6.13% no maturity date $ 99 $ 99 $ 99
6.49% due on 3/31/01 $ 77 $ 77 $ 77
6.49% due on 3/31/00 $ 77 $ 77 $ 77
John Hancock
6.93% due on 11/15/01 $ 72 $ 72 $ 72
6.35% due on 8/15/02 $ 52 $ 52 $ 52
Morgan Guaranty
6.50% due on 9/30/01 $ 44 $ 44 $ 44
New York Life Insurance Company
8.04% due 9/30/98 $ 211 $ 211 $ 211
7.20% due 7/31/99 $ 174 $ 174 $ 174
7.05% due 4/15/00 $ 136 $ 136 $ 136
Principal Mutual Life Insurance Company
7.71% due 10/31/99 $ 172 $ 172 $ 172
7.02% due 4/15/00 $ 156 $ 156 $ 156
Rabobank Nederland
6.56% no maturity date $ 76 $ 76 $ 76
5.90% due 12/31/00 $ 154 $ 154 $ 154
Sun Life Insurance Company of America
6.65% due 3/31/99 $ 306 $ 306 $ 306
7.19% due 6/30/99 $ 200 $ 200 $ 200
Union Bank of Switzerland
6.87% no maturity date $ 303 $ 303 $ 303
7.19% no maturity date $ 243 $ 243 $ 243
6.40% no maturity date $ 127 $ 127 $ 127
------ ------ ------
Total Contracts with Insurance Companies $3,098 $3,098 $3,098
Temporary Cash Investments $ 134 $ 134 $ 134
------ ------ ------
Total Interest Income Fund $3,232 $3,232 $3,232
====== ====== ======
</TABLE>
F-13
<PAGE> 16
BELL COMMUNICATIONS RESEARCH
SAVINGS AND SECURITY PLAN
SCHEDULE I: ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES,
Continued
VANGUARD MUTUAL FUNDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------
NUMBER OF FAIR
NAME OF ISSUER AND TITLE OF ISSUE SHARES COST VALUE
--------- ------ -------
<S> <C> <C> <C>
* Vanguard Index Trust-500 Portfolio 14,634 $ 959 $1,318
* Vanguard Windsor II Fund 37,123 $ 902 $1,062
* Vanguard International Growth Fund 21,407 $ 339 $ 351
* Vanguard Wellington Fund 36,693 $ 914 $1,081
* Vanguard Explorer Fund 2,348 $ 134 $ 130
* Vanguard PRIMECAP Fund 12,713 $ 479 $ 503
* Vanguard Total Bond Market Portfolio 4,865 $ 48 $ 49
</TABLE>
LOAN FUND
(Dollars in Thousands)
<TABLE>
<CAPTION>
Participant loans
<S> <C> <C>
7% to 10% $253 $253
</TABLE>
SAIC FUNDS
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C>
* SAIC Exchangeable Stock Fund
SAIC Class A Common Stock 4,458 $ 155 $ 155
Temporary Cash Investments $ 17 $ 17
------ ------
Total SAIC Exchangeable Stock $ 172 $ 172
* SAIC Stock Purchase Fund
Temporary Cash Investments $ 14 $ 14
------ ------
Total SAIC Stock Purchase Fund $ 14 $ 14
* Represents a party-in-interest
</TABLE>
F-14
<PAGE> 17
Bell Communications Research
Savings and Security Plan
Schedule II: Item 27d - Schedule of Reportable Transactions *
Series of Transactions
For the year ended December 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF PARTY INVOLVED DESCRIPTION NUMBER OF PURCHASE SELLING
OF ASSET TRANSACTIONS PRICE PRICE
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Vanguard Group Index Trust-500 Portfolio 84 $ 610,655.42
The Vanguard Group Index Trust-500 Portfolio 72 $ 391,107.55
The Vanguard Group Vanguard/PRIMECAP Fund 70 454,127.11
The Vanguard Group Vanguard/PRIMECAP Fund 31 69,219.32
The Vanguard Group Vanguard/Wellington Fund 61 470,101.90
The Vanguard Group Vanguard/Wellington Fund 52 278,987.02
The Vanguard Group Vanguard/Windsor II 76 582,050.96
The Vanguard Group Vanguard/Windsor II 43 210,204.56
The Vanguard Group Interest Income Fund 107 768,212.33
The Vanguard Group Interest Income Fund 154 1,458,905.69
N/A Telephone Equity Fund 42 333,307.39
N/A Telephone Equity Fund 106 1,406,856.53
</TABLE>
<TABLE>
<CAPTION>
IDENTITY OF PARTY INVOLVED COST OF ASSET CURRENT VALUE ON NET
TRANSACTION DATE GAIN /(LOSS)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Vanguard Group $ 610,655.42
The Vanguard Group $ 306,703.95 391,107.55 $ 84,403.60
The Vanguard Group 454,127.11
The Vanguard Group 56,082.53 69,219.32 13,136.79
The Vanguard Group 470,101.90
The Vanguard Group 244,736.05 278,987.02 34,250.97
The Vanguard Group 582,050.96
The Vanguard Group 168,920.34 210,204.56 41,284.22
The Vanguard Group 768,212.33
The Vanguard Group 1,458,905.69 1,458,905.69
N/A 333,307.39
N/A 961,261.49 1,406,856.53 445,595.04
</TABLE>
* Transactions or series of transactions in excess of 5 percent of the current
value of the Plan's assets as of December 31, 1997 as defined in Section
2520.103-106 of the Department of Labor Rules and Regulations for Reporting and
Disclosure under ERISA.
F-15
<PAGE> 1
EXHIBIT 28.E
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]
BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED EMPLOYEES
(Full Title of Plan)
Bell Communications Research, Inc.
445 South Street, Morristown NJ 07960
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Departmental Benefits Committee of the Bell Communications Research Savings
Plan for Salaried Employees, duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED
EMPLOYEES
DATE 4-11-98 s/ Richard Schooley
-----------------------------------------
Richard Schooley
Chairman, Departmental Benefits Committee
<PAGE> 3
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
INDEX TO FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
----------
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS F-2
FINANCIAL STATEMENTS:
Statements of Net Assets Available for
Benefits, with Fund Information
as of December 31, 1997 and 1996 F-3 - F-4
Statement of Changes in Net Assets Available
for Benefits, with Fund Information
for the years ended December 31, 1997 and 1996 F-5 - F-6
NOTES TO FINANCIAL STATEMENTS F-7 - F-11
SUPPLEMENTAL SCHEDULES:
Schedule I: Item 27a - Schedule of Assets Held for Investment Purposes
as of December 31, 1997 F-12 - F-14
Schedule II: Item 27b - Schedule of Loans or Fixed Income Obligations
as of December 31, 1997 F-15
Schedule III: Item 27d - Schedule of Reportable Transactions
for the year ended December 31, 1997 F-16
</TABLE>
Other schedules required by section 2520.103-10 of the Department of Labor
Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974 have been omitted because they are
not applicable.
F-1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and the Administrative Committee
of the Bell Communications Research Savings Plan for Salaried Employees
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Bell Communications Research Savings Plan for Salaried Employees (the
Plan) at December 31, 1997 and the changes in net assets available for benefits
for the year 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 audit. We conducted our audit 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 audit provides a reasonable basis for the opinion expressed
above.
The financial statements of the Plan as of and for the year ended December 31,
1996 were audited by other independent accountants whose report dated June 19,
1997 expressed an unqualified opinion on those statements. Their report also
contained an explanatory paragraph on supplemental information required by the
Employee Retirement Income Security Act of 1974 (ERISA).
Our audit was performed 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. The fund information in the statement of net
assets available for benefits and the statement of changes in net assets
available for benefits is presented for purposes of additional analysis rather
than to present the net assets available for benefits and the changes in net
assets available for benefits of each fund. Schedules I through III and the fund
information have been subjected to the auditing procedures applied in the audit
of the basic financial statements, and in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
PRICE WATERHOUSE LLP
New York, New York
April 3, 1998
F-2
<PAGE> 5
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
AS OF DECEMBER 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
SAIC SAIC Telephone Diversified Interest International Index
Stock Exchangeable Equity Telephone Income Growth Trust-500
Purchase Stock Fund Portfolio Fund Portfolio Portfolio
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $ 153,496
Diversified Telephone Portfolio
common shares $ 18,332
SAIC Common Shares $ 40,899
Shares in Registered
Investment Companies $ 48,410 $ 266,802
Temporary cash investments $ 1,244 4,385 2,345 250 $ 9,973
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,244 45,284 155,841 18,582 9,973 48,410 266,802
Investment contracts with insurance
companies, at contract value 232,236
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investments 1,244 45,284 155,841 18,582 242,209 48,410 266,802
Receivables:
Company Contributions 1,603
Loans to participants
Securities 13 1,430 167
Dividends
Interest 3 9 209 39
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 2,850 45,306 157,480 18,788 242,209 48,410 266,802
LIABILITIES:
Securities payable 690 799
Trustee fees payable 21 2 14
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 711 2 813
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets available for
plan benefits $ 2,850 $ 45,306 $ 156,769 $ 18,786 $ 241,396 $ 48,410 $ 266,802
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Vanguard
Vanguard Vanguard Total Bond Vanguard Vanguard
Explorer PRIMECAP Market Wellington Windsor II Loan
Fund Fund Portfolio Fund Fund Fund Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $ 153,496
Diversified Telephone Portfolio
common shares 18,332
SAIC Common Shares 40,899
Shares in Registered
Investment Companies $ 15,252 $ 51,583 $ 11,854 $ 62,721 $ 104,619 561,241
Temporary cash investments 18,197
---------- ---------- ---------- ---------- ---------- ---------- ----------
15,252 51,583 11,854 62,721 104,619 792,165
Investment contracts with insurance
companies, at contract value 232,236
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investments 15,252 51,583 11,854 62,721 104,619 1,024,401
Receivables:
Company Contributions 1,603
Loans to participants $ 10,113 10,113
Securities 1,610
Dividends
Interest 260
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets 15,252 51,583 11,854 62,721 104,619 10,113 1,037,987
LIABILITIES:
Securities payable 1,489
Trustee fees payable 37
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 1,526
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net assets available for
plan benefits $ 15,252 $ 51,583 $ 11,854 $ 62,721 $ 104,619 $ 10,113 $1,036,461
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these finncial statement
F-3
<PAGE> 6
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
AS OF DECEMBER 31, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
Telephone Diversified Interest International Index Vanguard
Equity Telephone Income Growth Trust-500 Explorer
Fund Portfolio Fund Portfolio Portfolio Fund
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $155,211
Diversified Telephone Portfolio
common shares $ 14,996
Shares in Registered
Investment Companies $ 48,812 $195,885 $ 9,658
Temporary cash investments 4,395 254 $ 20,951
-------- -------- -------- -------- -------- --------
159,606 15,250 20,951 48,812 195,885 9,658
Investment contracts with insurance
companies, at contract value 240,001
-------- -------- -------- -------- -------- --------
Total investments 159,606 15,250 260,952 48,812 195,885 9,658
Receivables:
Company Contributions 245 452 134 420 46
Loans to participants
Securities 446 101
Dividends 458 49
Interest 14 1
-------- -------- -------- -------- -------- --------
Total assets 160,769 15,401 261,404 48,946 196,305 9,704
LIABILITIES:
Securities payable 184 40 26
Trustee fees payable 20 2 14
-------- -------- -------- -------- -------- --------
Total liabilities 204 42 40
-------- -------- -------- -------- -------- --------
Net assets available for
plan benefits $160,565 $ 15,359 $261,364 $ 48,946 $196,305 $ 9,704
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Vanguard
Vanguard Total Bond Vanguard Vanguard
PRIMECAP Market Wellington Windsor II Loan
Fund Portfolio Fund Fund Fund Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Telephone Equity Fund common shares $155,211
Diversified Telephone Portfolio
common shares 14,996
Shares in Registered
Investment Companies $ 14,218 $ 7,504 $ 45,744 $ 71,133 392,954
Temporary cash investments 25,600
-------- -------- -------- -------- -------- --------
14,218 7,504 45,744 71,133 588,761
Investment contracts with insurance
companies, at contract value 240,001
-------- -------- -------- -------- -------- --------
Total investments 14,218 7,504 45,744 71,133 828,762
Receivables:
Company Contributions 96 18 137 218 1,766
Loans to participants $ 10,517 10,517
Securities 547
Dividends 507
Interest 15
-------- -------- -------- -------- -------- --------
Total assets 14,314 7,522 45,881 71,351 10,517 842,114
LIABILITIES:
Securities payable 250
Trustee fees payable 36
-------- -------- -------- -------- -------- --------
Total liabilities 286
-------- -------- -------- -------- -------- --------
Net assets available for
plan benefits $ 14,314 $ 7,522 $ 45,881 $ 71,351 $ 10,517 $841,828
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these finncial statement
F-4
<PAGE> 7
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
SAIC SAIC Telephone Diversified Interest International Index
Stock Exchangeable Equity Telephone Income Growth Trust-500
Purchase Stock Fund Portfolio Fund Portfolio Portfolio
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net assets
attributable to:
Investment Income
Dividends $ 5,759 $ 424 $ 16,638 $ 2,052 $ 5,523
Interest 179 18
Net appreciation in fair value
of investments $ 4 $ 9 56,254 6,075 239 60,101
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total investment earnings 4 9 62,192 6,517 16,638 2,291 65,624
---------- ---------- ---------- ---------- ---------- ---------- ---------
Contributions
Participant 431 4,272 6,707 3,082 9,835
Company 2,574 1,582 2,331 1,009 3,185
---------- ---------- ---------- ---------- ---------- ---------- ---------
3,005 5,854 9,038 4,091 13,020
---------- ---------- ---------- ---------- ---------- ---------- ---------
Transfer of participants' balances, net (159) 45,297 (60,839) (2,260) (24,318) (3,324) 6,350
---------- ---------- ---------- ---------- ---------- ---------- ---------
Total additions (deductions) 2,850 45,306 7,207 4,257 1,358 3,058 84,994
Deductions from net assets
attributable to:
Distributions to participants 10,931 822 21,154 3,592 14,494
Administrative expenses 72 8 172 2 3
---------- ---------- ---------- ---------- ---------- ---------- ---------
Net increase (decrease) 2,850 45,306 (3,796) 3,427 (19,968) (536) 70,497
Net assets available
for plan benefits:
Beginning of year 160,565 15,359 261,364 48,946 196,305
---------- ---------- ---------- ---------- ---------- ---------- ---------
End of year $ 2,850 $ 45,306 $ 156,769 $ 18,786 $ 241,396 $ 48,410 $ 266,802
========== ========== ========== ========== ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
Vanguard
Vanguard Vanguard Total Bond Vanguard Vanguard
Explorer PRIMECAP Market Wellington Windsor II Loan
Fund Fund Portfolio Fund Fund Fund Total
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net assets
attributable to:
Investment Income
Dividends $ 1,483 $ 1,737 $ 574 $ 5,201 $ 9,352 $ 48,743
Interest $ 870 1,067
Net appreciation in fair value
of investments 114 5,108 243 5,811 15,233 149,191
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total investment earnings 1,597 6,845 817 11,012 24,585 870 199,001
---------- ---------- ---------- ---------- ---------- ---------- ----------
Contributions
Participant 1,314 3,791 578 3,221 5,272 92 38,595
Company 358 932 158 1,042 1,689 14,860
---------- ---------- ---------- ---------- ---------- ---------- ----------
1,672 4,723 736 4,263 6,961 92 53,455
---------- ---------- ---------- ---------- ---------- ---------- ----------
Transfer of participants' balances, net 2,783 27,577 3,312 4,869 6,996 (6,284) 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total additions (deductions) 6,052 39,145 4,865 20,144 38,542 (5,322) 252,456
Deductions from net assets
attributable to:
Distributions to participants 503 1,876 533 3,300 5,273 (4,918) 57,560
Administrative expenses 1 4 1 263
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) 5,548 37,269 4,332 16,840 33,268 (404) 194,633
Net assets available
for plan benefits:
Beginning of year 9,704 14,314 7,522 45,881 71,351 10,517 841,828
---------- ---------- ---------- ---------- ---------- ---------- ----------
End of year $ 15,252 $ 51,583 $ 11,854 $ 62,721 $ 104,619 $ 10,113 $1,036,461
========== ========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these finncial statement
F-5
<PAGE> 8
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(Thousands of Dollars)
<TABLE>
<CAPTION>
Bellcore Bellcore Bellcore Vanguard Vanguard
Telephone Diversified Interest International Index Vanguard Vanguard
Equity Telephone Income Growth Trust-500 Explorer PRIMECAP
Fund Portfolio Fund Portfolio Portfolio Fund Fund
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net assets
attributable to:
Investment Income
Dividends $ 7,109 $ 538 $ 15,896 $ 2,117 $ 4,163 $ 517 $ 388
Interest 126 10 1
Net appreciation/ (depreciation)
in fair value of investments (7,924) (1,275) 3,852 31,064 86 1,313
--------- --------- --------- --------- --------- --------- ---------
Total investment earnings (losses) (689) (727) 15,897 5,969 35,227 603 1,701
--------- --------- --------- --------- --------- --------- ---------
Contributions
Participant 6,068 7,454 3,110 8,552 1,007 1,942
Company 2,779 3,708 1,278 3,782 370 661
--------- --------- --------- --------- --------- --------- ---------
8,847 11,162 4,388 12,334 1,377 2,603
--------- --------- --------- --------- --------- --------- ---------
Transfer of participants' balances, net (18,774) (1,877) 10,232 3,670 5,853 8,093 10,405
--------- --------- --------- --------- --------- --------- ---------
Total additions (deductions) (10,616) (2,604) 37,291 14,027 53,414 10,073 14,709
Deductions from net assets
attributable to:
Distributions to participants 8,519 950 14,704 1,795 5,764 369 395
Administrative expenses 1 3 3 2
--------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) (19,136) (3,554) 22,584 12,229 47,648 9,704 14,314
Net assets available for
plan benefits:
Beginning of year 179,701 18,913 238,780 36,717 148,657
--------- --------- --------- --------- --------- --------- ---------
End of year $ 160,565 $ 15,359 $ 261,364 $ 48,946 $ 196,305 $ 9,704 $ 14,314
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Vanguard Vanguard
Short Term Total Bond Vanguard Vanguard
Federal Market Wellington Windsor II Loan
Portfolio Portfolio Fund Fund Fund Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Additions (deductions) to net assets
attributable to:
Investment Income
Dividends $ 3,487 $ 4,875 $ 39,090
Interest $ 468 $ 382 $ 916 1,903
Net appreciation/ (depreciation)
in fair value of investments (409) (113) 2,504 7,164 36,262
--------- --------- --------- --------- --------- ---------
Total investment earnings (losses) 59 269 5,991 12,039 916 77,255
--------- --------- --------- --------- --------- ---------
Contributions
Participant 377 2,921 4,097 35,528
Company 151 1,265 1,758 15,752
--------- --------- --------- --------- --------- ---------
528 4,186 5,855 51,280
--------- --------- --------- --------- --------- ---------
Transfer of participants' balances, net (36,313) 6,830 4,688 15,039 (715) 7,131
--------- --------- --------- --------- --------- ---------
Total additions (deductions) (36,254) 7,627 14,865 32,933 201 135,666
Deductions from net assets
attributable to:
Distributions to participants 437 105 2,019 2,454 683 38,194
Administrative expenses 1 1 11
--------- --------- --------- --------- --------- ---------
Net increase (decrease) (36,691) 7,522 12,845 30,478 (482) 97,461
Net assets available for
plan benefits:
Beginning of year 36,691 33,036 40,873 10,999 744,367
--------- --------- --------- --------- --------- ---------
End of year $ 0 $ 7,522 $ 45,881 $ 71,351 $ 10,517 $ 841,828
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these finncial statement
F-6
<PAGE> 9
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS
----------
A. PLAN DESCRIPTION:
The Bell Communications Research Savings Plan for Salaried Employees
(the Plan) was established by Bell Communications Research (the
Company) to provide a convenient way for employees to save on a regular
and long term basis. On November 14, 1997, the Company was sold to
Science Applications International Corporation (SAIC). Prior to the
sale, the Company was owned by the Regional Bell Operating Companies
(RBOC's). Changes to the Plan as a result of the sale are noted below.
The following description of the Plan provides only general
information. Participants should refer to the Plan Prospectus for a
more complete description of the Plan's provisions.
1. General. The Plan is a defined contribution plan covering all
salaried employees of the Company who have one month of service
and are age twenty-one or older. It is subject to the provisions
of the Employee Retirement Income Security Act of 1974 (ERISA).
2. Contributions. Each year, participants may contribute up to 16
percent of pretax annual compensation, as defined in the Plan.
Participants may also contribute amounts representing
distributions from other qualified defined benefit or
contribution plans. After one year of service, the Company
contributes 70 percent of the first 6 percent of compensation
that a participant contributes to the Plan. In addition, after
one year of service, the Company makes a contribution of a 1/2
percent of compensation on behalf of each participant. Upon the
sale of the Company, this automatic contribution is deposited
into the SAIC Stock Purchase Fund until the quarterly trade date
and then into SAIC stock. This fund and related investment option
were also established upon the sale of the Company. Prior to the
sale of the Company, the automatic Company contribution was
deposited according to a participant's asset allocation at that
time; for participants who did not make a voluntary contribution,
the automatic contribution was deposited in the Interest Income
Fund. The contribution is made during the first quarter for
employee earnings of the previous calendar year. These automatic
Company contributions are immediately vested. Additional amounts
may be contributed at the option of the Company's Board of
Directors. Effective with the sale of the Company, 50 percent of
Company contributions are invested in SAIC stock and 50 percent
are invested in accordance with each participant's directed
allocation. Contributions are subject to certain IRS limitations.
3. Participant Accounts. Each participant's account is credited with
the participant's contribution and allocations of the Company's
contribution and fund earnings, and each participant's account is
charged with an allocation of administrative expenses.
Allocations are based on participant earnings, as defined. The
benefit to which a participant is entitled is the benefit that
can be provided from the participant's vested account.
4. Vesting. Participants are immediately vested in their
contributions plus actual earnings thereon. Vesting in the
Company's matching and discretionary contribution and actual
earnings thereon is based on years of continuous service. A
participant is 100 percent vested after five years of credited
service.
5. Investment Options. The Plan is comprised of the following
investments:
VANGUARD BOND INDEX FUND - Total Bond Market Portfolio: This
participant directed fund invests in United States treasury
obligations, federal agency mortgage backed obligations and
investment grade corporate obligations.
VANGUARD EXPLORER FUND: This participant directed fund invests
in the common stock of a diversified group of small
capitalization companies.
VANGUARD INDEX TRUST - 500 PORTFOLIO: This participant
directed fund invests in all of the 500 stocks that make up
the Standard & Poor's 500 Composite Stock Price Index.
VANGUARD INTERNATIONAL GROWTH PORTFOLIO: This participant
directed fund invests in the common stocks of companies based
outside of the United States.
F-7
<PAGE> 10
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS, continued
----------
VANGUARD / PRIMECAP FUND: This participant directed fund
invests in the common stock of medium capitalization
companies.
VANGUARD / WELLINGTON FUND: This participant directed fund
invests approximately 65 percent of its assets in common
stocks and the remaining 35 percent in bonds.
VANGUARD / WINDSOR II: This participant directed fund invests
in the common stock of large capitalization companies.
SAIC EXCHANGEABLE STOCK FUND: As previously stated, this fund
was created upon the sale of the Company. This fund invests
primarily in SAIC class A common stock and is participant
directed to the extent that participant contributions were
used to purchase SAIC stock. Also effective with the sale of
the Company, the SAIC Non-exchangeable Stock Fund, a
non-participant directed fund, was created to exclusively
invest 50% of the Company matching contribution in SAIC class
A common stock. There will be no activity in this fund until
the next quarterly SAIC stock trade date which will occur in
1998.
The SAIC STOCK PURCHASE FUND is not a participant directed
investment option; it is a temporary holding fund designed to
hold respective participant and Company contributions until
the following SAIC common stock quarterly trade date. Pending
the quarterly trade, the respective contributions are invested
in the Vanguard Money Market Reserves Portfolio.
BELLCORE INTEREST INCOME FUND: This participant directed fund
invests primarily in investment contracts issued by insurance
companies and banks.
BELLCORE - DIVERSIFIED TELEPHONE PORTFOLIO STOCK FUND: This
fund invests primarily in common stock and has been frozen to
new participant directed contributions since 1984.
BELLCORE - TELEPHONE EQUITY FUND STOCK FUND: This fund invests
in the common stock of the RBOC's. Upon the sale of the
Company, the fund was frozen to new participant directed
contributions.
6. Participant Loans Receivable. Participants may borrow from their
fund accounts a minimum of $1,000 up to a maximum of the lesser
of (a) $50,000 less the participant's highest outstanding loan
balance during the preceding one year period; or (b) 50 percent
of their vested account balance. Upon the sale of the Company,
loans also may not exceed the vested value of the participant's
Plan account less vested amounts in the SAIC Stock Fund within
the Plan. Loan transactions are treated as a transfer to (from)
the investment fund from (to) the Loan Fund. Loan terms range
from 1 year to 56 months. The loans are secured by the balance in
the participant's account and bear interest at a rate
commensurate with local prevailing rates as determined monthly by
the Plan administrator. Interest rates ranged from 7 to 10
percent during 1997 and 1996. Principal and interest is paid
ratably through monthly payroll deductions.
7. Payment of Benefits. On termination of service due to death,
disability or retirement, a participant may elect to receive
either a lump-sum amount equal to the value of the participant's
vested interest in his or her account, or an amount not to exceed
the life expectancy of the participant and spouse, if applicable.
For termination of service due to other reasons, a participant
may receive the value of the vested interest in his or her
account as a lump-sum distribution, or maintain the account in
the Plan.
8. Forfeited Accounts. Forfeited accounts are used to reduce future
Company contributions. Company contributions were reduced by
$345,000 and $248,000 in 1997 and 1996, respectively.
F-8
<PAGE> 11
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS, continued
----------
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation - The accompanying financial statements have been
prepared on the accrual basis of accounting in accordance with
generally accepted accounting principles.
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.
Investment Valuation and Income Recognition- The Plan's investments are
valued at fair value, except for its investment contracts which are
valued at contract value (Note C).
Shares of registered investment companies are valued at quoted market
prices which represent the net asset value of shares held by the Plan
at year end. Quoted market prices for the value of the common shares of
each company in the Telephone Equity Fund and the Diversified Telephone
Portfolio are obtained on the basis of the closing price on the New
York Stock Exchange on the year end date or, if no sales were made on
that date, at the closing price on the New York Stock Exchange on the
next preceding day on which sales were made.
Participant notes receivable are valued at outstanding principle
balance which approximates fair value.
A general public market for the SAIC class A common shares does not
exist; therefore, the fair value of the shares 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 value of the common stock are made by the SAIC
Board of Directors, with the assistance of the independent appraisal
firm. The SAIC Board of Directors reserves the right to alter the
formula.
The gains and losses realized on distributions of investments and the
increases or decreases in unrealized appreciation are calculated as the
difference between the current fair value and the fair value of the
investments at the beginning of the year, or purchase price if
purchased during the year. As of December 31, 1997, the fair value of
the SAIC Company's Class A Common Stock was $34.78 and the Plan held
approximately 1,175,927 shares.
It is the policy of the Company 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 Fund. If reserves in the SAIC Common Stock Fund are less than
the amount required at any given time to make required distributions
and investment changes, investment exchanges out of the SAIC Common
Stock Fund by participants may have to be deferred.
Purchases and sales of securities are reflected as of the trade date.
Investments are valued on a daily basis. Dividend income is recorded on
the ex-dividend date. Interest earned on investments is recorded on the
accrual basis.
Payment of Benefits- Benefits are recorded when paid.
C. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES:
The Plan maintains investments in fully benefit-responsive investment
contracts with a number of insurance companies and banks. (Benefit
responsiveness is the extent to which contract terms permit and require
withdrawals at contract value for benefit payments, loans, or transfers
to other investment options offered to the participants by the Plan).
The accounts are credited with earnings on the underlying investments
(principally bank certificates of deposit and other fixed income
products) and charged for Plan withdrawals and administrative expenses.
The contracts are included in the financial statements at contract
value, which approximates fair value, as reported to the Plan by the
provider. Contract value represents contributions made under the
contract, plus earnings, less Plan withdrawals and administrative
expenses. See Item 27a of the supplemental schedules for a complete
list of all contracts held in the Plan.
F-9
<PAGE> 12
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS, continued
----------
Approximately 22 percent and 29 percent of total net assets at December
31, 1997 and 1996, respectively, were invested in investment contracts.
These contracts are subject to credit risk. If any of the companies
fails to perform on the contracts held, the asset value of the Interest
Income Fund, and therefore the Plan, could be substantially impaired.
On July 16, 1991, Mutual Benefit Life Insurance Company (MBL) was
placed in rehabilitation under the direction of the Insurance
Commissioner and Attorney General of the State of New Jersey. A Plan of
Rehabilitation was approved by the Superior Court of New Jersey on
January 24, 1994. This Plan provides that the full amount of principal
as of July 16, 1991 plus accrued interest is guaranteed by a
combination of the Life Insurance Company Guarantee Corporation of New
York (LICGCNY) and an insurance company consortium. Interest was
credited at contract rates through December 31, 1991. Interest for 1992
and subsequent years will be credited at rates which are based upon the
assets' investment performance but not less than approximately 1
percent on the total assets. At December 31, 1997, MBL paid 8.05
percent and 5.10 percent on the respective contracts that the Plan
currently holds. Amounts which are guaranteed by LICGCNY funds will be
completely distributed after December 31, 1999. Distributions from the
insurance consortium will be made in five installments beginning after
December 31, 1999. Payouts may be deferred after that date by the
consortium, but all payments must be made by December 31, 2010. Mutual
Benefit related assets represent approximately 3 percent of the total
Interest Income Fund assets and less than 1 percent of total Plan
assets.
D. PARTIES-IN-INTEREST:
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 year ended December
31, 1997 are summarized below:
<TABLE>
<CAPTION>
NUMBER NUMBER OF
OF SHARES TRANSACTIONS COST
-------------------------------------------------
<S> <C> <C> <C>
INVESTMENT PURCHASES
SAIC Class A Common Stock 1,175,927 1 $40,898,764
</TABLE>
Certain Plan investments are shares of mutual funds managed by The
Vanguard Group. Vanguard Fiduciary Trust Company is the trustee as
defined by the Plan, and therefore these transactions qualify as
party-in-interest.
There were no known prohibited transactions with known parties in
interest as defined in ERISA Section 3(14) and regulations thereunder,
including those transactions set forth in ERISA Sections 406 and 407(a)
and Internal Revenue Code Section 4975(c). There was no known
relationship in which The Vanguard Fiduciary Trust Company had any
direct or indirect financial interest which would affect its capacity
to perform the necessary calculations.
Fees paid by the Plan for administrative expenses and investment
management services amounted to $263,000 and $11,000 for 1997 and 1996,
respectively. All other Plan expenses are paid by the Company.
E. PLAN TERMINATION POLICY:
The Company intends to continue the Plan indefinitely, but reserves the
right to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. If the Plan were to be
terminated, participants would be fully vested in their accounts;
Company contributions would not be subject to forfeiture.
F-10
<PAGE> 13
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
NOTES TO FINANCIAL STATEMENTS, continued
----------
F. RECONCILIATION TO FORM 5500:
The following is a reconciliation of net assets available for benefits
per the financial statements to the Form 5500:
<TABLE>
<CAPTION>
December 31,
1997 1996
----------- -----------
<S> <C> <C>
Net assets available for benefits per the financial statements $ 1,036,461 $ 841,828
Amounts allocated to withdrawing participants (1,115) 0
----------- -----------
Net assets available for benefits per the Form 5500 $ 1,035,346 $ 841,828
=========== ===========
</TABLE>
The following is a reconciliation of benefits paid to participants per
the financial statements to the Form 5500:
<TABLE>
<CAPTION>
Year ended
December 31, 1997
-----------------
<S> <C>
Benefits paid to participants per the financial statements $57,560
Add: Amounts allocated to withdrawing participants at December 31, 1997 1,115
Less: Amounts allocated to withdrawing participants at December 31, 1996 0
-------
Benefits paid to participants per the Form 5500 $58,675
=======
</TABLE>
Amounts allocated to withdrawing participants are recorded on Form 5500
for benefit claims that have been processed and approved for payment
prior to December 31 but not yet paid as of that date.
G. TAX STATUS:
On April 11, 1986, the Internal Revenue Service had determined that the
Plan is qualified under the requirements of Section 401(a) of the
Internal Revenue Code and is exempt from Federal income taxes under
Section 501(a) of the Code. The Plan obtained its latest determination
letter on August 1, 1995, in which the Internal Revenue Service stated
that the Plan, as amended through December 21, 1994, was in compliance
with the applicable requirements of the Internal Revenue Code. The Plan
has been amended since receiving such determination letter. However,
the Plan administrator and the Plan's counsel believe that the Plan is
currently designed and is being operated in compliance with the
applicable requirements of the Internal Revenue Code. Accordingly, no
provision for income taxes has been included in the Plan's financial
statements.
F-11
<PAGE> 14
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
SCHEDULE I: ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
---------------
TELEPHONE EQUITY FUND
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
--------- -------- --------
<S> <C> <C> <C>
Common Shares:
Ameritech Corporation 324,524 $ 11,136 $ 26,124
Bell Atlantic Corporation 411,358 20,095 37,434
BellSouth Corporation 372,913 10,101 21,000
SBC Communications, Inc. 660,785 20,750 48,403
US West Communications, Inc. 455,082 11,918 20,535
Total Common Shares 74,000 153,496
Temporary cash investments 2,345 2,345
-------- --------
Total Telephone Equity Fund $ 76,345 $155,841
======== ========
</TABLE>
DIVERSIFIED TELEPHONE PORTFOLIO
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
--------- ------- -------
<S> <C> <C> <C>
Common Shares:
AT&T Corporation 64,762 $ 760 $ 3,967
Air Touch Communications, Inc. 14,400 84 599
Ameritech Corporation 26,561 311 2,138
Bell Atlantic Corporation 31,980 613 2,910
BellSouth Corporation 46,040 505 2,593
Lucent Technologies Corporation 20,967 310 1,675
NCR Corporation 4,089 38 114
SBC Communications, Inc. 42,070 438 3,082
US West Communications Group, Inc. 16,936 156 764
US West Media Group 17,016 108 490
Total Common Shares 3,323 18,332
Temporary cash investments 250 250
------- -------
Total Diversified Telephone Portfolio $ 3,573 $18,582
======= =======
</TABLE>
F-12
<PAGE> 15
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
SCHEDULE I: ITEM 27A SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES, Continued
----------
INTEREST INCOME FUND
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------------
PRINCIPAL CONTRACT
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE FAIR VALUE
------------ ------------ ------------
<S> <C> <C> <C>
Contracts with Insurance Companies:
AIG
6.95% due 5/15/01 $ 8,773 $ 8,773 $ 8,773
AIG FP
7.07% due 6/30/01 $ 8,807 $ 8,807 $ 8,807
Bankers Trust Company
6.39% due 12/31/01 $ 15,012 $ 15,012 $ 15,012
Canada Life Insurance Company
5.47% due 12/31/98 $ 6,863 $ 6,863 $ 6,863
Deutche Bank
6.13% no maturity date $ 11,445 $ 11,445 $ 11,445
6.49% due on 3/31/01 $ 8,860 $ 8,860 $ 8,860
6.49% due on 3/31/00 $ 8,839 $ 8,839 $ 8,839
John Hancock
6.93% due on 11/15/01 $ 8,263 $ 8,263 $ 8,263
6.35% due on 8/15/02 $ 6,036 $ 6,036 $ 6,036
Morgan Guaranty
6.50% due on 9/30/01 $ 5,128 $ 5,128 $ 5,128
Mutual Benefit Life Insurance Company
8.05% due 12/31/99 $ 5,670 $ 5,670 $ 5,670
8.05% due 12/31/99 $ 379 $ 379 $ 379
5.10% due 12/31/99 $ 1,257 $ 1,257 $ 1,257
5.10% due 12/31/99 $ 84 $ 84 $ 84
New York Life Insurance Company
8.04% due 9/30/98 $ 10,589 $ 10,589 $ 10,589
7.20% due 7/31/99 $ 8,699 $ 8,699 $ 8,699
7.05% due 4/15/00 $ 7,215 $ 7,215 $ 7,215
Principal Mutual Life Insurance Company
7.71% due 10/31/99 $ 8,684 $ 8,684 $ 8,684
7.02% due 4/15/00 $ 8,252 $ 8,252 $ 8,252
Rabobank Nederland
6.56% no maturity date $ 8,834 $ 8,834 $ 8,834
5.92% due 12/31/00 $ 17,823 $ 17,823 $ 17,823
Sun Life Insurance Company of America
6.65% due 3/31/99 $ 14,974 $ 14,974 $ 14,974
7.19% due 6/30/99 $ 10,003 $ 10,003 $ 10,003
Union Bank of Switzerland
6.87% no maturity date $ 14,837 $ 14,837 $ 14,837
7.19% no maturity date $ 12,210 $ 12,210 $ 12,210
6.40% no maturity date $ 14,700 $ 14,700 $ 14,700
------------ ------------ ------------
Total Contracts with Insurance Companies $ 232,236 $ 232,236 $ 232,236
Temporary Cash Investments $ 9,973 $ 9,973 $ 9,973
------------ ------------ ------------
Total Interest Income Fund $ 242,209 $ 242,209 $ 242,209
============ ============ ============
</TABLE>
F-13
<PAGE> 16
BELL COMMUNICATIONS RESEARCH
SAVINGS PLAN FOR SALARIED EMPLOYEES
SCHEDULE I: ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES,
Continued
VANGUARD MUTUAL FUNDS
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------
NUMBER OF FAIR
NAME OF ISSUER AND TITLE OF ISSUE SHARES COST VALUE
------------------- ----------------- -------------------
<S> <C> <C> <C>
* Vanguard Index Trust-500 Portfolio 2,962,165 $162,031 $266,802
* Vanguard Windsor II Fund 3,655,447 $82,496 $104,619
* Vanguard International Growth Fund 2,953,612 $44,443 $48,410
* Vanguard Wellington Fund 2,129,733 $53,408 $62,721
* Vanguard Explorer Fund 275,811 $15,484 $15,252
* Vanguard PRIMECAP Fund 1,303,597 $46,448 $51,583
* Vanguard Total Bond Market Portfolio 1,174,858 $11,693 $11,854
</TABLE>
LOAN FUND
(Dollars in Thousands)
<TABLE>
<CAPTION>
Participant loans
<S> <C> <C>
7% to 10% $10,113 $10,113
</TABLE>
SAIC FUNDS
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C>
* SAIC Exchangeable
SAIC Class A Common Stock 1,175,927 $40,899 $40,899
Temporary Cash Investments $4,385 $4,385
----------------- -------------------
Total SAIC Exchangeable Stock Fund $45,284 $45,284
* SAIC Stock Purchase Fund
Temporary Cash Investments $1,244 $1,244
----------------- -------------------
Total SAIC Stock Purchase Fund $1,244 $1,244
</TABLE>
-13-
* Represents party-in-interest
F-14
<PAGE> 17
Bell Communications Research
Savings Plan for Salaried Employees
Schedule II: Item 27b - Schedule of Loans or Fixed Income Obligations
as of December 31, 1997
<TABLE>
<CAPTION>
AMOUNT RECEIVED
DURING REPORTING YEAR UNPAID
ORIGINAL ----------------------------------- BALANCE AT
NAME AND ADDRESS LOAN AMOUNT PRINCIPAL INTEREST END OF YEAR
------------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
DeGraffinreed, Cheryl $ 2,370.00 $ -- $ -- $ 1,432.86
9001 Sussex Ave
East Orange, NJ 07018 $ 1,182.04 $ -- $ -- $ 506.05
Delle Donne, Frances $15,000.00 $ -- $ -- $15,000.00
237 Rankin Ave
Cranford, NJ 07016
Brantle, Thomas $18,000.00 $ 2,791.21 $ 1,002.29 $11,796.00
260 Ocean Ave. - Apt. 18B
Sea Bright, NJ 07760 $16,257.71 $ 2,361.02 $ 901.66 $11,004.58
Kaeten, Karl $ 7,000.00 $ 1,227.08 $ 146.68 $ 1,971.09
1 Larison Lane
Ringoes, NJ 08551
Young, William $30,000.00 $ 4,438.88 $ 739.20 $10,923.25
31 Tilton Rd
Middletown, NJ 07748 $16,800.00 $ 2,042.95 $ 921.37 $13,781.68
</TABLE>
<TABLE>
<CAPTION>
AMOUNT OVERDUE*
NAME AND ADDRESS DETAILED DESCRIPTION OF LOSS PRINCIPAL INTEREST
---------------- ---------------------------- --------- --------
<S> <C> <C> <C>
DeGraffinreed, Cheryl Loan date-06/12/95; Loan Maturity-06/11/97; $ 1,626.54 $ 248.46
9001 Sussex Ave. Interest rate-10%, Collateral - vested balance
East Orange, NJ 07018 Loan date-01/26/96; Loan Maturity-01/22/97; $ 1,182.04 $ 61.76
Interest rate-9.5%, Collateral - vested balance
Delle Donne, Frances Loan date-10/29/96; Loan Maturity-06/26/01; $ 2,694.92 $ 1,275.16
237 Rankin Ave. Interest rate-9.25%, Collateral - vested balance
Cranford, NJ 07016
Brantle, Thomas Loan date-05/15/95; Loan Maturity-01/13/00; $ 976.92 $ 286.96
260 Ocean Ave. - Apt. 18B Interest rate-10%, Collateral - vested balance
Sea Bright, NJ 07760 Loan date-12/11/95; Loan Maturity-08/10/00; $ 826.00 $ 261.56
Interest rate-9.75%, Collateral - vested balance
Kaeten, Karl Loan date-07/29/94; Loan Maturity-07/26/98; $ 477.78 $ 37.38
1 Larison Lane Interest rate-8.25%, Collateral - vested balance
Ringoes, NJ 08551
Young, William Loan date-06/23/94; Loan Maturity-02/22/99; $ 2,303.36 $ 276.88
31 Tilton Rd. Interest rate-8.25%, Collateral - vested balance
Middletown, NJ 07748 Loan date-08/14/96; Loan Maturity-04/12/01; $ 1,061.33 $ 420.83
Interest rate-9.25%, collateral - vested balance
</TABLE>
* During 1998, the Company instructed the Plan's recordkeeper to issue Form 1099
to the obligors listed above in the amount of the principal and interest
balance outstanding at December 31, 1997.
F-15
<PAGE> 18
Bell Communications Research
Savings Plan for Salaried Employees
Schedule III: Item 27d - Schedule of Reportable Transactions *
Series of Transactions
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
IDENTITY OF PARTY INVOLVED DESCRIPTION OF NUMBER OF PURCHASE SELLING
ASSET TRANSACTIONS PRICE PRICE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Vanguard Group Index Trust-500 Portfolio 252 $95,527,730.22
The Vanguard Group Index Trust-500 Portfolio 251 $84,712,266.83
The Vanguard Group International Growth Portfolio 243 56,105,649.98
The Vanguard Group International Growth Portfolio 249 56,746,971.56
The Vanguard Group Vanguard/PRIMECAP Fund 248 63,724,803.79
The Vanguard Group Vanguard/PRIMECAP Fund 224 31,467,707.17
The Vanguard Group Vanguard/Windsor II 247 52,207,895.70
The Vanguard Group Vanguard/Windsor II 243 33,955,420.31
N/A SAIC Exch. Stock Fund 1 45,297,111.55
</TABLE>
<TABLE>
<CAPTION>
IDENTITY OF PARTY INVOLVED COST OF CURRENT VALUE ON NET
ASSET TRANSACTION DATE GAIN / (LOSS)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Vanguard Group $95,527,730.22
The Vanguard Group $69,674,079.47 84,712,266.83 $15,038,187.36
The Vanguard Group 56,105,649.98
The Vanguard Group 53,839,913.51 56,746,971.56 2,907,058.05
The Vanguard Group 63,724,803.79
The Vanguard Group 30,302,816.91 31,467,707.17 1,164,890.26
The Vanguard Group 52,207,895.70
The Vanguard Group 29,606,090.65 33,955,420.31 4,349,329.66
N/A 45,297,111.55
</TABLE>
* Transactions or series of transactions in excess of 5 percent of the current
value of the Plan's assets as of December 31, 1997 as defined in Section
2520.103-106 of the Department of Labor Rules and Regulations for Reporting and
Disclosure under ERISA.
F-16
