<PAGE> 1
As Filed Pursuant to Rule 424(b)(5)
Registration No. 333-37117
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE PROSPECTUS SUPPLEMENT IS DELIVERED IN FINAL FORM. THIS PROSPECTUS
SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED JANUARY 15, 1998
PROSPECTUS SUPPLEMENT
(To Prospectus dated November 20, 1997)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
$100,000,000
% Notes due 2008
INTEREST PAYABLE AND
ISSUE PRICE: %
Interest on the % Notes due , 2008 (the "Notes") of Science Applications
International Corporation, a Delaware corporation ("SAIC" or the "Company"),
offered hereby is payable semi-annually on and of each year, beginning .
The Notes are redeemable, in whole or in part, at the option of the Company at
any time at a redemption price equal to the greater of (i) 100% of the principal
amount of the Notes to be redeemed or (ii) as determined by a Quotation Agent
(as defined herein), the sum of the present values of the remaining scheduled
payments of principal and interest thereon (not including any portion of such
payments of interest accrued as of the date of redemption) discounted to the
date of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined herein) plus
basis points, plus, in each case, accrued interest thereon to the date of
redemption. The Notes will not be entitled to the benefits of any sinking fund.
See "Description of Notes."
The Notes will be represented by one or more global securities (the "Global
Securities") registered in the name of The Depository Trust Company ("DTC") or
its nominee. Beneficial interests in the Global Securities will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants. Except as provided herein, Notes in definitive form will not
be issued. See "Description of Notes."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note % % %
- -------------------------------------------------------------------------------------------------------------
Total $ $ $
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from , 1998.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company, estimated at $ .
The Notes are offered, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters and subject to their right to reject any order in
whole or in part and to approval of certain legal matters. It is expected that
delivery of the Notes will be made on or about , 1998 through the facilities
of DTC, against payment therefor in immediately available funds.
J.P. MORGAN & CO.
BANCAMERICA ROBERTSON STEPHENS
CITICORP SECURITIES, INC.
January , 1998
<PAGE> 2
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING
OVER-ALLOTMENT, STABILIZING AND SHORTCOVERING TRANSACTIONS IN SUCH NOTES, IN
CONNECTION WITH THIS OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus Supplement and the accompanying Prospectus or incorporated by
reference therein, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or by any
Underwriter. This Prospectus Supplement and the accompanying Prospectus do not
constitute an offer to sell or the solicitation of an offer to buy the Notes by
anyone in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so or to any person to whom it is unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus Supplement or the accompanying
Prospectus, nor any sale made hereunder and thereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
or incorporated by reference herein or therein is correct as of any time
subsequent to the date of such information.
------------------------
As used in this Prospectus Supplement, references to "fiscal year 1995," "fiscal
year 1996" and "fiscal year 1997" refer to the Company's fiscal years ended
January 31, 1995, 1996 and 1997, respectively.
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
The Company....................................................................................... S-3
Recent Developments............................................................................... S-3
Capitalization.................................................................................... S-5
Ratio of Earnings to Fixed Charges................................................................ S-6
Use of Proceeds................................................................................... S-6
Pro Forma Condensed Consolidated Financial Statements............................................. S-7
Selected Historical Financial Information......................................................... S-13
Business Description.............................................................................. S-15
Description of Notes.............................................................................. S-18
Underwriting...................................................................................... S-20
Information Concerning Forward-Looking Statements................................................. S-21
Validity of the Notes............................................................................. S-21
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Available Information............................................................................. 2
Incorporation of Certain Information by Reference................................................. 2
The Company....................................................................................... 3
Ratio of Earnings to Fixed Charges................................................................ 3
Use of Proceeds................................................................................... 3
Description of Debt Securities.................................................................... 4
Plan of Distribution.............................................................................. 11
Legal Matters..................................................................................... 11
Experts........................................................................................... 12
</TABLE>
S-2
<PAGE> 3
THE COMPANY
Science Applications International Corporation (the "Company" or "SAIC") is
among the largest employee-owned research and systems engineering firms in the
U.S. SAIC provides systems integration, systems engineering, technical
consulting services, and research and development to a range of government and
commercial clients, both in the U.S. and abroad, through its worldwide
operations. Sales to departments and agencies of the U.S. government accounted
for approximately 79%, 83%, and 86% of SAIC's revenues in fiscal years 1997,
1996, and 1995, respectively. The balance of the Company's revenues are
attributable to sales to foreign, state and local governments and commercial
customers. The Company provides technical services primarily in the areas of
"National Security," "Health," "Environment," "Energy" and "Other Technical
Services," which includes such other business areas as telecommunications,
commercial information technology, transportation and space.
The Company, acting through its Bell Communications Research, Inc. ("Bellcore")
subsidiary, is also a leading developer and provider of telecommunications
services and software. See "Recent Developments." Bellcore develops and supports
the software for network services and operating systems; provides consulting
services, including network architecture design and system integration, and
provides advanced research services, including development of current and
next-generation technologies. In 1996, prior to its acquisition by the Company,
Bellcore derived 77% of total revenues from the Regional Bell Operating
Companies ("RBOCs") and the balance from other telecommunications customers.
The principal executive offices of the Company are located at 10260 Campus Point
Drive, San Diego, California 92121. The telephone number is (619) 546-6000.
RECENT DEVELOPMENTS
ACQUISITION OF BELL COMMUNICATIONS RESEARCH, INC.
On November 14, 1997 the Company completed its acquisition (the "Bellcore
Acquisition") of all of the outstanding common stock of Bellcore from the
Regional Bell Operating Companies for a preliminary aggregate purchase price of
approximately $471.8 million, which is subject to post-closing adjustments. Upon
completion of the Bellcore Acquisition, Bellcore became a wholly-owned
subsidiary of SAIC. 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. As of
December 31, 1996, Bellcore had approximately 5,500 employees and annual
revenues of approximately $1 billion.
The Company believes that the acquisition of Bellcore will provide SAIC with
access to a wider range of telecommunications and information services customers
worldwide, adding significantly to its commercially generated revenues.
BELL COMMUNICATIONS RESEARCH, INC. -- SUMMARY OF OPERATIONS
SAIC's Bellcore subsidiary provides its products and services through two
principal business groups: Software Systems and Professional Services. These two
groups are supported by Bellcore's Applied Research Group. In 1996, Software
Systems and Professional Services contributed 59% and 31% of Bellcore's total
revenues, respectively, while Applied Research contributed 6%. The Company
expects to include the operating results of its Bellcore subsidiary in Other
Technical Services, which is part of SAIC's Technical Services business area.
See "Business Description."
SOFTWARE SYSTEMS GROUP. Bellcore's Software Systems Group is an industry leader
in the design and implementation of leading-edge, interoperable communications
networking solutions. The Software Systems Group is a global supplier of
products and services with the majority of its revenues from sales to RBOCs and
North America Local Exchange Carriers ("NA LEC"s). Its products and services
enable customers to plan, build, activate, and service their networks and help
to increase customer revenues and reduce operating costs by increasing
efficiency. The group offers more than 150 separate software products,
consisting of more than 110 million lines of code. In addition to new product
revenues, the group generates significant revenues from the ongoing maintenance
and enhancement of a large installed base of software systems, as well as
customization of software and licensing of technology.
PROFESSIONAL SERVICES GROUP. Bellcore's Professional Services Group is an
industry leader in providing a full range of consulting and engineering services
for telecommunications providers. Through this group, Bellcore plans, designs
and implements operating solutions for its customers' telecommunications needs
at each stage of operation of the customer's network. Examples of services
provided by the Professional Services Group include network integrity testing
and quality assurance to over 200 telecommunications and data communications
providers, consulting and systems engineering for a
S-3
<PAGE> 4
wide range of network technologies, architectures and services, strategic and
operational advice, learning services and consulting support to address the Year
2000 date change.
APPLIED RESEARCH GROUP. The Applied Research Group is an industry leader in
research and development for the telecommunications industry. This group
provides research and development for Bellcore's Software Systems and
Professional Services business groups, as well as to external customers. Applied
Research Group personnel have extensive expertise in leading-edge research and
development and are responsible for many of the telecommunications network
standards that support the telecommunications infrastructure.
Bellcore's patent portfolio consists of more than 680 U.S. and foreign patents,
most of which have resulted from the efforts of the Applied Research Group. 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. Applied
Research also actively pursues additional opportunities to license its
technologies to third parties and evaluates potential spin-offs of technologies
that it has developed.
BANK DEBT FINANCING AGREEMENTS
In connection with the Bellcore Acquisition, the Company entered into a Credit
Agreement (Multi-Year Facility) (the "Multi-Year Credit Agreement") and a Credit
Agreement (364-Day Facility) (the "364-Day Credit Agreement" and, together with
the Multi-Year Credit Agreement, the "Credit Agreements") each dated as of
August 20, 1997 and effective November 14, 1997, with the lenders named within
the respective agreements. The Credit Agreements are included as exhibits to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended July 31,
1997. The Company currently expects to terminate the 364-Day Credit Agreement
shortly after the consummation of the offering of the Notes.
S-4
<PAGE> 5
CAPITALIZATION
The following sets forth the consolidated capitalization of the Company (a) at
October 31, 1997 and (b) as adjusted to reflect (i) the Bellcore Acquisition and
the initial financing thereof and (ii)(x) the loss on a forward treasury lock
hedge agreement, which is reported as additional debt issue discount, and (y)
the sale of the Notes offered hereby assuming the application of estimated net
proceeds of approximately $99.4 million from the offering of the Notes to repay
a portion of the short-term borrowings incurred to finance the Bellcore
Acquisition. The information in the table should be read in conjunction with the
historical financial statements and related notes of the Company incorporated by
reference herein and the unaudited pro forma combined financial statements which
reflect the Bellcore Acquisition included in this Prospectus Supplement. See
"Pro Forma Condensed Consolidated Financial Statements" and "Use of Proceeds."
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-------------------------------------------------
AS ADJUSTED FOR
THE ACQUISITION
AS ADJUSTED FOR AND THE OFFERING
ACTUAL THE ACQUISITION OF THE NOTES
-------- --------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and current portion of long-term liabilities(1).... $ 12,635 $ 307,988 $ 208,638
-------- ---------- ----------
Long-term liabilities and minority interest:
% notes due 2008............................................ -- -- 89,500
Other long-term liabilities and minority interest........... 76,329 512,367 512,367
-------- ---------- ----------
Total notes payable, long-term liabilities and minority
interest....................................................... 88,964 820,355 810,505
Stockholders' equity
Common stock................................................... 514 514 514
Additional paid-in capital..................................... 450,689 450,689 450,689
Retained earnings.............................................. 227,261 227,261 227,261
Other stockholders' equity..................................... (14,653) (14,653) (14,653)
-------- ---------- ----------
Total stockholders' equity....................................... 663,811 663,811 663,811
-------- ---------- ----------
Total capitalization............................................. $752,775 $ 1,484,166 $1,474,316
======== ========== ==========
</TABLE>
- ---------------
(1) Borrowings under the Multi-Year Credit Agreement as of December 31, 1997
were approximately $135 million.
S-5
<PAGE> 6
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of the
Company for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED OCTOBER 31, YEAR ENDED JANUARY 31,
----------------- ----------------------------------------
1997 1997 1996 1995 1994 1993
----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges................... 5.4 5.0 5.0 4.5 4.2 3.9
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of pretax income adjusted for fixed charges, including minority interest
in a consolidated subsidiary with fixed charges and excluding undistributed
earnings or losses of less than 50% owned companies accounted for under the
equity method. Fixed charges consist of interest on indebtedness and the portion
of rental expense the Company believes to be representative of interest. The
ratios in the preceding table do not give effect to the Bellcore Acquisition,
the financing related thereto or the offering of the Notes. If such transactions
were given retroactive effect as if they had occurred during the year ended
January 31, 1997 and the nine months ended October 31, 1997, the Company's ratio
of earnings to fixed charges for such periods would have been 1.6 and 2.3,
respectively.
USE OF PROCEEDS
The net proceeds from the offering of the Notes are estimated to be
approximately $99.4 million. The Company expects to use the net proceeds from
the offering of the Notes to repay certain short-term indebtedness, including
indebtedness incurred to finance the Bellcore Acquisition, and for general
corporate purposes. The indebtedness to be repaid consists primarily of amounts
borrowed under the Company's revolving credit agreements and bears interest at a
weighted average rate of approximately 6.2% as of December 31, 1997. It is
expected that approximately 11% of the net proceeds of the offering of the Notes
will be applied to repayment of loans made to the Company by Morgan Guaranty
Trust Company of New York, an affiliate of J.P. Morgan Securities Inc., Bank of
America National Trust and Savings Association, an affiliate of BancAmerica
Robertson Stephens, and Citicorp USA, Inc., an affiliate of Citicorp Securities,
Inc. See "Underwriting."
S-6
<PAGE> 7
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma condensed consolidated financial statements
give effect to the acquisition of Bellcore by the Company in a transaction using
the purchase method of accounting and the assumptions and adjustments described
in the accompanying notes. The pro forma adjustments are based on preliminary
estimates of fair value. Actual adjustments will be based on the completion of
appraisals, other analyses of fair values and the final purchase price paid.
Prior to November 14, 1997, Bellcore's fiscal year end was December 31. For
purposes of the pro forma condensed consolidated financial statements,
Bellcore's fiscal year ended December 31, 1996 and the interim period ended
September 30, 1997 have been included in the Company's January 31, 1997 and
October 31, 1997 pro forma condensed consolidated financial statements,
respectively.
The unaudited pro forma condensed consolidated balance sheet is based on the
individual balance sheets of Bellcore, and the Company as incorporated herein
and has been prepared to reflect the acquisition by the Company of Bellcore as
of October 31, 1997. The unaudited pro forma condensed consolidated statement of
income combines the consolidated statement of income of the Company and Bellcore
for the year ended January 31, 1997 and the interim period ended October 31,
1997 as if the acquisition had occurred on February 1, 1996.
The unaudited pro forma condensed consolidated financial statements are based on
assumptions the Company believes are reasonable, factually supportable and
directly attributable to the acquisition. The unaudited pro forma condensed
consolidated balance sheet and statements of income have been prepared to
reflect the acquisition of Bellcore by the Company based upon a preliminary cash
purchase price of $461.7 million as of October 31, 1997. The preliminary
purchase price has not been finalized and is subject to audit and possible
adjustment. Therefore, the actual impact of the Bellcore acquisition could
differ materially from the unaudited pro forma condensed consolidated balance
sheet and statements of income included herein. The purchase price allocation is
preliminary and management anticipates that the final allocation could differ
materially from that included in the unaudited pro forma condensed consolidated
financial statements included herein. The final purchase price could differ in
the allocation to property and equipment, land and buildings, purchased
intangible assets and the resulting goodwill. The amortization periods could
differ ranging from one to eight years for property and equipment, twenty to
forty years for buildings, and three to fifteen years for intangible assets and
goodwill. In addition, the final purchase price could differ in the allocation
to the pension plan asset and other post-retirement benefit liability, and these
differences could also impact the final goodwill amount.
The unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements,
including the notes thereto, of the Company in its Annual Report on Form 10-K/A
for the year ended January 31, 1997 and of Bellcore incorporated by reference to
item 7(a) of the Company's Current Report on Form 8-K dated July 11, 1997, and
the unaudited interim consolidated financial statements, including the notes
thereto, of the Company in its Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1997 and of Bellcore incorporated by reference to item
7(a) of the Company's Current Report on Form 8-K dated January 15, 1998. These
unaudited pro forma condensed consolidated financial statements are shown for
illustrative purposes only and are not necessarily indicative of the results of
operations or financial position of the consolidated company that might have
occurred had the Bellcore acquisition been completed at the beginning of the
periods specified, nor are they necessarily indicative of future operating
results or financial position.
S-7
<PAGE> 8
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
SAIC BELLCORE (NOTE 1) COMBINED
---------------- ------------------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 288,410 $ 22,630 $ 290,817(a) $ 118,157
(11,900)(a)
(471,800)(b)
Restricted cash............................. 39,432 -- -- 39,432
Receivables................................. 554,710 223,900 -- 778,610
Inventories................................. 13,327 -- -- 13,327
Prepaid expenses and other current assets... 16,549 13,933 -- 30,482
Deferred income taxes....................... 60,579 13,319 -- 73,898
---------- -------- --------- ----------
Total current assets..................... 973,007 273,782 (192,883) 1,053,906
---------- -------- --------- ----------
Property and equipment........................ 106,764 140,287 25,000(b) 272,051
Land and buildings............................ 111,020 43,879 24,000(b) 178,899
Intangible assets............................. 48,121 -- 193,436(c) 241,557
Other assets.................................. 49,958 97,356 393,000(d) 558,750
17,036(e)
1,400(a)
---------- -------- --------- ----------
$1,288,870 $555,304 $ 460,989 $2,305,163
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.... $ 313,760 $211,903 $ -- $ 525,663
Accrued payroll and employee benefits....... 207,314 82,849 -- 290,163
Income taxes payable........................ 15,021 -- -- 15,021
Notes payable and current portion of
long-term liabilities.................... 12,635 5,186 190,817(a) 208,638
---------- -------- --------- ----------
Total current liabilities................ 548,730 299,938 190,817 1,039,485
---------- -------- --------- ----------
Long-term liabilities and minority interest... 76,329 167,516 226,922(f) 601,867
41,600(e)
89,500(a)
---------
358,022
---------
Common stock................................ 514 128,199 (128,199)(b) 514
Additional paid-in capital.................. 450,689 -- -- 450,689
Retained earnings (deficit)................. 227,261 (46,283) 46,283(b) 227,261
Other stockholders' equity.................. (14,653) 5,934 (5,934)(b) (14,653)
---------- -------- --------- ----------
Total stockholders' equity............... 663,811 87,850 (87,850) 663,811
---------- -------- --------- ----------
$1,288,870 $555,304 $ 460,989 $2,305,163
========== ======== ========= ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
S-8
<PAGE> 9
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1997
-----------------------------------------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
SAIC BELLCORE (NOTE 1) COMBINED
---------------- ----------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues..................................... $2,402,224 $ 1,009,851 $ -- $3,412,075
Cost and expenses:
Cost of revenues........................... 2,094,447 727,953 2,822,400
Selling, general and administrative
expenses................................ 191,836 292,682 19,852(h)
6,598(k) 505,450
(5,518)(i)
Other (income) expense, net................ (2,193) (1,111) -- (3,304)
Interest expense........................... 4,925 8,389 19,446(j) 38,978
6,078(g)
140(l)
---------- ---------- -------- ----------
2,289,015 1,027,913 46,596 3,363,524
---------- ---------- -------- ----------
Income (loss) before income taxes............ 113,209 (18,062) (46,596) 48,551
Provision for (benefit from) income taxes.... 49,529 (5,842) (16,842)(m) 26,845
---------- ---------- -------- ----------
Net income (loss)............................ $ 63,680 $ (12,220) $ (29,754) $ 21,706
========== ========== ======== ==========
Earnings per share........................... $ 1.23 $ -- $ 0.42
========== ========== ==========
Average number of shares outstanding,
including common stock equivalents......... 52,309 52,309
========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
S-9
<PAGE> 10
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31, 1997
--------------------------------------------------------
PRO FORMA
ADJUSTMENTS PRO FORMA
SAIC BELLCORE (NOTE 1) COMBINED
---------- -------- ----------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues.............................................. $2,039,896 $742,587 $ -- $2,782,483
Cost and expenses:
Cost of revenues.................................... 1,783,205 516,036 2,299,241
Selling, general and administrative expenses........ 161,361 216,161 14,889(h) 394,138
4,949(k)
(3,222)(i)
Other (income) expense, net and minority interest... (8,287) 749 (7,538)
Interest expense.................................... 4,541 3,972 14,585(j) 27,762
4,559(g)
105(l)
---------- -------- -------- ----------
1,940,820 736,918 35,865 2,713,603
---------- -------- -------- ----------
Income (loss) before income taxes..................... 99,076 5,669 (35,865) 68,880
Provision for (benefit from) income taxes............. 44,584 (1,941) (13,003)(m) 29,640
---------- -------- -------- ----------
Net income (loss)..................................... $ 54,492 $ 7,610 $ (22,862) $ 39,240
========== ======== ======== ==========
Earnings per share.................................... $ 1.01 $ -- $ 0.73
========== ======== ==========
Average number of shares outstanding, including common
stock equivalents................................... 54,474 54,474
========== ==========
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.
S-10
<PAGE> 11
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Note 1 -- The unaudited pro forma condensed consolidated balance sheet and
statements of income have been prepared to reflect the acquisition of Bellcore
by the Company for a preliminary aggregate purchase price of $471,800,000. Pro
forma adjustments are made to reflect:
(a) Issuance of debt to finance the acquisition of Bellcore, deferral of debt
issuance costs and a loss on a forward treasury lock hedge agreement. The
debt consists of $100,000,000 in 6.4% long-term notes payable maturing in
January 2008 and $190,817,000 of borrowings on a revolving line of credit
agreement, which expires in August 2002, with an interest rate of
approximately 5.9%.
(b) Purchase price allocation to record assets and liabilities at estimated fair
value (dollar amounts in thousands):
<TABLE>
<S> <C>
Cash payment to Bellcore owners............................................... $461,700
Deferred acquisition costs.................................................... 10,100
--------
Total purchase price.......................................................... 471,800
--------
Elimination of book value of net assets acquired:
Common stock............................................................. (128,199)
Accumulated deficit...................................................... 46,283
Other stockholders' equity............................................... (5,934)
--------
Net equity............................................................... (87,850)
--------
Excess of purchase price over net book value............................. $383,950
========
Allocation of excess purchase price over net book value:
Amount assigned to property and equipment................................ $ 25,000
Amount assigned to land and buildings.................................... 24,000
Amount assigned to excess pension plan assets at fair value over the
projected benefit obligation............................................ 393,000
Deferred tax assets -- non-current....................................... 17,036
Deferred tax liabilities -- non-current.................................. (226,922)
Amount assigned to OPEB liabilities in excess of the fair value of plan
assets.................................................................. (41,600)
Amount assigned to identifiable intangible assets........................ 118,300
Amount assigned to goodwill.............................................. 75,136
--------
$383,950
========
</TABLE>
The purchase price allocation is based upon estimates from a valuation
process that is still in process and not completed. The final allocation of
the final purchase price could materially differ from these estimates.
(c) Identifiable intangible assets based upon estimates from a valuation process
that is still in process and not completed. Adjustment also includes the
resulting goodwill. The final allocation of the final purchase price could
materially differ from these estimates.
(d) Excess of the Bellcore pension plan assets at fair value over the projected
benefit obligation. The Company is in the process of completing its review
of the actuarial assumptions and data relative to the Bellcore pension plan.
The final allocation of the final purchase price could materially differ
from estimates based upon the review and final actuarial valuation and could
impact the final goodwill amount.
(e) Estimate of Bellcore's post-retirement benefit obligation in excess of the
fair value of plan assets, including the related deferred tax asset. The
Company is in the process of completing its review of the actuarial data
relative to the Bellcore post-retirement benefit plans and based on the
review, the final allocation of the final purchase price could differ and
impact the final goodwill amount.
(f) Deferred tax liabilities, in accordance with SFAS 109, related to the
purchase price allocation to property and equipment, land and buildings (see
note b), pension plan (see note d) and purchased intangibles (see note c),
other than goodwill.
S-11
<PAGE> 12
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- CONTINUED
(g) Elimination of interest income earned, calculated using an average rate of
5.0%, on cash balances which reflects the use of cash for the acquisition.
(h) Amortization of purchased intangible assets on a straight-line basis over 3
to 10 years, and goodwill, on a straight-line basis over 15 years. The
Company is still in the process of compiling data and reviewing the
assumptions related to the valuation of the excess of the purchase price
over the estimated fair value of net intangible and tangible assets
acquired. The final valuation and allocation of the final purchase price
upon completion could materially differ from the preliminary estimates.
(i) Elimination of amortization of unrecognized net transition
obligation/assets, unrecognized prior service cost and unrecognized net
gains included in the net periodic pension and post-retirement benefits
expense.
(j) Interest expense on $100,000,000 of long-term notes and $190,817,000 of
short-term debt incurred in connection with the acquisition of Bellcore at
an average effective interest rate of 6.7%, which includes amortization of
a loss on a forward treasury lock hedge agreement.
(k) Depreciation of property and equipment based on the estimated purchase
price allocation per the preliminary valuation.
(l) Amortization of deferred debt issuance costs on a straight-line basis over
the term of the $100,000,000 long-term notes. Difference between
amortization on a straight-line basis and using the net effective interest
method of amortization is deemed immaterial.
(m) Income tax effects of pretax pro forma adjustments using the statutory rate
in effect during the periods for which the pro forma condensed consolidated
statements of income are presented.
S-12
<PAGE> 13
SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information set forth below at January 31,
1997, 1996, 1995, 1994, and 1993 and for the years then ended has been derived
from the Company's audited consolidated financial statements, including those
incorporated herein by reference. The selected historical financial information
set forth below for the nine months ended October 31, 1997 and 1996 has been
derived from the Company's unaudited interim financial statements incorporated
herein by reference, which in the opinion of the Company's management include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of operations for the unaudited interim
periods. Interim operating results and balance sheet information are not
necessarily indicative of the operating results or financial condition that may
be expected for the full year. The selected historical financial information set
forth below should be read in conjunction with the Company's consolidated
financial statements and notes thereto incorporated herein by reference.
<TABLE>
<CAPTION>
FOR THE NINE MONTHS FOR THE YEAR
ENDED OCTOBER 31, ENDED JANUARY 31,
----------------------- --------------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues...................... $2,039,896 $1,754,327 $2,402,224 $2,155,657 $1,921,880 $1,670,882 $1,504,112
Costs and expenses:
Cost of revenues............ 1,783,205 1,533,164 2,094,447 1,875,183 1,686,970 1,475,485 1,329,885
Selling, general and
administrative
expenses................. 161,361 136,593 191,836 173,742 146,083 120,387 113,174
Interest expense............ 4,541 3,705 4,925 4,529 3,468 2,966 2,841
Other (income) expense,
net(1)................... (12,934) (1,567) (2,193) (111) 5,653 2,216 (1,893)
Minority interest in income of
consolidated
subsidiaries(2)............. 4,647 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,940,820 $1,671,895 $2,289,015 $2,053,343 $1,842,174 $1,601,054 $1,444,007
Income before income taxes.... 99,076 82,432 113,209 102,314 79,706 69,828 60,105
Provision for income taxes.... 44,584 36,064 49,529 45,018 30,654 28,328 22,030
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.................... $ 54,492 $ 46,368 $ 63,680 $ 57,296 $ 49,052 $ 41,500 $ 38,075
========== ========== ========== ========== ========== ========== ==========
Earnings per share............ $ 1.01 $ 0.90 $ 1.23 $ 1.13 $ 1.01 $ 0.89 $ 0.83
========== ========== ========== ========== ========== ========== ==========
Average number of shares
outstanding, including
common stock equivalents.... 54,474 52,226 52,309 51,306 49,264 47,429 46,179
========== ========== ========== ========== ========== ========== ==========
</TABLE>
- ---------------
(1) Other income for the nine months ended October 31, 1997 primarily relates to
the gain on the sale of certain business assets and interest income on
higher average cash balances as discussed in the Company's Quarterly Report
on Form 10-Q for the quarterly period quarter ended October 31, 1997
incorporated herein by reference.
(2) Relates to Informatica Negocios y Tecnologia S.A. ("Intesa"), the Company's
consolidated 60%-owned joint venture.
S-13
<PAGE> 14
<TABLE>
<CAPTION>
OCTOBER
31, JANUARY 31,
---------- ------------------------------------------------------
1997 1997 1996 1995 1994 1993
---------- ---------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
ASSETS:
Cash and cash equivalents................. $ 288,410 $ 45,279 $ 22,765 $ 28,203 $ 53,556 $ 15,989
Restricted cash........................... 39,432 14,456 3,029 -- -- --
Receivables............................... 554,710 567,634 500,201 421,790 356,836 341,109
Inventories............................... 13,327 33,983 40,097 25,356 14,764 14,136
Prepaid expenses and other current
assets................................. 16,549 12,708 9,182 13,647 10,354 8,779
Deferred income taxes..................... 60,579 37,155 18,953 20,536 22,083 12,499
---------- -------- -------- -------- -------- --------
Total current assets...................... 973,007 711,215 594,227 509,532 457,593 392,512
Property and equipment.................... 106,764 89,027 69,441 57,715 50,581 49,771
Land and buildings........................ 111,020 96,768 87,844 88,997 69,161 61,486
Intangible assets......................... 48,121 59,569 55,210 56,214 17,485 --
Other assets.............................. 49,958 55,883 52,568 40,126 16,755 19,844
---------- -------- -------- -------- -------- --------
Total assets.............................. $1,288,870 $1,012,462 $859,290 $752,584 $611,575 $523,613
========== ======== ======== ======== ======== ========
LIABILITIES, MINORITY INTEREST AND
STOCKHOLDERS' EQUITY:
Accounts payable and accrued
liabilities............................ $ 313,760 $ 271,282 $210,393 $191,429 $133,433 $116,620
Accrued payroll and employee benefits..... 207,314 131,234 138,709 124,745 106,548 87,318
Income taxes payable...................... 15,021 16,859 15,636 18,409 9,889 13,643
Notes payable and current portion of
long-term liabilities.................. 12,635 21,287 2,304 1,482 1,143 134
---------- -------- -------- -------- -------- --------
Total current liabilities................. 548,730 440,662 367,042 336,065 251,013 217,715
Long-term liabilities..................... 71,911 44,341 34,116 29,759 25,965 25,851
---------- -------- -------- -------- -------- --------
Minority interest in consolidated
subsidiaries(1)........................ 4,418 -- -- -- -- --
---------- -------- -------- -------- -------- --------
Total stockholders' equity................ $ 663,811 $ 527,459 $458,132 $386,760 $334,597 $280,047
---------- -------- -------- -------- -------- --------
Total liabilities, minority interest and
stockholders' equity................... $1,288,870 $1,012,462 $859,290 $752,584 $611,575 $523,613
========== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Relates to Intesa, the Company's consolidated 60%-owned joint venture and
the Company's majority-owned subsidiary, Network Solutions, Inc. ("NSI"). On
October 1, 1997, the Company sold a minority interest in NSI in an initial
public offering as discussed in the Company's Quarterly Report on Form 10-Q
for the quarterly period ended October 31, 1997 incorporated herein by
reference.
S-14
<PAGE> 15
BUSINESS DESCRIPTION
SAIC is among the largest employee-owned research and systems engineering firms
in the U.S. SAIC provides systems integration, systems engineering, technical
consulting services, and research and development to a range of government and
commercial clients, both in the U.S. and abroad. The Company's services and
products are sold to departments and agencies of the U.S. government, foreign,
state and local governments and commercial customers.
The Company's professional and technical services ("Technical Services") and
high technology products ("Products") are primarily sold to departments and
agencies of the U.S. government, including the Department of Defense ("DOD"),
Department of Energy ("DOE"), Department of Transportation, Department of
Veterans Affairs ("VA"), Environmental Protection Agency and National
Aeronautics and Space Administration ("NASA"). Revenues generated from the sale
of Technical Services and Products to the U.S. government as a prime contractor
or subcontractor accounted for approximately 79%, 83% and 86% of revenues in
fiscal years 1997, 1996 and 1995, respectively. The balance of the Company's
revenues are attributable to the sales of Technical Services and Products to
foreign, state and local governments and commercial customers.
The percentage of revenues attributable to Technical Services has increased
since fiscal year 1995, while Product revenues have correspondingly decreased.
Technical Services revenues and Product revenues were 94% and 6%, respectively,
for fiscal year 1997; 93% and 7%, respectively, for fiscal year 1996; and 91%
and 9%, respectively, for fiscal year 1995.
The Company provides Technical Services primarily in the areas of "National
Security," "Health," "Environment," "Energy" and "Other Technical Services." The
Company's telecommunications, commercial information technology, transportation
and space business areas are included in Other Technical Services, and the
Company expects to include the operating results of its Bellcore subsidiary as
part of this business area. The percentage of Technical Services revenues
attributable to National Security-related work has gradually declined to 44% of
total revenues for fiscal year 1997. For fiscal year 1997, the Health,
Environment, Energy and Other Technical Services business areas accounted for
14%, 11%, 5% and 20%, respectively, of total revenues. The following description
of the Company's Technical Services and Products business areas does not reflect
the Bellcore Acquisition.
TECHNICAL SERVICES
NATIONAL SECURITY. The Company currently provides a wide array of national
security-related Technical Services to its customers, including advanced
research and technology development, systems engineering and systems integration
and technical, operational and management support services. Examples of the
Company's Technical Services in the national security area include the
following:
- - Development and integration of command, control and intelligence applications
software, middleware and data bases in client-server architectures to provide
situational awareness and decision-aiding to military commanders and
organizations; the range of services includes architectural definition,
systems and software engineering, systems installation, training and site
support.
- - Information and telecommunication system engineering and support services,
including requirements analysis and acquisition support, computer system
design, information security, user environment modeling and data
communication systems support.
- - Defense studies and analysis 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.
- - Technology development and analysis, system engineering and integration
support for advanced sensors, signal and imagery collection, processing,
exploitation and dissemination systems.
- - Life cycle support for numerous DOD combat and support systems including
logistics engineering services and turnkey logistics information management
systems, maintenance engineering and training, including field technical
services, installation and repair, test evaluation and training support to
primary service and joint service activities and independent software
verification, validation and quality assurance.
- - Development of core technology for advanced distributed simulation and
applications for the DOD and other government and commercial customers.
- - Systems engineering and technical assistance for cruise missiles, unmanned
aerial vehicles, space systems and future aerospace system concepts for
intelligence, surveillance and reconnaissance applications and users.
S-15
<PAGE> 16
- - Design, integration, implementation and operation of land, air, and sea
battlefield simulation training ranges.
- - Engineering, environmental, quality assurance, integration and program
support to the U.S. Army's chemical demilitarization and remediation
activity.
HEALTH. The Company provides health-related Technical Services to government
and commercial customers, including medical information systems, technology
development and research support services. Examples of the Company's Technical
Services in the health area include the following:
- - Applied research, systems integration and customer support services to both
commercial and federal health care clients, including performing research
initiatives for the U.S. Advanced Research Projects Agency, developing and
operating a nationwide health care frame relay-based telecommunications
system for the VA and automating the information systems for the DOD's
medical treatment facilities worldwide.
- - Information engineering, software development and program support for the
Department of Health and Human Services and the National Institutes of
Health.
- - Design, development and operation of health information networks for
integrated healthcare delivery systems for commercial healthcare clients.
- - Research support services to the National Cancer Institute-Frederick Cancer
Research and Development Center, including management and operations support,
quality and safety operations, ongoing research and research support tasks.
- - Support to the U.S. Army in the biomedical area, including providing expert
analysis, research planning, program design and review and topical research
on a variety of military medical issues, including medical countermeasures to
chemical and biological warfare, casualty care, battlefield hazards and the
U.S. Army's breast cancer research program, as well as biomedical service and
management of government facilities.
- - Preclinical product development services for the pharmaceutical,
biotechnology and medical device community, including veterinary pathology,
Food and Drug Administration requirements analysis, quality assurance and
Good Laboratory Practices consulting, special toxicology assay development
and performance, client site services, and the development and management of
complete product development programs (virtual product development).
ENVIRONMENT. The Company performs site assessments, remedial investigations and
feasibility studies, remedial actions, technology evaluations, sampling,
monitoring and regulatory compliance support, development and implementation of
information systems and training. Examples of the Company's Technical Services
in the environmental area include the following:
- - Management and technical support to the DOE for the characterization of the
nation's first potential commercial spent fuel and high-level radioactive
waste repository, including the preparation and coordination of environmental
assessments, field testing, technical evaluations, public information,
quality assurance, information systems and training.
- - Development, demonstration and evaluation of new technologies for hazardous
waste treatment.
- - Solid and hazardous waste services to federal, state and local government and
the private sector, including environmental assessments, environmental impact
statements, design engineering, remedial investigations and feasibility
studies, remedial actions, regulatory and enforcement support, pollution
prevention and engineering services.
- - Analysis of a broad range of environmental issues associated with the marine
sciences such as ocean dumping, mineral exploration, global change, global
ocean circulation and temperature trends.
ENERGY. The energy-related Technical Services of the Company include safety
evaluations, security, reliability and availability engineering evaluations,
technical reviews, quality assurance, information systems, plant monitoring
systems and project management. Examples of the Company's Technical Services in
the energy area include the following:
- - Engineering, systems integration and support services to nuclear, electric,
gas and other utility operations in the areas of energy management, computer
systems, information processing, configuration management, risk assessment,
safety analysis, nuclear engineering, reliability and availability
evaluations, simulator upgrades, energy policy analysis and alternative
energy evaluation.
- - Support to DOE in planning, facility transitions, safety analysis,
transportation, waste management, quality assurance, emergency preparedness
and public outreach.
S-16
<PAGE> 17
- - 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.
OTHER TECHNICAL SERVICES. The Company provides Technical Services to government
and commercial customers in such other areas as transportation,
telecommunications, commercial information technology and space. The Company
expects to include the operating results of its Bellcore subsidiary in this
business area. See "Recent Developments." Examples of Other Technical Services
provided by the Company include the following:
- - Development, installation and operation of computer and telecommunications
systems for various transportation applications, including automated toll
revenue collection, rail asset and freight management, intermodal terminal
operation, advanced traffic and congestion management, rail electrification,
traffic control, air traffic control, commercial vehicle electronic
clearance, explosive and contraband detection and state motor vehicle
registration.
- - Strategic planning, operational analysis and evaluation, surface
transportation planning and engineering, software development and
reengineering, safety and human factors research and hazardous material
transportation safety.
- - Information technology and automatic data processing outsourcing services for
commercial clients.
- - Scientific and computing services to federal agencies involved in global
change research, including processing, utilization and scientific analysis of
space, airborne and ground-based remotely sensed data.
- - Security services for the U.S. government and commercial customers, including
material control and accountability, computer and information security,
technical surveillance countermeasures, intrusion detection, access control
and physical plant threat assessments and vulnerability analysis.
- - Safety, reliability and quality assurance engineering support for NASA's
Space Shuttle and Space Station programs.
- - Internet domain name registration and related services and intranet
consulting and network design and implementation services.
- - Undersea data collection and transmission systems and services, including
deep water systems, telecommunications cable systems and hydrographic survey
systems and other services in the areas of hydrography, physical
oceanography, diving, vessel operation and management, marine studies and
other maritime studies and analysis.
PRODUCTS
The Company designs, develops and manufactures high-technology products for
government and commercial customers. Examples of the Company's Products include
the following:
- - Automatic equipment identification technology for rail, truck, air and sea
transportation modes.
- - Digital and analog recording products, signal reconnaissance data processors
and telecommunications products for the intelligence community.
S-17
<PAGE> 18
DESCRIPTION OF NOTES
The following description of the particular terms of the Notes offered hereby
supplements the description of the general terms of the Debt Securities (as
defined in the accompanying Prospectus) set forth under the caption "Description
of Debt Securities" in the accompanying Prospectus, to which description
reference is hereby made. Capitalized terms not defined herein shall have the
meaning set forth in the accompanying Prospectus.
GENERAL
The Notes offered hereby will be unsecured general obligations of the Company,
and will constitute a series of Debt Securities to be issued under the Indenture
referred to in the accompanying Prospectus. The Notes will be limited to $100
million aggregate principal amount and will mature on , 2008.
The Notes will bear interest at the rate set forth on the cover page of this
Prospectus Supplement from , or from the most recent date to which interest has
been paid or provided for, payable semi-annually in arrears on and of each
year, commencing , to holders of record at the close of business on the
preceding and , as the case may be. The Notes are subject to legal defeasance
and discharge and covenant defeasance, as described under "Description of Debt
Securities -- Defeasance" in the accompanying Prospectus.
OPTIONAL REDEMPTION
The Notes will be redeemable, in whole or in part, at the option of the Company
at any time at a redemption price equal to the greater of (i) 100% of the
principal amount of the Notes to be redeemed or (ii) as determined by a
Quotation Agent (as defined below), the sum of the present values of the
remaining scheduled payments of principal and interest thereon (not including
any portion of such payments of interest accrued as of the date of redemption)
discounted to the date of redemption on a semi-annual basis (assuming a 360-day
year consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined below) plus basis points, plus, in each case, accrued interest thereon
to the date of redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the rate
per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date.
"Comparable Treasury Issue" means the United States Treasury security selected
by a Quotation Agent as having a maturity comparable to the remaining term of
the Notes to be redeemed that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues of corporate
debt securities of comparable maturity to the remaining term of such Notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i) the
average of the Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains fewer than three such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by the Company.
"Reference Treasury Dealer" means (i) J.P. Morgan Securities Inc., BancAmerica
Robertson Stephens and Citicorp Securities, Inc. and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another Primary Treasury Dealer;
and (ii) any other Primary Treasury Dealer selected by the Company.
"Reference Treasury Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any redemption date, the average, as determined by the
Company, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day (as defined in the Indenture) preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of the Notes to be redeemed.
Unless the Company defaults in payment of the redemption price, on and after the
redemption date, interest will cease to accrue on the Notes or portions thereof
called for redemption.
The Notes are not entitled to the benefits of any sinking fund.
S-18
<PAGE> 19
GLOBAL SECURITIES
The Notes initially will be issued as Global Securities. See "Description of
Debt Securities -- Book-Entry System" in the accompanying Prospectus for
additional information concerning the Notes, the Indenture and the book-entry
system. DTC will be the depositary with respect to the Notes.
SAME-DAY SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters (as defined below) in
immediately available funds. All payments of principal and interest will be made
by the Company in immediately available funds to DTC in The City of New York.
The Notes will trade in DTC's Same-Day Funds Settlement System until maturity or
earlier redemption, as the case may be, and secondary market trading activity in
the Notes will therefore settle in immediately available funds.
S-19
<PAGE> 20
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement dated
the date of this Prospectus Supplement (the "Underwriting Agreement"), the
Company has agreed to sell to each of the underwriters named below (the
"Underwriters") and each of the Underwriters has severally agreed to purchase,
the principal amount of the Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
NAME OF NOTES
------------------------------------------------------------------------- ----------------
<S> <C>
J.P. Morgan Securities Inc. ............................................. $
BancAmerica Robertson Stephens........................................... ..............
Citicorp Securities, Inc. ...............................................
------------
Total.................................................................. $100,000,000
============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are committed to take and pay for all of the Notes, if any are taken.
The Company has been advised by the Underwriters that they initially propose to
offer the Notes directly to the public at the public offering price set forth on
the cover page of this Prospectus Supplement and to certain dealers at such
price less a concession not in excess of % of the principal amount of the
Notes. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of % of the principal amount of the Notes on sales to certain
other dealers. After the initial public offering of the Notes, the public
offering price and such concessions to dealers may be changed by the
Underwriters.
The Notes are a new issue of securities with no established trading market. The
Company has been advised by the Underwriters that the Underwriters currently
intend to make a market for the Notes, but are not obligated to do so and may
discontinue market making at any time without notice. No assurance can be given
as to the liquidity of the trading market for the Notes.
It is expected that in the aggregate approximately 11% of the net proceeds of
the offering of the Notes will be applied to repayment of loans made to the
Company by Morgan Guaranty Trust Company of New York, an affiliate of J.P.
Morgan Securities Inc., Bank of America National Trust and Savings Association,
an affiliate of BancAmerica Robertson Stephens, and Citicorp USA, Inc., an
affiliate of Citicorp Securities, Inc. Under the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD"), special considerations
apply to a public offering of securities where more than 10% of the net proceeds
thereof will be paid to a participating underwriter or any of its affiliates.
Therefore, the offering of the Notes is being conducted pursuant to Rule
2710(c)(8) of the NASD Conduct Rules which establishes certain procedural
safeguards in connection with offerings in such circumstances in which NASD
member firms intend to participate and where more than 10% of the offering
proceeds are to be paid to such member firms or their affiliates.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act of 1933, as
amended, or to contribute to payments which the Underwriters may be required to
make in respect thereof.
In connection with the offering of the Notes, the Underwriters may purchase and
sell the Notes in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering of the Notes. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Notes, and syndicate short positions
involve the sale by the Underwriters of a greater amount of Notes than they are
required to purchase from the Company in the offering of the Notes. These
activities may stabilize, maintain or otherwise affect the market price of the
Notes, which may be higher than the price that might otherwise prevail in the
open market, and these activities, if commenced, may be discontinued at any
time. These transactions may be effected in the over-the-counter market or
otherwise.
In the ordinary course of their respective businesses, the Underwriters and
their affiliates have engaged, are engaging and may in the future engage, in
commercial baking and investment banking transactions with the Company and its
affiliates.
S-20
<PAGE> 21
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this Prospectus Supplement, the
accompanying Prospectus and in documents incorporated therein by reference may
be considered forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including statements regarding the intent, belief or current expectations of the
Company or its officers with respect to, among other things, trends affecting
the Company's financial condition or results of operation and the impact of
competition. Such statements are not guarantees of future performance and
involve risks and uncertainties, and actual results may differ materially from
those in the forward-looking statements as a result of various factors. Some of
these factors include, but are not limited to: decrease in or the failure to
increase business with the U.S. government; the impact of the Bellcore
Acquisition (as defined herein); the ability of the Company to continue to
identify and consummate additional acquisitions; competitive pricing for
Technical Services and Products (as defined herein); early termination of U.S.
government contracts; losses or reduced profits on firm fixed-price contracts
and increased use of such contracts; failure to obtain reimbursement for costs
incurred prior to the execution of a contract or contract modification; audits
of the Company's costs, including allocated indirect costs, by the U.S.
government; and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company. Due to such uncertainties
and risks, investors are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date hereof.
VALIDITY OF THE NOTES
The validity of the Notes to which this Prospectus Supplement relates will be
passed upon for the Company by Davis Polk & Wardwell, New York, New York, and
for the Underwriters by Sullivan & Cromwell, New York, New York.
S-21
<PAGE> 22
[saic logo]
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
DEBT SECURITIES
------------------------
Science Applications International Corporation (the "Company") may offer
from time to time unsecured debt securities ("Debt Securities") consisting of
debentures, notes and/or other evidences of unsecured indebtedness in one or
more series, or any combination of the foregoing, at an aggregate initial
offering price not to exceed $300,000,000 or its equivalent if some or all of
the Debt Securities are denominated in one or more foreign currencies, at prices
and on terms to be determined at or prior to the time of sale in light of market
conditions at the time of sale.
Specific terms of the particular Debt Securities in respect of which this
Prospectus is being delivered will be set forth in one or more accompanying
Prospectus Supplements (each a "Prospectus Supplement"), together with the terms
of the offering of the Debt Securities and the initial price and the net
proceeds to the Company from the sale thereof. The Prospectus Supplement will
set forth with regard to the particular Debt Securities, without limitation, the
following: the specific designation, aggregate principal amount, authorized
denomination, maturity, rate or method of calculation of interest and dates for
payment thereof, any exchangeability, conversion, redemption, prepayment or
sinking fund provisions, the currency or currencies or currency unit or currency
units in which principal, premium, if any, or interest, if any, is payable, any
modifications of or additions to the covenants described in this Prospectus and
any other specific terms thereof. The amounts payable by the Company in respect
of Debt Securities may be calculated by reference to the value, rate or price of
one or more specified commodities, currencies or indices to the extent set forth
in the Prospectus Supplement. The Prospectus Supplement will also contain
information, where applicable, about certain United States federal income tax
considerations relating to the Debt Securities covered by the Prospectus
Supplement.
The Company may sell the Debt Securities directly, through agents
designated from time to time or through underwriters or dealers. If any agents
of the Company or any underwriters or dealers are involved in the sale of the
Debt Securities, the names of such agents, underwriters or dealers, any
applicable commissions and discounts, and the net proceeds to the Company will
be set forth in the applicable Prospectus Supplement. See "Plan of Distribution"
for possible indemnification arrangements for agents, underwriters and dealers.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
This Prospectus may not be used to consummate sales of
Debt Securities unless accompanied by a Prospectus Supplement.
The date of this Prospectus is November 20, 1997
<PAGE> 23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING DESCRIBED HEREIN, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR BY ANY UNDERWRITER, DEALER OR AGENT. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR CHANGE IN THE AFFAIRS OF THE COMPANY AT ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
at 7 World Trade Center, 13th Floor, New York, NY 10048 and Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
The Company has filed a registration statement on Form S-3 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Debt Securities being offered pursuant to this Prospectus.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. The Registration Statement may be
inspected and copied at the public reference facilities maintained by the
Commission at the addresses set forth in the preceding paragraph. Statements
contained herein concerning the provisions of any documents are not necessarily
complete and, in each instance that a copy of such document has been filed as an
exhibit to the Registration Statement or otherwise filed with the Commission,
reference is made to the copy so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by the Company with the Commission
and are hereby incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K/A for the year ended
January 31, 1997 (which incorporates by reference portions of the
Proxy Statement for the Company's 1997 Annual Meeting of
Stockholders);
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ended April 30, 1997 and July 31, 1997; and
(3) The Company's Current Reports on Form 8-K dated June 30, 1997,
July 9, 1997, July 11, 1997, July 21, 1997, September 19, 1997 and
September 30, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act on or after the date of this Prospectus and prior to
the termination of this offering shall be deemed to be incorporated herein by
reference. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus and the Registration Statement of which it is a
part to the extent that a statement contained herein or in any other
subsequently filed document which also is incorporated or deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or such Registration
Statement.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon written or oral request of such
person, a copy of any or all of the documents which have been or may be
incorporated herein by reference, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference into such documents).
Requests for such copies should be directed to Science Applications
International Corporation, 10260 Campus Point Drive, San Diego, California
92121, Attention: Corporate Secretary (telephone: (619) 535-7323).
2
<PAGE> 24
THE COMPANY
The Company provides diversified professional and technical services
("Technical Services") and designs, develops and manufactures high-technology
products ("Products"). The Company's Technical Services and Products are
primarily sold to departments and agencies of the U.S. Government, including the
Department of Defense, Department of Energy, Department of Transportation,
Department of Veterans Affairs, Environmental Protection Agency and National
Aeronautics and Space Administration. Revenues generated from the sale of
Technical Services and Products to the U.S. Government as a prime contractor or
subcontractor accounted for approximately 79%, 83% and 86% of revenues in fiscal
years 1997, 1996 and 1995, respectively. The balance of the Company's revenues
are attributable to the sales of Technical Services and Products to foreign,
state and local governments, commercial customers and others. The percentage of
revenues attributable to Technical Services has increased since fiscal year 1995
while the percentage of revenues attributable to Products has correspondingly
decreased. Technical Services revenues and Product revenues were 94% and 6%,
respectively, for fiscal year 1997; 93% and 7%, respectively, for fiscal year
1996; and 91% and 9%, respectively, for fiscal year 1995. On March 7, 1997, the
Company sold its Science Applications International Technologies ("SAIT")
business unit, which designed, manufactured and sold certain ruggedized
computers and display products and accounted for 49% of the Company's Product
revenues in fiscal year 1997. The Company provides Technical Services primarily
in the areas of "National Security," "Health," "Environment," "Energy" and
"Other Technical Services," the last of which includes the Company's
transportation, commercial information technology and space business areas. The
percentage of Technical Services revenues attributable to National
Security-related work has gradually declined to 44% of total revenues for fiscal
year 1997. For fiscal year 1997, the Health, Environment, Energy and Other
Technical Services business areas accounted for 14%, 11%, 5% and 20%,
respectively, of total revenues.
On November 20, 1996, the Company entered into a definitive acquisition
agreement to purchase Bell Communications Research, Inc. ("Bellcore"), a
provider of telecommunications services, information networking software and
consulting services. As of December 31, 1996, Bellcore had approximately 5,500
employees and annual revenues of approximately $1 billion. The Company believes
that Bellcore's strengths in telecommunications software development and network
design will complement the Company's existing information management and
communications services businesses. The consummation of the acquisition is
subject to certain conditions and contingencies, including regulatory approvals.
The Company has no assurance that the acquisition will be completed.
The principal executive offices of the Company are located at 10260 Campus
Point Drive, San Diego, California 92121. The telephone number is (619)
546-6000.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JANUARY 31,
ENDED JULY 31, ----------------------------------------
1997 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges..................... 5.4 5.0 5.0 4.5 4.2 3.9
</TABLE>
For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of pretax income adjusted for fixed charges, including minority
interest in the consolidated subsidiary with fixed charges and excluding
undistributed earnings or losses of less than 50% owned companies accounted for
under the equity method. Fixed charges consist of interest on indebtedness and
the portion of rental expense the Company believes to be representative of
interest.
USE OF PROCEEDS
Except as may otherwise be disclosed in an applicable Prospectus
Supplement, the net proceeds to the Company from the sale of the Debt Securities
offered hereby are expected to be used for general corporate purposes, which may
include financing capital expenditures and working capital requirements, stock
repurchases, acquisitions or repayment or refinancing of existing indebtedness.
Pending application, proceeds may be invested in short-term, marketable
securities.
3
<PAGE> 25
DESCRIPTION OF DEBT SECURITIES
The Debt Securities will be unsecured obligations issued under an Indenture
(the "Indenture"), between the Company and The Chase Manhattan Bank, as Trustee
(the "Trustee"). The following summaries do not purport to be complete and are
subject to the detailed provisions of the Indenture, a copy of which is filed as
an exhibit to the Registration Statement. Wherever particular provisions of the
Indenture or terms defined therein are referred to, such provisions are
incorporated by reference as part of the statements made herein, and such
statements are qualified in their entirety by such reference to the provisions
of the Indenture. Capitalized terms used below and not otherwise defined are
used as defined in the Indenture. Section references are to the Indenture.
GENERAL
The Indenture does not limit the aggregate principal amount of Debt
Securities which may be issued thereunder and provides that the Debt Securities
may be issued from time to time in one or more series. The Debt Securities will
rank equally with all other unsecured and unsubordinated obligations of the
Company. Except as described under "-- Certain Restrictions on the Company," the
Indenture does not limit other indebtedness or securities which may be incurred
or issued by the Company or any of its subsidiaries or contain financial or
similar restrictions on the Company or any of its subsidiaries. The Company's
rights and the rights of its creditors, including holders of Debt Securities, to
participate in any distribution of assets of any subsidiary of the Company upon
the subsidiary's liquidation or reorganization or otherwise are effectively
subordinated to the claims of the subsidiary's creditors, except to the extent
that the Company or any of its creditors may itself be a creditor of that
subsidiary.
Reference is made to the applicable Prospectus Supplement for the following
terms of and information relating to the Debt Securities offered thereby (the
"Offered Debt Securities"): (i) the designation of the Offered Debt Securities;
(ii) the aggregate principal amount of the Offered Debt Securities; (iii) the
date or dates on which principal of, and premium, if any, on, the Offered Debt
Securities will be payable; (iv) the rate or rates (which may be fixed or
variable) at which the Offered Debt Securities shall bear interest, if any, or
the method by which such rate or rates shall be determined, the basis on which
such interest, if any, shall be calculated if other than a 360-day year
consisting of twelve 30-day months, the date or dates from which such interest,
if any, will accrue and on which such interest, if any, will be payable and the
related record dates; (v) if other than the offices of the Trustee, the place
where the principal of, and premium, if any, and interest, if any, on, the
Offered Debt Securities will be payable; (vi) any redemption, repayment or
sinking fund provisions; (vii) if other than denominations of $1,000 or
multiples thereof, the denominations in which the Offered Debt Securities will
be issuable; (viii) if other than the principal amount thereof, the portion of
the principal amount due upon acceleration; (ix) if other than U.S. dollars, the
currency or currencies or currency unit or currency units in which the Offered
Debt Securities will be denominated and in which principal of, and premium, if
any, and interest, if any, on, the Offered Debt Securities will or may be
payable; (x) any index used to determine the amount of payments or principal of,
and premium, if any, and interest, if any, on, the Offered Debt Securities; (xi)
the terms and conditions, if any, pursuant to which the Offered Debt Securities
may be converted or exchanged for other securities of the Company or any other
person; (xii) whether the Offered Debt Securities shall be issued in the form of
one or more Global Securities (as defined in "-- Book-Entry System"); (xiii) the
identity of any trustees, depositaries, authenticating or paying agents,
transfer agents or registrars with respect to the Offered Debt Securities and
(xiv) any other specific terms of the Offered Debt Securities.
The Debt Securities will be issued as registered securities either in
certificated form or in the form of one or more global securities under a
book-entry system, as specified in the applicable Prospectus Supplement. See
"-- Book-Entry System."
Unless otherwise specified in the applicable Prospectus Supplement,
principal and premium, if any, will be payable, and the Debt Securities will be
transferable and exchangeable without any service charge, at the office of the
Trustee. However, the Company may require payment of the sum sufficient to cover
any tax or other governmental charge, payable in connection with any such
transfer or exchange (Sections 2.09 and 3.02).
Unless otherwise specified in the applicable Prospectus Supplement,
interest on any series of Debt Securities will be payable on the interest
payment dates set forth in the applicable Prospectus Supplement to the persons
in whose names the Debt Securities are registered at the close of business on
the related record date and will be paid, at the option of the Company, by wire
transfer or by checks mailed to such persons (Sections 2.08 and 3.01).
If the Debt Securities are issued as Original Issue Discount Securities
(bearing no interest or interest at a rate which at the time of issuance is
below market rates) to be sold at a substantial discount below their stated
principal amount, the material United States federal income tax consequences and
other special considerations applicable to such Original Issue Discount
Securities will be generally described in the applicable Prospectus Supplement.
4
<PAGE> 26
If any Debt Securities are sold for any foreign currency or currency unit
or if the principal of, or premium, if any, or interest, if any, on, any Debt
Securities is payable in any foreign currency or currency unit, the
restrictions, elections, tax consequences, specific terms and other information
with respect to such Debt Securities and such foreign currency or currency unit
will be set forth in the Prospectus Supplement relating thereto.
Unless otherwise described in the applicable Prospectus Supplement, there
are no covenants or provisions contained in the Indenture which afford the
holders of the Debt Securities protection in the event of a highly leveraged
transaction involving the Company.
BOOK-ENTRY SYSTEM
If so specified in the applicable Prospectus Supplement, Debt Securities of
any series may be issued under a book-entry system in the form of one or more
global securities (each a "Global Security"). Each Global Security will be
deposited with, or on behalf of, a depositary, which, unless otherwise specified
in the applicable Prospectus Supplement, will be The Depository Trust Company,
New York, New York (the "Depositary"). The Global Securities will be registered
in the name of the Depositary or its nominee.
The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York banking law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. The Depositary was created
to hold securities of its participants and to facilitate the clearance and
settlement of securities transactions among its participants through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations, some of which (and/or
representatives of which) own the Depositary. Access to the Depositary's
book-entry system is also available to others, such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly.
Upon the issuance of a Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts of
the Debt Securities represented by such Global Security to the accounts of
participants. The accounts to be credited will be designated by the
underwriters, dealers or agents, if any, or by the Company, if such Debt
Securities are offered and sold directly by the Company. Ownership of beneficial
interests in a Global Security will be limited to participants or persons that
may hold interests through participants. Ownership of beneficial interests by
participants in a Global Security will be shown on, and the transfer of that
ownership interest will be effected only through, records maintained by the
Depositary or its nominee (with respect to interests of participants) and on the
records of participants (with respect to interests of persons other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
certificated form. Such laws may impair the ability to transfer beneficial
interests in a Global Security.
So long as the Depositary or its nominee is the registered owner of a
Global Security, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Debt Securities represented by such
Global Security for all purposes under the Indenture. Except as set forth below,
owners of beneficial interests in such Global Security will not be entitled to
have the Debt Securities represented thereby registered in their names, will not
receive or be entitled to receive physical delivery of certificates representing
the Debt Securities and will not be considered the owners or holders thereof
under the Indenture. Accordingly, each person owning a beneficial interest in
such Global Security must rely on the procedures of the Depositary and, if such
person is not a participant, on the procedures of the participant through which
such person owns its interest, to exercise any rights of a holder under the
Indenture.
Payment of principal of, and premium, if any, and interest, if any, on,
Debt Securities represented by a Global Security will be made to the Depositary
or its nominee, as the case may be, as the registered owner and holder of the
Global Security representing such Debt Securities. None of the Company, the
Trustee, any paying agent or registrar for such Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that the Depositary or its nominee, as the case may be,
upon receipt of any payment of principal, premium or interest in respect of a
Global Security, will immediately credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in the principal
amount of such Global Security as shown on the records of the Depositary or its
nominee. The Company also expects that payments by participants to owners of
beneficial interests in
5
<PAGE> 27
such Global Security held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in "street name," and will be the
responsibility of such participants.
A Global Security may not be transferred except as a whole by the
Depositary to its nominee or by a nominee of the Depositary to the Depositary or
another nominee of the Depositary or by the Depositary or its nominee to a
successor of the Depositary or a nominee of such successor. If the Depositary
for a Global Security is at any time unwilling or unable to continue as
depositary and a successor depositary is not appointed by the Company within 90
days, the Company will issue Debt Securities in certificated form in exchange
for all of the Global Securities representing such Debt Securities. In addition,
the Company may at any time and in its sole discretion determine not to have any
Debt Securities represented by one or more Global Securities and, in such event,
will issue Debt Securities in certificated form in exchange for all of the
Global Securities representing such Debt Securities. Further, if the Company so
specifies with respect to the Debt Securities of a series, an owner of a
beneficial interest in a Global Security representing Debt Securities of such
series may, on terms acceptable to the Company and the Depositary, receive Debt
Securities of such series in certificated form. In any such instance, an owner
of a beneficial interest in a Global Security will be entitled to physical
delivery in certificated form of Debt Securities of the series represented by
such Global Security equal in principal amount to such beneficial interest and
to have such Debt Securities registered in its name (Section 2.09).
CERTAIN RESTRICTIONS ON THE COMPANY
Limitations on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
incur any Lien on property or assets owned on or acquired after the date of the
Indenture by the Company or any Restricted Subsidiary to secure Debt without
making, or causing such Restricted Subsidiary to make, effective provision for
securing the Debt Securities (and, if the Company may so determine, any other
Debt of the Company or such Restricted Subsidiary that is not subordinated in
right of payment to the Debt Securities) (x) equally and ratably with such Debt
as to such property or assets for as long as such Debt will be so secured or (y)
in the event such Debt is subordinated in right of payment to the Debt
Securities, prior to such Debt as to such property for as long as such Debt will
be so secured (Section 3.06).
The foregoing restrictions will not apply to Liens existing on the date of
the Indenture or to: (i) Liens securing only the Debt Securities; (ii) Liens in
favor of only the Company or a Restricted Subsidiary of the Company; (iii) any
Lien on property of a Person existing immediately prior to the time such Person
is merged with or into or consolidated with the Company or any Subsidiary of the
Company or otherwise becomes a Subsidiary of the Company (provided that such
Lien is not incurred in anticipation of such transaction and does not extend
beyond the property subject thereto, or secure any Debt that is not secured
thereby, immediately prior to such transaction); (iv) any Lien on property
existing immediately prior to the time of acquisition thereof (provided that
such Lien is not incurred in anticipation of such acquisition and does not
extend beyond the property subject thereto, or secure any Debt that is not
secured thereby, immediately prior to such acquisition); (v) any Lien on
property securing all or any portion of the purchase price thereof or securing
all or any portion of the cost of construction or alteration of or improvement
on any property created or assumed contemporaneously with, or within 270 days
after, such acquisition or completion of such construction or improvement
(provided that such Lien does not extend to any other property and secures Debt
in an amount that does not exceed such purchase price or cost of construction,
alteration or improvement); (vi) Liens for taxes or assessments or other
governmental charges or levies that are not delinquent, remain payable without
penalty or are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and for which such reserve or other
appropriate provision, if any, as may be required in accordance with generally
accepted accounting principles has been made; (vii) Liens to secure obligations
under workmen's compensation laws or similar legislation; (viii) Liens incurred
to secure the performance of statutory obligations or bids, surety or appeal
bonds, performance or return-of-money bonds or other obligations of a like
nature incurred in the ordinary course of business; (ix) any Lien securing Debt
owing by the Company to a Wholly Owned Subsidiary (provided that, for purposes
of this covenant and the covenant described under "-- Limitations on Sale and
Leaseback Transactions," upon either (a) the transfer or other disposition of
any Debt secured by such Lien to a Person other than another Wholly Owned
Subsidiary of the Company or (b) the issuance (other than directors' qualifying
shares), sale, lease, transfer or other disposition of capital stock of or any
other ownership interest in such Wholly Owned Subsidiary to which such secured
Debt is owed to a Person other than the Company or another Wholly Owned
Subsidiary of the Company, the provisions described in this clause (ix) will no
longer be applicable to such Lien and such Lien will be subject (if otherwise
subject) to the requirements of this covenant without regard to this clause
(ix)); (x) any Lien arising in the ordinary course of business in favor of a
customer, which Liens are inherent in the government contracting process; (xi)
any Liens on assets identified as "Restricted Cash" on the Company's balance
sheet which are payable to third parties; (xii) any Lien associated with a sale
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<PAGE> 28
or discount of accounts receivable of the Company or its Subsidiaries provided
that such Lien (a) does not involve the creation of a Lien or negative pledge on
any accounts receivable not so sold or discounted and (b) does not involve in
the aggregate the sale or discount of accounts receivable having a book value
exceeding $100,000,000; (xiii) Liens securing obligations not exceeding
$100,000,000 in the aggregate on (a) the assets of single purpose Subsidiaries
and (b) assets of the Company or any of its Subsidiaries incurred in connection
with and related solely to the toll collection business; (xiv) any Lien in favor
of the Trustee in respect of expenses incurred or services rendered pursuant to
the Indenture and (xv) extensions, renewals or replacements (or successive
extensions, renewals, or replacements), as a whole or in part, of any Lien
referred to in the foregoing clauses (iii), (iv) and (v) so long as such Lien
does not extend to any other property and the Debt so secured is not increased
(Section 3.06).
In addition to the foregoing, the Company and its Subsidiaries may, without
equally and ratably securing the Debt Securities, incur a Lien to secure Debt or
enter into a Sale and Leaseback Transaction if, after giving effect thereto, the
sum of: (i) the amount of all Debt secured by all Liens incurred on or after the
date of the Indenture and otherwise prohibited by the Indenture and (ii) the
Attributable Value of Sale and Leaseback Transactions entered into on or after
the date of the Indenture and otherwise prohibited by the Indenture does not
exceed 15% of Consolidated Net Worth.
All Debt Securities, regardless of their series, will rank pari passu with
one another.
Limitations on Sale and Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Leaseback Transaction (except for a period not exceeding
36 months) unless (i) the Company or such Restricted Subsidiary would be
entitled to enter into such Sale and Leaseback Transaction pursuant to the
provisions described in the second or third paragraph under "-- Limitations on
Liens" without equally and ratably securing the Debt Securities or (ii) the
Company or a Subsidiary of the Company applies, within 90 days after the related
Sale Transaction, an amount equal to the Net Available Proceeds of such Sale
Transaction (a) to the redemption of Debt Securities or, to the extent Debt
Securities are not then redeemable, to the retirement of Debt Securities, of
other Company Debt that is pari passu with the Debt Securities or of Subsidiary
Debt or, to the extent there is no such Company Debt or Subsidiary Debt, other
Company Debt or (b) to the purchase of property, securities, or other assets
(other than cash or cash equivalents) having a fair market value, determined at
the time of such purchase, at least equal to the Net Available Proceeds of such
sale and which will be used (or, in the case of any securities, are capital
stock issued by a company engaged) in the business of the Company and its
Restricted Subsidiaries as then being conducted. Debt Securities redeemed or
otherwise retired pursuant to the provision described above may not be used as
credits against any sinking fund obligations (Section 3.07).
Consolidation; Merger; Sale of Assets
With respect to the Debt Securities of any series, the Company may not
consolidate with or merge into, or convey, transfer or lease its properties and
assets substantially as an entirety to, any Person (a "successor Person"), and
may not permit any Person to merge into, or convey, transfer or lease its
properties and assets substantially as an entirety to, the Company, unless (i)
the successor Person (if any) is a corporation, partnership, trust, limited
liability company or other entity organized and validly existing under the laws
of any domestic jurisdiction and expressly assumes the Company's obligations on
the Debt Securities of such series and under the Indenture with respect thereto,
(ii) immediately after giving effect to the transaction, no Event of Default,
and no event which, after notice or lapse of time or both, would become an Event
of Default, with respect to the Debt Securities of such series shall have
occurred and be continuing, (iii) if, as a result of the transaction, property
of the Company or any Restricted Subsidiary would become subject to a Lien the
incurrence of which would not be permitted under the limitation on Liens
described above under "Restrictive Covenants," the Company takes such steps as
are necessary to cause the Debt Securities of such series to be secured equally
and ratably with (or prior to) the Debt secured by such Lien as provided in such
limitation and (iv) certain other conditions are met (Section 9.01).
CERTAIN DEFINITIONS
The Indenture will include, among others, the following definitions:
"ATTRIBUTABLE VALUE" means, as to any lease under which any Person is at
the time liable, other than a Capital Lease Obligation, and at any date as of
which the amount thereof is to be determined, the total net amount of rent
required to be paid by such Person under such lease during the remaining term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such term to the date of
determination at a rate per annum equal to the discount rate that would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period will be the
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<PAGE> 29
aggregate amount of rent payable by the lessee with respect to such period after
excluding amounts required to be paid on account of insurance, taxes,
assessments, utility, operating and labor costs and similar charges. In the case
of any lease that is terminable by the lessee upon the payment of a penalty,
such net amount will also include the amount of such penalty, but no rent will
be considered as required to be paid under such lease subsequent to the first
date upon which it may be so terminated. "Attributable Value" means, as to a
Capital Lease Obligation under which any Person is at the time liable and at any
date as of which the amount thereof is to be determined, the capitalized amount
thereof that would appear on the face of a balance sheet of such Person in
accordance with generally accepted accounting principles.
"CAPITAL LEASE OBLIGATION" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person that is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation will be deemed to be the date
of the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"CONSOLIDATED NET WORTH" means, at any date of determination, the net worth
of the Company and its Subsidiaries on a consolidated basis in accordance with
generally accepted accounting principles.
"DEBT" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, (i) every
obligation of such Person for money borrowed, (ii) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses, (iii) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person, (iv) every Capital Lease Obligation of such
Person and (v) every obligation of the type referred to in clauses (i) through
(iv) of another Person, the payment of which such Person has Guaranteed.
"LIEN" means any mortgage, pledge or lien securing any Debt.
"NET AVAILABLE PROCEEDS" from any Sale Transaction by any Person means cash
or readily marketable cash equivalents received (including by way of sale or
discounting of a note, installment receivable or other receivable, but excluding
any consideration received in the form of assumption of Debt or other
obligations by others or received in any other noncash form) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses incurred and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability as a consequence of such Sale
Transaction, (ii) all payments made by such Person or its Subsidiaries on any
Debt that is secured by a Lien on the property or assets so disposed of in
accordance with the terms of such Lien or that must, by the terms of such Lien,
or in order to obtain a necessary consent to such Sale Transaction, or by
applicable law, be repaid out of the proceeds from such Sale Transaction and
(iii) all distributions and other payments made to third parties (other than
Subsidiaries) in respect of minority or joint venture interests as a result of
such Sale Transaction.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company at least 50% of
whose consolidated assets are located, or at least 50% of whose consolidated
revenues during the then-latest four fiscal quarters were derived from
operations conducted, in the United States and its territories and possessions.
For this purpose, the consolidated assets or revenues of a Subsidiary will be
deemed to be the assets or revenues of such Subsidiary and its Subsidiaries,
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"SALE AND LEASEBACK TRANSACTION" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or assets of such Person which
has been or is being sold, conveyed, transferred or otherwise disposed of by
such Person more than 270 days after the acquisition thereof or the completion
of construction or commencement of operation thereof to such lender or investor
or to any person to whom funds have been or are to be advanced by such lender or
investor on the security of such property or assets. The stated maturity of such
arrangement will be deemed to be the date of the last payment of rent or any
other amount due under such arrangement prior to the first date on which such
arrangement may be terminated by the lessee without payment of a penalty.
"SALE TRANSACTION" means any sale, conveyance, transfer or other
disposition of the kind referred to in the first sentence of the definition of
"SALE AND LEASEBACK TRANSACTION."
"SIGNIFICANT SUBSIDIARY" means, at any time, any Subsidiary of the Company
that qualifies at such time as a "significant subsidiary" of the Company within
the meaning of Regulation S-X promulgated by the Commission (as in effect at
such time).
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EVENTS OF DEFAULT
Each of the following will constitute an Event of Default under the
Indenture with respect to Debt Securities of any series: (a) failure to pay
principal of or any premium on any Debt Security of that series when due; (b)
failure to pay any interest on any Debt Securities of that series when due,
continued for 30 days; (c) failure to deposit any sinking fund payment, when
due, in respect of any Debt Security of that series; (d) failure to perform any
other covenant of the Company in the Indenture (other than a covenant included
in the Indenture solely for the benefit of a series other than that series),
continued for 90 days after written notice has been given by the Trustee, or the
Holders of at least 25% in principal amount of the Outstanding Debt Securities
of that series, as provided in the Indenture; (e) a default or defaults under
any note(s) or other evidence(s) of Debt (including Debt Securities of another
series), or any agreement(s) or instrument(s) (including the Indenture) under
which there may be issued or by which there may be secured or evidenced any Debt
of the Company or any Subsidiary having a principal amount outstanding,
individually or in the aggregate, of at least $50,000,000, and whether existing
on or created after the date of the Indenture, which default or defaults (i)
constitute a failure to pay any portion of the principal of such Debt when due
(after the expiration of any applicable grace period) or (ii) have resulted in
acceleration of any portion of such Debt having an aggregate principal amount
equal to or in excess of $50,000,000, without the overdue or accelerated portion
of such Debt having been discharged, or without such acceleration having been
rescinded or annulled by the holders of such Debt, within 30 days after written
notice has been given by the Trustee or the Holders of at least 25% in principal
amount of the Outstanding Debt Securities of such series, as provided in the
Indenture; (f) a final judgment or final judgments for the payment of money are
entered against the Company or any Subsidiary of the Company in an aggregate
amount in excess of $50,000,000 by a court or courts of competent jurisdiction,
unless such judgments are fully discharged, bonded or stayed within 60 days
after the right to appeal such judgments has expired and (g) certain events in
bankruptcy, insolvency or reorganization of the Company or any Significant
Subsidiary. Other Events of Default may apply with respect to the Debt
Securities of a particular series, as indicated in the applicable Prospectus
Supplement (Section 5.01).
If an Event of Default (other than an Event of Default described in clause
(g) above) with respect to the Debt Securities of any series at the time
Outstanding shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the Outstanding Debt Securities of
that series by notice as provided in the Indenture may declare the principal
amount of the Debt Securities of that series (or, in the case of any Debt
Security that is an Original Issue Discount Security or the principal amount of
which is not then determinable, such portion of the principal amount of such
Debt Security, or such other amount in lieu of such principal amount, as may be
specified in the terms of such Debt Security) to be due and payable immediately.
If an Event of Default described in clause (g) above with respect to the Debt
Securities of any series at the time Outstanding shall occur and be continuing,
the principal amount of all the Debt Securities of that series (or, in the case
of any such Original Issue Discount Security or other Debt Security, such
specified amount) will automatically, and without any action by the Trustee or
any Holder, become immediately due and payable. After any such acceleration, but
before a judgment or decree based on acceleration, the Holders of a majority in
aggregate principal amount of the Outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration if all
Events of Default, other than the non-payment of accelerated principal (or other
specified amount), have been cured or waived as provided in the Indenture
(Section 5.01). For information as to waiver of defaults, see "-- Modification
and Waiver."
No Holder of a Debt Security of any series will have any right to institute
any proceeding with respect to the Indenture, or for the appointment of a
receiver or a trustee, or for any other remedy thereunder, unless (i) such
Holder has previously given to the Trustee written notice of a continuing Event
of Default with respect to the Debt Securities of that series, (ii) the Holders
of at least 25% in aggregate principal amount of the Outstanding Debt Securities
of that series have made written request, and such Holder or Holders have
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee and (iii) the Trustee has failed to institute such proceeding, and has
not received from the Holders of a majority in aggregate principal amount of the
Outstanding Debt Securities of that series a direction inconsistent with such
request, within 60 days after such notice, request and offer (Section 5.06).
MODIFICATION AND WAIVER
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of not less than a majority in aggregate
principal amount of the Debt Securities then Outstanding of each series affected
by a supplement to the Indenture, to supplement the Indenture or any
supplemental indenture or modify the rights of the Holders of the Debt
Securities of such series, provided, that no such supplement or modification
shall (i) extend the stated maturity or reduce the principal amount of any Debt
Security or any portion thereof, reduce the rate or extend the time of payment
of interest thereon, reduce any amount payable on redemption thereof or change
the currency in which the Debt Security is
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payable, or reduce the amount of an Original Issue Discount Security payable
upon acceleration or the amount provable in bankruptcy, or impair or affect any
Holder's right to institute suit for payment or right of repayment or (ii)
reduce the aforesaid percentage of Debt Securities of any series, in each case
without the consent of the Holders affected thereby (Section 8.02).
The Indenture also contains provisions permitting the Company and the
Trustee to enter into supplemental indentures without the consent of the Holders
of any series of Debt Securities to (i) convey, transfer, assign, mortgage or
pledge to the Trustee as security for the Debt Securities any property or
assets, subject to and in compliance with the terms of the Indenture, (ii)
evidence the succession of another corporation to the Company, subject to and
upon compliance with the provisions of the Indenture, and the assumption by such
successor corporation of the covenants, agreements and obligations in the Debt
Securities and in the Indenture, (iii) evidence and provide for a successor
Trustee under the Indenture with respect to one or more series of Debt
Securities, (iv) add to the covenants of the Company, (v) cure any ambiguity or
correct or supplement any provision in the Indenture that may be defective or
(vi) establish the form or terms of Debt Securities of any series (Section
8.01).
The Holders of a majority in aggregate principal amount of the Debt
Securities of any series at the time Outstanding may, on behalf of the Holders
of all Debt Securities of such series, waive compliance by the Company with
certain restrictive provisions of the Indenture (Section 5.10). The Holders of a
majority in aggregate principal amount of the Debt Securities of any series at
the time Outstanding with respect to which an Event of Default shall have
occurred and be continuing may, on behalf of the Holders of all Debt Securities
of such series, waive any past default or Event of Default under the Indenture
except a default in the payment of principal, premium or interest and certain
covenants and provisions of the Indenture which cannot be amended without the
consent of the Holder of each Outstanding Debt Security of such series affected
(Section 5.10).
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
Outstanding Debt Securities of any series entitled to give or take any
direction, notice, consent, waiver or other action in the Indenture, in the
manner and subject to the limitations provided in the Indenture. In certain
limited circumstances, the Trustee will be entitled to set a record date for
action by the Holders. If a record date is set for any action to be taken by
Holders of a particular series, such action may be taken only by persons who are
Holders of Outstanding Debt Securities of that series on the record date
(Section 7.02).
DEFEASANCE
The Indenture provides that the Company, at its option, (i) will be
discharged from all obligations in respect of the Debt Securities of a series
(except for certain obligations to register the transfer or exchange of Debt
Securities, replace stolen, lost or destroyed Debt Securities, maintain paying
agencies and hold moneys for payment in trust) or (ii) need not comply with
certain restrictive covenants of the Indenture described under "-- Certain
Restrictions on the Company," in each case if the Company irrevocably deposits
in trust with the Trustee money, or the equivalent in securities of the
government which issued the currency in which the Debt Securities of any then
outstanding series are denominated or securities issued by government agencies
backed by the full faith and credit of such government, which through the
payment of interest thereon and principal thereof in accordance with their terms
will provide money in an amount sufficient to pay all of the principal of
(including any mandatory redemption payments), and premium, if any, and
interest, if any, on, and repurchase obligations, if any, with respect to, the
Debt Securities of such series, on the dates such payments are due in accordance
with terms of such Debt Securities. To exercise either option, the Company is
required to deliver to the Trustee an opinion of independent tax counsel (which
may be counsel to the Company) to the effect that the deposit and related
defeasance would not cause the holders of Debt Securities of such series to
recognize income, gain or loss for United States federal income tax purposes. To
exercise the option described in clause (i) above, such opinion must be based on
a ruling of the Internal Revenue Service or a change in law occurring after the
issue date of the Debt Securities of such series (Section 10.01).
CONCERNING THE TRUSTEE
Unless otherwise specified in the applicable Prospectus Supplement, The
Chase Manhattan Bank is the Trustee, paying agent and registrar under the
Indenture.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by the laws of the
State of New York.
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PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through underwriters or dealers
and also may sell Debt Securities directly to other purchasers or through
agents. Any such underwriter or agent involved in the offer and sale of Debt
Securities will be named in an applicable Prospectus Supplement.
Underwriters may offer and sell Debt Securities at a fixed price or prices,
which may be changed, or from time to time at market prices prevailing at the
time of sale, at prices related to such prevailing market prices or at
negotiated prices. The Company may also offer and sell Debt Securities in
exchange for one or more issues of its outstanding debt securities or
exchangeable or convertible debt securities. The Company also may, from time to
time, authorize underwriters acting as the Company's agents to offer and sell
Debt Securities upon the terms and conditions as shall be set forth in any
Prospectus Supplement. In connection with the sale of Debt Securities,
underwriters may be deemed to have received compensation from the Company in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Debt Securities for whom they may act as agent. Underwriters
may sell Debt Securities to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agent.
Any underwriting compensation paid by the Company to underwriters or agents
in connection with the offering of Debt Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be set forth in an applicable Prospectus Supplement. Underwriters, dealers
and agents participating in the distribution of Debt Securities may be deemed to
be underwriters, and any discounts and commissions received by them and any
profit realized by them on resale of Debt Securities may be deemed to be
underwriting discounts and commissions, under the Securities Act. Underwriters,
dealers and agents may be entitled, under agreements entered into with the
Company, to indemnification against or contribution toward certain civil
liabilities, including liabilities under the Securities Act, and to
reimbursement by the Company for certain expenses.
If so indicated in an applicable Prospectus Supplement, the Company will
authorize underwriters or dealers acting as the Company's agents to solicit
offers by certain institutions to purchase Debt Securities from the Company
pursuant to Delayed Delivery Contracts ("Contracts") providing for payment and
delivery on the date or dates stated in such Prospectus Supplement. Each
Contract will be for an amount not less than, and the aggregate principal amount
of Debt Securities sold pursuant to Contracts shall not be less nor more than,
the respective amounts stated in such Prospectus Supplement. Institutions with
which Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions and other institutions, but in all cases will be subject
to approval of the Company. Contracts will not be subject to any conditions
except (i) the purchase by an institution of the Debt Securities covered by its
contracts shall not at the time of delivery thereof be prohibited under the laws
of any jurisdiction in the United States to which such institution is subject
and (ii) if any Debt Securities are being sold to underwriters, the Company
shall have sold to such underwriters the total principal amount of Debt
Securities less the principal amount thereof covered by Contracts. Agents and
underwriters will have no responsibility in respect of the delivery or
performance of Contracts.
All Debt Securities will be a new issue of securities with no established
trading market. Any underwriters or agents to or through whom Debt Securities
are sold by the Company for public offering and sale may make a market in such
Debt Securities, but such underwriters or agents will not be obligated to do so
and may discontinue any market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for any Debt Securities.
Certain of the underwriters or agents and their affiliates may engage in
transactions with, and perform services for, the Company in the ordinary course
of business.
LEGAL MATTERS
The validity of the Debt Securities will be passed upon for the Company by
its special counsel, Davis Polk & Wardwell, New York, New York.
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EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K/A of Science Applications International
Corporation for the year ended January 31, 1997 have been so incorporated in
reliance on the report of Price Waterhouse LLP, independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Bellcore and its subsidiaries as
of December 31, 1996 and for each of the three years in the period ended
December 31, 1996, incorporated by reference in this Prospectus, have been
incorporated herein in reliance on the report of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The financial statements of the TransCore Retirement Savings Plan
incorporated by reference in this Prospectus from the Annual Report on Form
11-K, which was filed as part of the Company's Form 8-K dated June 30, 1997,
have been audited by Beard & Company, Inc., independent auditors, to the extent
and for the periods indicated in their report appearing therein, and are
incorporated in reliance upon such report and upon the authority of such firm as
experts in auditing and accounting.
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