<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: JANUARY 15, 1998
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION)
0-12771 95-3630868
(COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NO.)
10260 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
(619) 546-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
================================================================================
<PAGE> 2
FORM 8-K
ITEM 5. OTHER EVENTS.
As previously reported on Registrant's Current Report on Form 8-K dated
November 26, 1997, on November 14, 1997, Registrant completed its acquisition of
all the issued and outstanding common stock of Bell Communications Research,
Inc. ("Bellcore"), a leading provider of communications software, engineering
and professional services. Pursuant to Rule 3-05 of Regulation S-X, filed
herewith are audited financial statements of Bellcore for the three year period
ended December 31, 1996 and unaudited financial statements for the interim
period ended September 30, 1997. Further, pursuant to Rule 11-01 of Regulation
S-X, filed herewith are pro forma financial information reflecting the
acquisition of Bellcore.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following consolidated financial statements of Bellcore are
filed as part of this report:
PAGE
----
Report of Independent Accountants. Incorporated by reference to
Item 7(a) of Registrant's Current Report on Form 8-K dated July
11, 1997. -
Consolidated Statements of Operations and Retained Earnings
(Deficit) for the years ended December 31, 1996, 1995 and 1994.
Incorporated by reference to Item 7(a) of Registrant's Current
Report on Form 8-K dated July 11, 1997. -
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Incorporated by reference to Item 7(a) of Registrant's Current
Report on Form 8-K dated July 11, 1997. -
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994. Incorporated by reference to
Item 7(a) of Registrant's Current Report on Form 8-K dated July
11, 1997. -
Notes to Consolidated Financial Statements, December 31, 1996,
1995 and 1994. Incorporated by reference to Item 7(a) of
Registrant's Current Report on Form 8-K dated July 11, 1997. -
Unaudited Consolidated Statements of Operations and Retained
Earnings (Deficit) for the nine months ended September 30, 1997
and 1996 F-1
Unaudited Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 F-2
<PAGE> 3
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996. F-3
Notes to Consolidated Financial Statements, September 30, 1997
and 1996. F-4
(b) The following pro forma condensed consolidated financial statements
give effect to the acquisition of Bellcore by the Registrant and are filed with
this report:
PAGE
----
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
October 31, 1997. F-8
Unaudited Pro Forma Condensed Consolidated Statement of Income:
Fiscal year ended January 31, 1997 F-9
Nine months ended October 31, 1997. F-10
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements. F-11
<PAGE> 4
BELLCORE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
For the three months ended For the nine months ended
September 30, September 30,
---------------------------- ----------------------------
(Unaudited, Dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Bell Operating Companies $ 184,420 $ 191,654 $ 533,868 $ 576,091
Third Party 68,461 53,991 208,719 158,955
- -------------------------------------------------------------------------------------------------------------------
Total Revenues 252,881 245,645 742,587 735,046
- -------------------------------------------------------------------------------------------------------------------
Cost of Revenues 171,585 176,132 516,036 541,552
- -------------------------------------------------------------------------------------------------------------------
Gross Profit 81,296 69,513 226,551 193,494
- -------------------------------------------------------------------------------------------------------------------
Operating Expenses
Research & Investment 16,449 10,524 43,948 29,979
Marketing & Sales 34,956 36,409 105,268 98,870
General & Administrative 22,200 24,783 66,945 86,414
- -------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 73,605 71,716 216,161 215,263
- -------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 7,691 (2,203) 10,390 (21,769)
- -------------------------------------------------------------------------------------------------------------------
Interest 517 3,180 3,972 6,810
Other Expense/(Income) (1,359) (611) 749 (1,345)
- -------------------------------------------------------------------------------------------------------------------
Income/(Loss) Before Income Taxes 8,533 (4,772) 5,669 (27,234)
- -------------------------------------------------------------------------------------------------------------------
Provision/(Benefit) for Income Taxes 2,737 (1,741) (1,941) (11,005)
- -------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ 5,796 $ (3,031) $ 7,610 $ (16,229)
- -------------------------------------------------------------------------------------------------------------------
Retained Earnings (Deficit)
Retained Earnings (Deficit), beginning of period (52,079) (54,871) (53,893) (41,673)
Net income (loss) 5,796 (3,031) 7,610 (16,229)
Amount transferred from Additional Paid In
Capital/Common Stock 11,578 6,203 22,940 17,817
Dividends paid (11,578) (6,203) (22,940) (17,817)
- -------------------------------------------------------------------------------------------------------------------
Retained (Deficit), End of Period $ (46,283) $ (57,902) $ (46,283) $ (57,902)
- -------------------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the financial statements.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
F-1
<PAGE> 5
BELLCORE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
September 30, December 31,
(Dollars in thousands) 1997 1996
(Unaudited)
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 22,630 $ 53,504
Accounts Receivable:
Bell Operating Companies 161,602 131,625
Third Party, net of allowance 62,298 84,284
Prepaid Expenses and Other 13,933 7,962
Deferred Income Taxes 13,319 19,791
- ---------------------------------------------------------------------------------------------
Total Current Assets 273,782 297,166
- ---------------------------------------------------------------------------------------------
Property, Plant and Equipment 585,903 651,203
Less Accumulated Depreciation (401,737) (431,805)
- ---------------------------------------------------------------------------------------------
Net Property, Plant and Equipment 184,166 219,398
- ---------------------------------------------------------------------------------------------
Deferred Charges and Other Assets 26,733 25,811
Noncurrent Deferred Income Taxes 32,138 24,351
Income Taxes Receivable 38,485 43,933
- ---------------------------------------------------------------------------------------------
Total Assets $ 555,304 $ 610,659
- ---------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current Liabilities
Short-Term Borrowings $ 2,300 $ 89,000
Accounts Payable 16,016 21,842
Accrued Liabilities:
Wages and Salaries 50,762 52,155
Benefits 32,087 30,867
Bell Operating Companies 27,447 59,718
Other Accrued Liabilities 168,440 82,489
Current Portion of Capital Lease Obligations 2,886 6,504
- ---------------------------------------------------------------------------------------------
Total Current Liabilities 299,938 342,575
- ---------------------------------------------------------------------------------------------
Long-Term Liabilities
Long-Term Capital Lease Obligations 917 2,968
Accrued Pension and Post-Retirement Benefits 96,634 88,790
Other Noncurrent Liabilities 69,965 79,080
- ---------------------------------------------------------------------------------------------
Total Long-Term Liabilities 167,516 170,838
- ---------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note F)
Stockholders' Equity
Common Stock - Seven Shares Authorized Without Par Value 128,199 151,139
Unrealized Gain/Loss on Marketable Equity Securities 5,934 --
Retained Deficit (46,283) (53,893)
- ---------------------------------------------------------------------------------------------
Total Stockholders' Equity 87,850 97,246
- ---------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 555,304 $ 610,659
- ---------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the financial statements.
- ---------------------------------------------------------------------------------------------
</TABLE>
F-2
<PAGE> 6
BELLCORE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
For the nine months ended September 30,
(Unaudited, Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $ 7,610 $ (16,229)
Adjustments to Reconcile Net Income (Loss) to Net Cash
Provided by Operating Activities
Depreciation 56,304 49,908
Deferred Income Taxes (1,315) 29,597
Provision for Doubtful Accounts 7,080 --
Decrease (Increase) in Assets:
Accounts Receivable (15,071) 4,779
Prepaid Expenses and Other (5,971) (2,588)
Deferred Charges and Other Assets 5,012 9,264
Income Taxes Receivable 5,448 --
Increase (Decrease) in Liabilities:
Accounts Payable and Accrued Liabilities 47,681 (35,250)
Accrued Pension and Post-Retirement Benefits 7,844 17,742
Other Noncurrent Liabilities (9,115) (10,178)
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 105,507 47,045
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchase of Property, Plant and Equipment (22,254) (22,879)
Proceeds from Disposals of Property, Plant and
Equipment 2,127 1,329
- ----------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (20,127) (21,550)
- ----------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
(Decrease) Increase in Short-Term Borrowings (86,700) 27,400
Dividends Paid (22,940) (17,817)
Principal Payments on Capital Lease Obligations (6,614) (11,135)
- ----------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities (116,254) (1,552)
- ----------------------------------------------------------------------------------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (30,874) 23,943
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of Period 53,504 24,882
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 22,630 $ 48,825
- ----------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash Paid (Received) During the Period for:
Interest $ 2,591 $ 4,934
Income Taxes $ (3,671) $ 4,150
Supplemental Schedule of Noncash Investing and
Financing Activities
Capital Lease Obligations Incurred for Use of Equipment $ 945 $ 4,847
- ----------------------------------------------------------------------------------------------------------
The accompanying Notes are an integral part of the financial statements.
- ----------------------------------------------------------------------------------------------------------
</TABLE>
F-3
<PAGE> 7
BELLCORE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A) Basis of Presentation
The accompanying financial information has been prepared in accordance with the
instructions to Form 10-Q and therefore does not necessarily include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
In the opinion of management, the unaudited financial information for the nine
month periods ended September 30, 1997 and 1996 reflect all adjustments (which
include only normal, recurring adjustments) necessary for a fair presentation
thereof.
B) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
It is the Company's policy not to enter into derivative financial instruments
for speculative purposes. The Company has entered into foreign currency forward
contracts to protect against foreign currency exchange risks associated with
certain firm and identifiable foreign currency commitments entered into in the
ordinary course of business. At September 30, 1997, the Company had $5,990,286
of foreign currency forward exchange contracts in Australian dollars, with net
unrealized gains of $841,875. These contracts were executed for terms of one
year or less.
C) SEGREGATED CASH
The Company provides toll-free services operations through one of its
subsidiaries as the agent of the Bell Operating Companies. The Company has
recorded cash collections in excess of costs incurred to provide toll-free
services operations as a liability to the Bell Operating Companies. At September
30, 1997 the liability amounted to $27.4 million. As a result, $19.0 million of
the reported cash and cash equivalents of $22.6 million is segregated from
general corporate purposes and is maintained on behalf of the Bell Operating
Companies.
D) SHORT-TERM BORROWINGS AND CREDIT AGREEMENTS
F-4
<PAGE> 8
BELLCORE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company has a $250.0 million, unsecured revolving credit loan agreement with
five banks which allow borrowings on a revolving basis until June 2001. The
agreement enables borrowings at various interest rates based on certificate of
deposit, eurodollar, or interbank offshore borrowing rates. Annual facility fees
are .09% of the total commitment during the revolving credit term. At September
30, 1997, there were no loans outstanding under the revolving credit agreement.
E) INCOME TAXES
Income taxes for interim periods are computed using the estimated annual
effective rate method.
F) COMMITMENTS AND CONTINGENCIES
Bellcore is involved in various legal proceedings which are related to the
conduct of its business. The Company has established a reserve which it believes
is adequate and believes that the ultimate resolution of such pending litigation
will not have a material adverse effect on the Company's results of operations
or its financial position.
F-5
<PAGE> 9
ITEM 7 (B) Pro Forma Financial Information
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On November 14, 1997, Science Applications International Corporation
("SAIC" or "the Company") completed its acquisition to acquire all of the
outstanding common stock of Bell Communications Research, Inc. ("Bellcore"), a
leading provider of communications software, engineering and professional
services, advanced research and development, technical training and other
services to the telecommunications industry. Bellcore was previously owned by
the Regional Bell Operating Companies and is primarily located in New Jersey. As
of December 31, 1996, Bellcore had approximately 5,500 employees and annual
revenues of approximately $1 billion.
Upon closing, Bellcore became a wholly-owned subsidiary of SAIC.
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 interim period
ended September 30, 1997 have been included in the Company's January 31, 1997
and October 31, 1997 proforma condensed consolidated financial statements,
respectively.
The unaudited pro forma condensed consolidated balance sheet is based
on the individual balance sheets of Bellcore, appearing elsewhere in this form
8-K, and the Company, and 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 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
F-6
<PAGE> 10
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 consolidated financial statements, including notes
thereto, of the Company in its Quarterly Report on Form 10-Q for the quarterly
period ended October 31, 1997 and of Bellcore contained in this filing on Form
8-K. These unaudited pro forma condensed consolidated financial statements are
shown for illustrative purposes only and are not necessarily indicative of the
results of operations or financial position of the consolidated company that
might have occurred had the Bellcore acquisition been completed at the beginning
of the periods specified, nor are they necessarily indicative of future
operating results or financial position.
F-7
<PAGE> 11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-----------------------------------------------------------------
SAIC BELLCORE PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(NOTE 1)
----------- ----------- ----------- -----------
<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
=========== =========== =========== ===========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
</TABLE>
F-8
<PAGE> 12
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1997
-----------------------------------------------------------------
SAIC BELLCORE PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(NOTE 1)
-----------------------------------------------------------------
<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) 505,450
(5,518)(i)
6,598 (k)
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 $ - $ .42
=========== =========== ===========
Average number of shares outstanding, including
common stock equivalent ............................ 52,309 52,309
=========== ===========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
</TABLE>
F-9
<PAGE> 13
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31, 1997
-----------------------------------------------------------------
SAIC BELLCORE PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
(NOTE 1)
-----------------------------------------------------------------
<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
(3,222)(i)
4,949 (k)
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 $ - $ .73
=========== =========== ===========
Average number of shares outstanding, including
common stock equivalents .......................... 54,474 54,474
=========== ===========
See accompanying notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
</TABLE>
F-10
<PAGE> 14
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
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 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>
<CAPTION>
<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 upon closing 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.
F-11
<PAGE> 15
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(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.
(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 intangibles 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 preliminary purchase
price allocation per the valuation which is in process and not completed.
(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.
F-12
<PAGE> 16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
(Registrant) SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
Date: January 15, 1998 By: /s/ W. A. Roper
--------------------------------
W. A. Roper
Senior Vice President
and Chief Financial Officer
