<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).
FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD
FROM ____________ TO ____________ .
COMMISSION FILE NUMBER: 0-12771
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-3630868
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10260 CAMPUS POINT DRIVE, SAN DIEGO, 92121
CALIFORNIA
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 826-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 31, 2000, the aggregate market value of the voting stock held by
non-affiliates of Registrant was $3,264,523,068. For the purpose of this
calculation, it is assumed that the Registrant's affiliates include the
Registrant's Board of Directors and certain of the employee benefit plans of the
Registrant and its subsidiaries. The Registrant disclaims the existence of any
control relationship between it and such employee benefit plans.
As of March 31, 2000, there were 238,626,267 shares of Registrant's Class A
Common Stock and 293,614 shares of Registrant's Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the Company's 2000
Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K Report.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
THE COMPANY
Science Applications International Corporation (the "Company") primarily
provides diversified professional and technical services involving the
application of scientific expertise, together with computer and systems
technology, to solve complex technical problems for a broad range of government
and commercial customers, both in the U.S. and abroad. Technical services
consist of basic and applied research services; design and development of
computer software; systems integration; systems engineering; technical
operational and management support services; environmental engineering; design
and integration of network systems; technical engineering and consulting support
services; and development of systems, policies, concepts and programs. In
addition to providing technical services, the Company designs and develops
high-technology products. These products include customized and standard
hardware and software, such as automatic equipment identification technology,
sensors and nondestructive imaging instruments.
Through its subsidiary, Telcordia Technologies, Inc. (formerly Bell
Communications Research, Inc.) ("Telcordia"), the Company is a global provider
of software, engineering and consulting services, advanced research and
development, technical training and other services to the telecommunications
industry.
The Company provides technical services primarily in the vertical market
areas of "National Security," "Health Care," "Environment," "Energy,"
"Telecommunications," "Information Technology" and a group of general market
categories hereinafter referred to as "Other," which includes the Company's
transportation, logistics, space and utilities business areas and information
technology support to federal civil agencies. The Company's operating groups
("Groups") are divided into two segments, Regulated and Non-Regulated, depending
on the business processes and laws affecting the operations of the Groups. While
the Regulated and Non-Regulated segments represent the management approach for
making decisions and assessing performance, the Company's decentralized
marketing approach focuses on its key vertical markets. Marketing decisions
based on vertical markets are typically made at the lowest operational level.
Groups in the Regulated segment provide technical services and products
through contractual arrangements as either a prime contractor or a subcontractor
to other contractors, primarily for departments and agencies of the U.S.
Government, including the Department of Defense, Department of Energy,
Department of Health and Human Services, Department of Justice, Department of
Transportation, Department of Treasury, Department of Veterans Affairs,
Environmental Protection Agency and National Aeronautics and Space
Administration. Operations in the Regulated segment are subject to specific
regulatory accounting and contracting guidelines such as "Cost Accounting
Standards" and "Federal Acquisition Regulations." The Regulated segment includes
business from all of the Company's vertical market areas. The percentage of
revenues attributable to the Regulated segment for fiscal years 2000, 1999 and
1998 were 59%, 58% and 74%, respectively.
Groups in the Non-Regulated segment provide technical services and products
primarily to customers in commercial markets. Generally, operations in the
Non-Regulated segment are not subject to specific regulatory accounting or
contracting guidelines. The Non-Regulated segment includes business from all of
the Company's vertical market areas except for National Security and Space
(which is part of the "Other" vertical market). The percentage of revenues
attributable to the Non-Regulated segment for fiscal years 2000, 1999 and 1998
were 40%, 42% and 25%, respectively. For certain other financial information
regarding the Company's reportable segments and geographic areas, see Note C of
the Notes to Consolidated Financial Statements of the Company on page F-14 of
this Form 10-K.
The Company holds its equity investment interests in publicly traded and
private emerging technology companies in a newly formed wholly-owned subsidiary
called SAIC Venture Capital Corporation ("SAIC Venture Capital"). On February
11, 2000, SAIC Venture Capital sold 6,700,000 shares of Class A Common Stock of
Network Solutions, Inc. ("NSI") in a secondary public offering. Prior to the
secondary offering, SAIC Venture Capital had approximately a 44.7% ownership
interest in NSI. On March 10, 2000, NSI
2
<PAGE> 3
completed a 2-for-1 stock split. Subsequent to the stock split and the sale,
SAIC Venture Capital currently owns 16,300,000 shares of NSI's Class A Common
Stock, which represents approximately 22.6% of the outstanding stock of NSI. NSI
provides Internet domain name registration services and Intranet consulting and
network design and implementation services. On March 6, 2000, NSI entered into a
merger agreement with VeriSign, Inc. ("VeriSign"), a publicly traded company and
leading provider of Internet trust services, pursuant to which VeriSign would
acquire NSI and NSI would become a wholly-owned subsidiary of VeriSign. Under
the merger agreement, VeriSign will issue 1.075 shares of VeriSign common stock
for each share of NSI stock (after giving effect to the 2-for-1 split of NSI
common stock completed on March 10, 2000). This merger would result in the
Company holding approximately 9% of VeriSign's outstanding shares. The
transaction is expected to close in the third quarter of calendar 2000, subject
to obtaining the approval of the stockholders of VeriSign and NSI and necessary
regulatory approvals.
The Company holds 60% of the common stock of a joint venture, Informatica,
Negocios y Tecnologia, S.A. ("INTESA"), which was formed with Venezuela's
national oil company, Petroleos de Venezuela, S.A. INTESA provides information
technology services in Latin America.
The Company was originally incorporated as a California corporation in 1969
and was re-incorporated as a Delaware corporation in 1984. The principal office
and corporate headquarters of the Company are located in San Diego, California
at 10260 Campus Point Drive, San Diego, California 92121 and its telephone
number is (858) 826-6000. All references to the Company include, unless the
context indicates otherwise, its predecessor and subsidiary corporations.
TECHNICAL SERVICES
The Company provides technical services to its customers in the vertical
market areas listed below. Technical services are sold to government and
commercial customers in both the Regulated and Non-Regulated segments, except
that technical services in the National Security and Space vertical markets are
provided to government customers and reported only in the Regulated segment.
National Security
The Company provides a wide array of national security-related technical
services to its government customers only in the Regulated segment. Such
services include advanced research and technology development, systems
engineering and systems integration and technical, operational and management
support services.
Health
The Company provides health-related technical services, including medical
information systems, technology development and research support services.
Environment
In the environmental area, the Company performs site assessments, remedial
investigations and feasibility studies, remedial actions, technology
evaluations, sampling, monitoring and regulatory compliance support and
training.
Energy
The Company provides energy-related technical services including safety
evaluations, security, reliability and availability engineering evaluations,
technical reviews, quality assurance, information systems, plant monitoring
systems and project management.
3
<PAGE> 4
Telecommunications
In the telecommunications area, the Company provides interoperable network
design and implementation, new software and enhancements of existing software
for network management and operation, consulting and engineering services and
telecommunications software.
Information Technology
The information technology-related technical services of the Company
include information technology outsourcing services, information protection and
electronic business security services, Intranet consulting and network design
services.
Other Technical Services
The Company provides technical services in transportation, space, and
security systems management, including advanced traffic and intermodal freight
management, material control and computer and information security, engineering
support for NASA's Space Shuttle and Space Station programs, and undersea data
collection, transmission and analysis systems and services. The Company also
provides technical services to law enforcement agencies and educational
organizations.
RESOURCES
The technical services and products provided by the Company to government
and commercial customers in both the Regulated and Non-Regulated segments
utilize a wide variety of resources. A substantial portion of the computers and
other equipment, materials and subcontracted work required by the Company can be
procured from more than one supplier. However, with respect to certain products
and programs, the Company depends on a particular source or vendor. While a
temporary or permanent disruption in the supply of these materials or services
could cause inconvenience or delay or impact the profitability of any affected
program or product, the Company believes it would not have a material adverse
effect on the financial condition or operations of the Company as a whole.
The availability of skilled employees who have the necessary education
and/or experience in specialized scientific and technological disciplines
remains critical to the future growth and profitability of the Company.
Competition for personnel in the commercial information technology area of the
Non-Regulated segment is intense. Because of the Company's growth and the
competition for experienced personnel, it has become more difficult to meet all
of the Company's needs for such employees in a timely manner. However, such
difficulties have not had a significant impact on the Company to date. The
Company intends to continue to devote significant resources to recruit and
retain qualified employees. Further, as an inducement, the Company maintains a
variety of benefit programs for its employees, including retirement and bonus
plans, group life, health, accident and disability insurance as well as the
opportunity to participate in the Company's employee ownership program. See
"Business -- Employees And Consultants" and "Market for Registrant's Common
Equity and Related Stockholder Matters -- The Limited Market."
MARKETING
The Company's marketing activities in both the Regulated and Non-Regulated
segments are focused on its key vertical markets and are primarily conducted by
its own professional staff of engineers, scientists, analysts and other
personnel. The Company's marketing approach for its technical services begins
with the development of information concerning the requirements of its
government, commercial and other potential customers for the types of technical
services provided by the Company. Such information is gathered in the course of
contract performance, reviewing requests for competitive bids, formal briefings,
participation in professional organizations and published literature. This
information is then evaluated and exchanged among marketing groups within the
Company (organized along functional, geographic and other lines) in order to
devise and implement, subject to management review and approval, the best means
of taking advantage of available business opportunities, including the
preparation of proposals responsive to the stated and perceived
4
<PAGE> 5
needs of customers. The Company's products may be marketed with the assistance
of independent sales representatives.
COMPETITION
The businesses in which the Company is engaged are highly competitive,
particularly in the business areas of telecommunications and information
technology outsourcing in the Non-Regulated segment. The Company has a large
number of competitors, some of which have been established longer and have
substantially greater financial resources and larger technical staffs than the
Company. Some of the other competitors, although smaller in size, are more
highly specialized and able to concentrate their resources on particular areas.
In addition, with respect to the Regulated segment, the U.S. Government's own
in-house capabilities and federal non-profit contract research centers also
compete with the Company because they perform certain types of services which
might otherwise be performed by the Company.
The Company competes on the basis of technical expertise, management and
marketing abilities and price. The Company's continued success is dependent upon
its ability to hire and retain highly qualified scientists, engineers,
technicians, management and professional personnel who will provide superior
service and performance on a cost-effective basis.
SIGNIFICANT CUSTOMERS
During fiscal years 2000, 1999 and 1998, approximately 52%, 50% and 66%,
respectively, of the Company's consolidated revenues were attributable to prime
contracts (as more fully described below) with the U.S. Government, a
significant customer in the Regulated segment, or to subcontracts with other
contractors engaged in work for the U.S. Government.
No single customer or contract in the Non-Regulated segment accounted for
10% or more of consolidated revenues in fiscal years 2000, 1999 or 1998.
GOVERNMENT CONTRACTS
The U.S. Government is the Company's primary customer in the Regulated
segment. Many of the U.S. Government programs in which the Company participates
as a contractor or subcontractor may extend for several years; however, such
programs are normally funded on an annual basis. All U.S. Government contracts
and subcontracts may be modified, curtailed or terminated at the convenience of
the government if program requirements or budgetary constraints change. In the
event that a contract is terminated for convenience, the Company generally is
reimbursed for its allowable costs through the date of termination and is paid a
proportionate amount of the stipulated profit or fee attributable to the work
actually performed.
Although contract and program modifications, curtailments or terminations
have not had a material adverse effect on the Company in the past, no assurance
can be given that such modifications, curtailments or terminations will not have
a material adverse effect on the financial condition or results of operations of
the Company in the future.
The Company's business with the U.S. Government and other customers is
generally performed under cost-reimbursement, time-and-materials, fixed-price
level-of-effort or firm fixed-price contracts. Under cost-reimbursement
contracts, the customers reimburse the Company for its direct costs and
allocable indirect costs, plus a fixed fee or incentive fee. Under
time-and-materials contracts, the Company is paid for labor hours at negotiated,
fixed hourly rates and reimbursed for other allowable direct costs at actual
costs plus allocable indirect costs. Under fixed-price level-of-effort
contracts, the customer pays the Company for the actual labor hours provided to
the customer at negotiated hourly rates up to a fixed ceiling. Under firm fixed-
price contracts, the Company is required to provide stipulated products or
services for a fixed price. Because the Company assumes the risk of performing a
firm fixed-price contract at a set price, the failure to accurately estimate
ultimate costs or to control costs during the contract performance could result,
and in some instances has resulted, in reduced profits or losses for particular
contracts.
5
<PAGE> 6
During fiscal years 2000, 1999 and 1998, approximately 55%, 60% and 63%,
respectively, of the Regulated segment revenues were derived from
cost-reimbursement contracts and approximately 15%, 15% and 18%, respectively,
of the Regulated segment revenues were from firm fixed-price contracts, with the
balance from time-and-materials and fixed-price level of effort contracts.
Any costs incurred by the Company prior to the execution of a contract or
contract amendment are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the customer. Unbilled receivables in this
category that were included in the Regulated segment revenues, exclusive of
related fees, at January 31, 2000 and 1999 were $25,743,000 and $18,863,000,
respectively. The Company expects to recover substantially all such costs;
however, no assurance can be given that the contracts or contract amendments
will be executed or that the related costs will be recovered.
Contract costs for services or products supplied to the U.S. Government,
including allocated indirect costs, are subject to audit and adjustments as a
result of negotiations between the Company and U.S. Government representatives.
Substantially all of the Company's indirect contract costs have been agreed upon
through fiscal year 1999. Contract revenues for subsequent years have been
recorded in amounts which are expected to be realized upon final settlement with
the U.S. Government. However, no assurance can be given that audits and
adjustments for subsequent years will not result in decreased revenues or
profits for those years.
PATENTS AND PROPRIETARY INFORMATION
Other than the business and operations of Telcordia described below, the
nature of the technical services and products provided by the Company is such
that the Company does not presently consider its competitive position to be
dependent upon patent protection. The Company claims a proprietary interest in
certain of its products, software programs, methodology and know-how. Such
proprietary information is protected by copyrights, trade secrets, licenses,
contracts and other means.
Telcordia's patent portfolio consists of more than 1,000 U.S. and foreign
patents. More than 200 of these patents have been licensed to organizations
worldwide. Telcordia 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. The Company and Telcordia actively pursue opportunities to license
their technologies to third parties and evaluate potential spin-offs of
technologies that they have developed.
In connection with the performance of services for customers in the
Regulated segment, the U.S. Government has certain rights to data, computer
codes and related material developed by the Company under U.S. Government-funded
contracts and subcontracts. Generally, the U.S. Government may disclose such
information to third parties, including, in some instances, competitors. In the
case of subcontracts, the prime contractor may also have certain rights to the
programs and products developed by the Company under the subcontract.
BACKLOG
Backlog includes only the funded dollar amount of contracts in process and
does not include the dollar amount of projects for which the Company has been
given permission by the customer (i) to begin work but for which a formal
contract has not yet been entered into or (ii) to extend work under an existing
contract prior to the formal amendment or modification of the existing contract.
In these cases, either contract negotiations have not been completed or a
contract or contract amendment has not been executed. When a contract or
contract amendment is executed, the backlog will be increased by the difference
between the dollar value of the contract or contract amendment and the revenue
recognized to date.
The backlog for the Regulated segment at January 31, 2000 and 1999 was
approximately $1,742,000,000 and $1,663,000,000, respectively, and the backlog
for the Non-Regulated segment at those dates was approximately $1,601,000,000
and $1,278,000,000, respectively. The Company expects that a substantial
6
<PAGE> 7
portion of its backlog at January 31, 2000 will be recognized as revenues prior
to January 31, 2001. Some contracts associated with the backlog are
incrementally funded and may continue for more than one year.
EMPLOYEES AND CONSULTANTS
As of January 24, 2000, the Company and its subsidiaries employed
approximately 39,078 persons. The Company also utilizes the services of
consultants to provide specialized technical and other services on specific
projects. To date, no strikes or work stoppages have been experienced and the
Company considers its relations with its employees to be good.
The highly technical and complex services and products provided by the
Company are dependent upon the availability of professional, administrative and
technical personnel having high levels of training and skills. Competition for
personnel in the commercial information technology area of the Non-Regulated
Segment is intense. Because of the Company's growth and competition for
experienced personnel, it has become more difficult to meet all of the Company's
needs for such employees in a timely manner. However, such difficulties have not
had a significant impact on the Company to date. The Company intends to continue
to devote significant resources to recruit and retain qualified employees.
Management believes that the Company's employee ownership programs and
philosophy are major factors in the Company's ability to attract and retain
qualified personnel.
7
<PAGE> 8
RISK FACTORS
You should carefully consider the risks and uncertainties described below
in your evaluation of us and our business. These are not the only risks and
uncertainties that we face. If any of these risks or uncertainties actually
occur, our business, financial condition or operating results could be
materially harmed and the price of our common stock could decline. All
references to "we," "us," or "our" in this section include the Company and its
subsidiaries.
RISKS RELATING TO OUR BUSINESS
A SUBSTANTIAL PERCENTAGE OF OUR REVENUE IS FROM U.S. GOVERNMENT CUSTOMERS AND
THE REGIONAL BELL OPERATING COMPANIES
We derive a substantial portion of our revenues from the U.S. Government in
our capacity as a prime contractor or a subcontractor. The percentage of total
revenues from the U.S. Government was 52% in fiscal year 2000, 50% in fiscal
year 1999 and 66% in fiscal year 1998. Our revenues could be adversely impacted
by a reduction in the overall level of U.S. Government spending and by changes
in its spending priorities from year to year. Furthermore, even if the overall
level of U.S. Government spending does increase or remains stable, the budgets
of the government agencies with whom we do business may be deceased or our
projects with them may not be sufficiently funded, particularly because Congress
usually appropriates funds for a given project on a fiscal-year basis even
though contract performance may take more than one year. In addition, obtaining
U.S. Government contracts continues to be competitive as our revenue growth
shifts toward contracts with lower reimbursable costs.
Telcordia has historically derived a majority of its revenues from the
regional Bell operating companies, which we call "RBOCs". The percentage of
total Telcordia revenues from the RBOCs was 53% in fiscal year 2000 and 62% in
fiscal year 1999. In order for Telcordia to maintain or exceed historical growth
rates, it will need to continue to increase its market share from the RBOCs
and/or diversify its business by obtaining new customers. Loss of business from
the RBOCs could reduce revenues.
We have made progress in our efforts to diversify our business across a
greater number of customers. However, we still remain heavily dependent upon the
U.S. Government as our primary customer in our Regulated segment and the RBOCs
are a major source of Telcordia revenues. Our future success and revenue growth
will depend in part upon our ability to continue to expand our customer base.
WE MAY NOT BE ABLE TO IMPLEMENT OUR ACQUISITION STRATEGY
We have historically supplemented our internal growth through acquisitions,
investments or joint ventures. We evaluate potential acquisitions, investments
and joint ventures on an ongoing basis. Our acquisition and investment strategy
poses many risks, including:
- We may not be able to compete successfully for available acquisition
candidates, complete future acquisitions and investments or accurately
estimate their financial effect on our business
- Future acquisitions, investments and joint ventures may require us to
issue additional common stock, spend significant cash amounts or decrease
our operating income
- We may have trouble integrating the acquired business and retaining their
personnel
- Acquisitions, investments or joint ventures may disrupt our business and
distract our management from other responsibilities
- To the extent that any of the businesses which we acquire or in which we
invest fail, our business could be harmed
WE MAY SUFFER ADVERSE CONSEQUENCES IF WE ARE DEEMED TO BE AN INVESTMENT COMPANY
We believe that we are actively engaged in the business of providing
professional and technical scientific services, together with computer and
systems technology, to our customers. However, as a result of recent
8
<PAGE> 9
investments by our wholly-owned subsidiary, SAIC Venture Capital Corporation,
and the sale of our NSI stock, we may be deemed to be an investment company in
the future. Investment companies are subject to registration under, and must
operate in compliance with, the Investment Company Act of 1940 unless a
particular exclusion or exemption applies. Although we currently are not
required to register under this Act, fluctuations in the value of our
investments or of our other assets may subject us to registration. As a result,
we may be required to take various precautionary steps to avoid registration,
including the disposition or acquisition of certain assets, which might not
otherwise be taken. It would not be feasible for us to be regulated as an
investment company because the Investment Company Act rules are inconsistent
with our business strategy.
WE FACE INCREASING RISKS ASSOCIATED WITH OUR GROWING INTERNATIONAL BUSINESS
Our revenues from customers outside the U.S. are expected to continue to
increase in the future. Consequently, we are increasingly subject to the risks
of conducting business internationally. These risks include:
- unexpected changes in regulatory requirements
- tariffs
- political and economic instability
- restrictive trade policies
- inconsistent product regulation
- cost of complying with a variety of laws
- licensing requirements
We do not know the impact that such regulatory, geopolitical and other
factors may have on our business in the future.
We have transactions denominated in foreign currencies because some of our
business is conducted outside of the United States. In addition, our foreign
subsidiaries generally conduct business in foreign currencies. We are exposed to
fluctuations in exchange rates, which could result in losses and have a
significant impact on our results of operations. This risk may be significant
for entities such as INTESA, a Venezuelan joint venture in which we own 60%,
that operate in a highly inflationary economy. Our risks include the possibility
of significant changes in exchange rates and the imposition or modification of
foreign exchange controls by either the U.S. or applicable foreign governments.
We have no control over the factors that generally affect these risks, such as
economic, financial and political events and the supply and demand for the
applicable currencies. We may use forward foreign currency exchange rate
contracts to hedge against movements in exchange rates for contracts denominated
in foreign currencies. We cannot assure you that a significant fluctuation in
exchange rates will not have a significant negative impact on our results of
operations.
DEPENDENCE UPON SERVICES OF DR. BEYSTER AND OTHER KEY PERSONNEL
Our success to date has been a result of the contributions of our founder
and chief executive officer, J.R. Beyster (age 75), and, to a lesser extent, our
other executive officers. Dr. Beyster and these executive officers are expected
to continue to make important contributions to the Company's success. The loss
of any of these key personnel could materially affect our operations. We
generally do not have long-term employment contracts with these key personnel
nor do we maintain "key person" life insurance policies.
WE FACE RISKS RELATING TO GOVERNMENT CONTRACTS
The Government may Modify, Curtail or Terminate our Contracts. Many of the
U.S. Government programs in which we participate as a contractor or
subcontractor may extend for several years; however, such programs are normally
funded on an annual basis. The U.S. Government may modify, curtail or terminate
its
9
<PAGE> 10
contracts and subcontracts at its convenience. Modification, curtailment or
termination of our major programs or contracts could have a material adverse
effect on our results of operations and financial condition.
Our Business is Subject to Potential Government Inquiries and
Investigations. We are from time to time subject to certain U.S. Government
inquiries and investigations of our business practices due to our participation
in government contracts. We cannot assure you that any such inquiry or
investigation would not have a material adverse effect on our results of
operations and financial condition.
Our Contract Costs are Subject to Audits by Government Agencies. The costs
we incur on our U.S. Government contracts, including allocated indirect costs,
may be audited by U.S. Government representatives. These audits may result in
adjustments to our contract costs. We normally negotiate with the U.S.
Government representatives before settling on final adjustments to our contract
costs. Substantially all of our indirect contract costs have been agreed upon
through fiscal year 1999. We have recorded contract revenues in fiscal year 2000
based upon costs we expect to realize upon final audit. However, we do not know
the outcome of any future audits and adjustments and we may be required to
reduce our revenues or profits upon completion and final negotiation of these
audits.
FAILURE TO CONTROL FIXED-PRICE CONTRACTS MAY RESULT IN REDUCED PROFITS OR LOSSES
The percentage of our Regulated segment revenues from firm fixed-price
contracts was 15% for fiscal year 2000, 15% for fiscal year 1999 and 18% for
fiscal year 1998. The percentage of our Non-Regulated segment revenues from firm
fixed-price contracts was 77% for fiscal year 2000, 71% for fiscal year 1999 and
73% for fiscal year 1998. Because we assume the risk of performing a firm
fixed-price contract at a set price, the failure to accurately estimate ultimate
costs or to control costs during performance of the work could result, and in
some instances has resulted, in reduced profits or losses for such contracts.
PRE-CONTRACT COSTS MAY NOT BE RECOVERED
Any costs we incur before the execution of a contract or contract amendment
are incurred at our risk, and it is possible that the customer will not
reimburse us for such costs. At January 31, 2000, we had unbilled receivables of
$25,743,000 included in the Regulated segment revenues and $912,000 included in
the Non-Regulated segment revenues, exclusive of related fees for such
pre-contract costs. We cannot assure you that contracts or contract amendments
will be executed or that the related costs will be recovered.
RISKS RELATING TO OUR INDUSTRY
WE MUST ATTRACT, TRAIN AND RETAIN SKILLED EMPLOYEES
The availability of highly trained and skilled professional, administrative
and technical personnel is critical to our future growth and profitability.
Competition for scientists, engineers, technicians, management and professional
personnel is intense and competitors aggressively recruit key employees. Because
of our growth and competition for experienced personnel, it has become more
difficult to meet all of our needs for such employees in a timely manner. We
intend to continue to devote significant resources to recruit, train and retain
qualified employees; however, we cannot assure you that we will be able to
attract and retain such employees on acceptable terms. Any failure to do so
could have a material adverse effect on our operations.
OUR FAILURE TO REMAIN COMPETITIVE COULD HARM OUR BUSINESS
Our business is highly competitive, particularly in the business areas of
telecommunications and information technology outsourcing in our Non-Regulated
segment. We compete with larger companies that have greater financial resources
and larger technical staffs. We also compete with smaller, more specialized
entities who are able to concentrate their resources on particular areas. In the
Regulated segment, we also compete with the U.S. Government's own in-house
capabilities and federal non-profit contract research centers. To continue our
success, we must provide superior service and performance on a cost-effective
basis.
10
<PAGE> 11
RISKS RELATING TO OUR STOCK
NO PUBLIC MARKET EXISTS FOR OUR STOCK AND STOCKHOLDERS' ABILITY TO SELL OUR
STOCK IS LIMITED
There is no public market for the Class A common stock. The limited market
maintained by our wholly-owned broker-dealer subsidiary, Bull, Inc., permits
existing stockholders to offer our stock for sale only on predetermined trade
dates. Generally, there are four trade dates each year. If there are
insufficient buyers for the stock on any trade date, our stockholders may not be
able to sell stock on the trade date. We are authorized but not obligated to
purchase shares of Class A common stock in the limited market on any trade date,
and, accordingly, our stockholders may be unable to sell all the shares they
desire to sell.
OUR STOCK PRICE IS DETERMINED BY OUR BOARD OF DIRECTORS AND IS NOT ESTABLISHED
BY MARKET FORCES
Our stock price is not determined by a trading market of bargaining buyers
and sellers. Our board of directors determines the price at which the Class A
common stock trades by using the valuation process described under "Price Range
of Class A Common Stock and Class B Common Stock." Our board of directors
believes the stock price represents a fair market value; however, we cannot
assure you that the stock price represents the value that would be obtained if
our stock was publicly traded. The formula referred to on page 17, which is one
part of the valuation process, does not specifically include variables
reflecting all financial and valuation criteria that may be relevant. In
addition, our board of directors generally has broad discretion to modify the
formula. Absent changes in the market factor used in the formula, which may
change considerably from quarter to quarter as appropriate to reflect changing
business, financial and market conditions, the mechanical application of the
formula tends to reduce the impact of quarterly fluctuations in our operating
results on the stock price because the formula takes into account our net income
for the four preceding quarters.
FUTURE RETURNS ON OUR COMMON STOCK MAY DIFFER SIGNIFICANTLY FROM HISTORICAL
RETURNS
We cannot assure you that the Class A common stock will provide returns in
the future comparable to those achieved historically or that the price will not
decline.
CHANGES IN OUR BUSINESS MAY INCREASE THE VOLATILITY OF THE STOCK PRICE
The stock price could be subject to greater fluctuations than it has
experienced in the past. The increased volatility is expected to result from the
impact on our stock price of:
- our ownership interest in publicly traded companies. As our ownership of
securities of publicly traded companies continues to increase, our stock
price will be affected by the volatility of the price of those companies'
shares
- the increase of our commercial and international business as a proportion
of our overall business and the greater volatility associated with
companies in those business areas
- the impact of acquisitions, investments and joint ventures that we may
pursue in the future
Finally, the market factor used in the formula may change considerably from
quarter to quarter, as appropriate, to reflect changing business, financial and
market conditions.
THE ABILITY OF A STOCKHOLDER TO SELL OR TRANSFER OUR COMMON STOCK IS RESTRICTED
Our certificate of incorporation limits our stockholders' ability to sell
or transfer shares of Class A common stock in some circumstances. These
restrictions include:
- our right of first refusal to purchase shares a stockholder offers to
sell to a third party other than in our limited market
- our right to repurchase shares upon the termination of a stockholder's
employment or affiliation with us
11
<PAGE> 12
The repurchase restriction does not apply to employees who qualify for the
Company's Alumni Program and who elect to have us defer our repurchase rights
for five years.
RESTRICTIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS MAY DISCOURAGE
TAKEOVER ATTEMPTS THAT YOU MIGHT FIND ATTRACTIVE
Our certificate of incorporation and bylaws may discourage or prevent
attempts to acquire control of us that are not approved by our board of
directors, including transactions in which stockholders might receive a premium
for their shares above the stock price. Our stockholders may view such a
takeover attempt favorably. In addition, the restrictions may make it more
difficult for our stockholders to elect directors not endorsed by the Company.
FORWARD-LOOKING STATEMENT RISKS
YOU MAY NOT BE ABLE TO RELY ON FORWARD-LOOKING STATEMENTS
The information contained in this report or in documents that we
incorporate by reference includes some forward-looking statements that involve a
number of risks and uncertainties. A number of factors could cause our actual
results, performance, achievements, or industry results to be very different
from the results, performance or achievements expressed or implied by these
forward-looking statements.
In addition, forward-looking statements depend upon assumptions, estimates
and dates that may not be correct or precise and involve known or unknown risks,
uncertainties and other factors. Accordingly, a forward-looking statement in
this report is not a prediction of future events or circumstances and those
future events or circumstances may not occur. Given these uncertainties, you are
warned not to rely on the forward-looking statements. A forward-looking
statement is usually identified by our use of certain terminology including
"believes," "expects," "may," "will," "should," "seeks," "pro forma,"
"anticipates" or "intends," or by discussions of strategies or intentions. We
are not undertaking any obligation to update these factors or to publicly
announce the results of any changes to our forward-looking statements due to
future events or developments.
ITEM 2. PROPERTIES
As of March 31, 2000, the Company conducted its operations in more than 400
offices located in 42 states, the District of Columbia and various foreign
countries and occupied a total of approximately 10,400,000 square feet of space.
The Company has significant locations in the San Diego, California, Washington,
D.C. and Piscataway, New Jersey metropolitan areas and occupies over 1,000,000
square feet of space in the San Diego, California and Piscataway, New Jersey
locations and over 2,700,000 square feet of space in the Washington, D.C. area.
At the primary location of the Company in San Diego, California, the
Company owns and occupies seven buildings totaling approximately 677,000 square
feet of space situated on 22.2 acres of land in the Golden Triangle area.
At the Company's McLean, Virginia location, the Company owns and occupies a
287,000 square foot building located on 10 acres of land and leases buildings
containing a total of approximately 600,000 square feet of space. The Company
has certain rights to purchase these leased buildings. The Company also owns and
occupies three buildings totaling approximately 330,000 square feet of space on
33.74 acres of land in Vienna, Virginia and a 62,000 square foot building on 2.6
acres of land in Reston, Virginia.
In the Chester, Piscataway and Red Bank, New Jersey areas, the Company owns
and occupies 13 buildings totaling approximately 725,000 square feet of space
situated on 206 acres of land. The Company also owns an additional 28 acres of
vacant land in Piscataway, New Jersey.
The Company also owns and occupies (a) a 62,500 square foot building on
approximately 13 acres of land in Virginia Beach, Virginia, (b) an 83,000 square
foot building on approximately 8.4 acres of land in Oak Ridge, Tennessee, (c)
two buildings totaling 79,400 square feet on 4.5 acres in Dayton, Ohio, (d) a
12
<PAGE> 13
100,000 square foot building on 18 acres in Huntsville, Alabama, (e) a 95,500
square foot building on approximately 7.3 acres of land in Columbia, Maryland
and (f) a 23,700 square foot building on approximately 3.1 acres of leased land
in Richland, Washington. In addition, the Company leases a 380,000 square foot
building in Lisle, Illinois.
The nature of the Company's business is such that there is no practicable
way to relate occupied space to industry segments. The Company considers its
facilities suitable and adequate for its present needs. See Note N of the Notes
to Consolidated Financial Statements of the Company on page F-30 of this Form
10-K for information regarding commitments under leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various investigations, claims and lawsuits
arising in the normal conduct of its business, none of which, in the opinion of
the Company's management, is expected to have a material adverse effect on its
consolidated financial position, results of operations, cash flows or its
ability to conduct business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of General Instructions to Form 10-K,
the following list is included as an unnumbered Item in Part I of this Form 10-K
in lieu of being incorporated by reference to the Company's definitive Proxy
Statement used in connection with the solicitation of votes for the Company's
2000 Annual Meeting of Stockholders (the "2000 Proxy Statement").
The following is a list of the names and ages (as of April 14, 2000) of all
Executive Officers of the Company, indicating all positions and offices with the
Company held by each such person and each such person's principal occupation or
employment during at least the past five years. All such persons have been
elected to serve until their successors are elected or until their earlier
resignation or retirement. Except as otherwise noted, each of the persons listed
below has served in his present capacity for at least the past five years.
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
- ------------------------- --- --------------------------------------------------------
<S> <C> <C>
D. P. Andrews........... 55 Corporate Executive Vice President since January 1998 and a
Director since October 1996. Mr. Andrews has held various
positions with the Company since 1993, including serving as
Executive Vice President for Corporate Development from
October 1995 to January 1998. Prior to joining the Company,
Mr. Andrews served as Assistant Secretary of Defense from
1989 to 1993.
D. W. Baldwin........... 47 Corporate Executive Vice President since April 2000 and
Treasurer since January 1997. Mr. Baldwin has held various
positions with the Company since 1978, including serving as
a Senior Vice President from 1992 to April 2000.
J. R. Beyster........... 75 Chairman of the Board, Chief Executive Officer and a
Director since the Company was founded. Dr. Beyster has
served as President of the Company since June 1998.
D. A. Cox............... 52 Executive Vice President since January 1998 and a Director
since October 1999. Mr. Cox has held various positions with
the Company since 1988, including serving as a Sector Vice
President from January 1996 to January 1998.
J. E. Glancy............ 54 Executive Vice President since April 2000 and a Director
since July 1994. Dr. Glancy has held various positions with
the Company since 1976, including serving as a Sector Vice
President from 1991 to 1994 and Corporate Executive Vice
President from 1994 to 2000.
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
NAME OF EXECUTIVE OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
- ------------------------- --- --------------------------------------------------------
<S> <C> <C>
J. D. Heipt............. 57 Corporate Executive Vice President since April 2000 and
Secretary since 1984. Mr. Heipt has held various positions
with the Company since 1979, including serving as Senior
Vice President from 1984 to 1999 and Executive Vice
President from 1999 to 2000.
P. N. Pavlics........... 39 Senior Vice President since January 1997 and Controller
since 1993. Mr. Pavlics has held various positions with the
Company since 1985, including serving as a Corporate Vice
President from 1993 to January 1997.
S. D. Rockwood.......... 57 Executive Vice President since April 1997 and a Director
since 1996. Dr. Rockwood has held various positions with the
Company since 1986, including serving as a Sector Vice
President from 1987 to April 1997.
W. A. Roper, Jr. ....... 54 Corporate Executive Vice President since April 2000 and
Chief Financial Officer since 1990. Mr. Roper served as
Senior Vice President of the Company from 1990 to 1999 and
Executive Vice President from 1999 to 2000.
R. A. Rosenberg......... 65 Executive Vice President of the Company since 1992. Mr.
Rosenberg has held various positions with the Company since
1987.
D. E. Scott............. 43 Senior Vice President since January 1997 and General Counsel
since 1992. Mr. Scott has held various positions with the
Company since 1987, including serving as a Corporate Vice
President from 1992 to January 1997.
L. E. Sloan............. 53 Executive Vice President of the Company since January 2000.
Prior to joining the Company, Mr. Sloan was Senior Vice
President of Shell Oil Company from July 1997 to December
1999. From 1993 to 1997, Mr. Sloan held various managerial
positions at Royal Dutch/Shell in the United Kingdom.
R. C. Smith............. 58 Chief Executive Officer and a Director of Telcordia since
January 1998 and a Director of the Company since April 1998.
Prior to joining Telcordia, Mr. Smith was the Senior Vice
President Quality Development and Public Relations for
Sprint Corporation from 1991 to January 1998.
E. A. Straker........... 62 Executive Vice President since 1994 and a Director since
1992. Dr. Straker has held various positions with the
Company since 1971, including serving as a Sector Vice
President from 1986 to 1994.
J. H. Warner, Jr. ...... 59 Corporate Executive Vice President since 1996 and a Director
since 1988. Dr. Warner has held various positions with the
Company since 1973, including serving as Executive Vice
President from 1989 to 1996.
</TABLE>
14
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
THE LIMITED MARKET
Since its inception, the Company has followed a policy of remaining
essentially employee owned. As a result, there has never been a general public
market for any of the Company's securities. In order to provide liquidity for
its stockholders, however, the Company has maintained a limited secondary market
(the "Limited Market") through its wholly-owned, broker-dealer subsidiary, Bull
Inc., which was organized in 1973 for the purpose of maintaining the Limited
Market.
The Limited Market permits existing stockholders to offer for sale shares
of Class A Common Stock on predetermined days (each, a "Trade Date"). Generally,
there are four Trade Dates each year which typically occur approximately two
weeks after meetings of the Company's Board of Directors (the "Board of
Directors") which are currently scheduled for January, April, July and October.
All shares of Class B Common Stock to be sold in the Limited Market must first
be converted into 20 times as many shares of Class A Common Stock. All sales are
made at the prevailing price of the Class A Common Stock determined by the Board
of Directors pursuant to the valuation process described below. Employees,
consultants and directors of the Company who have been approved by the Board of
Directors or the Operating Committee of the Board of Directors may subscribe to
purchase up to a specified number of shares of Class A Common Stock. In
addition, the trustees or agents of the Company's Employee Stock Retirement Plan
("ESRP"), Cash or Deferred Arrangement ("CODA"), the 1998 Employee Stock
Purchase Plan, Stock Compensation Plan, Management Stock Compensation Plan, Key
Executive Stock Deferral Plan, the Telcordia Technologies Savings and Security
Plan and the Telcordia Technologies Savings Plan for Salaried Employees
(collectively, the "Telcordia Savings Plans") and AMSEC LLC Employees 401(k)
Profit Sharing Plan ("AMSEC Plan"), (collectively, the "Benefit Plans") may also
purchase shares of Class A Common Stock for their respective trusts in the
Limited Market. All sellers in the Limited Market (other than the Company, ESRP,
CODA, the Telcordia Savings Plans and the AMSEC Plan) pay Bull, Inc. a
commission currently equal to 2% of the proceeds from such sales. No commission
is paid by purchasers in the Limited Market.
In the event that the aggregate number of shares offered for sale in the
Limited Market on any Trade Date is greater than the aggregate number of shares
sought to be purchased by authorized buyers, offers by stockholders to sell
2,000 or less shares of Class A Common Stock (or up to the first 2,000 shares if
more than 2,000 shares of Class A Common Stock are offered by any such
stockholder) will be accepted first. Offers to sell shares in excess of 2,000
shares of Class A Common Stock will be accepted on a pro-rata basis determined
by dividing the total number of shares remaining under purchase orders by the
total number of shares remaining under sell orders. If, however, there are
insufficient purchase orders to support the primary allocation of 2,000 shares
of Class A Common Stock for each proposed seller, then the purchase orders will
be allocated equally among all of the proposed sellers up to the total number of
shares offered for sale.
The Company is currently authorized, but not obligated, to purchase shares
of Class A Common Stock in the Limited Market on any Trade Date, but only if and
to the extent that the number of shares offered for sale by stockholders exceeds
the number of shares sought to be purchased by authorized buyers, and the
Company, in its discretion, determines to make such purchases. In fiscal year
2000, the Company purchased 2,010,309 shares in the Limited Market which
accounted for 20.4% of the total shares purchased by all buyers in the Limited
Market during fiscal year 2000. In fiscal year 1999, the Company did not
purchase any shares in the Limited Market as the number of shares offered by
stockholders did not exceed the number of shares sought to be purchased by
authorized buyers.
During the 2000 and 1999 fiscal years, the trustees of the Company's CODA,
1998 Employee Stock Purchase Plan, the Telcordia Savings Plans and the AMSEC
Plan purchased an aggregate of 4,259,275 shares and 11,933,108 shares,
respectively, in the Limited Market. These purchases accounted for approximately
43.2% and 73.4% of the total shares purchased by all buyers in the Limited
Market during fiscal years 2000 and 1999, respectively. Such purchases may
change in the future, depending on the levels of participation in and
contributions to such Plans and the extent to which such contributions are
invested in Class A Common
15
<PAGE> 16
Stock. To the extent that purchases by the trustees of the Benefit Plans
decrease and purchases by the Company do not increase, the ability of
stockholders to resell their shares in the Limited Market will likely be
adversely affected. Although all shares of Class A Common Stock offered for sale
were sold in the Limited Market on each Trade Date occurring during the last two
fiscal years, no assurance can be given that a stockholder desiring to sell all
or a portion of his or her shares of the Company's Class A Common Stock on any
Trade Date will be able to do so.
To the extent that the aggregate number of shares sought to be purchased by
authorized buyers exceeds the aggregate number of shares offered for sale by
stockholders, the Company may, but is not obligated to, sell authorized but
unissued shares of Class A Common Stock in the Limited Market. In fiscal years
2000 and 1999, the Company sold an aggregate of 1,707,948 and 10,505,100 shares
of Class A Common Stock, respectively, in the Limited Market or 17.3% and 64.6%,
respectively, of the total shares sold by all sellers in the Limited Market
during such years. To the extent that the Company chooses not to sell authorized
but unissued shares of Class A Common Stock in the Limited Market, the ability
of individuals to purchase shares on the Limited Market may be adversely
affected. No assurance can be given that an individual desiring to buy shares of
the Company's Class A Common Stock in any future trade will be able to do so.
For the periods prior to August 31, 1999, the share numbers have been restated
to reflect the 4-for-1 split of the Company's Class A Common Stock.
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The price of the Class A Common Stock (the "Formula Price") is established
by the Board of Directors pursuant to the valuation process which includes the
formula set forth below (the "Formula"). The Board of Directors sets the Market
Factor (as defined below) in the Formula at the value which causes the Formula
to yield the price which the Board of Directors believes represents a fair
market value. The Formula Price is the price at which the Class A Common Stock
trades in the Limited Market and is reviewed by the Board of Directors at least
four times each year, generally in conjunction with Board of Directors meetings
which are currently scheduled for January, April, July and October. The Stock
Policy Committee of the Board of Directors has been authorized by the Board of
Directors to review the Formula Price during the interim period between meetings
of the Board of Directors to ensure that the Formula Price continues to
represent a fair market value. The Board of Directors or the Stock Policy
Committee may, if deemed appropriate, modify the Formula Price or recommend
postponement of a Trade Date. Pursuant to the Company's Certificate of
Incorporation, the price applicable to shares of Class B Common Stock is equal
to 20 times the Formula Price. See "Business -- Risk Factors -- Our Stock Price
is Determined by Our Board of Directors and is Not Established by Market
Forces."
The following formula is used in determining the Formula Price: the price
per share is equal to the sum of (i) a fraction, the numerator of which is the
stockholders' equity of the Company at the end of the fiscal quarter immediately
preceding the date on which a price determination is to occur ("E") and the
denominator of which is the number of outstanding common shares and common share
equivalents at the end of such fiscal quarter ("W1") and (ii) a fraction, the
numerator of which is 5.66 multiplied by the market factor ("M" or "Market
Factor"), multiplied by the earnings of the Company for the four fiscal quarters
immediately preceding the price determination ("P"), and the denominator of
which is the weighted average number of outstanding common shares and common
share equivalents for those four fiscal quarters, as used by the Company in
computing diluted earnings per share ("W"). The number of outstanding common
shares and common share equivalents described above assumes the conversion of
each share of Class B Common Stock into 20 shares of Class A Common Stock. The
5.66 multiplier is a constant which was first included in the Formula in March
1976 to cause the price generated by the Formula to equal the fair market value
of the Class A Common Stock as determined by the Board of Directors following an
amendment of the Formula. The 5.66 multiplier has not been assessed for change
since that time. The Market Factor is a numerical factor which is reviewed and
set by the Board of Directors as part of the valuation process. Historical
values for each variable contained in the Formula are set forth in the table on
page 18.
16
<PAGE> 17
The Formula Price of the Class A Common Stock, expressed as an equation, is
as follows:
<TABLE>
<S> <C> <C> <C>
E 5.66 MP
------ -----------
Formula Price = +
W(1) W
</TABLE>
A valuation formula containing consideration of stockholder equity and
earnings per share was first used by the Board of Directors in establishing the
stock price of the Class A Common Stock in 1972. The Formula was amended in
1973, by inclusion of the Market Factor, to reflect the broad range of business,
financial and market forces that also affect the fair market value of the Class
A Common Stock. The Formula was modified by the Board of Directors on April 14,
1995 to delete a limitation that the Formula Price not be less than 90% of the
net book value per share of the Class A Common Stock at the end of the quarter
immediately preceding the date on which a price revision is to occur (the "Book
Value Floor"). This modification was intended to ensure that the Formula Price
would be a fair market value as required by law. The Formula Price had always
exceeded the Book Value Floor, and the Book Value Floor was never used to
establish the Formula Price. The Formula was also modified by the Board of
Directors on April 10, 1998 so that the Weighted Average Shares Outstanding or
"W" was derived by reference to the Company's "diluted earnings per share"
rather than by reference to the Company's "primary earnings per share." This
modification was made to conform to changes in the accounting standards related
to the calculation of earnings per share. See "Business -- Risk Factors -- Our
Stock Price is Determined by Our Board of Directors and is Not Established by
Market Forces."
The Board of Directors has broad discretion to modify the Formula.
Nevertheless, other than the quarterly review and possible modification of the
Market Factor, the Board of Directors will not change the Formula unless (i) in
the good faith exercise of its fiduciary duties and after consultation with the
Company's independent accountants as to whether the change would result in a
charge to earnings upon the sale of Class A Common Stock, the Board of
Directors, including a majority of the independent directors, determines that
the Formula no longer results in a fair market value for the Class A Common
Stock or (ii) a change in the Formula or the method of valuing the Class A
Common Stock is required under applicable law.
In determining the price of the Class A Common Stock, the Board of
Directors considers the performance of the general securities markets and
relevant industry groups, the historical financial performance of the Company
versus comparable public companies, the prospects for the Company's future
performance, the stock price of its publicly traded investments, general
economic conditions, input from an independent appraisal firm and other factors
it deems relevant. The Board of Directors sets the Market Factor at the value
which causes the Formula to yield a price equal to the Board of Directors'
assessment of a fair market value for the Class A Common Stock. In conjunction
with the Board of Directors' valuation process, an appraisal of Class A Common
Stock is prepared by an independent appraisal firm. Valuation input from the
appraisal firm is one of the factors considered by the Board of Directors in
establishing the Formula Price. The Formula Price and Market Factor, as
determined by the Board of Directors, remains in effect until subsequently
changed by the Board of Directors. The Board of Directors has authorized the
Stock Policy Committee to review the Formula Price during the interim period
between meetings of the Board of Directors to ensure that the Formula Price
continues to represent a fair market value. If the Stock Policy Committee deemed
it appropriate to modify the Formula Price, it would use the same valuation
process used by the Board of Directors to determine the Formula Price. The Board
of Directors believes that the valuation process results in a value which
represents a fair market value for the Class A Common Stock within a broad range
of financial criteria.
The value assigned by the Board of Directors to the Market Factor has been
subject to larger and more frequent changes. Nonetheless, the Board of Directors
continues to use the Formula in determining the Formula Price. The price of the
Class A Common Stock and the value of the Market Factor could be subject to
greater fluctuations in the future than in the past due to a number of factors,
including (i) the distortive impact of one-time events not in the normal course
of business on the Company's earnings used to calculate the Formula Price, such
as the gain recognized by SAIC Venture Capital, in the first quarter of the
Company's fiscal year 2001 on the sale of NSI stock in the secondary offering,
(ii) the volatility of the stock price of those publicly-traded companies in
which the Company owns stock, and its impact on the Formula Price, (iii) the
increase of the Company's commercial and international business as a proportion
of the
17
<PAGE> 18
Company's overall business and the greater volatility associated with companies
in such business areas and (iv) the impact of acquisitions, investments and
joint ventures that the Company may pursue. See "Business -- Risk
Factors -- Changes in Our Business May Increase Volatility of the Stock Price."
The following table sets forth information concerning the Formula Price for
the Class A Common Stock, the applicable price for the Class B Common Stock and
each of the variables contained in the Formula, including the Market Factor, in
effect for the periods beginning on the dates indicated. The table has been
restated to reflect the 4-for-1 stock split which became effective on August 31,
1999. The Class A Common Stock has been rounded to the nearest penny. There can
be no assurance that the Class A Common Stock or the Class B Common Stock will
in the future provide returns comparable to historical returns. See
"Business -- Risk Factors -- Future Returns on Our Common Stock May Differ
Significantly from Historical Returns."
<TABLE>
<CAPTION>
"W" OR PRICE PRICE
"E" OR "W(1)" WEIGHTED PER SHARE PER SHARE
MARKET STOCKHOLDERS OF SHARES "P" OR AVG. SHARES OF CLASS A OF CLASS B
DATE FACTOR EQUITY(1) OUTSTANDING(2) EARNINGS(3) OUTSTANDING(4) COMMON STOCK COMMON STOCK
---- ------ -------------- -------------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
April 10, 1998....... 3.90 $ 754,778,000 230,046,968 $ 84,794,000 219,556,180 $11.81 $236.10
July 10, 1998........ 3.90 889,231,000 242,555,524 101,956,000 223,736,464 13.73 274.50
October 9, 1998...... 3.70 935,179,000 245,983,796 119,728,000 229,695,232 14.72 294.35
January 8, 1999...... 3.80 980,390,000 247,146,100 147,609,000 235,373,472 17.46 349.10
April 9, 1999........ 3.90 1,084,602,000 253,042,596 150,688,000 240,770,600 18.10 362.05
July 9, 1999......... 1.00 1,644,285,000 258,408,012 565,071,000 246,066,740 19.36 387.20
October 8, 1999...... 1.00 1,710,514,000 259,950,164 591,681,000 249,790,820 19.99 399.80
January 14, 2000..... 1.40 1,762,661,000 259,671,296 611,994,000 253,455,768 25.92 518.40
April 14, 2000....... 1.70 1,830,282,000 262,311,687 619,849,000 256,270,820 30.25 605.00
</TABLE>
- ---------------
(1) "E" or Stockholders Equity is the stockholders' equity of the Company at the
end of the fiscal quarter immediately preceding the date on which a price
determination is to occur.
(2) "W(1)" or Shares Outstanding is the number of outstanding common shares and
common share equivalents at the end of the fiscal quarter immediately
preceding the date on which a price determination is to occur.
(3) "P" or Earnings is the earnings of the Company for the four fiscal quarters
immediately preceding the price determination.
(4) "W" or Weighted Average Shares Outstanding is the weighted average number of
outstanding common shares and common share equivalents for the four fiscal
quarters immediately preceding the price determination, as used by the
Company in computing diluted earnings per share.
HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
As of March 31, 2000, there were 29,804 holders of record of Class A Common
Stock and 154 holders of record of Class B Common Stock. As of such date,
substantially all of the Class A Common Stock and the Class B Common Stock were
owned of record by current and former employees, directors and consultants of
the Company and their respective family members and by various employee benefit
plans of the Company and its subsidiaries.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and no cash dividends on the Class A Common Stock or Class B Common Stock
are contemplated in the foreseeable future. The payment of any future dividends
will be at the discretion of the Board of Directors and will depend upon, among
other things, future earnings, capital requirements, the Company's general
financial conditions and general business conditions.
18
<PAGE> 19
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from the audited consolidated financial
statements. The consolidated balance sheet at January 31, 2000 and 1999 and the
related consolidated statements of income and of cash flows for the three years
ended January 31, 2000 and notes thereto appear elsewhere in this Form 10-K.
This data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
---------------------------------------------------------------------------
2000 1999 1998(1) 1997 1996
---------- ------------- ------------- ------------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues..................... $5,529,676 $4,740,433 $3,089,351 $2,402,224 $2,155,657
Cost of revenues............. 4,303,862 3,732,890 2,623,339 2,094,447 1,875,183
Selling, general and
administrative expenses.... 877,633 684,905 301,093 191,836 173,742
Interest expense............. 27,274 33,813 11,682 4,925 4,529
Other income(2).............. (784,678) (17,012) (15,864) (2,193) (111)
Minority interest in income
of consolidated
subsidiaries............... 44,200 17,842 10,608
Provision for income taxes... 441,536 137,307 73,699 49,529 45,018
---------- ---------- ---------- ---------- ----------
Net income................... $ 619,849 $ 150,688 $ 84,794 $ 63,680 $ 57,296
========== ========== ========== ========== ==========
Earnings per share(3):
Basic...................... $ 2.61 $ .67 $ .41 $ .32 $ .30
========== ========== ========== ========== ==========
Diluted.................... $ 2.42 $ .62 $ .39 $ .31 $ .28
========== ========== ========== ========== ==========
Common equivalent shares(3):
Basic...................... 237,586 222,483 205,397 196,630 192,573
========== ========== ========== ========== ==========
Diluted.................... 256,268 241,216 219,226 206,956 201,140
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31
----------------------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- --------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total assets.................. $4,405,248 $3,172,546 $2,415,234 $1,012,462 $859,290
Working capital............... 848,702 369,473 94,588 270,553 227,185
Long-term debt................ 121,289 143,051 145,958 15,227 15,592
Long-term liabilities......... 360,362 318,002 313,677 29,114 18,524
Stockholders' equity.......... 1,830,282 1,084,602 754,778 527,459 458,132
</TABLE>
- ---------------
(1) Telcordia was acquired in the fourth quarter of 1998; therefore, a full year
of operations is not reflected.
(2) Other income in 2000 includes interest income of $55 million and gain on
sale of subsidiary stock of $698 million.
(3) Share and per share data have been restated to reflect the 4-for-1 stock
split effective August 31, 1999.
19
<PAGE> 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company primarily provides diversified professional and technical
services involving the application of scientific expertise, together with
computer and systems technology, to solve complex technical problems for a broad
range of government and commercial customers, both in the U.S. and abroad.
Through its subsidiary, Telcordia, the Company is a global provider of software,
engineering and consulting services, advanced research and development,
technical training and other services to the telecommunications industry. The
Company completed the acquisition of Telcordia in the fourth quarter of 1998.
Consequently, the 1999 consolidated financial statements reflect the Company's
first full year of operations for Telcordia.
The Company's subsidiary, NSI, continued to experience growth in its
business and have a positive impact on the Company's consolidated financial
position and results of operations. On February 12, 1999, NSI completed a
secondary offering of 4,580,000 shares of its Class A Common Stock. Of the
shares sold in the offering, the Company sold 4,500,000 shares at $170 per share
and received proceeds, net of underwriter's commissions, of $729,000,000 and
recognized a gain on the sale of $698,374,000. On March 23, 1999, NSI completed
a 2-for-1 split of its Class A Common Stock and Class B Common Stock. After the
stock split, the Company held 14,850,000 shares of NSI Class B Common Stock,
which were entitled to ten votes per share and represented 44.7% ownership
interest in NSI and approximately 89% of the combined voting power. On June 3,
1999, the Company converted its 14,850,000 shares of NSI Class B Common Stock
into an equal number of shares of NSI's Class A Common Stock, which are entitled
to one vote per share, thereby reducing the Company's voting power to 44.7%. As
shares of NSI Class A Common Stock are issued pursuant to NSI employee stock
compensation plans, the Company's ownership interest in NSI is diluted. As of
January 31, 2000, the Company held a 43.8% ownership in NSI which is
consolidated in the accompanying financial statements because the Company
controlled the NSI Board of Directors. Subsequent to the year ended January 31,
2000, the Company further reduced its ownership level in NSI in another
secondary offering which was completed by NSI on February 11, 2000. Of the
8,889,500 shares sold in this offering, the Company sold 6,700,000 shares, NSI
sold 2,159,500 shares and other selling stockholders sold 30,000 shares at $247
per share before deducting underwriting commissions of $9.75 per share. The
Company received net proceeds from the offering of $1,589,575,000 and will
recognize a gain on the sale before income taxes in the first quarter ending
April 30, 2000 of approximately $1,466,000,000. On February 15, 2000, NSI
announced a 2-for-1 stock split to be effective March 10, 2000. Upon completion
of this secondary offering and giving effect to the stock split, the Company
owned 16,300,000 shares of NSI Class A Common Stock, which represents a 22.6%
interest in NSI. With the recent recomposition of the NSI Board of Directors and
its current ownership interest in NSI, the Company will no longer consolidate
NSI's financial statements and will instead recognize its proportionate share of
NSI's net income or loss under the equity method of accounting beginning in the
first quarter ending April 30, 2000.
On March 6, 2000, NSI entered into a merger agreement with VeriSign, Inc.
("VeriSign"), a publicly traded company and leading provider of Internet trust
services, pursuant to which VeriSign would acquire NSI and NSI would become a
wholly-owned subsidiary of VeriSign. Under the merger agreement, VeriSign will
issue 1.075 shares of VeriSign common stock for each share of NSI stock (after
giving effect to the 2-for-1 split of NSI common stock completed on March 10,
2000). This merger would result in the Company holding approximately 9% of
VeriSign's outstanding shares. The transaction is expected to close in the third
quarter of calendar 2000, subject to obtaining the approval of the stockholders
of VeriSign and NSI and necessary regulatory approvals.
On April 9, 1999, the Company's Board of Directors approved a
recapitalization proposal which included an increase to the number of authorized
shares of Class A Common Stock from 100,000,000 shares to 1,000,000,000 shares
and a 4-for-1 stock split of the Company's Class A Common Stock. This
recapitalization proposal was approved by the stockholders on July 9, 1999 at
the 1999 Annual Stockholders Meeting and became effective August 31, 1999 for
stockholders of record at that date. All historical share and per share data has
been retroactively restated to reflect the stock split. The Company did not
effect a split for the Class B Common Stock but increased the relative voting
and other rights to maintain the relative rights of the Class A Common Stock and
Class B Common Stock.
20
<PAGE> 21
On September 3, 1999, the Company sold the stock of its TransCore business
unit and recognized a gain on the sale of $29 million which has been reflected
in other income.
RESULTS OF OPERATIONS
Revenues increased 17%, 53% and 29% in 2000, 1999 and 1998, respectively,
over the prior year. INTESA, Telcordia and NSI were responsible for 6 percentage
points of the increase in 2000 compared to 37 and 21 percentage points in 1999
and 1998, respectively. The remaining increase in revenues of 11 percentage
points in 2000 compared to 16 and 8 percentage points in 1999 and 1998,
respectively, was attributable to growth in the Company's traditional business
areas. Revenues in 2000 from the Company's principal customer, the U.S.
Government, continued to grow and shift toward the service type contracts which
are competitively priced utilizing lower cost structures. This trend reflects
the increasingly competitive business environment in the Company's traditional
business areas, as well as the Company's increased success in the engineering
and field services markets, which typically involve these lower cost service
type contracts.
Revenues from the U.S. Government as a prime contractor or subcontractor
accounted for 52% of revenues in 2000, 50% in 1999 and 66% in 1998. On an
absolute basis, U.S. Government revenues increased 21% in 2000, 17% in 1999 and
7% in 1998 over the respective prior year. The increase in 2000 is primarily
attributable to faster growth in the Company's traditional business areas
through internal growth and acquisitions in the Regulated Segment compared to
the growth rate in the commercial and international business areas which was
impacted by the sale of the TransCore business unit. The decrease in revenues
from the U.S. Government as a percentage of revenues from 1998 to 1999 is
primarily attributable to growth in non-U.S. Government revenues as a result of
the Company's efforts to increase revenues from commercial and international
clients and state and local governments in the health, commercial information
technology, telecommunications and transportation business areas. On an absolute
basis, non-U.S. Government revenues increased 13% in 2000, 124% in 1999 and 109%
in 1998 over the respective prior year. The significant increase in non-U.S.
Government revenues in 1999 is primarily attributable to the inclusion of a full
year of operations for Telcordia compared to 1998, the year in which Telcordia
was acquired during the fourth quarter, and growth in INTESA and NSI revenues
over 1998.
The following table summarizes revenues by contract type for the last three
years:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Contract type:
Cost-reimbursement.......................................... 34% 37% 50%
Time-and-materials and fixed-price level-of-effort.......... 25% 24% 18%
Firm fixed-price............................................ 41% 39% 32%
--- --- ---
Total............................................. 100% 100% 100%
=== === ===
</TABLE>
Cost-reimbursement contracts provide for the reimbursement of direct costs
and allowable indirect costs, plus a fee or profit component. Time-and-materials
("T&M") contracts typically provide for the payment of negotiated fixed hourly
rates for labor hours incurred plus reimbursement of other allowable direct
costs at actual cost plus allocable indirect costs. Fixed-price level-of-effort
("FP-LOE") contracts are similar to T&M contracts since ultimately revenues are
based upon the labor hours provided to the customer. Firm fixed-price contracts
require the Company to provide stipulated products, systems or services for a
fixed price. The Company assumes greater performance risk on firm fixed-price
contracts and the failure to accurately estimate ultimate costs or to control
costs during performance of the work may result in reduced profits or losses.
The increase in revenues from firm fixed-price contracts and associated relative
decrease in revenues from cost-reimbursement contracts from 1998 to 1999 result
primarily from the Company's growth in non-U.S. Government revenues. The
Company's non-U.S. Government customers typically do not contract on a cost-
reimbursement basis.
As more fully discussed in the Notes to Consolidated Financial Statements,
the Company's operating groups ("Groups") are divided into two segments,
Regulated and Non-Regulated, depending on the business
21
<PAGE> 22
processes and laws affecting the operations of the Groups. Groups in the
Regulated segment provide technical services and products through contractual
arrangements as either a prime contractor or subcontractor to other contractors,
primarily for departments and agencies of the U.S. Government. Operations in the
Regulated segment are subject to specific regulatory accounting and contracting
guidelines such as "Cost Accounting Standards" and "Federal Acquisition
Regulations." Groups in the Non-Regulated segment provide technical services and
products primarily to customers in commercial markets. Generally, operations in
the Non-Regulated segment are not subject to specific regulatory or contracting
guidelines.
Regulated segment revenues as a percentage of consolidated revenues were
59%, 58% and 74% in 2000, 1999 and 1998, respectively, and increased slightly in
2000 as a result of faster growth in the Company's traditional businesses areas
with departments and agencies of the U.S. Government and through acquisitions.
Non-Regulated segment revenues as a percentage of consolidated revenues were
40%, 42% and 25% in 2000, 1999 and 1998, respectively, and decreased in 2000 as
a result of slower growth in certain commercial and international markets and
the impact of the sale of the TransCore business unit. The decrease in revenues
as a percentage of consolidated revenues in 1999 and 1998 in the Regulated
segment reflected the faster growth in the Non-Regulated segment particularly in
the telecommunications area, as Telcordia was acquired toward the end of 1998,
and in the information technology markets. Regulated segment revenues, on an
absolute basis, increased 19% in 2000, 20% in 1999 and 8% in 1998. Non-Regulated
segment revenues, on an absolute basis, have increased 12% in 2000, 154% in 1999
and 190% in 1998. Telcordia and NSI primarily accounted for the growth in
Non-Regulated segment revenues in 2000, whereas in 1999 and 1998, Telcordia, NSI
and INTESA accounted for the growth.
The Company's business is directly related to the receipt of contract
awards and contract performance. There were 762 contracts, which include 279 of
Telcordia's contracts, with annual revenues greater than $1 million in 2000,
compared with 685 and 440 such contracts in 1999 and 1998, respectively. These
larger contracts represented 62% of the Company's revenues in 2000 and 71% in
1999 and 1998. Of these contracts, 61 contracts had individual revenues greater
than $10 million in 2000 compared to 55 such contracts in 1999 and 39 in 1998.
The remainder of the Company's revenues are derived from a large number of
contracts with individual revenues less than $1 million. Although the Company
has committed substantial resources and personnel needed to pursue and perform
larger contracts, the Company believes it also maintains a suitable environment
for the performance of smaller, highly technical research and development
contracts. These smaller programs often provide the foundation for the Company's
success on larger procurements. Revenues on the Company's contracts are
generated from the efforts of its technical staff as well as the pass through of
costs for material and subcontract efforts, which primarily occur on large,
multi-year system integration type contracts. At the end of 2000, the Company
had 36,500 full-time employees compared to 33,000 and 30,300 at the end of 1999
and 1998, respectively. Material and subcontract ("M&S") revenues were $1,127
million in 2000, $949 million in 1999 and $755 million in 1998. As a percentage
of total revenues, M&S revenues were 20% in 2000, 20% in 1999 and 25% in 1998.
The decrease as a percentage of revenues in 1999 is primarily attributable to
Telcordia, whose revenues are generated primarily from the services of its
technical staff.
The cost of revenues as a percentage of revenues was 77.8% in 2000, 78.8%
in 1999 and 84.9% in 1998. The decrease as a percentage of revenues in 2000
reflects generally improved operating performance and margins at Telcordia and
margin improvements at NSI related to achieving economies of scale due to the
growth of NSI's subscription-based domain name registration business. Cost of
revenues as a percentage of revenues, excluding Telcordia, INTESA and NSI, was
88.9% in 2000, 89.3% in 1999 and 88.3% in 1998.
Selling, general and administrative expenses ("SG&A") are comprised of
general and administrative ("G&A"), bid and proposal ("B&P") and independent
research and development ("IR&D") expenses. SG&A expenses as a percentage of
revenues were 15.9%, 14.5% and 9.8% in 2000, 1999 and 1998, respectively. The
increase from 1998 to 1999 was attributable to the growth in commercial revenues
which have more of their associated costs in SG&A as opposed to cost of
revenues. SG&A costs as a percentage of revenues, excluding Telcordia, INTESA
and NSI, were 8.9%, 7.5% and 7.6% in 2000, 1999 and 1998, respectively. The
increase from 1999 to 2000 was driven by G&A costs, which as a percentage of
total revenues were 7.9% in 2000 compared to 6.8% in 1999 and 6.4% in 1998. The
increase in G&A costs was primarily attributable to increased goodwill
amortization from acquisitions completed in 2000 and the
22
<PAGE> 23
impairment of goodwill and other intangible assets of $50.5 million. Of the
total amount of impairment losses taken in 2000, $42.3 million was related to a
business unit in the Non-Regulated segment, which was acquired in March 1999 and
represented less than 1% of total consolidated revenues and consolidated assets
at January 31, 2000. The factors leading the Company to assess the
recoverability of goodwill and other intangible assets of this acquisition were
greater-than-expected operating losses since the time of acquisition and the
loss of a major contract procurement. The assessment of the expected future
undiscounted cash flows indicated that an impairment existed. The impairment
loss was quantified by estimating the fair value of the business unit using the
discounted cash flow method. Marketing and B&P costs have increased to 5.9% of
revenues in 2000 compared to 5.1% in 1999 and 2.6% in 1998, primarily as a
result of higher marketing and proposal costs at Telcordia and NSI. IR&D costs
have also historically fluctuated depending on the stage of development for
various hardware and software systems and were 2.1% of revenues in 2000 compared
to 2.5% in 1999 and .8% in 1998. The decrease from 1999 to 2000 was primarily
attributable to reduced spending at Telcordia.
Operating profit margins (operating income as a percentage of revenues) by
segment are strongly correlated to the Company's financial performance on the
contracts within each segment. The operating profit margin in the Regulated
segment was 6.3% in 2000, 5.2% in 1999 and 5.9% in 1998. The increase in
operating profit margin in the Regulated segment in 2000 compared to 1999 was
attributable to overall margin improvements without increasing discretionary
investments in the marketing and bid and proposal areas. The lower operating
profit margin in the Regulated segment in 1999 compared to 1998 was attributable
to an increase in discretionary investments made in the marketing and bid and
proposal areas. In the Non-Regulated segment, operating profit margin was 9.7%
in 2000, 10.4% in 1999 and 6.4% in 1998. This decrease in operating profit
margin in 2000 compared to 1999 was primarily attributable to greater than
expected operating losses for a business unit in the commercial information
technology business area and a business that was acquired in 2000. The increase
in operating profit margin in the Non-Regulated segment in 1999 compared to 1998
is attributable to performance in the telecommunications and information
technology business area at Telcordia, INTESA and NSI as well as operating
profit margin improvement in certain foreign subsidiaries which had losses in
1998.
Interest expense of $27 million, $34 million and $12 million in 2000, 1999
and 1998, respectively, primarily relates to interest on the Company's
outstanding public debt securities, a building mortgage, deferred compensation
arrangements, capital lease obligations and notes payable. The decrease in
interest expense in 2000 compared to 1999 was primarily driven by a decrease in
capital lease obligations at INTESA. The increase in interest expense in 1999
was primarily driven by an increase in deferred compensation balances, capital
lease obligations and the public debt securities which were issued at the end of
1998.
Other income, net, was $32 million in 2000 compared to an expense of $5
million in 1999 and income of $3 million in 1998. The increase in 2000 was
primarily attributable to the $29 million gain on the sale of the TransCore
business unit. The net expense in 1999 was primarily attributable to an equity
loss in an affiliate of $6 million and an other-than-temporary loss on a
marketable equity security of $3 million, both of which were partially offset by
a gain on sale of business assets of $4 million. In 1998, the net other income
was primarily attributable to gains on sales of business assets and a loss on
forward treasury lock agreements, as discussed in Note A of the Notes to
Consolidated Financial Statements.
Minority interest in income of consolidated subsidiaries was $44 million,
$18 million and $11 million in 2000, 1999 and 1998, respectively. The increase
in 2000 was attributable to an increase in NSI net income and the Company
selling some of its shares of NSI common stock in the secondary offering on
February 12, 1999 which increased the minority interest in NSI to approximately
55% compared to a 28% minority interest in NSI in 1999. In addition, in 2000,
the Company formed another joint venture whereby the minority shareholder owns
45%. In 1999, the increase in minority interest was primarily attributable to
growth in income for NSI and INTESA, whose minority interest ownership remained
consistent from 1998. The increase in minority interest in 1998 was solely
related to the formation of INTESA and the initial public offering of NSI which
initially created a 24% minority interest. Prior to 1998, the Company did not
have any minority interest shareholders in consolidated subsidiaries.
23
<PAGE> 24
The provision for income taxes as a percentage of income before income
taxes was 41.6% in 2000, 47.7% in 1999 and 46.5% in 1998. The lower effective
tax rate in 2000 reflects the resolution of certain tax positions related to the
Company's on-going appeals process with the IRS for fiscal years 1988 through
1993. In addition, a lower tax rate on the gain on the sale of NSI common stock
contributes to reducing the overall effective tax rate. The higher effective tax
rate in 1999 compared to 1998 was primarily attributable to non-deductible
goodwill amortization and a reassessment of certain tax positions related to the
Company's on-going appeals process with the IRS for fiscal years 1988 through
1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity continue to be funds provided by
operations and a five-year revolving credit facility. In addition, the proceeds
from the sale of NSI common stock in February 1999 provided an additional source
of liquidity for the Company in 2000. At January 31, 2000 and 1999, there were
no borrowings outstanding under the credit facility and cash and cash
equivalents and short-term investments totaled $1,094 million and $508 million,
respectively. Cash flows generated from operating activities were $434 million
in 2000 compared to $380 million in 1999 and $351 million in 1998.
Cash flows spent on investing activities were $7 million in 2000 compared
to $223 million and $397 million in 1999 and 1998, respectively. Excluding the
proceeds of $729 million from the sale of NSI common stock in 2000 and $118
million from the sale of debt and equity securities, net cash flows spent on
investing activities were $854 million in 2000 compared to $223 million and $397
million in 1999 and 1998, respectively. The Company completed more acquisitions
in 2000 than in 1999, purchased debt and equity securities, made investments in
other companies, and increased expenditures for property and equipment,
primarily at NSI. In addition, proceeds from the sale of business assets
increased in 2000. The decrease in investing activities in 1999 was primarily
attributable to the types of investments and sizes of business acquisitions
completed. However, these were smaller in size compared to the acquisition of
Telcordia in 1998. In addition, in 1999, NSI utilized its cash to make
investments in debt and equity securities. Although the Company used $340
million of cash for acquisitions of certain business assets, net of cash
acquired, in 1998, the Company also received proceeds of $48 million from the
sale of certain business units and certain other business assets. The Company
intends to continue to make additional acquisitions and equity investments in
the future. Capital expenditures, excluding land and buildings, were $162
million, $85 million and $52 million in 2000, 1999 and 1998, respectively, and
are expected to be approximately $160 million for 2001. Expenditures for land
and buildings were $4 million, $3 million and $18 million in 2000, 1999 and
1998, respectively, and are expected to be approximately $11 million for 2001.
The Company used cash of $144 million for financing activities in 2000
compared to generating cash of $43 million from financing activities in 1999 and
$191 million in 1998. In 2000, the Company did not generate as much cash from
the sales of the Company's common stock as it did in 1999 and 1998, while
repurchases of its common stock increased in 2000. In 1999, cash was primarily
generated from sales of the Company's stock and primarily used for repurchases
of common stock. In 1998, the primary sources of cash were the proceeds from
issuing public debt securities, proceeds from the initial public offering of NSI
common stock and proceeds from the sale of the Company's common stock, while the
primary use of cash was for repurchases of common stock. The increase in common
stock repurchases from 1998 through 1999 was primarily attributable to increased
repurchases of common stock from the Company's Employee Stock Retirement Plan
("ESRP") in order for the ESRP to fund payouts to participants.
The Company's existing cash, cash equivalents, short-term investments, cash
flows from operations and borrowing capacity are expected to provide sufficient
funds for the Company's operations, common stock repurchases, capital
expenditures and future long-term debt requirements. In addition, acquisitions
and equity investments in the future are expected to be financed from
operations, borrowing capacity and from sales of the Company's common stock.
The Company is involved in various investigations, claims and lawsuits
arising in the normal conduct of its business, none of which, in the opinion of
the Company's management, is expected to have a material
24
<PAGE> 25
adverse effect on its consolidated financial position, results of operations,
cash flows or its ability to conduct business.
EFFECTS OF INFLATION
The Company's cost-reimbursement type contracts are generally completed
within one year. As a result, the Company has been able to anticipate increases
in costs when pricing its contracts. Bids for longer term firm fixed-price and
T&M type contracts typically include labor and other cost escalations in amounts
expected to be sufficient to cover cost increases over the period of
performance. Consequently, because costs and revenues include an inflationary
increase commensurate with the general economy, net income as a percentage of
revenues has not been significantly impacted by inflation. As the Company
expands into the international markets and into highly inflationary economies,
movements in foreign currency exchange rates may impact the Company's results of
operations. Currency exchange rate fluctuations may also affect the Company's
competitive position in international markets as a result of its impact on the
Company's profitability and the pricing offered to its non-U.S. customers.
YEAR 2000
Since 1996, the Company has been engaged in a program to prepare the
Company's centralized internal computer systems and applications for the Year
2000. The program was designed to minimize risk to the Company's consolidated
financial position, results of operations, cash flows and its ability to conduct
business. The Company has not encountered any material Year 2000 issues with its
information technology ("IT") systems, non-IT systems, critical service
suppliers and vendors, or the Company's services and products and does not
expect to incur material costs in the future related to Year 2000 related
issues.
FORWARD-LOOKING INFORMATION
The foregoing discussion in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contains forward-looking
statements, including statements regarding the intent, belief or current
expectations of the Company or its officers with respect to, among other things,
trends affecting the Company's financial condition or results of operation and
the impact of competition. Such statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
materially from those in the forward-looking statements as a result of various
factors. Some of these factors include, but are not limited to: a decrease in or
the failure to increase business with the U.S. Government, international and
commercial customers; the ability of the Company to continue to identify,
consummate and integrate additional acquisitions; the ability of the Company to
competitively price its technical services and products; the risk of early
termination of U.S. Government contracts; the risk of losses or reduced profits
on firm fixed-price contracts; a failure to obtain reimbursement for costs
incurred prior to the execution of a contract or contract modification; and
audits of the Company's costs, including allocated indirect costs, by the U.S.
Government; and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company. Due to such uncertainties
and risks, readers are cautioned not to place undue reliance on such
forward-looking statements, which speak only as of the date hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks which are inherent in the
Company's financial instruments which arise from transactions entered into in
the normal course of business. The following information about the Company's
market sensitive financial instruments contains forward-looking statements.
Interest Rate Risk -- The Company's exposure to market risk for changes in
interest rates relates primarily to the Company's investment portfolio, short
and long-term receivables and long-term debt obligations.
The Company primarily enters into debt obligations to support capital
expenditures, working capital needs and merger and acquisition activity.
25
<PAGE> 26
Investment policies have been established to protect the safety, liquidity
and after-tax yield of invested funds. Such policies establish guidelines on
acceptable instruments in which to invest and maximum maturity dates. They also
require diversification in the investment portfolios by establishing maximum
amounts that may be invested in designated instruments. The Company does not
authorize the use of derivative financial instruments in its investment
portfolio. The Company's policy requires that all investments mature in three
years or less. Strategic investments may have characteristics that differ from
those described above.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates, including debt
obligations, short-term and long-term receivables and short-term investments.
For debt obligations, short-term and long-term receivables and short-term
investments, the table presents principal cash flows in U.S. dollars and related
weighted average interest rates by expected maturity dates.
<TABLE>
<CAPTION>
ESTIMATED
FAIR VALUE
-----------
JANUARY 31,
2001 2002 2003 2004 2005 THEREAFTER TOTAL 2000
-------- ------- ------- ------- ------ ---------- -------- -----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Cash equivalents
Fixed rate (USD).................... $568,704 $568,704 $569,392
Average interest rate............. 6.09%
Fixed rate (GBP) (1)................ $ 12,802 $ 12,802 $ 12,802
Average interest rate............. 5.75%
Variable rate (VEB)(2).............. $ 2,411 $ 2,411 $ 2,411
Average interest rate............. 3.00%
Short-term investments
Fixed rate (USD).................... $159,350 $87,691 $92,556 $28,862 $368,459 $368,459
Average interest rate............. 5.84% 5.37% 5.91% 5.84%
Variable rate (USD)................. $ 48,511 $ 48,511 $ 48,511
Average interest rate............. 5.83%
Long-term investments
Fixed rate (USD).................... $1,200 $ 1,200 $ 1,200
Average interest rate............. 14.00%
Fixed rate (CAD)(3)................. $ 17,391 $ 17,391 $ 17,391
Average interest rate............. 8.00%
Short-term receivables
Fixed rate (USD).................... $ 641 $ 350 $ 991 $ 842
Average interest rate............. 7.70% 7.00%
Long-term receivable
Fixed rate (FRF)(4)................. $ 696 $ 634 $ 1,330 $ 1,330
Average interest rate............. 10.00% 10.00%
Liabilities
Long-term debt
Fixed rate (USD).................... $ 379 $ 322 $ 76 $ 81 $ 86 $100,512 $101,456 $ 92,230
Average interest rate............. 8.24% 8.25% 8.25% 8.25% 8.26% 8.26%
Variable rate (USD)................. $ 130 $ 150 $ 200 $ 240 $ 260 $ 5,650 $ 6,630 $ 6,630
Average interest rate............. 6.53% 6.53% 6.53% 6.53% 6.53% 6.53%
</TABLE>
- ---------------
(1) British pound denominated
(2) Venezuelan bolivar denominated
(3) Canadian dollar denominated
(4) French franc denominated
Foreign Currency Risk -- Although the majority of the Company's
transactions are in U.S. dollars, some transactions are based in various foreign
currencies. The Company's objective in managing its exposure to foreign currency
exchange rate fluctuations is to mitigate adverse fluctuations in earnings and
cash flows
26
<PAGE> 27
associated with foreign currency exchange rate fluctuations. The policy allows
for actively managing cash flows, anticipated transactions and firm commitments
through the use of natural hedges and forward foreign exchange contracts. The
principal currencies hedged as of January 31, 2000 are the French franc,
Norwegian krone, Belgian franc and the Australian dollar. The Company does not
use foreign currency derivative instruments for trading purposes.
To perform sensitivity analysis, the Company assesses the risk of loss in
fair values from the impact of hypothetical changes in foreign currency exchange
rates on market sensitive instruments. The market values for foreign exchange
forward contracts are computed based upon spot rates in effect on January 31,
2000. The differences that result from comparing hypothetical foreign exchange
rates and actual spot rates as of January 31, 2000 are the hypothetical gains
and losses associated with foreign currency risk.
A 10% adverse movement in levels of foreign currency exchange rates
relative to the U.S. dollar as of January 31, 2000, with all other variables
held constant, would result in a decrease in the fair values of the forward
foreign exchange contracts by approximately $1.4 million.
Equity Price Risk -- At January 31, 2000, the quoted fair value of the
Company's publicly-traded available-for-sale equity securities was approximately
$168.8 million. The aggregate unrealized gain from these investments was $133.4
million. The market risk associated with these equity investments is the
potential loss in fair value resulting from a decrease in market prices. A 10%
decrease in market prices, with all other variables held constant, would result
in a decrease in the fair value of the equity investments of approximately $16.9
million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of the Company attached hereto
and listed on the Index to Consolidated Financial Statements set forth on page
F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On November 16, 1998, the Company notified PricewaterhouseCoopers LLP that
it was dismissing such firm as its independent accountants effective upon the
completion of the audit of the January 31, 1999 financial statements of the
Company. On November 17, 1998, the Company notified Deloitte & Touche LLP that
it would engage such firm as its new independent accountants for the audit of
the January 31, 2000 financial statements. The decision to change accountants
was approved by the Audit Committee of the Company's Board of Directors.
The audit of the Company's financial statements for the year ended January
31, 1999 was completed by PricewaterhouseCoopers LLP, and on April 29, 1999, the
Company filed its Annual Report on Form 10-K with the SEC.
During the fiscal years ended January 31, 1999 and January 31, 1998 and
through April 29, 1999, there were no disagreements with PricewaterhouseCoopers
LLP on any matter of accounting principles or practices, financial statement
disclosure or audit scope or procedure which disagreements, if not resolved to
the satisfaction of PricewaterhouseCoopers LLP, would have caused them to make
reference to the subject matter of such disagreement in their reports on the
financial statements for such years. The reports of PricewaterhouseCoopers LLP
on the financial statements for the fiscal years ended January 31, 1999 and
January 31, 1998 did not contain an adverse opinion or a disclaimer of opinion,
nor were such reports qualified or modified as to uncertainty, audit scope, or
accounting principles.
During the fiscal years ended January 31, 1999 and January 31, 1998 and
through April 29, 1999, Deloitte & Touche LLP was not engaged as an independent
accountant to audit either the Company's financial statements or the financial
statements of any of its subsidiaries, nor had it been consulted regarding the
application of the Company's accounting principles to a specified transaction
other than those transactions occurring after February 1, 1999, or the type of
audit opinion that might be rendered on the Company's financial statements.
27
<PAGE> 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the Company, see
"Executive Officers of the Registrant" at the end of Part I of this Form 10-K.
For information with respect to the Directors of the Company, see "Election of
Directors" appearing in the 2000 Proxy Statement, which information is
incorporated by reference into this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
For information with respect to executive compensation, see the information
set forth under the captions "Directors' Compensation," "Executive Compensation"
and "Compensation Committee Interlocks and Insider Participation" in the 2000
Proxy Statement, which information (except for the information under the
sub-captions "Compensation Committee Report on Executive Compensation" and
"Stockholder Return Performance Presentation") is incorporated by reference into
this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information with respect to the security ownership of certain
beneficial owners and management, see the information set forth under the
caption "Beneficial Ownership of the Company's Securities" in the 2000 Proxy
Statement, which information is incorporated by reference into this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to the interests of the Company's management
and others in certain transactions, see the information set forth under the
caption "Certain Relationships and Related Transactions" in the 2000 Proxy
Statement, which information is incorporated by reference into this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THE REPORT:
1. FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company are attached
hereto and listed on the Index to Consolidated Financial Statements set
forth on page F-1 of this Form 10-K.
2. FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or
the notes thereto.
28
<PAGE> 29
3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
3(a) Restated Certificate of Incorporation of the Registrant, as
amended August 31, 1999. Incorporated by reference to
Exhibit 3.1 to Registrant's Post-Effective Amendment No. 2
to Form 8-A as filed September 13, 1999 with the SEC.
3(b) Bylaws of the Registrant, as amended through January 14,
2000.
4(a) Form of Indenture between Registrant and The Chase Manhattan
Bank, as Trustee. Incorporated by reference to Exhibit 4.1
to Registrant's Amendment No. 1 to Form S-3 Registration
Statement No. 333-37117, filed on November 19, 1997.
10(a)* Registrant's Bonus Compensation Plan, as restated effective
July 9, 1999. Incorporated by reference to Annex III to
Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders as filed April 29, 1999 with the SEC (the "1999
Proxy").
10(b)* Registrant's 1992 Stock Option Plan, as amended through
October 2, 1996. Incorporated by reference to Exhibit 10(b)
to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1998 (the "1998 10-K").
10(c)* Registrant's Stock Compensation Plan, as amended through
September 30, 1998. Incorporated by reference to Exhibit
10(c) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1999 (the "1999 10-K").
10(d)* Registrant's Management Stock Compensation Plan, as amended
through September 30, 1998. Incorporated by reference to
Exhibit 10(d) to the 1999 10-K.
10(e)* Registrant's 1999 Stock Incentive Plan, as amended through
August 15, 1999.
10(f)* 1995 Stock Option Plan, as amended through October 2, 1996.
Incorporated by reference to Exhibit 10(f) to the 1998 10-K.
10(g)* Registrant's Keystaff Deferral Plan, as amended through
December 30, 1997. Incorporated by reference to Exhibit
10(g) to the 1998 10-K.
10(h)* Registrant's Key Executive Stock Deferral Plan. Incorporated
by reference to Exhibit 4(s) to Registrant's Annual Report
on Form 10-K for the fiscal year ended January 31, 1996.
10(i)* Form of Alumni Agreement. Incorporated by reference to
Exhibit 4(w) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended January 31, 1997.
10(j) Credit Agreement (multi-year facility) with Bank of America
NT&SA, Morgan Guaranty Trust Company, Citicorp USA, Inc. and
other financial institutions dated as of August 20, 1997.
Incorporated by reference to Exhibit 10(d) to the Form 10-Q
for the fiscal quarter ended July 31, 1997.
10(k)* Employment Agreement dated December 18, 1997 between
Registrant and R.C. Smith, as amended on February 2, 1998.
Incorporated by reference to Exhibit 10(l) to the 1998 10-K.
10(l)* Registrant's 1998 Stock Option Plan. Incorporated by
reference to Annex I to the Registrant's Proxy 1998
Statement for the 1998 Annual Meeting of Stockholders as
filed May 28, 1998 with the SEC (the "1998 Proxy").
10(m)* Registrant's 1998 Employee Stock Purchase Plan. Incorporated
by reference to Annex II to the 1998 Proxy.
16 Letter regarding change in certifying accountant, dated May
3, 1999, from PricewaterhouseCoopers LLP to the SEC.
Incorporated by reference to Exhibit 16 to the Form 8-K/A
filed on May 4, 1999 with the SEC.
21 Subsidiaries of the Registrant.
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
23(a) Consent and Report on Schedule of Deloitte & Touche LLP.
23(b) Consent of PricewaterhouseCoopers LLP.
27(a) Financial Data Schedule for fiscal year ended January 31,
2000.
27(b) Financial Data Schedule (Restated) for fiscal year ended
January 31, 1999.
27(c) Financial Data Schedule (Restated) for fiscal year ended
January 31, 1998.
27(d) Financial Data Schedule (Restated) for the three months
ended April 30, 1999.
27(e) Financial Data Schedule (Restated) for the nine months ended
October 31, 1998.
27(f) Financial Data Schedule (Restated) for the six months ended
July 31, 1998.
27(g) Financial Data Schedule (Restated) for the three months
ended April 30, 1998.
28(a) Annual Report of the Registrant's Cash or Deferred
Arrangement for the plan year ended December 31, 1999.
28(b) Annual Report of the Telcordia Technologies Savings and
Security Plan for the plan year ended December 31, 1999.
28(c) Annual Report of the Telcordia Technologies Savings Plan for
Salaried Employees for the plan year ended December 31,
1999.
</TABLE>
- ---------------
* Executive Compensation Plans and Arrangements
(b) REPORTS ON FORM 8-K IN THE FOURTH QUARTER OF THE FISCAL YEAR ENDED
JANUARY 31, 2000:
A Report on Form 8-K was filed on January 20, 2000. Disclosure was made
under Item 5 -- Other Events.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: April 14, 2000.
SCIENCE APPLICATIONS INTERNATIONAL
CORPORATION
(Registrant)
By /s/ J.R. BEYSTER
------------------------------------
J. R. Beyster
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ J.R. BEYSTER Chairman of the Board and April 14, 2000
- ----------------------------------------------------- Principal Executive Officer
J.R. Beyster
/s/ W.A. ROPER, JR. Principal Financial Officer April 14, 2000
- -----------------------------------------------------
W.A. Roper, Jr.
/s/ P.N. PAVLICS Principal Accounting Officer April 14, 2000
- -----------------------------------------------------
P.N. Pavlics
Director
- -----------------------------------------------------
S. Ahuja
/s/ D.P. ANDREWS Director April 14, 2000
- -----------------------------------------------------
D.P. Andrews
/s/ D.A. COX Director April 14, 2000
- -----------------------------------------------------
D.A. Cox
/s/ W.H. DEMISCH Director April 14, 2000
- -----------------------------------------------------
W.H. Demisch
/s/ D.W. DORMAN Director April 14, 2000
- -----------------------------------------------------
D.W. Dorman
/s/ W.A. DOWNING Director April 14, 2000
- -----------------------------------------------------
W.A. Downing
Director
- -----------------------------------------------------
J.E. Glancy
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ B.R. INMAN Director April 14, 2000
- -----------------------------------------------------
B.R. Inman
/s/ A.K. JONES Director April 14, 2000
- -----------------------------------------------------
A.K. Jones
/s/ H.M.J. KRAEMER, JR. Director April 14, 2000
- -----------------------------------------------------
H.M.J. Kraemer, Jr.
/s/ C.B. MALONE Director April 14, 2000
- -----------------------------------------------------
C.B. Malone
/s/ S.D. ROCKWOOD Director April 14, 2000
- -----------------------------------------------------
S.D. Rockwood
Director
- -----------------------------------------------------
L.A. Simpson
/s/ R.C. SMITH, JR. Director April 14, 2000
- -----------------------------------------------------
R.C. Smith, Jr.
/s/ E.A. STRAKER Director April 14, 2000
- -----------------------------------------------------
E.A. Straker
/s/ M.E. TROUT Director April 14, 2000
- -----------------------------------------------------
M.E. Trout
/s/ J.P. WALKUSH Director April 14, 2000
- -----------------------------------------------------
J.P. Walkush
/s/ J.H. WARNER, JR. Director April 14, 2000
- -----------------------------------------------------
J.H. Warner, Jr.
/s/ J.A. WELCH Director April 14, 2000
- -----------------------------------------------------
J.A. Welch
/s/ A.T. YOUNG Director April 14, 2000
- -----------------------------------------------------
A.T. Young
</TABLE>
32
<PAGE> 33
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
REPORT OF INDEPENDENT ACCOUNTANTS........................... F-3
FINANCIAL STATEMENTS
Consolidated Statements of Income for the three years ended
January 31, 2000.......................................... F-4
Consolidated Balance Sheets as of January 31, 2000 and
1999...................................................... F-5
Consolidated Statement of Stockholders' Equity and
Comprehensive Income for the three years ended January 31,
2000...................................................... F-6
Consolidated Statements of Cash Flows for the three years
ended January 31, 2000.................................... F-7
Notes to Consolidated Financial Statements.................. F-8
FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation and Qualifying Accounts............ F-33
</TABLE>
All other financial statement schedules are omitted because they are not
applicable or the required information is shown on the consolidated financial
statements or the notes thereto.
F-1
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Science Applications International Corporation
We have audited the accompanying consolidated balance sheet of Science
Applications International Corporation and its subsidiaries as of January 31,
2000 and the related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of January 31,
2000, and the results of their operations and their cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
April 6, 2000
F-2
<PAGE> 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Science Applications International Corporation
In our opinion, the consolidated balance sheet as of January 31, 1999 and
the related consolidated statements of income, stockholders' equity and
comprehensive income and of cash flows for each of the two years in the period
ended January 31, 1999 (appearing on pages F-4 through F-7 of this Annual Report
on Form 10-K) present fairly, in all material respects, the financial position,
results of operations and cash flows of Science Applications International
Corporation and its subsidiaries at January 31, 1999 and for each of the two
years in the period ended January 31, 1999, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule on page F-33 presents fairly, in all material respects, the
information set forth therein for the years ended January 31, 1999 and 1998 when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedule are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above. We have not
audited the consolidated financial statements of Science Applications
International Corporation for any period subsequent to January 31, 1999.
/s/ PricewaterhouseCoopers LLP
San Diego, California
April 2, 1999, except as to the stock split discussed in
Note A, for which the date is August 31, 1999
F-3
<PAGE> 36
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues............................................... $5,529,676 $4,740,433 $3,089,351
Costs and expenses:
Cost of revenues..................................... 4,303,862 3,732,890 2,623,339
Selling, general and administrative expenses......... 877,633 684,905 301,093
---------- ---------- ----------
Operating income....................................... 348,181 322,638 164,919
---------- ---------- ----------
Non-operating income (expense):
Interest expense..................................... (27,274) (33,813) (11,682)
Interest income...................................... 54,667 21,897 12,752
Other income (expense), net.......................... 31,637 (4,885) 3,112
Gain on sale of subsidiary common stock.............. 698,374
Minority interest in income of consolidated
subsidiaries...................................... (44,200) (17,842) (10,608)
---------- ---------- ----------
Income before income taxes............................. 1,061,385 287,995 158,493
Provision for income taxes............................. 441,536 137,307 73,699
---------- ---------- ----------
Net income............................................. $ 619,849 $ 150,688 $ 84,794
========== ========== ==========
Earnings per share:
Basic................................................ $ 2.61 $ .67 $ .41
========== ========== ==========
Diluted.............................................. $ 2.42 $ .62 $ .39
========== ========== ==========
Common equivalent shares:
Basic................................................ 237,586 222,483 205,397
========== ========== ==========
Diluted.............................................. 256,268 241,216 219,226
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 37
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 669,320 $ 389,026
Restricted cash........................................... 8,781 16,396
Short-term investments.................................... 424,609 118,808
Receivables............................................... 1,339,763 1,139,809
Prepaid expenses and other current assets................. 143,163 76,322
Deferred income taxes..................................... 173,987 136,164
---------- ----------
Total current assets.............................. 2,759,623 1,876,525
Property and equipment...................................... 351,429 309,578
Land and buildings.......................................... 225,458 186,462
Goodwill.................................................... 170,137 95,414
Other intangible assets..................................... 69,301 77,259
Prepaid pension assets...................................... 492,802 456,803
Other assets................................................ 336,498 170,505
---------- ----------
$4,405,248 $3,172,546
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities.................. $1,409,477 $1,084,202
Accrued payroll and employee benefits..................... 357,014 309,421
Income taxes payable...................................... 90,337 65,547
Notes payable and current portion of long-term debt....... 54,093 47,882
---------- ----------
Total current liabilities......................... 1,910,921 1,507,052
Long-term debt.............................................. 121,289 143,051
Deferred income taxes....................................... 74,412 100,489
Other long-term liabilities................................. 360,362 318,002
Commitments and contingencies (Note O)
Minority interest in consolidated subsidiaries.............. 107,982 19,350
Stockholders' equity:
Class A Common Stock, $.01 par value...................... 2,361 2,264
Class B Common Stock, $.05 par value...................... 15 15
Additional paid-in capital................................ 1,082,727 834,757
Retained earnings......................................... 704,562 271,379
Other stockholders' equity................................ (31,387) (23,928)
Accumulated other comprehensive income.................... 72,004 115
---------- ----------
Total stockholders' equity........................ 1,830,282 1,084,602
---------- ----------
$4,405,248 $3,172,546
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 38
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
CLASS A CLASS B
---------------- ---------------
1,000,000,000 5,000,000
SHARES SHARES OTHER ACCUMULATED
AUTHORIZED AUTHORIZED ADDITIONAL STOCK- OTHER COMPRE-
---------------- --------------- PAID-IN RETAINED HOLDERS' COMPREHENSIVE HENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY INCOME (LOSS) INCOME
------- ------ ------ ------ ---------- --------- -------- --------------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1997
as restated for the
4-for-1 stock split (see
Note A)................... 192,051 $1,921 326 $16 $ 303,217 $ 232,562 $(10,570) $ 313
Net income................ 84,794 $ 84,794
Other comprehensive
loss.................... (7,435) (7,435)
Issuances of common
stock................... 28,829 288 178,761
Repurchases of common
stock................... (13,157) (132) (12) (22,390) (79,768)
Income tax benefit from
employee stock
transactions............ 16,950
Unearned stock
compensation............ (4,413)
Sale of minority interest
in subsidiary........... 60,664
------- ------ --- --- ---------- --------- -------- ------- --------
Balance at January 31,
1998...................... 207,723 2,077 314 16 537,202 237,588 (14,983) (7,122) $ 77,359
========
Net income................ 150,688 $150,688
Other comprehensive
income.................. 7,237 7,237
Issuances of common
stock................... 29,797 298 286,023
Repurchases of common
stock................... (11,133) (111) (11) (1) (29,215) (115,594)
Income tax benefit from
employee stock
transactions............ 34,118
Unearned stock
compensation............ 876 (7,699)
Issuance of subsidiary
stock................... 5,753
Dividends on subsidiary
preferred stock......... (1,303)
Net issuance of notes
receivable for sales of
common stock............ (1,246)
------- ------ --- --- ---------- --------- -------- ------- --------
Balance at January 31,
1999...................... 226,387 2,264 303 15 834,757 271,379 (23,928) 115 $157,925
========
Net income................ 619,849 $619,849
Other comprehensive
income.................. 71,889 71,889
Issuances of common
stock................... 16,655 167 205,374
Repurchases of common
stock................... (6,963) (70) (7) (43,642) (184,930)
Income tax benefit from
employee stock
transactions............ 71,071
Unearned stock
compensation............ 3,231 (7,879)
Issuance of subsidiary
stock................... 11,936
Dividends on subsidiary
preferred stock......... (1,736)
Payments on notes
receivable for sales of
common stock............ 420
------- ------ --- --- ---------- --------- -------- ------- --------
Balance at January 31,
2000...................... 236,079 $2,361 296 $15 $1,082,727 $ 704,562 $(31,387) $72,004 $691,738
======= ====== === === ========== ========= ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 39
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
------------------------------------
2000 1999 1998
--------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 619,849 $ 150,688 $ 84,794
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 187,147 150,949 66,982
Non-cash compensation................................... 72,176 53,566 31,051
Minority interest in income of consolidated
subsidiaries........................................... 44,200 18,537 10,524
Gain on sale of subsidiary common stock................. (698,374)
Equity in loss (income) of unconsolidated affiliates.... 6,123 4,185 (1,326)
Net gain on sales of certain business assets............ (30,750) (3,749) (6,341)
Loss on impaired assets................................. 50,518 13,378 2,878
Loss on disposal of property and equipment.............. 6,960 4,811 3,096
Other non-cash items.................................... 1,553 9,480
Increase (decrease) in cash, excluding effects of
acquisitions, resulting from changes in:
Receivables........................................... (134,637) (311,119) (25,159)
Prepaid expenses and other current assets............. (67,725) (29,401) (3,590)
Progress payments..................................... (1,954) (9,915) (465)
Deferred income taxes................................. (89,550) (85,045) (56,772)
Other assets.......................................... (15,336) (47,386) (45,930)
Accounts payable and accrued liabilities.............. 320,048 330,181 185,111
Accrued payroll and employee benefits................. 38,520 48,825 10,477
Income taxes payable.................................. 81,150 60,417 32,201
Other long-term liabilities........................... 44,314 22,038 63,073
--------- --------- ----------
434,232 380,440 350,604
--------- --------- ----------
Cash flows from investing activities:
Expenditures for property and equipment................... (162,057) (84,994) (52,450)
Expenditures for land and buildings....................... (4,050) (2,818) (17,633)
Acquisitions of certain business assets, net of cash
acquired................................................ (243,272) (4,884) (340,165)
Purchases of debt and equity securities
available-for-sale...................................... (445,411) (99,480) (40,200)
Proceeds from sale of debt and equity securities
available-for-sale...................................... 118,311
Proceeds from maturities (purchases) of debt securities
held-to-maturity........................................ 9,350 (9,350)
Proceeds from sale of subsidiary common stock............. 729,000
Proceeds from sales of certain business assets............ 64,737 864 47,974
Proceeds from disposal of property and equipment.......... 544 785 5,192
Investments in affiliates................................. (74,324) (22,993)
--------- --------- ----------
(7,172) (222,870) (397,282)
--------- --------- ----------
Cash flows from financing activities:
Proceeds from notes payable and issuance of long-term
debt.................................................... 3,467 909 108,993
Payments of notes payable and long-term debt.............. (859) (12,793) (17,943)
Principal payments on capital lease obligations........... (44,504) (30,029) (8,416)
Net proceeds from subsidiary issuance of common stock..... 10,106 10,274 63,528
Dividends paid to minority interest shareholders.......... (9,452) (7,096)
Sales of common stock..................................... 76,783 200,789 128,775
Repurchases of common stock............................... (179,837) (118,846) (83,526)
--------- --------- ----------
(144,296) 43,208 191,411
--------- --------- ----------
Effect of exchange rate changes on cash................... (2,470) (1,139) (625)
--------- --------- ----------
Increase in cash and cash equivalents..................... 280,294 199,639 144,108
Cash and cash equivalents at beginning of year............ 389,026 189,387 45,279
--------- --------- ----------
Cash and cash equivalents at end of year.................. $ 669,320 $ 389,026 $ 189,387
========= ========= ==========
Supplemental schedule of non-cash investing and financing
activities:
Shares of common stock exchanged upon exercise of stock
options................................................. $ 40,142 $ 26,075 $ 18,551
========= ========= ==========
Capital lease obligations for property and equipment...... $ 23,527 $ 56,153 $ 61,258
========= ========= ==========
Fair value of assets acquired in acquisitions............. $ 331,544 $ 10,645 $1,246,129
Cash paid in acquisitions................................. (263,644) (5,648) (467,902)
Issuance of common stock in acquisitions.................. (19,488) (1,526)
--------- --------- ----------
Liabilities assumed in acquisitions....................... $ 48,412 $ 3,471 $ 778,227
========= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 40
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements include the accounts of Science
Applications International Corporation and all majority- and wholly-owned U.S.
and international subsidiaries (collectively referred to as "the Company"). All
significant intercompany transactions and accounts have been eliminated in
consolidation. Investments in affiliates and corporate joint ventures owned 20%
to 50% and over which the Company exercises significant influence are accounted
for under the equity method. Equity investments in affiliates over which the
Company does not exercise significant influence and whose securities do not have
a readily determinable fair market value as defined in Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," are generally carried at cost. Outside investors'
interests in the majority-owned subsidiaries are reflected as minority interest.
Certain of the Company's majority- and wholly-owned subsidiaries have
fiscal years ending December 31. The financial position and results of
operations of these subsidiaries are included in the Company's consolidated
financial statements for the years ended January 31. There were no material
intervening events for such subsidiaries from December 31, 1999 through January
31, 2000 which would materially affect the consolidated financial position or
results of operations.
In 1998, the Company formed a joint venture, Informatica, Negocios y
Tecnologia, S.A. ("INTESA"), with Venezuela's national oil company, Petroleos de
Venezuela, S.A. ("PDVSA"), to provide information technology services in Latin
America. The Company consolidates its 51% majority interest in INTESA, whose
fiscal year end is December 31, in the consolidated financial statements.
On February 12, 1999, the Company's partially-owned subsidiary Network
Solutions, Inc. ("NSI") completed a secondary offering of 4,580,000 shares of
its Class A Common Stock. Of the shares sold in the offering, the Company sold
4,500,000 shares at $170 per share and received proceeds, net of underwriter's
commissions, of $729,000,000 and recognized a gain on the sale of $698,374,000.
On March 23, 1999, NSI completed a 2-for-1 stock split of its Class A Common
Stock and Class B Common Stock. After the stock split, the Company held
14,850,000 shares of NSI Class B Common Stock, which were entitled to ten votes
per share and represented 44.7% ownership interest in NSI and approximately 89%
of the combined voting power. On June 3, 1999, the Company converted its
14,850,000 shares of NSI Class B Common Stock into an equal number of shares of
NSI's Class A Common Stock, which are entitled to one vote per share, thereby
reducing the Company's voting power to 44.7%. As shares of NSI Class A Common
Stock are issued pursuant to NSI employee stock compensation plans, the
Company's ownership interest in NSI is diluted. As of January 31, 2000, the
Company held a 43.8% ownership in NSI which is consolidated in the accompanying
financial statements because the Company controlled the NSI Board of Directors.
Subsequent to the year ended January 31, 2000, the Company further reduced its
ownership level in NSI in another secondary offering (Note R).
Use of estimates
The preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements as well as
the reported amounts of revenues and expenses during the reporting period.
Estimates have been prepared on the basis of the most current and best available
information and actual results could differ from those estimates.
Fair value of financial instruments
It is management's belief that the carrying amounts shown for the Company's
financial instruments, which include cash and cash equivalents, short-term
investments, equity securities, long-term receivables,
F-8
<PAGE> 41
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
long-term investments and long-term debt, are reasonable estimates of their
related fair values. The carrying amount of cash and cash equivalents and
short-term investments approximates fair value because of the short maturity of
those instruments. The fair value of equity securities is based upon quoted
market prices. The fair value of long-term receivables is estimated by
discounting the expected future cash flows at interest rates commensurate with
the creditworthiness of customers and other third parties. The fair value of
long-term debt is estimated based on quoted market prices for similar
instruments and current rates offered to the Company for similar debt with the
same remaining maturities.
Contract revenues
The Company's revenues result from contract services performed for
commercial customers and the U.S. Government or from subcontracts with other
contractors engaged in work for the U.S. Government under a variety of
contracts, some of which provide for reimbursement of cost plus fees and others
which are fixed-price or time-and-materials type contracts. Generally, revenues
and fees on these contracts are recognized as services are performed, using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. The Company
also derives revenues from software license fees, maintenance contracts and
registration services. Software license fees are generally recognized when the
software has been accepted and there are no significant obligations remaining.
Revenues from maintenance contracts are recognized over the term of the
respective contracts as maintenance services are provided. Revenues from
registration services are recognized on a straight-line basis over the life of
the registration term. Amounts billed but not yet recognized as revenue under
certain types of contracts are deferred in the accompanying consolidated balance
sheet. Revenues from the sale of manufactured products are recorded when the
products are shipped.
The Company provides for anticipated losses on contracts by a charge to
income during the period in which the losses are first identified. Unbilled
receivables are stated at estimated realizable value. Contract costs on U.S.
Government contracts, including indirect costs, are subject to audit and
adjustment by negotiations between the Company and government representatives.
Substantially all of the Company's indirect contract costs have been agreed upon
through 1999. Contract revenues on U.S. Government contracts have been recorded
in amounts that are expected to be realized upon final settlement.
Cash and cash equivalents
Cash equivalents are highly liquid investments purchased with an original
maturity of three months or less. Cash and cash equivalents at January 31, 2000
and 1999 include $583,917,000 and $371,626,000, respectively, invested in
commercial paper, institutional money market funds and time deposits.
Investments in debt and equity securities
Management determines the appropriate classification of its investments in
debt and equity securities at the time of purchase and reevaluates such
determination at each balance sheet date. Debt and equity securities are
classified as either available-for-sale or held-to-maturity and reflected as
short-term and long-term investments. Available-for-sale securities are carried
at market value and held-to-maturity debt securities are carried at amortized
cost. The difference between cost and market value, net of related tax effects,
is recorded in the "accumulated other comprehensive income" component of
stockholders' equity. Realized gains and losses on the sale of
available-for-sale securities are determined using the adjusted cost of the
specific securities sold.
Restricted cash
The Company has a contract to provide support services to the National
Cancer Institute's Frederick Cancer Research and Development Center ("Center").
As part of the contract, the Company is responsible
F-9
<PAGE> 42
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for paying for materials, equipment and other direct costs of the Center through
the use of a restricted cash account which is pre-funded by the U.S. Government.
Additionally, as discussed in Note I, cash collected from PDVSA for the INTESA
pension plan and postretirement benefit obligations is restricted as it relates
to funding of the future obligations.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the moving average and first-in, first-out methods.
Buildings, property and equipment
Depreciation and amortization of buildings and related improvements are
provided using the straight-line method over estimated useful lives of thirty to
forty years and the shorter of the lease term or ten years, respectively.
Depreciation and amortization of property and equipment are provided over the
estimated useful lives of the assets, primarily using a declining-balance
method. The useful lives are three to ten years for equipment.
Additions to property and equipment together with major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals and
betterments are charged to expense. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation or amortization are removed
from the accounts and any resulting gain or loss is recognized.
Long-lived assets
The Company assesses potential impairments to its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely and the carrying amount of the asset exceeds
the expected future undiscounted cash flows. When the carrying amount of the
asset exceeds the expected future undiscounted cash flows, an impairment loss is
recognized to reduce the assets carrying amount to its estimated fair value
based on the present value of the estimated expected future cash flows.
Goodwill and other intangible assets
Goodwill represents the excess of the purchase cost over the fair value of
net identifiable assets acquired in an acquisition. Goodwill and other
identifiable intangible assets are amortized on a straight line basis over three
to fifteen years. Amortization of goodwill amounted to $62,864,000, $25,139,000
and $15,403,000 in 2000, 1999 and 1998, respectively. Accumulated goodwill
amortization was $55,208,000 and $41,720,000 at January 31, 2000 and 1999,
respectively. Amortization of other intangible assets amounted to $28,731,000,
$15,508,000 and $1,250,000 in 2000, 1999 and 1998, respectively. Accumulated
other intangible assets amortization was $34,089,000 and $17,921,000 at January
31, 2000 and 1999, respectively.
In 2000, 1999 and 1998, the Company recognized impairment losses of
$50,518,000, $13,378,000 and $2,878,000, respectively, which were included in
selling, general and administrative expense. Of the total amount of impairment
losses taken in 2000, $42,300,000 was related to a business unit in the
Non-Regulated segment, which was acquired in March 1999 and represented less
than 1% of total consolidated revenues and consolidated assets at January 31,
2000. The factors leading the Company to assess the recoverability were
greater-than-expected operating losses since the time of acquisition and the
loss of a major contract procurement. The assessment of the expected future
undiscounted cash flows indicated that an impairment existed. The impairment
loss was quantified by estimating the fair value of the business unit using the
discounted cash flow method.
F-10
<PAGE> 43
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes
Income taxes are provided utilizing the liability method. The liability
method requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and tax bases of assets and liabilities. Additionally, under the
liability method, changes in tax rates and laws will be reflected in income in
the period such changes are enacted.
Stock-based compensation
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company accounts for employee stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.
Accordingly, compensation expense for employee stock options is measured as the
excess, if any, of the fair value of the Company's stock as determined by the
Board of Directors at the date of grant over the amount an employee must pay to
acquire the stock. Pro forma disclosures of net income and earnings per share,
as if the fair value-based method prescribed by SFAS No. 123 had been applied in
measuring compensation expense, are presented in Note M.
Common stock and earnings per share
Class A and Class B Common Stock are collectively referred to as common
stock in the Notes to Consolidated Financial Statements unless otherwise
indicated. A general public market for the Company's common stock does not
exist. Quarterly determinations of the price of the common stock are made by the
Board of Directors pursuant to a valuation process which includes a stock price
formula. Valuation input from an independent appraisal firm is one of the
factors considered by the Board of Directors in establishing the stock price.
The Board of Directors believes that the valuation process results in a value
which represents a fair market value for the Class A Common Stock within a broad
range of financial criteria. The Board of Directors reserves the right to alter
the formula and valuation process.
Basic earnings per share ("EPS") is computed by dividing income available
to common stockholders by the weighted average number of shares of common stock
outstanding. Diluted EPS is computed similar to basic EPS except that the
weighted average number of shares of common stock outstanding is increased to
include the effect of stock options and other stock awards granted to employees
under stock-based compensation plans that were outstanding during the period.
On April 9, 1999, the Company's Board of Directors approved a
recapitalization proposal which included an increase to the number of authorized
shares of Class A Common Stock from 100,000,000 shares to 1,000,000,000 shares
and a 4-for-1 stock split of the Company's Class A Common Stock. This
recapitalization proposal was approved by the stockholders on July 9, 1999 at
the 1999 Annual Stockholders Meeting and became effective August 31, 1999 for
stockholders of record at that date. Stockholders' equity has been retroactively
restated to reflect the stock split for all periods presented by reclassifying
the par value of the additional shares arising from the split from additional
paid-in-capital to common stock. All share and per share data in the
accompanying Financial Statements and Notes to Consolidated Financial Statements
have been retroactively restated to reflect the stock split for all periods
presented.
Derivative financial instruments
The Company initiates hedging activities by entering into currency exchange
agreements consisting principally of currency forward contracts to minimize
revenue and cost variations which could result from fluctuations in currency
exchange rates. These instruments, consistent with the underlying purchase or
sale commitments, typically mature within seven years of origination. In the
event of an early termination of a currency agreement designated as a hedge, the
gain or loss will continue to be deferred and will be included in
F-11
<PAGE> 44
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the settlement of the underlying transaction. At January 31, 2000, the Company
had approximately $17,644,000 of foreign currency forward exchange contracts in
British pounds, French francs, Japanese yen, Irish punts, Norwegian krones,
German deutschmarks, Hong Kong dollars, Euros, Belgian francs and Australian
dollars outstanding with net deferred gains of $648,000.
In 1997, the Company entered into forward treasury lock agreements for a
total of $200,000,000. Such agreements were entered into to manage exposure to
fluctuations in interest rates on an anticipated, probable issuance of debt that
was to be used to finance the acquisition of Telcordia Technologies, Inc.
("Telcordia") (formerly Bellcore). The agreements terminated in 1998 resulting
in losses. Due to changes in market conditions, an unexpected decline in
interest rates and availability of cash, in 1998, the Company only issued ten
year fixed rate notes with a principal amount of $100,000,000. Therefore, a loss
of $9,047,000 was recorded as other expense upon termination of the agreement
and a loss of $9,356,000 was deferred, included in long-term debt and is being
amortized to interest expense over the life of the fixed rate notes (Note K and
Note P).
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents, accounts
receivable, short-term and long-term investments, foreign currency forward
exchange contracts and long-term receivables.
The Company invests its available cash principally in U.S. Government and
agency securities, corporate obligations, asset and mortgage-backed securities,
municipal debt, equity securities and commercial paper and has established
guidelines relative to diversification and maturities in an effort to maintain
safety and liquidity. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates.
Concentrations of credit risk with respect to receivables are limited
because the Company's principal customers are the Regional Bell Operating
Companies ("RBOCs"), various agencies of the U.S. Government and commercial
customers engaged in work for the U.S. Government. The credit risk with the U.S.
Government is limited and the financial strength of the RBOCs limits the risk on
those receivables.
Foreign currency
Financial statements of international subsidiaries, for which the
functional currency is the local currency, are translated into U.S. dollars
using the exchange rate at each balance sheet date for assets and liabilities
and a weighted average exchange rate for revenues, expenses, gains and losses.
Translation adjustments are recorded as accumulated other comprehensive income
in stockholders' equity. The functional currency of the Company's foreign
subsidiary that operates in a highly inflationary economy (INTESA) is the U.S.
dollar. The monetary assets and liabilities of this foreign subsidiary are
translated into U.S. dollars at the exchange rate in effect at the balance sheet
date. Revenues, expenses, gains and losses are translated at the average
exchange rate for the period, and non-monetary assets and liabilities are
translated at historical rates. Resulting remeasurement gains or losses of this
foreign subsidiary are recognized in the consolidated results of operations.
Comprehensive income
In 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and displaying comprehensive
income and its components. The adoption did not have an effect on net income or
total stockholders' equity. SFAS No. 130 requires unrealized gains or losses on
the Company's available-for-sale securities and foreign currency translation
adjustments to be included in other
F-12
<PAGE> 45
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comprehensive income. 1998 financial statements have been reclassified to
conform to these requirements. The components of other comprehensive income
(loss), net of tax effects, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Foreign currency translation adjustments.............. $(1,043) $ (642) $(5,237)
Deferred taxes........................................ 404 183 1,493
------- ------- -------
Net foreign currency translation adjustments.......... (639) (459) (3,744)
------- ------- -------
Unrealized gain (loss) on securities.................. 124,380 11,853 (5,164)
Reclassification of realized gains.................... (1,947)
Deferred taxes........................................ (49,905) (4,157) 1,473
------- ------- -------
Net unrealized gain (loss) on securities.............. 72,528 7,696 (3,691)
------- ------- -------
$71,889 $ 7,237 $(7,435)
======= ======= =======
</TABLE>
Recently issued accounting pronouncements
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133," which defers the effective date of
SFAS No. 133 to all fiscal quarters of fiscal years beginning after June 15,
2000. Therefore, the Company will adopt SFAS No. 133 effective for the first
quarter ending April 30, 2001. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
SFAS No. 133 also requires that changes in the derivative instrument's fair
value be recognized currently in results of operations unless specific hedge
accounting criteria are met. Based on the types of derivative instruments the
Company currently has, the Company does not expect the adoption of SFAS No. 133
to have a material impact on the Company's consolidated financial position or
results of operations.
Gains on issuance of stock by subsidiary
Gains on issuances of unissued shares of stock by a subsidiary are
reflected as equity transactions and recorded directly to additional paid-in
capital.
In 1998, the Company and its subsidiary NSI completed an initial public
offering of 3,795,000 shares of NSI Class A Common Stock. The initial offering
price was $18 per share with net proceeds to the Company of $63,528,000
resulting in a gain of $60,664,000 which was recorded as additional paid-in
capital.
Reclassifications
Certain amounts from previous years have been reclassified in the
consolidated financial statements to conform to the 2000 presentation.
NOTE B -- ACQUISITIONS AND INVESTMENTS IN AFFILIATES:
The carrying value of the Company's equity and cost method investments was
$74,349,000 and $41,279,000 at January 31, 2000 and 1999, respectively, which
includes the unamortized excess of the Company's equity investments over its
equity in the underlying net assets of $9,211,000 and $9,718,000, respectively.
In 2000, the Company completed acquisitions of certain business assets and
companies, which individually are not considered significant business
combinations, for an aggregate purchase price of
F-13
<PAGE> 46
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $302,411,000. In some cases, the Company acquired all the issued
and outstanding common stock of certain companies while in other cases, the
Company acquired certain specific assets and liabilities. All these acquisitions
have been accounted for under the purchase method of accounting and the
operations of the companies acquired have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
The aggregate purchase price was allocated to the assets acquired and
liabilities assumed based upon their estimated fair values. The aggregate excess
of the purchase price over fair value of the net tangible assets acquired of
approximately $158,494,000 has been allocated to other identifiable intangible
assets and goodwill, which will be amortized on a straight-line basis over
periods of three to ten years. Certain of the acquisitions completed have been
recorded based on preliminary purchase price pending final negotiations and
valuation. The Company does not anticipate a material change to the aggregate
purchase price or assets acquired and liabilities assumed.
The following unaudited pro forma summary information presents the
consolidated results of operations as if the acquisitions, in aggregate, had
been completed at the beginning of the periods presented and are not necessarily
indicative of the results of operations of the consolidated Company that might
have occurred had the acquisitions been completed at the beginning of the
periods specified, nor are they necessarily indicative of future operating
results.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------
2000 1999
----------- -----------
(UNAUDITED, IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues............................................ $5,718,666 $5,032,557
========== ==========
Net income.......................................... $ 616,063 $ 139,883
========== ==========
Basic earnings per share............................ $ 2.59 $ .63
========== ==========
Diluted earnings per share.......................... $ 2.40 $ .58
========== ==========
</TABLE>
NOTE C -- BUSINESS SEGMENT INFORMATION:
The Company primarily provides diversified professional and technical
services involving the application of scientific expertise, together with
computer and systems technology, to solve complex technical problems for a broad
range of government and commercial customers, both in the U.S. and abroad.
Technical services consist of basic and applied research services; design and
development of computer software; systems integration; systems engineering;
technical operational and management support services; environmental
engineering; design and integration of network systems; technical engineering
and consulting support services; and development of systems, policies, concepts
and programs. Through its subsidiary, Telcordia, the Company is a global
provider of software, engineering and consulting services, advanced research and
development, technical training and other services to the telecommunications
industry. In addition to providing technical services, the Company designs and
develops high-technology products. These products include customized and
standard hardware and software, such as automatic equipment identification
technology, sensors and nondestructive imaging instruments. Product revenues
represented 1%, 1% and 2% of consolidated revenues in 2000, 1999 and 1998,
respectively.
The implementation of SFAS No. 131 results in the use of a management
approach in identifying segments of an enterprise. The management approach is
based on the way management organizes the operating segments within the Company
for making decisions and assessing performance. However, the Company's marketing
approach focuses on key vertical markets such as "National Security," "Health
Care," "Environment," "Energy," "Telecommunications," "Information Technology"
and "Other," which includes the Company's transportation, logistics, space and
utilities business areas and information technology support to federal civil
agencies. Marketing decisions based on these key vertical markets are made at
the lowest operational level.
F-14
<PAGE> 47
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's operating groups ("Groups"), on which performance is
assessed, aggregate into two reportable segments, Regulated and Non-Regulated,
depending on the business processes and laws affecting the operations of the
Group. Groups in the Regulated segment provide technical services and products
through contractual arrangements as either a prime contractor or subcontractor
to other contractors, primarily for departments and agencies of the U.S.
Government. Operations in the Regulated segment are subject to specific
regulatory accounting and contracting guidelines such as Cost Accounting
Standards and Federal Acquisition Regulations. Groups in the Non-Regulated
segment provide technical services and products primarily to customers in
commercial markets. Generally, operations in the Non-Regulated segment are not
subject to specific regulatory accounting or contracting guidelines. Groups and
entities that do not provide technical services, which includes the Company's
Corporate Offices, are not aggregated into these reportable segments.
The Company evaluates performance and allocates resources based on income
or loss from operations before tax. Asset information is not a component of the
Company's evaluation of the Groups. However, the Company allocates an internal
interest charge or credit ("Cost of Capital") to each Group based on an internal
formula which utilizes certain identifiable asset data in calculating the Cost
of Capital. Interest expense, as reported in the consolidated financial
statements, is generally recorded at the corporate level. In addition, the
Company does monitor capital expenditures by Groups.
The accounting policies of the reportable segments are the same as those
described in Note A. General corporate expense allocations are reflected in the
segment operating results because all such expenses are allocated to individual
cost objectives by the Company, as required by Government Cost Accounting
Standards. Certain adjustments made at the consolidated level are not allocated
to the Groups for internal reporting purposes. Because of the nature of the
Company's business, sales between segments are not material and are recorded at
cost.
F-15
<PAGE> 48
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the segment information:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Regulated.................................... $3,258,850 $2,742,918 $2,294,899
Non-Regulated................................ 2,236,544 1,988,564 782,720
---------- ---------- ----------
Total segment revenues......................... 5,495,394 4,731,482 3,077,619
Corporate and other.......................... 34,282 8,951 11,732
---------- ---------- ----------
Total consolidated revenues.................... $5,529,676 $4,740,433 $3,089,351
========== ========== ==========
Income (Loss) before income taxes:
Regulated.................................... $ 204,932 $ 143,133 $ 134,536
Non-Regulated................................ 218,050 207,008 50,038
---------- ---------- ----------
Total segment income before income taxes....... 422,982 350,141 184,574
Corporate and other.......................... 638,403 (62,146) (26,081)
---------- ---------- ----------
Total income before income taxes............... $1,061,385 $ 287,995 $ 158,493
========== ========== ==========
Cost of Capital:
Regulated.................................... $ (8,233) $ (5,452) $ (8,605)
Non-Regulated................................ 698 797 1,130
---------- ---------- ----------
Total segment Cost of Capital.................. (7,535) (4,655) (7,475)
Corporate and other.......................... 7,535 4,655 7,475
---------- ---------- ----------
Total consolidated Cost of Capital............. $ -- $ -- $ --
========== ========== ==========
Depreciation and amortization:
Regulated.................................... $ 30,568 $ 23,223 $ 27,117
Non-Regulated................................ 149,907 123,065 36,409
---------- ---------- ----------
Total segment depreciation and amortization.... 180,475 146,288 63,526
Corporate and other.......................... 6,672 4,661 3,456
---------- ---------- ----------
Total consolidated depreciation and
amortization................................. $ 187,147 $ 150,949 $ 66,982
========== ========== ==========
Capital expenditures:
Regulated.................................... $ 43,698 $ 19,779 $ 22,663
Non-Regulated................................ 75,311 62,197 25,458
---------- ---------- ----------
Total segment capital expenditures............. 119,009 81,976 48,121
Corporate and other.......................... 47,098 5,836 21,962
---------- ---------- ----------
Total consolidated capital expenditures........ $ 166,107 $ 87,812 $ 70,083
========== ========== ==========
</TABLE>
F-16
<PAGE> 49
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes geographic information:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------
2000 1999 1998
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
United States................................ $5,102,359 $4,321,635 $2,776,938
Venezuela.................................... 334,463 312,706 225,347
United Kingdom............................... 64,113 69,193 60,661
Other International.......................... 28,741 36,899 26,405
---------- ---------- ----------
Total consolidated revenues.................... $5,529,676 $4,740,433 $3,089,351
========== ========== ==========
Long-lived assets:
United States................................ $1,526,454 $1,153,191 $1,111,582
Venezuela.................................... 103,416 124,821 108,295
United Kingdom............................... 3,325 5,443 5,648
Other International.......................... 12,430 12,566 13,909
---------- ---------- ----------
Total consolidated long-lived assets........... $1,645,625 $1,296,021 $1,239,434
========== ========== ==========
</TABLE>
During 2000, 1999 and 1998, approximately 52%, 50% and 66%, respectively,
of the Company's consolidated revenues were attributable to prime contracts with
the U.S. Government or to subcontracts with other contractors engaged in work
for the U.S. Government and are reflected in the Regulated segment revenues. No
single contract or customer had revenues greater than 10% of the Company's
consolidated revenues in 2000, 1999 and 1998.
F-17
<PAGE> 50
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
<TABLE>
<CAPTION>
JANUARY 31
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Prepaid expenses and other current assets:
Prepaid expenses.......................................... $ 78,545 $ 46,930
Inventories............................................... 11,563 16,096
Other..................................................... 53,055 13,296
---------- ----------
$ 143,163 $ 76,322
========== ==========
Property and equipment at cost:
Computers and other equipment............................. $ 446,265 $ 437,150
Leasehold improvements.................................... 145,844 75,529
Office furniture and fixtures............................. 66,074 38,514
---------- ----------
658,183 551,193
Less accumulated depreciation and amortization............ 306,754 241,615
---------- ----------
$ 351,429 $ 309,578
========== ==========
Land and buildings at cost:
Buildings and improvements................................ $ 198,307 $ 169,832
Land...................................................... 63,068 45,453
Land held for future use.................................. 702 702
---------- ----------
262,077 215,987
Less accumulated depreciation and amortization............ 36,619 29,525
---------- ----------
$ 225,458 $ 186,462
========== ==========
Other assets:
Investment in affiliates.................................. $ 74,349 $ 41,279
Related party receivable (Note I)......................... 36,692 43,237
Long-term investments..................................... 181,285 40,895
Other long-term receivables............................... 30,658 31,805
Other..................................................... 13,514 13,289
---------- ----------
$ 336,498 $ 170,505
========== ==========
Accounts payable and accrued liabilities:
Accounts payable.......................................... $ 277,886 $ 207,330
Other accrued liabilities................................. 399,131 270,233
Deferred revenue.......................................... 578,785 413,004
Collections in excess of revenues on uncompleted
contracts............................................... 153,675 193,635
---------- ----------
$1,409,477 $1,084,202
========== ==========
Accrued payroll and employee benefits:
Salaries, bonuses and amounts withheld from employees'
compensation............................................ $ 203,952 $ 189,744
Accrued vacation.......................................... 123,135 99,826
Accrued contributions to employee benefit plans........... 29,927 19,851
---------- ----------
$ 357,014 $ 309,421
========== ==========
Other long-term liabilities:
Other postretirement benefits............................. $ 148,258 $ 135,962
Accrued pension liability................................. 34,433 40,956
Accrued other employee benefits........................... 12,826 11,490
Deferred revenue.......................................... 108,522 35,823
Deferred compensation..................................... 28,214 26,483
Other..................................................... 28,109 67,288
---------- ----------
$ 360,362 $ 318,002
========== ==========
</TABLE>
F-18
<PAGE> 51
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- SHORT-TERM AND LONG-TERM INVESTMENTS:
The aggregate market value, cost basis, gross unrealized gains and losses
of short-term and long-term available-for-sale investments by major security
type were as follows:
<TABLE>
<CAPTION>
COST UNREALIZED UNREALIZED MARKET
BASIS GAINS (LOSSES) VALUE
---------- ---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
AT JANUARY 31, 2000:
U.S. government and agency securities......... $ 77,863 $(1,540) $ 76,323
Corporate obligations......................... 196,110 $ 625 (746) 195,989
Equity securities............................. 36,928 133,405 170,333
Municipal debt................................ 64,706 (886) 63,820
Asset and mortgage backed securities.......... 84,757 (1,748) 83,009
Other......................................... 16,420 16,420
-------- -------- ------- --------
$476,784 $134,030 $(4,920) $605,894
======== ======== ======= ========
AT JANUARY 31, 1999:
Corporate obligations......................... $118,190 $118,190
Equity securities............................. 25,474 $ 6,689 32,163
-------- -------- --------
$143,664 $ 6,689 $150,353
======== ======== ========
</TABLE>
At January 31, 2000, $199,284,000 of short-term debt securities have
contractual maturities of one year or less, $187,238,000 of short-term debt
securities have contractual maturities of two to five years, and $49,039,000 of
short-term debt securities have contractual maturities greater than five years.
Actual maturities may differ from contractual maturities as a result of the
Company's intent to sell these securities prior to maturity date and as a result
of features of the securities that enable either the Company, the issuer, or
both to redeem these securities in part or in full at an earlier date. The
majority of the equity securities are classified as other assets in the
accompanying balance sheet.
Held-to-maturity debt securities are investments in high rated corporate
bonds with amortized costs of $9,350,000, at January 31, 1999, which
approximates market value. There were no held-to-maturity debt securities at
January 31, 2000.
Gross realized gains and losses of debt and equity securities were
$4,308,000 and $2,362,000, respectively, for the year ended January 31, 2000.
There were no realized gains or losses from available-for-sale securities for
the years ended January 31, 1999 and 1998.
NOTE F -- RECEIVABLES:
Receivables consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
------------------------
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Receivables, primarily U.S. Government and RBOCs,
less allowance for doubtful accounts of $64,523
and $40,829 at January 31, 2000 and 1999,
respectively:
Billed............................................ $ 958,853 $ 937,541
Unbilled, less progress payments of $5,272 and
$7,226 at January 31, 2000 and 1999,
respectively................................... 358,411 177,798
Contract retentions............................... 22,499 24,470
---------- ----------
$1,339,763 $1,139,809
========== ==========
</TABLE>
F-19
<PAGE> 52
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Unbilled receivables at January 31, 2000 and 1999 include $26,655,000 and
$20,980,000, respectively, related to costs incurred on projects for which the
Company has been requested by the customer to begin work under a new contract or
extend work under an existing contract, but for which formal contracts or
contract modifications have not been executed. The balance of unbilled
receivables consist of costs and fees billable on contract completion or other
specified events, the majority of which is expected to be billed and collected
within one year. Contract retentions are billed when the Company has negotiated
final indirect rates with the U.S. Government and, once billed, are subject to
audit and approval by outside third parties. Consequently, the timing of
collection of retention balances is outside the Company's control. Based on the
Company's historical experience, the majority of the retention balance is
expected to be collected beyond one year.
NOTE G -- REVOLVING CREDIT FACILITY:
The Company has a five-year reducing revolving credit facility ("Credit
Facility") with a group of financial institutions which allow borrowings until
August 2002 and which was reduced to $675,000,000 in 2000 according to the
original terms. Borrowings under the Credit Facility are unsecured and bear
interest, at the Company's option, at various rates based on the base rate, bid
rate or on margins over the CD rate or LIBOR. The Company pays a facility fee on
the total commitment amount. Certain financial covenants required by the Credit
Facility, such as requiring the Company to maintain certain levels of net worth
and an interest coverage ratio, as well as limitation on indebtedness, have been
maintained as of January 31, 2000.
There was no balance outstanding under the Credit Facility at January 31,
2000 and 1999. As of January 31, 2000, the entire $675,000,000 was available
under the most restrictive debt covenants of the Credit Facility and during 2000
and 1999, the Company did not borrow under the Credit Facility. In 1998, the
maximum and average amount outstanding was $320,000,000 and $38,228,000,
respectively. The weighted average interest rate in 1998 was 6.0% based upon
average daily balances.
NOTE H -- EMPLOYEE BENEFIT PLANS:
The Company has one principal Profit Sharing Retirement Plan ("PSRP") in
which eligible employees participate. Participants' interests vest 25% per year
in the third through sixth year of service. Participants also become fully
vested upon reaching age 59 1/2, permanent disability or death. Contributions
charged to income under the PSRP were $36,617,000, $23,122,000 and $18,929,000
for 2000, 1999 and 1998, respectively.
The Company has an Employee Stock Retirement Plan ("ESRP"), formerly known
as the Employee Stock Ownership Plan, in which eligible employees participate.
Cash or stock contributions to the ESRP are based upon amounts determined
annually by the Board of Directors and are allocated to participants' accounts
based on their annual compensation. The Company recognizes compensation expense
as the fair value of the Company common stock or the amount of cash contributed
in the year of contribution. The vesting requirements for the ESRP are the same
as the PSRP. Shares of Company common stock distributed from the ESRP bear a
limited put option that, if exercised, would require the Company to repurchase
the shares at their then current fair value. At January 31, 2000, the ESRP held
60,829,216 shares of Class A Common Stock and 24,887 shares of Class B Common
Stock with a combined fair value of $1,589,594,700. Contributions charged to
income under the Plan were $16,258,000, $25,820,000 and $22,072,000 for 2000,
1999 and 1998, respectively.
The Company has one principal Cash or Deferred Arrangement (CODA) which
allows eligible participants to defer a portion of their income through
contributions. Such deferrals are fully vested, are not taxable to the
participant until distributed from the CODA upon termination, retirement,
permanent disability or death and may be matched by the Company. The Company's
matching contributions to the CODA charged to income were $19,400,000,
$15,829,000 and $14,454,000 for 2000, 1999 and 1998, respectively.
F-20
<PAGE> 53
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the acquisition of Telcordia, the Company also sponsors
two contributory savings plans which allow eligible Telcordia employees to defer
a portion of their pre-tax income through contributions and contribute a portion
of their income on an after-tax basis. Such deferrals are fully vested, are not
taxable to the participant until distributed upon termination, retirement,
permanent disability or death and may be matched by the Company. The Company's
matching contributions charged to income were $18,555,000, $17,200,000 and
$2,800,000 for 2000, 1999 and 1998, respectively.
The Company has two principal bonus compensation plans, the Bonus
Compensation Plan and the Annual Incentive Plan ("AIP"), which provide for
bonuses to reward outstanding performance. The AIP was assumed in connection
with the acquisition of Telcordia in 1998. Bonuses are paid in the form of cash,
fully vested shares of Class A Common Stock or vesting shares of Class A Common
Stock. Awards of vesting shares of Class A Common Stock vest at the rate of 20%,
20%, 20% and 40% after one, two, three and four years, respectively. The amounts
charged to income under these plans were $140,618,000, $120,373,000 and
$49,587,000 for 2000, 1999 and 1998, respectively.
The Company has a Stock Compensation Plan and Management Stock Compensation
Plan, together referred to as the "Stock Compensation Plans." The Stock
Compensation Plans provide for awards of share units to eligible employees,
which share units generally correspond to shares of Class A Common Stock held in
trust for the benefit of participants. Participants' interests in these share
units vest on a seven year schedule at the rate of one-third at the end of each
of the fifth, sixth and seventh years following the date of the award. The fair
market value of shares awarded under these plans are recorded as unearned
compensation which is included in stockholders' equity. The unearned amounts are
amortized to expense over the vesting period. The amounts charged to income
under these plans were $3,602,000, $2,606,000 and $1,688,000 for 2000, 1999 and
1998, respectively.
The Company also has an Employee Stock Purchase Plan ("ESPP") which allows
eligible employees to purchase shares of the Company's Class A Common Stock, at
a discount of 10% of the existing fair market value. There are no charges to
income under this plan because such plan is a non-compensatory plan. However,
the proforma effect on net income and earnings per share of compensation expense
under SFAS No. 123, "Accounting for Stock-Based Compensation" has been disclosed
in Note M.
The Company has two deferred compensation plans. The Keystaff Deferral Plan
is maintained for the benefit of key executives and directors, pursuant to which
eligible participants may elect to defer a portion of their compensation. The
Company makes no contributions to the accounts of participants under this plan
but does credit participant accounts for deferred compensation amounts and
interest earned on such deferred compensation. Interest is accrued based on the
Moody's Seasoned Corporate Bond Rate (7.95% in 2000). Deferred balances will
generally be paid upon the later of the attainment of age 65, ten years of plan
participation or retirement, unless participants obtain approval for an early
pay-out. The Key Executive Stock Deferral Plan is maintained for the benefit of
directors and certain key executives. Eligible participants may elect to defer a
portion of their compensation into a trust established by the Company which
invests in shares of Class A Common Stock. The Company makes no contributions to
the accounts of participants. Deferred balances will generally be paid upon
retirement or termination.
NOTE I -- PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS:
In connection with the acquisition of Telcordia in 1998, the Company
assumed assets and liabilities related to five noncontributory defined benefit
pension plans covering eligible management and support staff employees of
Telcordia and assumed assets and liabilities for postretirement health and life
insurance benefits for retired U.S. employees and their dependents. The Company
accounts for these benefit plans in accordance with SFAS No. 87, "Employers'
Accounting for Pensions" and SFAS No. 106, "Employers' Accounting for
F-21
<PAGE> 54
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postretirement Benefits Other Than Pensions." In accordance with SFAS No. 132,
all the qualified and non-qualified pension plans are disclosed in the
aggregate.
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
PENSION BENEFITS OTHER THAN PENSIONS
------------------------ ------------------------
YEAR ENDED JANUARY 31
----------------------------------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of
year.................................. $1,117,359 $1,030,604 $ 183,554 $ 176,911
Service cost............................. 29,160 25,078 5,288 4,409
Interest cost............................ 78,547 72,672 13,764 11,939
Plan participants' contributions......... 1,747 199
Actuarial (gain) loss.................... (120,307) 40,372 (12,949) (675)
Net portability transfers paid during the
year.................................. (6,380) (5,228)
Gross benefits paid...................... (50,314) (46,139) (10,773) (9,229)
---------- ---------- --------- ---------
Net benefit obligation at end of year...... $1,048,065 $1,117,359 $ 180,631 $ 183,554
========== ========== ========= =========
Change in plan assets:
Fair value of plan assets at beginning of
year.................................. $1,707,006 $1,474,418 $ 58,733 $ 56,732
Actual return on plan assets............. 245,615 282,518 6,746 10,776
Employer contributions................... 631 1,437 1,561 255
Plan participants' contributions......... 1,747 199
Net portability transfers paid during the
year.................................. (6,380) (5,228)
Gross benefits paid...................... (50,314) (46,139) (10,773) (9,229)
---------- ---------- --------- ---------
Fair value of plan assets at end of year... $1,896,558 $1,707,006 $ 58,014 $ 58,733
========== ========== ========= =========
Funded status at end of year............... $ 848,493 $ 589,647 $(122,617) $(124,821)
Unrecognized net actuarial gain............ (368,666) (144,374) (24,497) (9,286)
Contributions in January................... 129 59 820 34
---------- ---------- --------- ---------
Prepaid (accrued) benefit cost............. $ 479,956 $ 445,332 $(146,294) $(134,073)
========== ========== ========= =========
Weighted-average assumptions:
Discount rate............................ 7.75% 6.75% 7.75% 6.75%
Expected return on plan assets........... 9.00% 9.00% 9.00% 8.63%
Rate of compensation increase............ 5.00% 5.00% 5.00% 5.00%
</TABLE>
F-22
<PAGE> 55
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For measurement purposes, a 7.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000. The rate was assumed
to decrease gradually to 5% for 2004 and remain at that level thereafter.
<TABLE>
<CAPTION>
POSTRETIREMENT BENEFITS
PENSION BENEFITS OTHER THAN PENSIONS
-------------------------------- --------------------------
YEAR ENDED JANUARY 31
--------------------------------------------------------------
2000 1999 1998 2000 1999 1998
--------- --------- -------- ------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Components of net periodic benefit cost:
Service cost..................... $ 29,160 $ 25,078 $ 5,299 $ 5,288 $ 4,409 $ 919
Interest cost.................... 78,547 72,672 14,912 13,764 11,939 2,565
Expected return on assets........ (141,849) (128,766) (26,697) (4,470) (4,388) (942)
Amortization of actuarial loss... 220 74 (14)
--------- --------- -------- ------- ------- ------
Net periodic benefit cost.......... $ (33,922) $ (30,942) $ (6,486) $14,568 $11,960 $2,542
========= ========= ======== ======= ======= ======
</TABLE>
The Company sponsors five noncontributory defined benefit pension plans.
Two of these plans are funded qualified plans, the Management Pension Plan and
the Support Staff Pension Plan. Benefits are based on a stated percentage of
final average pay formula for the management plans and a flat-dollar amount per
years of service for the Support Staff Pension Plan. All of the assets of the
qualified plans, which are primarily equities (international and domestic) and
fixed income securities are held in a master trust administered by the Company.
The Company's policy is to fund the "Qualified" plans based on legal
requirements, tax considerations and investment opportunities. The Company
utilizes a hybrid method for amortizing investment gains and losses. This method
fully recognizes gains and losses for fixed income securities and amortizes
gains and losses on all other asset classes over three years.
The Company sponsors three unfunded non-qualified benefit plans for certain
members of management. One of these plans provides benefits that replace
benefits not available in the qualified plans due to design or legal
limitations. The other two plans offer additional pension benefits to certain
employees based on job level. The projected benefit obligation and accumulated
benefit obligation of these plans, which had accumulated benefit obligations in
excess of plan assets, were $14,315,000 and $9,321,000, respectively, as of
December 31, 1999, the plans' year end, and $13,397,000 and $6,337,000,
respectively, as of December 31, 1998. The non-qualified plans are unfunded and
therefore have no assets.
The Company offers certain postretirement medical and life insurance
benefits to substantially all retired employees. Currently, the plan assets for
the life insurance benefits are held in a Voluntary Employee Benefit Association
(VEBA) trust. During 2000, the medical benefits VEBA has been depleted and
medical benefits for the retirees are being paid from Corporate assets.
Telcordia did not make any contributions to the VEBA trust during the year. The
Company's funding policy is to contribute annually an amount determined by
management, based on federal income tax limitations.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plan. A one-percentage-point change in the
assumed health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
ONE-PERCENTAGE ONE-PERCENTAGE
POINT INCREASE POINT DECREASE
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Effect on total service and interest cost
components.................................... $ 2,223 $ (1,976)
Effect on postretirement benefit obligation..... $19,403 $(15,823)
</TABLE>
In 1998, when the Company formed the INTESA joint venture with PDVSA,
approximately 1,500 employees transferred from PDVSA to INTESA. Under Venezuelan
law, INTESA assumed the existing employee benefit plans, including a defined
benefit pension plan. Under the terms of the joint venture
F-23
<PAGE> 56
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement, PDVSA agreed to fund the projected benefit obligation of the pension
plan and accumulated post-retirement benefit obligation of the post-retirement
benefit plans over ten years. The obligation of PDVSA to fund these benefits has
been reflected as a related party receivable and included in other assets in the
Company's consolidated balance sheet. In addition, effective January 1, 2002
employees hired on and after January 1, 1997 will be covered by INTESA pension
plan and post-retirement medical and life benefits. The employees will receive
credit for service with INTESA rendered prior to January 1, 2002. The related
benefit obligation and unrecognized prior service cost for these employees is
reflected in the following disclosure. The plans are accounted for in accordance
with the requirements of SFAS No. 87 and SFAS No. 106.
Benefits are based upon years of service and compensation during the twelve
months of accredited service earned immediately before retirement. The majority
of the assets of the pension plan, receivables and cash, are not currently held
in a trust. PDVSA had initially agreed to fund this obligation by December 31,
2006. Per the terms of an amended agreement, PDVSA will fund this obligation by
January 31, 2007 either through direct payments to INTESA or direct
contributions to a trust.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
----------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of year.......... $ 51,029 $ 53,698
Service cost......................................... 4,465 4,697
Interest cost........................................ 4,829 12,106
Actuarial (gains) losses............................. (394) (5,534)
Amendments........................................... 718
Early retirement window.............................. (5,666) (8,133)
Translation.......................................... (6,885) (5,805)
-------- --------
Net benefit obligation at end of year.................. $ 48,096 $ 51,029
======== ========
Change in plan assets:
Fair value of plan assets at beginning of year....... $ 4,866
Actuarial return on plan assets...................... 2,401 $ 1,611
Employer contributions............................... 10,724 9,868
Plan participant contributions....................... (1,137) 1,251
Gross benefits paid.................................. (5,666) (7,739)
Translation.......................................... (1,052) (125)
-------- --------
Fair value of plan assets at end of year............... $ 10,136 $ 4,866
======== ========
Funded status at end of year........................... $(37,960) $(46,163)
Unrecognized net actuarial gains....................... (3,207) (1,283)
Unrecognized prior service cost........................ 1,796 1,587
Other.................................................. (24)
-------- --------
Accrued benefit cost................................... $(39,395) $(45,859)
======== ========
Weighted average assumptions:
Discount rate........................................ 10% 10%
Salary increases..................................... 7% 7%
Expected rate of return on assets.................... 12% 12%
</TABLE>
F-24
<PAGE> 57
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
PENSION BENEFITS
----------------------------
YEAR ENDED JANUARY 31
----------------------------
2000 1999 1998
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost......................................... $4,465 $ 4,697 $ 3,308
Interest cost........................................ 4,829 12,105 12,953
Expected return on assets............................ (408) (1,066)
Amortization of:
Prior service..................................... 274 203
Actuarial losses.................................. (150) 627
------ ------- -------
Net periodic pension cost.............................. 9,010 16,566 16,261
Cost of special termination benefits................. (145)
------ ------- -------
Total pension cost........................... $9,010 $16,421 $16,261
====== ======= =======
</TABLE>
In addition to the pension benefits described above, certain postretirement
benefits were also transferred to INTESA for health and life insurance benefits
for the PDVSA employees who transferred to INTESA. Eligibility for the plans and
participant cost sharing is dependent upon the participant's age at retirement,
years of service and retirement date. The Company accounts for these benefit
plans in accordance with SFAS No. 106. The accrued postretirement benefits
liability was $2,244,000 and $2,125,000 as of January 31, 2000 and 1999,
respectively. Net postretirement benefits expense was $444,000 and $329,000 for
the year ended January 31, 2000 and 1999, respectively.
NOTE J -- INCOME TAXES:
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................... $411,349 $135,996 $87,755
State............................................. 91,148 33,379 21,097
Foreign........................................... 11,439 13,313 8,397
Deferred:
Federal........................................... (55,921) (36,303) (35,880)
State............................................. (16,269) (7,930) (6,641)
Foreign........................................... (210) (1,148) (1,029)
-------- -------- -------
$441,536 $137,307 $73,699
======== ======== =======
</TABLE>
F-25
<PAGE> 58
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes are provided for significant income and expense items
recognized in different years for tax and financial reporting purposes. Deferred
tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31
----------------------
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred revenue, net of reserves.................... $ 190,446 $ 108,717
Accrued vacation..................................... 35,563 28,122
Deferred compensation................................ 17,695 13,423
Vesting stock bonuses................................ 32,574 22,240
Accrued liabilities.................................. 33,415 28,995
Depreciation and amortization........................ 5,082
Other................................................ 19,903 19,050
--------- ---------
Total deferred tax assets.................. 334,678 220,547
--------- ---------
Employee benefit contributions....................... (151,044) (138,252)
Unrealized net gain on marketable securities......... (52,577) (4,890)
Depreciation and amortization........................ (26,238)
Investment in subsidiaries and affiliates............ (31,316) (14,629)
Other................................................ (166) (863)
--------- ---------
Total deferred tax liabilities............. (235,103) (184,872)
--------- ---------
Net deferred tax asset............................... $ 99,575 $ 35,675
========= =========
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax (35%) to income before income taxes
follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-------------------------------
2000 1999 1998
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Amount computed at statutory rate................... $371,485 $100,798 $55,472
State income taxes, net of federal tax benefit...... 48,671 16,542 9,396
Nondeductible meals, travel and entertainment....... 3,567 4,546 3,143
(Income) losses of foreign subsidiaries............. (1,974) (2,181) 3,113
Revision of prior years' tax estimates.............. 4,418 4,961 (589)
Other............................................... 15,369 12,641 3,164
-------- -------- -------
$441,536 $137,307 $73,699
======== ======== =======
</TABLE>
Income taxes paid in 2000, 1999 and 1998 amounted to $481,045,000,
$180,866,000 and $82,905,000, respectively.
F-26
<PAGE> 59
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
6.75% Notes payable.................................... $ 91,237 $ 90,489
Capital lease obligations.............................. 60,424 79,586
Mortgages payable collateralized by real property...... 6,630 6,740
Other notes payable.................................... 17,091 14,118
-------- --------
175,382 190,933
Less current portion................................... 54,093 47,882
-------- --------
$121,289 $143,051
======== ========
</TABLE>
In January 1998, the Company issued $100,000,000 of 6.75% notes ("6.75%
Notes") under a shelf registration statement filed with the Securities and
Exchange Commission. The 6.75% Notes are due February 1, 2008 with interest
payable semi-annually beginning August 1, 1998 and were issued with a nominal
discount. The Company used the proceeds to repay certain short-term
indebtedness, including obligations assumed in connection with the acquisition
of Telcordia and for general corporate purposes. The Company amortizes the note
discount, underwriter's fees and commissions and the loss on the forward
treasury lock agreement (Note A) to interest expense which results in an
effective interest rate of 8.3% over the term of the 6.75% Notes. The Company is
subject to certain restrictions such as limitations on liens, on sale and
leaseback transactions and on consolidation, merger, and sale of assets. As of
January 31, 2000, the Company was in compliance with the restrictions.
During 1997, the Company assumed a $6,919,000 mortgage note in connection
with the purchase of land and a building. Terms of the note include quarterly
payments of principal and interest until December 2016. Interest is adjusted
annually and was 6.4% in 2000. Additionally, the Company has various other notes
payable with interest rates from 6.0% to 9.3% that are due over the next ten
years.
Maturities of long-term debt, excluding capital lease obligations, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 (IN THOUSANDS)
---------------------- --------------
<S> <C>
2001...................................................... $ 16,145
2002...................................................... 472
2003...................................................... 276
2004...................................................... 321
2005...................................................... 345
2006 and after............................................ 97,399
--------
$114,958
========
</TABLE>
F-27
<PAGE> 60
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- EARNINGS PER SHARE:
A summary of the elements included in the computation of basic and diluted
EPS is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
---------------------------------------------------------------------
2000 1999
--------------------------------- ---------------------------------
WEIGHTED WEIGHTED
AVERAGE PER SHARE AVERAGE PER SHARE
NET INCOME SHARES AMOUNT NET INCOME SHARES AMOUNT
---------- -------- --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income................ $619,849 $150,688
Effect of:
Subsidiary preferred
stock dividends....... (1,777)
--------
Net income available to
common stockholders, as
adjusted................ 619,849 148,911
Basic EPS................. 237,586 $2.61 222,483 $ .67
===== =====
Effect of:
Majority-owned
subsidiary's dilutive
securities............ (313) (428)
-------- --------
Net income available to
common stockholders, as
adjusted................ $619,536 $148,483
======== ========
Effect of dilutive
securities:
Stock options........... 18,350 18,220
Other stock awards...... 332 513
------- -------
Diluted EPS............... 256,268 $2.42 241,216 $ .62
======= ===== ======= =====
<CAPTION>
YEAR ENDED JANUARY 31
---------------------------------
1998
---------------------------------
WEIGHTED
AVERAGE PER SHARE
NET INCOME SHARES AMOUNT
---------- -------- ---------
<S> <C> <C> <C>
Net income................ $84,794
Effect of:
Subsidiary preferred
stock dividends.......
Net income available to
common stockholders, as
adjusted................ 84,794
Basic EPS................. 205,397 $ .41
=====
Effect of:
Majority-owned
subsidiary's dilutive
securities............
Net income available to
common stockholders, as
adjusted................ $84,794
=======
Effect of dilutive
securities:
Stock options........... 13,649
Other stock awards...... 180
-------
Diluted EPS............... 219,226 $ .39
======= =====
</TABLE>
NOTE M -- COMMON STOCK AND OPTIONS:
The Company has options outstanding under four stock option plans, the 1999
Stock Incentive Plan ("1999 Plan"), which was adopted on July 9, 1999, the 1998
Stock Option Plan ("1998 Plan"), the 1995 Stock Option Plan ("1995 Plan") and
the 1992 Stock Option Plan ("1992 Plan"). Under the 1999 Plan, 1998 Plan, 1995
Plan and 1992 Plan, options are granted at prices not less than the fair market
value at the date of grant and for terms not greater than ten years. Options
granted under these plans generally become exercisable 20%, 20%, 20%, and 40%
after one, two, three and four years, respectively. No options were granted
under the 1992 Plan after July 31, 1995, the date the 1992 Plan terminated nor
were any options granted under the 1995 Plan after July 31, 1998, the date the
1995 Plan terminated.
If the Company had elected to recognize compensation expense based upon the
fair value at the grant dates for stock option awards granted in 2000, 1999 and
1998 and for shares issued under the ESPP in 2000, 1999 and 1998, consistent
with the methodology prescribed by SFAS No. 123, net income in 2000, 1999 and
1998 would have been reduced by $22,009,000, $14,958,000 and $10,328,000,
respectively. Basic earnings per share would have been reduced by $.09, $.07,
and $.05 per share in 2000, 1999 and 1998, respectively, and diluted earnings
per share would have been reduced by $.06 per share in 2000 and 1999 and $.04
per share in 1998. These amounts were determined using weighted-average per
share fair values of options granted in 2000, 1999 and 1998 of $4.24, $2.78 and
$1.97, respectively. The fair value for these options was estimated at the date
of grant using the Black-Scholes option pricing model with the following
assumptions for 2000, 1999 and 1998: no dividend yield, no volatility, risk free
interest rates ranging from 4.6% to 6.8% and expected lives of five years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. The Company
F-28
<PAGE> 61
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
meets the definition of a non-public company for the purposes of calculating
fair value and, therefore, assumes no volatility in the fair value calculation.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in subjective input
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock-based compensation plans.
A summary of changes in outstanding options under the plans during the
three years ended January 31, 2000, is as follows:
<TABLE>
<CAPTION>
SHARES OF CLASS A
SHARES OF CLASS A COMMON STOCK
COMMON STOCK WEIGHTED AVERAGE EXERCISABLE
UNDER OPTIONS EXERCISE PRICE UNDER OPTIONS
----------------- ---------------- -----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
January 31, 1997.................. 51,315 $ 3.93 17,717
Options granted................. 18,586 $ 7.44
Options canceled................ (2,515) $ 4.80
Options exercised............... (10,476) $ 3.06
-------
January 31, 1998.................. 56,910 $ 5.20 17,518
Options granted................. 13,060 $11.83
Options canceled................ (2,175) $ 7.47
Options exercised............... (10,622) $ 3.62
-------
January 31, 1999.................. 57,173 $ 6.92 19,088
Options granted................. 14,853 $18.04
Options canceled................ (2,653) $11.79
Options exercised............... (13,313) $ 4.50
-------
January 31, 2000.................. 56,060 $10.21 18,531
=======
</TABLE>
As of January 31, 2000, 87,446,000 shares of Class A Common Stock were
reserved for issuance upon exercise of options which are outstanding or which
may be granted. The Company has made available for issuance, purchase or options
approximately 573,000 shares of Class A Common Stock to employees, prospective
employees and consultants, generally contingent upon commencement of employment
or the occurrence of certain events. The selling price of shares and the
exercise price of options are fair market value at the date such shares are
purchased or options are granted.
A summary of options outstanding as of January 31, 2000 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE
OPTIONS AVERAGE REMAINING OPTIONS WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- -------------- ---------------- ----------- ----------------
(OPTIONS OUTSTANDING AND EXERCISABLE, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
$ 3.93 to $ 4.57........ 5,905 $ 4.09 .4 5,905 $ 4.09
$ 4.83 to $ 5.71........ 9,997 $ 5.07 1.5 5,363 $ 5.08
$ 6.49 to $ 9.78........ 14,676 $ 7.44 2.6 5,217 $ 7.48
$ 9.78 to $14.72........ 11,496 $11.82 3.5 2,046 $11.92
$17.46 to $19.99........ 13,986 $18.05 4.4
------ ------
56,060 18,531
====== ======
</TABLE>
F-29
<PAGE> 62
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE N -- LEASES:
The Company occupies most of its facilities under operating leases. Most of
the leases require the Company to pay maintenance and operating expenses such as
taxes, insurance and utilities and also contain renewal options extending the
leases from one to twenty years. Certain of the leases contain purchase options
and provisions for periodic rate escalations to reflect cost-of-living
increases. Certain equipment, primarily computer-related, is leased under
short-term or cancelable operating leases. Rental expenses for facilities and
equipment totaled $143,196,000, $113,320,000 and $90,012,000 in 2000, 1999 and
1998, respectively.
The Company has a seven year operating lease for a general purpose office
building, with an option to purchase the building at the end of the initial
seven year term. If the purchase option is not exercised, the Company may be
required to pay certain supplemental rental payments if proceeds from the sale
of the building to an unrelated buyer are below specified amounts. The maximum
supplemental rental payment which could be required is $28,809,000. In 1999, the
Company entered into an operating lease for land and general purpose office
facilities with an initial term of five and one-half years and an option for the
Company to purchase the property. If the purchase option is not exercised, the
Company may be required to pay certain supplemental rental payments if proceeds
from the sale of the property to an unrelated buyer are below specified amounts.
The maximum supplemental rental payment which could be required is $43,040,000.
Assets acquired under capital leases and included in property and
equipment, and land and buildings consist of the following:
<TABLE>
<CAPTION>
JANUARY 31
--------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computers and other equipment.......................... $129,077 $123,817
Office furniture and fixtures.......................... 3,686 5,084
Buildings and improvements............................. 1,943 1,760
-------- --------
134,706 130,661
Less accumulated amortization.......................... 69,969 45,196
-------- --------
$ 64,737 $ 85,465
======== ========
</TABLE>
Minimum rental commitments, primarily for facilities, under all
non-cancelable operating leases and capital leases in effect at January 31, 2000
are payable as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31 CAPITAL OPERATING
---------------------- -------- ---------
<S> <C> <C>
2001................................................. $ 43,601 $119,323
2002................................................. 20,911 91,927
2003................................................. 3,970 71,901
2004................................................. 5 42,777
2005................................................. 22,169
2006 and after....................................... 27,393
-------- --------
Total minimum lease payments......................... 68,487 $375,490
========
Amount representing interest......................... (8,063)
--------
Present value of net minimum capital lease
payments.......................................... 60,424
Current portion...................................... (37,948)
--------
Long-term obligations under capital leases at January
31,
2000.............................................. $ 22,476
========
</TABLE>
F-30
<PAGE> 63
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's joint venture, INTESA, had capital lease obligations included
in the above table, totaling $59,071,000, of which $36,850,000 was classified as
current portion of long-term debt as of January 31, 2000. These capital lease
obligations of the joint venture are non-recourse debt to the Company.
NOTE O -- COMMITMENTS AND CONTINGENCIES:
Other commitments at January 31, 2000 include outstanding letters of credit
aggregating $50,406,000, principally related to guarantees on contracts with
commercial and foreign customers, and outstanding surety bonds aggregating
$101,682,000, principally related to performance and payment type bonds.
The Company is involved in various investigations, claims and lawsuits
arising in the normal conduct of its business, none of which, in the opinion of
the Company's management, is expected to have a material adverse effect on its
consolidated financial position, results of operations, cash flows or its
ability to conduct business.
NOTE P -- SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Charges to costs and expenses for depreciation and amortization of
buildings, property and equipment and assets acquired under capital leases were
$146,097,000, $122,507,000 and $52,021,000 for 2000, 1999 and 1998,
respectively.
Included in selling, general and administrative expenses are independent
research and development costs of $114,074,000, $119,805,000 and $23,202,000 in
2000, 1999 and 1998, respectively.
Total interest paid in 2000, 1999 and 1998 amounted to $24,677,000,
$28,815,000 and $8,786,000, respectively.
The components of other income (expense), net, in the accompanying
consolidated statement of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gain on sale of certain businesses.................... $30,750 $ 3,749 $ 6,341
Loss on treasury lock agreement....................... (9,047)
Equity in (loss) income of unconsolidated affiliates,
net................................................. (6,123) (4,185) 1,326
Other income (expense), net........................... 7,010 (4,449) 4,492
------- ------- -------
$31,637 $(4,885) $ 3,112
======= ======= =======
</TABLE>
NOTE Q -- SALE OF BUSINESS:
On September 3, 1999, the Company sold the stock of its TransCore business
unit and recognized a gain on the sale of $28,847,000. The gain is reflected in
other income in the accompanying consolidated financial statements.
NOTE R -- SUBSEQUENT EVENT:
On February 11, 2000, NSI completed a secondary offering of 8,889,500
shares of its Class A Common Stock. Of the shares sold in the offering, the
Company sold 6,700,000 shares, NSI sold 2,159,500 shares and other selling
stockholders sold 30,000 shares at $247 per share before deducting underwriting
commissions of $9.75 per share. The Company received net proceeds from the
offering of $1,589,575,000 and will recognize a gain on the sale before income
taxes in the first quarter ending April 30, 2000 of approximately
$1,466,000,000. On February 15, 2000, NSI announced a 2-for-1 stock split to be
effective March 10, 2000.
F-31
<PAGE> 64
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon completion of this secondary offering and giving effect to the stock split,
the Company owned 16,300,000 shares of NSI Class A Common Stock which represents
a 22.6% interest in NSI. With the recent recomposition of the NSI Board of
Directors and the current ownership interest in NSI, the Company will no longer
consolidate NSI's financial statements and will instead recognize its
proportionate share of NSI's net income or loss under the equity method of
accounting beginning in the first quarter ending April 30, 2000.
On March 6, 2000, NSI entered into a merger agreement with VeriSign, Inc.
("VeriSign"), a publicly traded company and leading provider of Internet trust
services, pursuant to which VeriSign would acquire NSI and NSI would become a
wholly-owned subsidiary of VeriSign. Under the merger agreement, VeriSign will
issue 1.075 shares of VeriSign common stock for each share of NSI stock (after
giving effect to the 2-for-1 split of NSI common stock completed on March 10,
2000). This merger would result in the Company holding approximately 9% of
VeriSign's outstanding shares. The transaction is expected to close in the third
quarter of calendar 2000, subject to obtaining the approval of the stockholders
of VeriSign and NSI and necessary regulatory approvals.
F-32
<PAGE> 65
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER BALANCE AT
DESCRIPTION OF YEAR EXPENSES ACCOUNTS(1) DEDUCTIONS END OF YEAR
----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1998
Allowance for uncollectible
accounts......................... $18,048 $14,182 $ 45,762 $ (41,808) $36,184
Year ended January 31, 1999
Allowance for uncollectible
accounts......................... $36,184 $ 7,755 $ 68,480 $ (71,590) $40,829
Year ended January 31, 2000
Allowance for uncollectible
accounts......................... $40,829 $13,167 $310,519 $(299,992) $64,523
</TABLE>
- ---------------
(1) Charged primarily to allowance for deferred revenues.
F-33
<PAGE> 1
EXHIBIT 3(b)
B Y L A W S
OF
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(a Delaware corporation)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - OFFICES ................................................................... 1
Section 1.01 REGISTERED OFFICE ........................................................ 1
Section 1.02 PRINCIPAL OFFICE ......................................................... 1
Section 1.03 OTHER OFFICES ............................................................ 1
ARTICLE II - MEETINGS OF STOCKHOLDERS ................................................. 1
Section 2.01 ANNUAL MEETINGS .......................................................... 1
Section 2.02 SPECIAL MEETINGS ......................................................... 1
Section 2.03 TIME AND PLACE OF MEETINGS ............................................... 1
Section 2.04 NOTICE OF MEETINGS AND ADJOURNED MEETINGS; WAIVERS OF NOTICE ............. 2
Section 2.05 QUORUM ................................................................... 2
Section 2.06 VOTING ................................................................... 2
Section 2.07 BUSINESS AT ANNUAL MEETING ............................................... 3
Section 2.08 LIST OF STOCKHOLDERS ..................................................... 4
Section 2.09 INSPECTORS ............................................................... 4
Section 2.10 REGULATIONS FOR CONDUCT OF STOCKHOLDERS MEETING .......................... 4
ARTICLE III - BOARD OF DIRECTORS ...................................................... 5
Section 3.01 GENERAL POWERS ........................................................... 5
Section 3.02 NUMBER ................................................................... 5
Section 3.03 ELECTION OF DIRECTORS .................................................... 5
Section 3.04 RESIGNATIONS ............................................................. 6
Section 3.05 VACANCIES ................................................................ 6
Section 3.06 FIRST MEETING ............................................................ 6
Section 3.07 REGULAR MEETINGS ......................................................... 6
Section 3.08 SPECIAL MEETINGS ......................................................... 6
Section 3.09 COMMITTEES ............................................................... 6
Section 3.10 NOTICE OF MEETINGS ....................................................... 7
Section 3.11 PLACE OF MEETING, ETC. ................................................... 7
Section 3.12 QUORUM AND MANNER OF ACTING .............................................. 7
Section 3.13 ACTION BY CONSENT ........................................................ 7
Section 3.14 COMPENSATION ............................................................. 8
Section 3.15 OFFICERS OF THE BOARD .................................................... 8
Section 3.16 DIRECTORS EMERITUS ....................................................... 8
ARTICLE IV - OFFICERS ................................................................. 8
Section 4.01 PRINCIPAL OFFICERS ....................................................... 8
Section 4.02 ELECTION ................................................................. 8
Section 4.03 ADDITIONAL OFFICERS AND AGENTS ........................................... 8
Section 4.04 REMOVAL .................................................................. 9
Section 4.05 RESIGNATIONS ............................................................. 9
Section 4.06 VACANCIES ................................................................ 9
Section 4.07 CHAIRMAN OF THE BOARD .................................................... 9
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 4.08 CHIEF EXECUTIVE OFFICER .................................................. 9
Section 4.09 PRESIDENT(s) ............................................................. 10
Section 4.10 VICE PRESIDENTS .......................................................... 10
Section 4.11 SECRETARY ................................................................ 10
Section 4.12 CHIEF FINANCIAL OFFICER .................................................. 11
Section 4.13 TREASURER ................................................................ 11
Section 4.14 CONTROLLER ............................................................... 11
ARTICLE V - DELEGATIONS OF AUTHORITIES ................................................ 12
Section 5.01 EXECUTION OF CONTRACTS ................................................... 12
Section 5.02 CHECKS, DRAFTS, ETC. ..................................................... 12
Section 5.03 DEPOSITS ................................................................. 12
Section 5.04 GENERAL SPECIAL BANK ACCOUNTS ............................................ 12
ARTICLE VI - SHARES AND SHARE TRANSFER ................................................ 13
Section 6.01 CERTIFICATES FOR STOCK ................................................... 13
Section 6.02 TRANSFERS OF STOCK ....................................................... 14
Section 6.03 REGULATIONS .............................................................. 14
Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES ....................... 14
Section 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD .................. 14
ARTICLE VII - MISCELLANEOUS ........................................................... 15
Section 7.01 CORPORATE INTENT ......................................................... 15
Section 7.02 SEAL ..................................................................... 15
Section 7.03 WAIVER OF NOTICES ........................................................ 15
Section 7.04 FISCAL YEAR .............................................................. 15
Section 7.05 AMENDMENTS ............................................................... 15
Section 7.06 DESIGNATION OF ENGINEER .................................................. 15
</TABLE>
ii
<PAGE> 4
BYLAWS OF
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
Section 1.01 REGISTERED OFFICE. The registered office of SCIENCE
APPLICATIONS INTERNATIONAL CORPORATION (the "Corporation") in the State of
Delaware shall be at 1209 Orange Street, City of Wilmington, County of New
Castle, and the name of the registered agent in charge thereof shall be The
Corporation Trust Company.
Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction
of the business of the Corporation shall be at 10260 Campus Point Drive, San
Diego, California 92121. The Board of Directors (the "Board") is hereby granted
full power and authority to change said principal office from one location to
another.
Section 1.03 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.01 ANNUAL MEETINGS. An annual meeting of stockholders shall be
held for the election of directors and to transact such other business as may
properly be brought before the meeting.
Section 2.02 SPECIAL MEETINGS. Special meetings of the stockholders of
the Corporation for any purpose or purposes may be called at any time by the
Board, or by a committee of the Board which has been duly designated by the
Board and whose powers and authority, as provided in a resolution of the Board
or in the Bylaws, include the power to call such meetings, but such special
meetings may not be called by any other person or persons; provided, however,
that if and to the extent that any special meeting of stockholders may be called
by any other person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151(g) of the Delaware General Corporation Law (or its successor statute as in
effect from time to time hereafter), then such special meeting may also be
called by the person or persons, in the manner, at the times and for the
purposes so specified.
Section 2.03 TIME AND PLACE OF MEETINGS. All meetings of the
stockholders shall be held at such places, within or without the State of
Delaware, on such date and at such time as may from time to time be designated
by the person or persons calling the respective meeting and specified in the
respective notices or waivers of notice thereof.
1
<PAGE> 5
Section 2.04 NOTICE OF MEETINGS AND ADJOURNED MEETINGS; WAIVERS OF
Notice.
(a) Whenever stockholders are required or permitted to take any action
at a meeting, a written notice of the meeting shall be given to each stockholder
of record entitled to vote at such meeting which shall state the place, date and
hour of the meeting, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called. Notice may be given by such delivery
means (mail, telecopy, electronic or other) as the Secretary deems appropriate
and in compliance with applicable law and shall be delivered to the
stockholders' address as it appears on the stock transfer records of the
Corporation. Unless otherwise required by Delaware Law, such notice shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder of record entitled to vote at such meeting. Unless otherwise
expressly required by Delaware Law, when a meeting is adjourned to another time
or place (whether or not a quorum is present), notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken. At the adjourned meeting, the Corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than 30 days, or after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
(b) A written waiver of any such notice signed by the person entitled
thereto, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Business transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice.
Section 2.05 QUORUM. Except as provided by Delaware Law, the holders of
record of a majority in voting interest of the shares of stock of the
Corporation entitled to be voted thereat, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders of the Corporation or any adjournment thereof. In the absence of a
quorum at any meeting or any adjournment thereof, a majority in voting interest
of the stockholders present in person or by proxy and entitled to vote thereat
or, in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as a secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the meeting
as originally called.
Section 2.06 VOTING.
(a) At each meeting of the stockholders, each stockholder shall be
entitled to vote, in person or by proxy, each share or fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by such stockholder and registered in such
stockholder's name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as
the record date for the determination of stockholders entitled to notice
of and to vote at such meeting, or
2
<PAGE> 6
(ii) if no such record date shall have been so fixed, then (a) at
the close of business on the day before the day on which notice of the
meeting shall be given or (b) if notice of the meeting shall be waived,
at the close of business on the day before the day on which the meeting
shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his or her proxy appointed by an instrument in writing,
subscribed by such stockholder or by such stockholder's attorney thereunto
authorized and delivered to the secretary of the meeting; provided, however,
that no proxy shall be voted or acted upon after three (3) years from its date
unless said proxy shall provide for a longer period. At any meeting of the
stockholders all matters, except as otherwise provided in the Certificate of
Incorporation, in these Bylaws or by Delaware Law, shall be decided by the vote
of a majority in voting interest of the stockholders present in person or by
proxy and entitled to vote thereat and thereon, a quorum being present. The vote
at any meeting of the stockholders on any question need not be by ballot, except
as otherwise provided in the Certificate of Incorporation or unless so directed
by the chairman of the meeting. On a vote by ballot, each ballot shall be signed
by the stockholder voting, or by his or her proxy, if there be such proxy, and
it shall state the number of shares voted.
Section 2.07 BUSINESS AT ANNUAL MEETING. To be properly brought before
the meeting, business must be either (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board, (b) otherwise
properly brought before the meeting by or at the direction of the Board, or (c)
otherwise properly brought before the meeting by a stockholder who was a
stockholder of record at the time of the giving of notice provided for in this
Bylaw, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Bylaw. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal offices of the Corporation
not less than 50 days nor more than 75 days prior to the meeting; provided,
however, that, in the event that less than 65 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 15th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made, whichever
first occurs. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business and any other
stockholders of the Corporation known to such stockholder to be in favor of such
proposal, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by such stockholder on the date of such
notice, (iv) any material interest of such stockholder in such proposal, and (v)
whether the proponent intends or is part of a group which intends to solicit
proxies from other stockholders in support of such proposal.
3
<PAGE> 7
No business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 2.07; provided,
however, that nothing in this Section 2.07 shall be deemed to preclude
discussion by any stockholder of any business properly brought before the annual
meeting.
The chairman of the annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with this Section 2.07 and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
Section 2.08 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.09 INSPECTORS. Prior to each meeting of the stockholders, one
or more inspectors shall be appointed by the Board, or, if no such appointment
shall have been made, such inspectors shall be appointed by the chairman of the
meeting, to act thereat. Each inspector so appointed shall first subscribe an
oath or affirmation faithfully to execute the duties of an inspector at such
meeting with strict impartiality and according to the best of his or her
ability. Such inspectors shall take charge of the ballots at such meeting, count
the ballots cast on any question and deliver a written report of the results
thereof to the secretary of such meeting. The inspectors need not be
stockholders of the Corporation. Any officer of the Corporation may be an
inspector on any question other than a vote for or against his or her election
to any position with the Corporation or on any other question in which he or she
may be directly interested other than as a stockholder.
Section 2.10 REGULATIONS FOR CONDUCT OF STOCKHOLDERS MEETING. The Board
may adopt by resolution such rules and regulations for the conduct of the
meeting of stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations adopted by the Board, the chairman
of any meeting of stockholders shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (i) the establishment of an agenda or order of business for the
meeting; (ii) rules and procedures for maintaining order at the meeting and the
safety of those present; and (iii) limitations on the time allotted to questions
or comments by participants. Unless and to the extent determined by the Board or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with the rules of parliamentary procedure.
4
<PAGE> 8
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 GENERAL POWERS. The property, business and affairs of the
Corporation shall be managed by the Board, who may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by Delaware
Law, by the Certificate of Incorporation or by these Bylaws directed or required
to be exercised or done by the stockholders.
Section 3.02 NUMBER. The exact number of directors shall be fixed from
time to time, within the limits specified in the Certificate of Incorporation,
by resolution of the Board.
Section 3.03 ELECTION OF DIRECTORS.
(a) Voting -- The directors shall be elected annually by the
stockholders of the Corporation and the persons receiving the greatest number of
votes, up to the number of directors to be elected, shall be the persons then
elected. The election of directors is subject to any provisions contained in the
Certificate of Incorporation relating thereto, including any provisions for a
classified board and for cumulative voting.
(b) Nomination of Directors -- Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board may be made at a
meeting of stockholders by or at the direction of the Board, by any Nominating
Committee or person appointed by the Board, or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3.03(b). Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal offices of the Corporation not less than 50 days nor
more than 75 days prior to the meeting; provided, however, that in the event
that less than 65 days' notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director: (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors pursuant
to Rule 14A under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice: (i) the name and record address of such
stockholder and (ii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by such stockholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein.
5
<PAGE> 9
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure and, if the chairman should so determine, the chairman shall
so declare to the meeting, and the defective nomination shall be disregarded.
Section 3.04 RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 3.05 VACANCIES. Except as otherwise provided in the Certificate
of Incorporation, any vacancy in the Board, whether because of death,
resignation, disqualification, an increase in the number of directors, or any
other cause, may be filled by vote of the majority of the remaining directors,
although less than a quorum. Each director so chosen to fill a vacancy shall
hold office until his or her successor shall have been elected and shall qualify
or until such director shall resign or shall have been removed.
Section 3.06 FIRST MEETING. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
Section 3.07 REGULAR MEETINGS. Regular meetings of the Board may be held
at such times as the Board shall from time to time by resolution determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
Section 3.08 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time by the Chairman of the Board, the Chief Executive Officer or
by the Secretary upon the written request of any two (2) directors. Such
meetings shall be held at the principal office of the Corporation, or at such
other place or places, within or without the State of Delaware, as the person or
persons calling the meeting may designate.
Section 3.09 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
such member or members constitute a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have any power or
authority in reference to amending the Certificate of Incorporation, adopting an
agreement
6
<PAGE> 10
of merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of the dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board expressly so provides, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock. Any such committee shall keep written minutes of its meetings
and report the same to the Board at the next regular meeting of the Board.
Section 3.10 NOTICE OF MEETINGS. Notice of all special meetings of the
Board or a committee shall be mailed to each director, addressed to his or her
residence or usual place of business, at least five (5) days before the day on
which the meeting is to be held, or shall be personally delivered or otherwise
given by such delivery means (telecopy, electronic or other) as the Secretary
deems appropriate and in compliance with applicable law, at least two (2) days
before the day on which the meeting is to be held. Such notice may be waived by
any director and any meeting shall be a legal meeting without notice having been
given if all the directors shall be present thereat or if those not present
shall, either before or after the meeting, sign a written waiver of notice of,
or a consent to, such meeting or shall after the meeting sign the approval of
the minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or be made a part of the minutes of the meeting.
Section 3.11 PLACE OF MEETING, ETC. The Board (or committee of the
Board) may hold any of its meetings at such place or places within or without
the State of Delaware as the Board (or the committee) may from time to time by
resolution designate or as shall be designated by the person or persons calling
the meeting or in the notice or a waiver of notice of any such meeting.
Directors may participate in any regular or special meeting of the Board or a
committee by means of conference telephone or similar communications equipment
pursuant to which all persons participating in the meeting can hear each other,
and such participation shall constitute presence in person at such meeting.
Section 3.12 QUORUM AND MANNER OF ACTING. Except as otherwise provided
in these Bylaws or by Delaware Law, the presence of a majority of the total
number of directors shall be required to constitute a quorum for the transaction
of business at any meeting of the Board or a committee, and all matters shall be
decided at any such meeting, a quorum being present, by the affirmative votes of
a majority of the directors present. In the absence of a quorum at any meeting
or any adjournment thereof, a majority of directors present may adjourn such
meeting from time to time. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at the
meeting as originally called. Notice of any adjourned meeting need not be given.
The directors shall act only as a Board, and the individual directors shall have
no power as such.
Section 3.13 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
7
<PAGE> 11
Section 3.14 COMPENSATION. The directors shall receive such compensation
for their services as directors, and such additional compensation for their
services as members of any committees of the Board, as may be authorized by the
Board.
Section 3.15 OFFICERS OF THE BOARD. The Board shall have a Chairman of
the Board and may, at the discretion of the Board, have a Vice Chairman. The
Chairman of the Board and the Vice Chairman shall be appointed from time to time
by the Board and shall have such powers and duties as shall be designated by the
Board.
Section 3.16 DIRECTORS EMERITUS. The Board may, at its discretion, have
one or more Director Emeritus who will serve at the pleasure of the Board. The
Board may appoint as a Director Emeritus any former Director of the Company if,
in the judgment of the Board, such Director has rendered exceptionally valuable
service to the Company and such Director's continued interest in and association
with the Company is desirable. Directors Emeritus may be invited to attend
meetings of the Board but will not be considered member(s) of the Board for
purposes of establishing a quorum and will not be entitled to vote on any
matters before the Board.
ARTICLE IV
OFFICERS
Section 4.01 PRINCIPAL OFFICERS. The principal officers of the
Corporation shall be a Chairman of the Board, Chief Executive Officer, Chief
Financial Officer, one or more Presidents, one or more Vice Chairmen of the
Board, one or more Executive Vice Presidents, one or more Sector Vice
Presidents, a Secretary, a Controller and a Treasurer, all of whom shall serve
under the direction and subject to the control of the Board. One person may hold
two or more offices, except that the Secretary may not also hold the office of
President.
Section 4.02 ELECTION. Except such officers as may be appointed in
accordance with Section 4.03 or 4.06, the officers of the Corporation, shall be
elected annually (or at such other intervals as the Board may determine) by the
Board. Each such officer shall hold office until his or her successor shall have
been duly chosen and qualified or until his or her earlier resignation, removal
or other disqualification for service.
Section 4.03 ADDITIONAL OFFICERS AND AGENTS. In addition to the
principal officers designated in Section 4.01 of Article IV of these Bylaws, the
Board, the Chairman of the Board or the Chief Executive Officer may from time to
time appoint such other officers and agents as each of them may deem necessary
or advisable, including one or more Vice Presidents of various rank, one or more
Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and an Assistant Controller, each of which officers and
agents shall be subject to the control of the Board and have such authority and
perform such duties as are provided in these Bylaws or as the Board, Chairman of
the Board or Chief Executive Officer may from time to time determine. Each such
officer shall hold office until his or her successor shall have been duly chosen
and qualified or until his or her earlier resignation, removal or other
disqualification for service. The Board may also delegate to any other principal
officer or committee established by the Board the power to appoint any such
additional officers and agents.
8
<PAGE> 12
Section 4.04 REMOVAL. All officers and agents of the Corporation,
elected or appointed by the Board, may be removed, either with or without cause,
at any time, by (1) resolution adopted by the Board or (2) if the officer or
agent shall have been appointed by a committee of the Board or another officer
duly authorized by the Board or these bylaws, by such appointing committee or
officer.
Section 4.05 RESIGNATIONS. Any officer may be removed, either with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or except in case of an officer chosen
by the Board, by any officer upon whom such power of removal may be conferred by
the Board.
Any officer may resign at any time by giving written notice to the
Board, the Chairman of the Board, the Chief Executive Officer or the Secretary
of the Corporation. Any such resignation shall take effect at the date of the
receipt of such notice or at any later time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4.06 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
Section 4.07 CHAIRMAN OF THE BOARD. The Board may elect or appoint, from
among its members, a Chairman of the Board of the Corporation. The Chairman of
the Board, when present, shall preside at all meetings of the stockholders of
the Corporation and of the Board. The Chairman of the Board shall perform, under
the direction and subject to the control of the Board, all duties incident to
the office of Chairman of the Board and such other duties as the Board may
assign to the Chairman of the Board from time to time. The Chairman of the Board
may execute (in facsimile or otherwise) and deliver certificates for shares of
the Corporation, any deeds, mortgages, bonds, contracts or other instruments
that the Board has authorized to be executed and delivered, except in cases
where the execution and delivery thereof shall be expressly and exclusively
delegated to one or more other officers or agents of the Corporation by the
Board or these Bylaws, or where the execution and delivery thereof shall be
required by applicable law to be executed and delivered by another person. The
Chairman of the Board shall have the power and authority to appoint one or more
Vice Presidents of various rank or other officers of the Corporation, which
power shall not be exclusive of any right of the Board or the Chief Executive
Officer to elect or appoint such officers.
Section 4.08 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer in
general shall supervise and control all of the business and affairs of the
Corporation, under the direction and subject to the control of the Board and the
Chairman of the Board. The Chief Executive Officer shall perform, under the
direction and subject to the control of the Board, all duties incident to the
office of Chief Executive Officer and such other duties as the Board may assign
to the Chief Executive Officer from time to time. In the event of the death,
disability or other absence of the Chairman of the Board, the duties of the
Chairman of the Board may be performed by the Chief Executive Officer. The Chief
Executive Officer may execute (in facsimile or otherwise) and deliver
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts or other
9
<PAGE> 13
instruments that the Board has authorized to be executed and delivered, except
in cases where the execution and delivery thereof shall be expressly and
exclusively delegated to one or more other officers or agents of the Corporation
by the Board or these Bylaws, or where the execution and delivery thereof shall
be required by law to be executed and delivered by another person. The Chief
Executive Officer shall have the power and authority to appoint one or more Vice
Presidents of various rank or other officers of the Corporation, which power
shall not be exclusive of any right of the Board or the Chairman of the Board,
to elect or appoint such officers.
Section 4.09 PRESIDENT(s). Individuals appointed to the office of
President shall perform, under the direction and subject to the control of the
Board and the Chief Executive Officer, all duties incident to the office of
President and such other duties as the Board or Chief Executive Officer may
assign to such President from time to time. The President may execute (in
facsimile or otherwise) and deliver certificates for shares of the Corporation,
any deeds, mortgages, bonds, contracts or other instruments that the Board or
the Chief Executive Officer has authorized to be executed and delivered, except
in cases where the execution and delivery thereof shall be expressly and
exclusively delegated to one or more other officers or agents of the Corporation
by the Board or these Bylaws, or where the execution and delivery thereof shall
be required by applicable law to be executed and delivered by another person.
Section 4.10 VICE PRESIDENTS. Each Vice President of the Corporation
shall perform, under the direction and subject to the control of the Board, the
Chief Executive Officer or President, such duties as the Board, the Chief
Executive Officer, any President or such other office or officers may assign to
such Vice President from time to time. Vice Presidents of the Corporation may be
further designated as Corporate Executive Vice Presidents, Executive Vice
Presidents, Sector Vice Presidents, Group Senior Vice Presidents, Senior Vice
Presidents, Corporate Vice Presidents, Assistant Vice Presidents or such other
similar title as the Board, the Chairman of the Board, the Chief Executive
Officer, any President or such other officer or officers may designate.
Section 4.11 SECRETARY. The Secretary of the Corporation or his or her
designee shall attend all meetings of the stockholders of the Corporation, the
Board and committees established by the Board and shall record correctly the
proceedings of such meetings in a book suitable for such purposes. The Secretary
shall attest with a signature and the seal of the Corporation (in facsimile or
otherwise) all stock certificates issued by the Corporation and shall keep or
cause to be kept a stock ledger in which all transactions pertaining to shares
of all classes and series of capital stock of the Corporation shall be correctly
recorded. The Secretary shall also attest with a signature and the seal of the
Corporation (in facsimile or otherwise) all deeds, conveyances or other
instruments requiring the seal of the Corporation. The Chairman of the Board,
the Chief Executive Officer or the Secretary shall give, or cause to be given,
notice of all meetings of the stockholders of the Corporation and special
meetings of the Board or committees established by the Board. The Secretary is
authorized to issue certificates, to which the corporate seal may be affixed,
attesting to the incumbency of officers of the Corporation or to actions duly
taken by the stockholders of the Corporation, the Board or any committee
established by the Board. The Secretary shall perform, under the direction and
subject to the control of the Board and the Chief Executive Officer, all duties
incident to the office of Secretary and such other duties as the Board or the
Chief Executive Officer may assign to the Secretary from time to time. The
duties of the Secretary may also be performed by any Assistant Secretary of the
Corporation. The Secretary shall have the power and
10
<PAGE> 14
authority to appoint one or more Assistant Secretaries of the Corporation, which
power shall not be exclusive of any right of the Board to elect or appoint such
officer
Section 4.12 CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the
Corporation in general shall supervise all of the financial affairs of the
Corporation, under the direction and subject to the control of the Board and the
Chief Executive Officer. The Chief Financial Officer shall perform, under the
direction and subject to the control of the Board and the Chief Executive
Officer, all duties incident to the office of Chief Financial Officer and such
other duties as the Board or the Chief Executive Officer may assign to the Chief
Financial Officer from time to time.
Section 4.13 TREASURER. The Treasurer of the Corporation shall have the
care and custody of all the funds, notes, bonds, debentures, stock and other
securities of the Corporation that may come into the hands of the Treasurer,
acting in such capacity. The Treasurer shall be responsible for the investment
and reinvestment of funds of the Corporation in accordance with general
investment policies determined from time to time by the Corporation and shall
ensure that the Corporation is adequately funded at all times by arranging,
under the direction and subject to the control of the Board, the Chief Executive
Officer, and the Chief Financial Officer, for the issuance of debt, equity and
other forms of securities that may be necessary or appropriate. The Treasurer
may endorse (in facsimile or otherwise) checks, drafts, notes, bonds, debentures
and other instruments for the payment of money for deposit or collection when
necessary or appropriate and may deposit the same to the credit of the
Corporation in such banks or depositories as the Board may designate from time
to time, and the Treasurer may endorse (in facsimile or otherwise) all
commercial documents requiring endorsements for or on behalf of the Corporation.
The Treasurer may deliver instructions to financial institutions by facsimile or
otherwise. The Treasurer may execute (in facsimile or otherwise) all receipts
and vouchers for payments made to the Corporation. The Treasurer shall render an
account of the Treasurer's transactions to the Board or its Audit Committee as
often as the Board or its Audit Committee shall require from time to time. The
Treasurer shall enter regularly in the books to be kept by the Treasurer for
that purpose, a full and adequate account of all monies received and paid by the
Treasurer on account of the Corporation. If requested by the Board, the
Treasurer shall give a bond to the Corporation for the faithful performance of
the Treasurer's duties, the expenses of which bond shall be borne by the
Corporation. The Treasurer shall perform, under the direction and subject to the
control of the Board, the Chief Executive Officer and the Chief Financial
Officer, all duties incident to the office of Treasurer and such other duties as
the Board, the Chief Executive Officer or the Chief Financial Officer may assign
to the Treasurer from time to time. The duties of the Treasurer may be performed
by any Assistant Treasurer of the Corporation. The Treasurer shall have the
power and authority to appoint one or more Assistant Treasurers of the
Corporation, which power shall not be exclusive of any right of the Board to
elect or appoint such officer.
Section 4.14 CONTROLLER. The Controller of the Corporation shall be the
chief accounting officer of the Corporation, shall maintain adequate records of
all assets, liabilities and transactions of the Corporation and shall be
responsible for the design, installation and maintenance of accounting and cost
control systems and procedures throughout the Corporation. The Controller also
shall keep in books belonging to the Corporation full and accurate accounts of
receipts of, and disbursements made by, the Corporation. The Controller shall
render an account of the Controller's transactions to the Board or its Audit
Committee as often as the Board or its Audit Committee shall
11
<PAGE> 15
require from time to time. The Controller shall perform, under the direction and
subject to the control of the Board, the Chief Executive Officer and the Chief
Financial Officer, all duties incident to the office of Controller and such
other duties as the Board, the Chief Executive Officer and the Chief Financial
Officer, may assign to the Controller from time to time. The duties of the
Controller may also be performed by any Assistant Controller of the Corporation.
The Controller shall have the power and authority to appoint one or more
Assistant Controllers of the Corporation, which power shall not be exclusive of
any right of the Board to elect or appoint such officer.
ARTICLE V
DELEGATIONS OF AUTHORITIES
Section 5.01 EXECUTION OF CONTRACTS. Except as otherwise provided in
these Bylaws, the Board may authorize any officer or officers, agent or agents,
to enter into any contract or execute any instrument in the name of and on
behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
Section 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.
Section 5.03 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board may select, or
as may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the purpose
of collection for the account of the Corporation, the Chairman of the Board, the
Chief Executive Officer, the Chief Financial Officer, any President, the
Treasurer or any Vice President who has been authorized by the Chief Executive
Officer, Chief Financial Officer or Treasurer to do so (or any other officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Corporation who shall from time to time be determined by the Board) may
endorse, assign and deliver checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation.
Section 5.04 GENERAL SPECIAL BANK ACCOUNTS. The Board (or a committee of
the Board to which such power is delegated) may from time to time authorize the
opening and keeping of general and special bank accounts with such banks, trust
companies or other depositories as the Board (or committee) may select or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
12
<PAGE> 16
ARTICLE VI
SHARES AND SHARE TRANSFER
Section 6.01 CERTIFICATES FOR STOCK.
(a) The shares of the Corporation shall be represented by certificates
or shall be uncertificated shares. Every owner of stock of the Corporation shall
be entitled to have a certificate or certificates, to be in such form as the
Board shall prescribe, certifying the number and class of shares of the stock of
the Corporation owned. To the extent that shares are represented by
certificates, the certificates shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
President or a Vice President, and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any of or all of the signatures on
the certificates may be a facsimile. In case any officer, transfer agent or
registrar who has signed, or whose facsimile signature has been placed upon, any
such certificate, shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Corporation with the same effect as though the person who
signed such certificate, or whose facsimile signature shall have been placed
thereupon, were such officer, transfer agent or registrar at the date of issue.
A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, the number and
class of shares represented by such certificates, respectively, and the
respective dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.04.
(b) All shares of Class B Common Stock of the Corporation issued in the
merger of Science Applications, Inc., a wholly-owned subsidiary of the
Corporation ("SAI"), with and into the Corporation (the "1984 Reorganization")
in exchange for shares of Common Stock, par value $.05 per share, of the
Corporation ("Old Common Stock") which, in turn, were issued in the merger of
SAITEMP Company, a wholly-owned subsidiary of the Corporation, with and into SAI
(the "1981 Reorganization") in exchange for shares of Common Stock, par value
$.05 per share, of SAI ("SAI Common Stock") shall be subject to the same
contractual or other restrictions, if any, that were applicable immediately
prior to the effective time of the 1981 Reorganization to the shares of SAI
Common Stock that were exchanged in the 1981 Reorganization for the shares of
Old Common Stock that were, in turn, exchanged in the 1984 Reorganization for
such shares of Class B Common Stock.
(c) All shares of Class B Common Stock of the Corporation issued
subsequent to the effective time of the 1984 Reorganization upon exercise of
options granted prior to the effective time of the 1981 Reorganization under any
of SAI's stock option plans ("Options") which were converted into Options to
purchase shares of Old Common Stock in the 1981 Reorganization but which were
not converted into Options to purchase shares of Class A Common Stock in the
1984 Reorganization shall be subject to the same contractual or other
restrictions, if any, that would have
13
<PAGE> 17
been applicable to the shares of SAI Common Stock issuable upon exercise of such
Options if such Options had been exercised immediately prior to the effective
time of the 1981 Reorganization.
(d) To the extent that shares are represented by certificates, all
restrictions on the transfer shall be noted conspicuously on the certificate
representing such shares and with respect to uncertificated shares such
restrictions shall be noted conspicuously in any ownership statement delivered
to the stockholder by the Corporation. The transfer restrictions applicable to
any outstanding shares shall be enforceable against the holder of the restricted
shares or any successor or transferee of the holder including an executor,
administrator, trustee, guardian or other fiduciary entrusted with the
responsibility for the person or estate of the holder.
Section 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by the attorney of the registered holder thereunto authorized
by power of attorney duly executed and filed with the Secretary, or with a
transfer clerk or a transfer agent appointed as provided in Section 6.03, and
with respect to shares represented by certificates upon surrender of the
certificate or certificates for such shares properly endorsed, and with respect
to certificateless shares, upon the execution by the transferor and transferee
of all transfer documents in such form as the Corporation shall reasonably
require, and, with respect to all shares, upon the payment of all taxes thereon.
The person in whose name shares of stock stand on the books of the Corporation
shall be deemed the owner thereof for all purposes as regards the Corporation.
Whenever any shares are pledged for collateral security such fact shall be
reflected on the books of the Corporation.
Section 6.03 REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars, and may require all certificates for stock to bear the signature or
signatures of any of them.
Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate or uncertificated share may be issued without requiring any bond
when, in the judgment of the Board, or the Corporate Secretary, it is proper so
to do.
Section 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORDS.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which shall not be more
than 60 nor less than 10 days before the date of such meeting, nor more than 60
days prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders, the Board shall not fix such a record date, the record date for
determining
14
<PAGE> 18
stockholders for such purpose shall be the close of business on the day on which
the Board shall adopt the resolution relating thereto. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
ARTICLE VII
MISCELLANEOUS
Section 7.01 CORPORATE INTENT. It is the intent and policy of the
Corporation to be a corporation whose outstanding voting securities are owned
primarily by officers, directors, employees and active consultants of the
Corporation and its direct and indirect subsidiaries.
Section 7.02 SEAL. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
Section 7.03 WAIVER OF NOTICES. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by Delaware Law, the
person entitled to said notice may waive such notice in writing, either before
or after the time stated therein, and such waiver shall be deemed equivalent to
notice.
Section 7.04 FISCAL YEAR. The fiscal year of the Corporation shall begin
on the first day of February in each year.
Section 7.05 AMENDMENTS. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board. These Bylaws or any of them, except Sections 3.02, 3.03
and this Section 7.05, may be altered, amended or repealed and new Bylaws may be
made by the vote of the holders of not less than a majority of the outstanding
shares of voting stock of the Corporation at an annual meeting of stockholders,
without previous notice, or at any special meeting of stockholders, provided
that such proposed amendment, modification, repeal or adoption is given in the
notice of special meeting. Sections 3.02, 3.03 and this Section 7.05 may be
altered, amended or repealed by the vote of the holders of not less than
two-thirds of the total voting power of all outstanding shares of voting stock
of the Corporation, at an annual meeting of stockholders, without previous
notice, or at any special meeting of stockholders, provided that notice of such
proposed amendment, modification, repeal or adoption is given in the notice of
special meeting.
Section 7.06 DESIGNATION OF ENGINEER. The Corporation engages in the
practice of engineering in various jurisdictions which regulate such practice,
including the State of Washington. In order to comply with the laws of such
jurisdictions, including the State of Washington, all engineering decisions
pertaining to any project or engineering activities in any such jurisdiction
shall be made by a designated engineer licensed to practice in such jurisdiction
who shall be appointed by the Board from time to time as vacancies occur.
15
<PAGE> 1
EXHIBIT 10(e)
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
1999 STOCK INCENTIVE PLAN
1. PURPOSE
Science Applications International Corporation (the "Company") hereby
establishes the Science Applications International Corporation 1999 Stock
Incentive Plan (the "Plan") effective July 9, 1999. The purposes of the Plan are
to advance the interests of the Company and its stockholders by providing a
means by which the Company and its Affiliates can attract, retain and motivate
employees, directors and consultants and provide such personnel with an
opportunity to participate in the increased value of the Company which their
effort, initiative and skill have helped produce.
2. DEFINITIONS
2.1 "AFFILIATE" means (i) any Subsidiary and (ii) any other entity in
which the Company has an equity interest or significant business relationship
and which has been designated as an "Affiliate" by the Committee for purposes of
the Plan.
2.2 "AWARD" means any award, grant or benefit provided under the Plan,
including, without limitation, any Option, SAR, Vested Stock Award, Restricted
Stock Award, Restricted Stock Unit Award and Performance Award.
2.3 "AWARD AGREEMENT" means any written agreement, contract or other
instrument or document evidencing any Award, which may, but need not (as
determined by the Committee) be required to be executed or acknowledged by a
Participant as a condition precedent to receiving an Award or the benefits under
an Award.
2.4 "BOARD" means the Board of Directors of the Company.
2.5 "CHANGE OF CONTROL" of the Company means, and shall be deemed to
have occurred upon, any of the following events:
(a) The acquisition by any person (as defined in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof
including a group as defined in Section 13(d) thereof) of beneficial
ownership (as defined in Rule 13d-3 of the General Rules and Regulations
under the Exchange Act) of twenty-five percent (25%) or more of the
Outstanding Voting Securities; provided, however, that the following
acquisitions shall not constitute a Change in Control for purposes of
this subparagraph (a): (A) any acquisition directly from the Company;
(B) any acquisition by the Company or any of its Subsidiaries; (C) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its Subsidiaries; or (D) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (i), (ii) and (iii) of subparagraph (c) below; or
1
<PAGE> 2
(b) Individuals who, as of July 9, 1999, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual who
becomes a Director subsequent to July 9, 1999 and whose election, or
whose nomination for election by the Company's stockholders, to the
Board was either (i) approved by a vote of at least a majority of the
Directors then comprising the Incumbent Board or (ii) recommended by a
Nominating Committee comprised entirely of Directors who are then
Incumbent Board members shall be considered as though such individual
were a member of the Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms
are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act), other actual or threatened solicitation of proxies or consents or
an actual or threatened tender offer; or
(c) Consummation of a reorganization, merger, or consolidation or
sale or other disposition of all or substantially all of the assets of
the Company (a "Business Combination"), in each case unless following
such Business Combination, (i) all or substantially all of the persons
who were the Beneficial Owners, respectively, of the Outstanding Shares
and Outstanding Voting Securities immediately prior to such Business
Combination own, directly or indirectly, more than fifty percent (50%)
of the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of Directors, as the case may
be, of the entity resulting from the Business Combination (including,
without limitation, an entity which as a result of such transaction owns
the Company or all or substantially all of the Company's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Voting Securities (provided, however,
that for purposes of this clause (i) any shares of common stock or
voting securities of such resulting entity received by such Beneficial
Owners in such Business Combination other than as the result of such
Beneficial Owners' ownership of Outstanding Shares or Outstanding Voting
Securities immediately prior to such Business Combination shall not be
considered to be owned by such Beneficial Owners for the purposes of
calculating their percentage of ownership of the outstanding common
stock and voting power of the resulting entity); (ii) no person
(excluding any entity resulting from such Business Combination or any
employee benefit plan (or related trust) of the Company or such entity
resulting from the Business Combination) beneficially owns, directly or
indirectly, twenty-five percent (25%) or more of the combined voting
power of the then outstanding voting securities of such entity resulting
from the Business Combination unless such person owned twenty-five
percent (25%) or more of the Outstanding Shares or Outstanding Voting
Securities immediately prior to the Business Combination; and (iii) at
least a majority of the members of the Board of the entity resulting
from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or the action of the
Board, providing for such Business Combination; or
(d) Approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
For purposes of clause (c), any person who acquires Outstanding Voting
Securities of the entity resulting from the Business Combination by virtue of
ownership, prior to such Business
2
<PAGE> 3
Combination, of Outstanding Voting Securities of both the Company and
the entity or entities with which the Company is combined shall be treated as
two persons after the Business Combination, who shall be treated as owning
Outstanding Voting Securities of the entity resulting from the Business
Combination by virtue of ownership, prior to such Business Combination of,
respectively, Outstanding Voting Securities of the Company, and of the entity or
entities with which the Company is combined.
2.6 "CODE" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
2.7 "COMMITTEE" means any of (i) the Board, (ii) the Stock Option
Committee of the Board or any other committee of the Board that is appointed by
the Board to administer the Plan with respect to grants of Awards, (iii) with
respect to grants of Awards to Eligible Individuals who are not Insiders or
Named Executive Officers, any individual or committee or individuals (who need
not be Directors) that the Committee described in clause (ii) or the Board may
appoint from time to time to administer the Plan, (iv) with respect to Awards to
Insiders, the Committee (or any subcommittee thereof) comprised of two or more
Directors who are "non-employee directors" within the meaning of rule 16b-3
adopted under the Exchange Act, and (v) with respect to Awards to Named
Executive Officers intended to comply with the Performance-Based Exception, a
committee comprised of two or more Directors who are "outside directors" within
the meaning of Code section 162(m).
2.8 "DIRECTOR" means any individual who is a member of the Board.
2.9 "ELIGIBLE INDIVIDUAL" means an employee, Director, or consultant of
the Company or an Affiliate.
2.10 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any successor thereto.
2.11 "EXERCISE PRICE" means the price at which a share of Stock may be
purchased by a Participant pursuant to an Option, or the measuring price for
calculating the appreciation in an SAR, as applicable.
2.12 "FAIR MARKET VALUE" means, so long as the Stock is not listed on
any national securities exchange or traded on a regular basis (as determined by
the Board or a committee to which the Board has delegated the authority to make
such determination) on the over-the-counter market, the Formula Price in effect
on the relevant date; otherwise, the closing price on the national exchange or
the mean between the highest bid and lowest asked prices as reported on the
NASDAQ OTC Bulletin Board Service or by the National Quotation Bureau,
Incorporated or comparable service selected by the Board or such committee.
2.13 "FORMULA PRICE" means the price per share of Stock as established
by the Board, or pursuant to procedures established by the Board from time to
time.
3
<PAGE> 4
2.14 "INCENTIVE STOCK OPTION" means an option to purchase Stock granted
to an Eligible Individual who is an employee of the Company or a Subsidiary and
which is intended to meet the requirements of Code Section 422 and to be
governed thereunder.
2.15 "INSIDER" means an individual who is, on the relevant date, an
executive officer, Director or ten percent (10%) beneficial owner of any class
of Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, and as defined under Section 16 of the Exchange Act and the rules
thereunder.
2.16 "NAMED EXECUTIVE OFFICER" means, for a given fiscal year, a
Participant who is one of the group of "covered employees" for such fiscal year
within the meaning of Code section 162(m).
2.17 "NONQUALIFIED STOCK OPTION" means an option to purchase Stock
granted to Eligible Individuals under the Plan which is not intended to meet the
requirements of Code section 422 or to be governed thereunder.
2.18 "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
2.19 "OUTSTANDING SHARES" means the then outstanding shares of Stock.
2.20 "PARTICIPANT" means an Eligible Individual or any permitted
transferee under the Plan of an Eligible Individual who has outstanding an
Award.
2.21 "PERFORMANCE AWARD" means an Award under Section 8 of the Plan
which relates to shares of Stock or the value of shares of Stock and is subject
to one or more performance goals or restrictions.
2.22 "PERFORMANCE-BASED EXCEPTION" means the performance-based exception
set forth in Code section 162(m)(4)(C) from the deductibility limitations of
Code section 162(m).
2.23 "RESTRICTED STOCK" means a share of Stock subject to restrictions
set forth in an Award Agreement granted under Section 7 of the Plan.
2.24 "RESTRICTED STOCK UNIT" shall mean a unit measured by the Fair
Market Value of a share of Stock and subject to restriction of other terms and
conditions of an Award Agreement which is granted under Section 7 of the Plan.
2.25 "STOCK" means Class A Common Stock of the Company.
2.26 "SAR" means a stock appreciation right as described in Section 6.
2.27 "SUBSIDIARY" means any company during any period in which it is a
"subsidiary corporation" as that term is defined in Code section 424(f) with
respect to the Company.
4
<PAGE> 5
2.28 "SUBSTITUTE AWARD" means an Award granted pursuant to Section 5.1
in assumption of, or as an alternative to or replacement of, an outstanding
award previously granted by a business or entity all or a portion of which is
acquired by the Company or its Affiliate, or with which the Company or its
Affiliate combines.
2.29 "VESTED STOCK" means a share of stock (other than Restricted Stock)
granted under Section 7 of the Plan.
3. ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Committee.
3.2 AUTHORITY OF THE COMMITTEE. Subject to the provisions of the Plan,
the Committee shall have the authority, in its discretion and on behalf of the
Company:
(a) to select from among the Eligible Individuals those persons
who shall receive Awards, to determine the time or times of receipt, to
determine the types of Awards and the number of shares of Stock covered
by the Awards, to establish the terms, conditions, performance criteria,
restrictions and other aspects of the Awards and the provisions of the
applicable Award Agreement and (subject to the restrictions of Section
4.2) to modify, amend, cancel or suspend Awards;
(b) to interpret the Plan;
(c) to prescribe, amend and rescind any rules and regulations relating
to the Plan;
(d) to determine whether, to what extent and under what circumstances
Awards may be settled in cash, Stock, other Awards or other property, or
canceled, forfeited or suspended and the method or methods by which Awards may
be settled, exercised, canceled, forfeited or suspended;
(e) to determine whether, to what extent and under what circumstances
cash, Stock, other Awards, other property and any other amounts payable with
respect to an Award shall or may be deferred either automatically or at the
election of the Participant or of the Committee;
(f) to reprice, cancel and regrant, accelerate vesting or otherwise
adjust the Exercise Price of an Award previously granted under the Plan;
(g) to establish sub-plans under this Plan pursuant to which specified
Awards shall be made and governed; and
(h) to make all other determinations and findings, including factual
findings, deemed necessary or advisable for the administration of the Plan.
5
<PAGE> 6
3.3 COMMITTEE DISCRETION. In exercising its authority, the Committee
shall have the broadest possible discretion. Unless otherwise expressly provided
in the Plan, all designations, determinations, interpretations and other
decisions made in good faith by the Committee under or with respect to the Plan
shall be binding and conclusive on Eligible Individuals, Participants and other
persons claiming entitlements under the Plan. In no event shall a Committee
determination with respect to a particular Participant or Eligible Individual or
with respect to a particular Plan provision be binding with respect to any other
person (even if similarly situated) nor with respect to any future determination
regarding the same or other provision of the Plan.
3.4 COMMITTEE DELEGATION. Except with respect to making grants of Awards
to Insiders or Named Executive Officers, the Committee may delegate its
authority, or specified items thereof, to one or more designated individuals or
other Committees.
4. SHARES OF STOCK SUBJECT TO THE PLAN
4.1 GENERAL LIMITATION. Subject to the provisions of Section 4.2, the
maximum number of shares of Stock that may be delivered to Participants and
their beneficiaries under the Plan shall be equal to the sum of: (i) 6,000,000
shares of Stock; (ii) any shares of Stock available for future awards under the
Science Applications International Corporation 1998 Stock Option Plan ("1998
Plan") as of September 30, 1999, and any shares of Stock that are represented by
Options granted under the 1998 Plan which are forfeited, expire or are canceled
without delivery of shares of Stock, which are used to satisfy tax withholding
on option exercises or which result in the forfeiture of shares of Stock back to
the Company on or after September 30, 1999; and (iii) for each calendar year
after 1999, there shall be added five percent (5%) of the Outstanding Shares of
Stock as of the first business day of such calendar year; provided, however, in
no event shall the number of shares of Stock available for future awards under
the 1998 Plan ever exceed fifteen percent (15%) of the Outstanding Shares.
To the extent any shares of Stock covered by an Award are not delivered
to a Participant or beneficiary because the Award is forfeited, canceled,
expires without being exercised, or the shares of Stock are not delivered
because the Award is settled in cash or used to satisfy applicable tax
withholding obligations, such shares shall not be deemed to have been delivered
for purposes of determining the maximum number of shares of Stock available for
delivery under the Plan.
If the Exercise Price of any Option granted under the Plan or the 1998
Plan is satisfied by tendering shares of Stock to the Company (by either actual
delivery or by attestation), only the number of shares of Stock issued net of
the shares of Stock tendered shall be deemed delivered for purposes of
determining the maximum number of shares of Stock available for delivery under
the Plan.
Any shares of Stock covered by a Substitute Award shall not be deemed to
have been delivered for purposes of determining the maximum number of shares of
Stock available for delivery under the Plan.
6
<PAGE> 7
4.2 ADDITIONAL LIMITATIONS. The following additional maximum limitations
on shares of Stock that may be delivered are imposed under the Plan:
(a) The maximum number of shares of Stock that may be issued
under Options intended to be Incentive Stock Options shall be 8,000,000
shares;
(b) The maximum number of shares of Stock that may be covered by
Awards granted to any one Eligible Individual shall be 500,000 shares
during any calendar year;
(c) To the extent that the aggregate Fair Market Value
(determined on the date of grant) of Shares subject to an Option
designated as an Incentive Stock Option becomes exercisable for the
first time by an Eligible Individual in any calendar year exceeds
$100,000 (or such greater amount as may be established in the Code, from
time to time), then to that extent the Option shall not be treated as an
Incentive Stock Option, but the remaining portion shall retain
eligibility as an Incentive Stock Option.
In determining the maximum number of shares of Stock in Section 4.2(a),
shares used to satisfy applicable tax withholding requirements, if any, shall be
deemed delivered and the gross number of shares which would have been issued in
a cash exercise shall be deemed delivered even if the Exercise Price is
satisfied by tendering shares of Stock to the Company.
4.3 ADJUSTMENTS. In the event that the Committee determines that any
corporate transaction or distribution (including, without limitation, any stock
split, stock dividend, extraordinary cash dividend, issuance of warrants or
other rights to purchase Stock or other securities of the Company,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
repurchase, combination or exchange of shares) affects the Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, then the Committee shall, in such manner as it
may deem equitable, adjust any or all of (i) the number of shares of Stock or
other securities of the Company (or number and kind of other securities or
property) with respect to which Awards may be granted under Sections 4.1 and
4.2; (ii) the number of shares of Stock or other securities of the Company (or
number and kind of other securities and property) subject to outstanding Awards;
and (iii) the Exercise Price or other terms and conditions of any Award or, if
deemed appropriate, the Committee may make provision for a cash payment to the
holder of an outstanding Award in full satisfaction of such Award.
5. ELIGIBILITY AND PARTICIPATION
5.1 GENERAL. Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals (including transferees of Eligible Individuals to be extent
the transfer is permitted by the Plan and the applicable Award Agreement) those
persons who will be granted one or more Awards under the Plan and thereby become
Participants in the Plan, provided that no Incentive Stock Option shall be
granted to any person who, at the time of the grant, is not an employee of the
Company or a Subsidiary. Awards may be granted
7
<PAGE> 8
on conditions specified by the Committee, including, without limitation, the
condition that the Eligible Individual acquire, agree to acquire or maintain
ownership of a specified number of shares of Stock. Awards may be granted as
alternatives to or replacement of Awards outstanding under the Plan or any other
plan or arrangement of the Company or an Affiliate (including a plan or
arrangement of a business or entity, all or a portion of which is acquired by
the Company or an Affiliate).
5.2 NON-U.S. ELIGIBLE INDIVIDUALS AND AFFILIATES. Notwithstanding any
provision of the Plan to the contrary, in order to foster and promote
achievement of the purposes of the Plan or to comply with provisions of laws in
other countries in which the Company or its Affiliates operate or have employees
or consultants, the Committee, in its discretion, shall have the power and
authority to (i) determine which (if any) Eligible Individuals rendering
services or employed outside the United States are eligible to participate in
the Plan or any type of Award hereunder; (ii) determine which non-United
States-based Affiliates or operations (e.g., branches, representative offices)
participate in the Plan or any type of Award hereunder; (iii) modify the terms
and conditions of any Awards made to such Eligible Individuals or with respect
to such non-United States-based Affiliates or operations; and (iv) establish
sub-plans, modified exercise, payment and other terms and procedures to the
extent deemed necessary or desirable by the Committee.
6. OPTIONS AND SARS
6.1 OPTIONS. The Options granted pursuant to the Plan may be Incentive
Stock Options or Nonqualified Stock Options, as determined by the Committee and
reflected in the Award Agreement.
6.2 SARS. A SAR entitles the Participant to receive in cash or shares of
Stock (as determined in accordance with subsection 6.4) value equal to (or
otherwise based on) the excess of (i) the Fair Market Value of the number of
shares of Stock specified in the Award Agreement over (ii) the Exercise Price
for the SAR Award established by the Committee. Prior to the grant of any SARs
under the Plan, the Board of Directors must specifically authorize the Committee
to award SARs.
6.3 EXERCISE PRICE. The Exercise Price of each Option and SAR shall be
established by the Committee or shall be determined by a method or formula
established by the Committee at the time the Option or SAR is granted; except
that the Exercise Price shall not be less than (i) eighty-five percent (85%) of
the Fair Market Value of a share of Stock on the date of grant with respect to
Nonqualified Stock Options or SARs and (ii) one-hundred percent (100%) of the
Fair Market Value of a share of Stock on the date of grant with respect to
Incentive Stock Options. Unless otherwise specified in the Award Agreement, the
Exercise Price shall be the Fair Market Value of a share of Stock on the date of
grant.
6.4 TERMS OF EXERCISE.
(a) An Option or a SAR shall be exercisable only in accordance
with such terms and conditions and during such periods as may be
established by the Committee in the Award Agreement or otherwise in
accordance with the Plan and the Award Agreement. The Committee
8
<PAGE> 9
may, in its discretion, provide that such an Option or SAR may be
exercised in whole or in part, in installments, cumulative or otherwise,
for any period of time specified by the Committee or based on
performance on other criteria established by the Committee. The
Committee may authorize loans in connection with Option exercises on
terms established by the Committee.
(b) Options and SARs shall be exercised pursuant to procedures
established by the Committee, which may include written, electronic or
voice procedures as may be specified by the Committee. The Committee may
require full payment of the Exercise Price (in the case of an Option)
plus payment of any required withholding amounts as a condition to
exercise or may, in the alternative, satisfy such withholding obligation
by withholding shares of Stock or cash, or any combination thereof,
otherwise payable in settlement of the exercise of an Award, or by any
exercise and withholding procedures it determines to be applicable to a
particular Option or SAR. The Committee may also permit payment of all
or part of the Exercise Price to be satisfied by tendering (either by
actual delivery or by attestation) shares of Stock acceptable to the
Committee (which may be required to have been held by the Participant
for at least six months) valued at their Fair Market Value as of the
date of exercise.
6.5 EXPIRATION AND TERMINATION. An Option and all rights and obligations
thereunder shall expire on the date to be determined by the Committee and set
forth in the Award Agreement; provided, however, that in no event shall such
date be later than ten (10) years from the date an Incentive Stock Option is
granted. A SAR and all rights and obligations thereunder shall terminate upon
the occurrence of such events as determined by the Committee and set forth in
the Award Agreement.
6.6. SETTLEMENT OF AWARD. Shares of Stock delivered pursuant to the
exercise of an Option or, if applicable, a SAR shall be subject to such
conditions, restrictions and contingencies as the Committee may establish
pursuant to the Plan and Award Agreement. Settlement of SARs may be made in
shares of Stock (valued at their Fair Market Value at the time of exercise), in
cash or in a combination thereof, as determined in the discretion of the
Committee.
6.7 AMENDMENT TO AWARDS. The Committee may waive any conditions or
rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate, any Award theretofore granted, prospectively or retroactively.
6.8 CANCELLATION OF AWARDS. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any Award
granted hereunder to be canceled in consideration of a cash payment or
alternative Award made to the holder of such canceled Award equal in value to
the Fair Market Value of such canceled Award.
7. VESTED STOCK, RESTRICTED STOCK AND RESTRICTED STOCK UNITS.
7.1 GRANT. Subject to the terms and provisions of the Plan, the
Committee, at any time and from time to time, may grant Awards of Vested Stock,
Restricted Stock or Restricted Stock Units in such amounts and to such Eligible
Individuals as the Committee shall determine; provided, however, that
9
<PAGE> 10
prior to the grant of any Awards of Restricted Stock Units under the Plan, the
Board of Directors must specifically authorize the Committee to award Restricted
Stock Units. With respect to Awards of Restricted Stock or Restricted Stock
Units, the applicable Award Agreement shall contain the terms and conditions of
each such grant, which may include, without limitation, the duration of the
Award, vesting and forfeiture provisions, a requirement that Participants pay a
specified price for each share of Restricted Stock, restrictions based on
achievement of specified performance goals and restrictions under federal, state
or foreign securities laws.
7.2 PAYMENT. Unless otherwise specified on the Award Agreement,
Restricted Stock Units shall have a value equal to the Fair Market Value of a
share of Stock and shall be paid in cash, share(s) of Stock or other securities
or property or any combination thereof, as determined by the Committee, upon the
lapse of restrictions applicable to the grant or otherwise in accordance with
the applicable Award Agreement.
7.3 DIVIDENDS, DISTRIBUTIONS AND VOTING RIGHTS. If a dividend or other
distribution is made with respect to the Stock during a period in which
restrictions apply to a Restricted Stock Award or prior to payment of a
Restricted Stock Unit Award, the Committee, either in the Award Agreement or at
the time of distribution if not otherwise specified in the Award Agreement,
shall determine how such dividend or distribution shall affect the applicable
Award, whether by payment of the dividend or distribution to the Award holder,
by adjustment of the Award or otherwise. Unless otherwise specified in the Award
Agreement, a holder of Restricted Stock shall have full voting rights with
respect to shares of Restricted Stock and holders of Restricted Stock Units
shall have no voting rights with respect to shares of Stock to which the Award
relates.
8. PERFORMANCE AWARDS.
8.1 GRANT. Subject to the terms and provisions of the Plan, the
Committee shall have the authority to grant Performance Awards, which consist of
rights which are:
(a) denominated in cash or shares of Stock;
(b) valued in relation to the achievement of performance goals
during such reference periods as the Committee shall establish; and
(c) payable at such time or times and in such form as the
Committee shall determine.
8.2 TERMS AND CONDITIONS. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall establish the performance
measure(s) to be achieved during any performance period, the length of the
performance period, the amount of any Performance Award and the amount and kind
of any payment or transfer to be made pursuant to any Performance Award.
10
<PAGE> 11
8.3 PERFORMANCE MEASURES. The performance measure(s) to be used for
purposes of Awards to Named Executive Officers which are designed to qualify for
the Performance-Based Exception shall be chosen from among the following
alternatives:
(a) earnings per share;
(b) net income;
(c) income from operations;
(d) earnings before interest and taxes;
(e) earnings before interest, taxes, depreciation and
amortization;
(f) return on assets;
(g) return on equity;
(h) return on capital;
(i) total stockholder return;
(j) revenue growth;
(k) new business generation;
(l) cash flow;
(m) employee turnover;
(n) human resources;
(o) mergers, acquisitions, investments, joint ventures or sales
or divestitures of assets, businesses or subsidiaries;
(p) litigation;
(q) information services; or
(r) cost reductions or savings.
The Committee shall have the discretion to adjust the determinations of
the degree of attainment of the pre-established performance goals; provided,
however, that Awards which are designed to
11
<PAGE> 12
qualify for the Performance-Based Exception and which are held by Named
Executive Officers, may not be adjusted upward (the Committee shall retain the
discretion to adjust each Award downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the applicable performance measures without
obtaining stockholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining stockholder approval.
9. OTHER STOCK-BASED AWARDS.
The Committee, subject to the terms of the Plan, shall have the
authority to grant to Eligible Individuals other Stock-based Awards, which
encompass any type of Award which is related to shares of Stock, whether or not
payable in shares of Stock, deemed by the Committee to be consistent with the
purposes of the Plan. Subject to the terms of the Plan and any applicable Award
Agreement, the Committee shall determine the terms and conditions of any such
other Stock-based Award and make grants of such Awards to Eligible Individuals
as determined by the Committee.
10. CHANGE IN CONTROL.
Subject to the provisions of Section 4.3 (relating to the adjustment of
shares of Stock) and except as provided in the Award Agreement reflecting the
applicable Award, upon the occurrence of a Change in Control, all outstanding
Awards shall become fully vested and all outstanding Options and SARs shall
become immediately exercisable.
11. BENEFICIARY DESIGNATION.
In the event of the death of a Participant holding an Award which
provides for some payment or benefit following the death of the Participant, the
benefit or payment payable under the Award upon the death of the Participant
shall be payable to the estate of the Participant, provided that, in its
discretion, the Committee may, in the Award Agreement or pursuant to the Award
Agreement, permit the Participant to name a beneficiary or beneficiaries to whom
any benefit under the Award is to be paid in case of the Participant's death.
Any such designation, if permitted by the Committee, shall be effective only in
accordance with such procedures as may be established by the Committee and on
forms prescribed by the Committee.
12. DEFERRALS.
The Committee, in an Award Agreement or otherwise, may permit a
Participant to defer such Participant's receipt of the payment of cash or
delivery of shares of Stock that would otherwise be due to such Participant by
virtue of the exercise of an Option or a SAR, the lapse or waiver of
restrictions with respect to Restricted Stock or Restricted Stock Units or the
satisfaction of any requirements or goals with respect to Performance Awards.
12
<PAGE> 13
13. TAX WITHHOLDING.
All distributions under the Plan are subject to withholding of all
applicable taxes, and the Committee may condition the delivery of shares of
Stock or other benefits on satisfaction of all applicable withholding
requirements. The Committee, in its discretion and subject to such requirements
as the Committee may prescribe, may permit such withholding obligations to be
satisfied through any combination of the following: cash payment by the
Participant, payroll withholding of the Participant's salary, wages or other
compensation, surrender of shares of Stock which the Participant already owns
(either by actual surrender or attestation) or surrender of shares of Stock or
other benefits to which the Participant is otherwise entitled (e.g., upon
exercise of an Option or a SAR) under the terms of the Plan.
14. TRANSFERABILITY.
Except as otherwise provided by the Committee in an Award Agreement or
otherwise, Awards under the Plan may not be anticipated, assigned, attached,
garnished, optioned, transferred or made subject to any creditor's process,
whether voluntarily, involuntarily or by operation of law. Except as otherwise
provided in an Award Agreement, an Option or a SAR may be exercised during the
lifetime of the Optionee or Award holder only by him or her or by his or her
legal representative. This Section 14 shall not preclude a Participant from
designating a beneficiary if permitted by the Committee pursuant to Section 11
of the Plan.
15. LIMITATION ON IMPLIED RIGHTS.
(a) Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right in or title to any assets, funds or
property of the Company or any Affiliate whatsoever including without
limitation, any specific funds, assets or other property which the Company or
any Affiliate, in its or their sole discretion, may set aside in anticipation of
a liability under the Plan. A Participant shall have only a contractual right to
the Stock or amounts, if any, payable under the Plan, unsecured by any assets of
the Company or any Affiliate, and nothing contained in the Plan shall constitute
a representation or guarantee that the assets of the Company or any Affiliate
shall be sufficient to pay any benefits to any person.
(b) An Eligible Individual's or Participant's employment with the
Company or an Affiliate, if applicable, is not for any specified term and may be
terminated by such Eligible Individual/Participant or the Company or the
Affiliate at any time, for any reason, with or without cause, notwithstanding
the vesting or other terms and conditions of any outstanding Awards. Nothing in
this Plan nor in any Award Agreement shall confer upon any Eligible Individual
or Participant any promise or commitment by the Company or an Affiliate
regarding future positions, future work assignments, future compensation or any
other term or condition of employment or affiliation.
13
<PAGE> 14
16. GOVERNMENT AND STOCK EXCHANGE REGULATIONS.
The Committee may refuse to issue or transfer any Shares or other
consideration under an Award if, acting in its sole discretion, it determines
that the issuance or transfer of such Shares or such other consideration might
violate any applicable law or regulation or entitle the Company to recover the
same under Section 16(b) of the Exchange Act, and any payment tendered to the
Company by a Participant, other holder or beneficiary in connection with the
exercise of such Award shall be promptly refunded to the relevant Participant,
holder or beneficiary. Without limiting the generality of the foregoing, no
Award granted hereunder shall be construed as an offer to sell securities of the
Company, and no such offer shall be outstanding, unless and until the Committee
in its sole discretion has determined that any such offer, if made, would be in
compliance with all applicable requirements of the U.S. federal and state
securities laws and any other laws to which such offer, if made, would be
subject.
Upon the exercise of an Option (or upon a payment event under another
Award) at a time when there is not in effect a registration statement under the
Securities Act of 1933 or a similar statute (the "Act") relating to the Stock
issuable upon exercise or payment thereof and available for delivery a
prospectus meeting the requirements of Section 10(a)(3) of said Act or if the
rules or interpretations of the Securities and Exchange Commission so require,
the Stock may be issued only if the holder represents and warrants in writing to
the Company that the shares purchased are being acquired for investment and not
with a view to distribution thereof.
The Company is under no duty to ensure that shares of Stock may legally
be delivered under the Plan, and shall have no liability to Award recipients in
the event such delivery of shares of Stock may not be made.
17. AMENDMENTS, SUSPENSIONS OR TERMINATION OF PLAN.
The Board or the Operating Committee of the Board may at any time
suspend or terminate the Plan and may amend it from time to time in such
respects as the Board or the Operating Committee may deem advisable in order
that Awards granted thereunder shall conform to any change in the law, or in any
other respect which the Board or the Operating Committee may deem to be in the
best interests of the Company; provided, however, that no such amendment shall,
without the approval of a majority of the votes cast at a duly held stockholders
meeting (at which a quorum representing a majority of all outstanding voting
stock is, either in person or by proxy, present and voting on the Plan
amendment), increase the maximum number of shares for which Awards may be
granted under the Plan (in the aggregate or to any single individual), except as
specified in Section 4.3, or change the class of employees eligible to
participate in the Plan.
18. NO IMPLIED RIGHTS OR OBLIGATIONS.
The Company, in establishing and maintaining this Plan as a voluntary
and unilateral undertaking, expressly disavows the creation of any rights in
Eligible Individuals, Participants or others claiming entitlement under the Plan
or any obligations on the part of the Company, any Affiliate or the
14
<PAGE> 15
Committee, except as expressly provided herein. In particular, no third-party
beneficiary rights shall be created under the Plan.
Without limiting the generality of the foregoing, the Company disavows
any undertaking to maintain the tax-qualified status of Options designated as
Incentive Stock Options or to assure the tax treatment of any particular Award,
including the deferral or transfer of any Award benefits, as may be permitted by
the Committee.
19. AWARDS UNDER OTHER PLANS OR SUB-PLANS.
The Company or an Affiliate may grant awards relating to Stock under
other plans or programs. The Committee in its discretion may determine that such
awards shall be settled in the form of shares of Stock issued under this Plan.
Such shares of Stock shall be treated for all purposes under the Plan similar to
shares of Stock issued in settlement of Awards and shall, when issued, reduce
the number of shares of Stock available under Section 4, in accordance with the
same principles applicable under Section 4 in the case of Awards originally
granted under the Plan.
20. NO TRUST OR FUND CREATED.
Neither the Plan or any Award shall create or be construed to create a
trust or separate fund of any kind or a fiduciary relationship between the
Company or any Affiliate and a Participant or any other person. To the extent
that any person acquires a right to receive payments from the Company or any
Affiliate pursuant to an Award, such right shall be no greater than the right of
any unsecured general creditor of the Company or any Affiliate.
21. TERMINATION.
The Plan shall continue in effect until April 9, 2019, unless earlier
terminated by the Board or Operating Committee pursuant to Section 17, provided
that no Incentive Stock Options may be granted after April 9, 2009.
22. GOVERNING LAW.
The validity, construction and effect of the Plan, the Award Agreements
and any rules, regulations or procedures relating thereto shall be determined in
accordance with the laws of the State of Delaware.
15
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF REGISTRANT
AMSEC Corporation
AMSEC LLC
(subsidiary of AMSEC Corporation)
A W Software und Technologie GmbH
Bellcore International Pty. Ltd.
(subsidiary of Telcordia Technologies, Inc.)
Bull, Inc.
Campus Point Realty Corporation
Campus Point Realty Corporation II
Data Systems & Solutions, LLC
Database Service Management, Inc.
(subsidiary of Telcordia Technologies, Inc.)
General Sciences Corporation
Global Integrity Corporation
Hicks & Associates, Inc.
Informatica, Negocios y Tecnologia, S.A.
(aka INTESA)
JMD Development Corporation dba JDA
Mesa Solutions, Inc.
(subsidiary of Telcordia Technologies, Inc.)
Oacis Healthcare Holdings Corp.
1
<PAGE> 2
Oacis Healthcare Systems, Inc.
(subsidiary of Oacis Healthcare Holdings Corp.)
Pathology Associates International Corporation
SAIC (Bermuda) Ltd.
SAIC Colombia, Limitada
SAIC de Mexico, S.A. de C.V.
SAIC Engineering, Inc.
SAIC Engineering of North Carolina, Inc.
SAIC Engineering of Ohio, Inc.
SAIC Europe Limited
SAIC Global Technology Corporation
SAIC Information Services Sector Corporation
SAIC Japan Ltd.
SAIC Limited
(subsidiary of SAIC Europe Ltd.)
SAIC-MIR
SAIC Services, Inc.
SAIC Venture Capital Corporation
Science Applications International (Barbados) Corporation
Science Applications International Corporation (SAIC Canada)
Science Applications International Corporation de Venezuela, S.A.
Science Applications International Corporation (Singapore) Pte. Ltd.
Science Applications International Deutschland GmbH
(subsidiary of Science Applications International Germany GmbH)
2
<PAGE> 3
Science Applications International, Europe S.A.R.L.
(subsidiary of SAIC Europe Ltd.)
Science Applications International Germany GmbH
Science Applications International Pty. Ltd.
Science Applications International Technology
Systems Control Technology, Inc.
Telcordia Technologies, Inc.
Telcordia Technologies International, Inc.
(subsidiary of Telcordia Technologies, Inc.)
Telcordia Technologies Ventures, Inc.
(subsidiary of Telcordia Technologies, Inc.)
Tenth Mountain Systems, Inc.
3
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statement Nos.
333-37117 and 333-84633 on Form S-3 and Registration Statement No. 333-84637 on
Form S-4 of Science Applications International Corporation of our report dated
April 6, 2000, appearing in this Annual Report on Form 10-K of Science
Applications International Corporation for the year ended January 31, 2000. We
also consent to the incorporation by reference in Registration Statement Nos.
333-37117 and 333-84633 on Form S-3 and Registration Statement No. 333-84637 on
Form S-4 of Science Applications International Corporation of our report dated
April 21, 2000 relating to the Science Applications International Corporation
Cash or Deferred Arrangement, our report dated March 20, 2000 relating to the
Telcordia Technologies Savings and Security Plan and our report dated March 20,
2000 relating to the Telcordia Technologies Savings Plan for Salaried Employees
for the year ended January 31, 2000.
Our audit on the financial statements of Science Applications International
Corporation referred to in the aforementioned report also included the financial
statement schedule of Science Applications International Corporation on page
F-33. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audit. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
April 25, 2000
<PAGE> 1
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-37117 and
No. 333-84633) and Form S-4 (No. 333-84637) of Science Applications
International Corporation of our report dated April 2, 1999, except as to the
stock split discussed in Note A, for which the date is August 31, 1999,
appearing on page F-3 of this Annual Report on Form 10-K. We also hereby consent
to the incorporation by reference in the Prospectuses constituting part of the
Registration Statements on Form S-3 (No. 333-37117 and No. 333-84633) and Form
S-4 (No. 333-84637) of Science Applications International Corporation of our
report dated April 15, 1999 relating to the Science Applications International
Corporation Cash or Deferred Arrangement appearing on page 2 of Exhibit 28(a) of
this Annual Report on Form 10-K. We also hereby consent to the incorporation by
reference in the Prospectuses constituting part of the Registration Statements
on Form S-3 (No. 333-37117 and No. 333-84633) and Form S-4 (No. 333-84637) of
Science Applications International Corporation of our report dated March 26,
1999 relating to the Bell Communications Research Savings and Security Plan
appearing on page 2 of Exhibit 28(b) of this Annual Report on Form 10-K. We also
hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-37117 and
No. 333-84633) and Form S-4 (No. 333-84637) of Science Applications
International Corporation of our report dated March 26, 1999 relating to the
Bell Communications Research Savings Plan For Salaried Employees appearing on
page 2 of Exhibit 28(c) of this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Diego, California
April 25, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND
CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 678,101
<SECURITIES> 424,609
<RECEIVABLES> 1,339,763
<ALLOWANCES> 64,523
<INVENTORY> 11,563
<CURRENT-ASSETS> 2,759,623
<PP&E> 920,260
<DEPRECIATION> 343,373
<TOTAL-ASSETS> 4,405,248
<CURRENT-LIABILITIES> 1,910,921
<BONDS> 121,289
0
0
<COMMON> 2,376
<OTHER-SE> 1,827,906
<TOTAL-LIABILITY-AND-EQUITY> 4,405,248
<SALES> 0
<TOTAL-REVENUES> 5,529,676
<CGS> 0
<TOTAL-COSTS> 4,303,862
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,274
<INCOME-PRETAX> 1,061,385
<INCOME-TAX> 441,536
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 619,849
<EPS-BASIC> 2.61
<EPS-DILUTED> 2.42
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND
CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 405,422
<SECURITIES> 118,808
<RECEIVABLES> 1,139,809
<ALLOWANCES> 40,829
<INVENTORY> 16,096
<CURRENT-ASSETS> 1,876,525
<PP&E> 767,180
<DEPRECIATION> 271,140
<TOTAL-ASSETS> 3,172,546
<CURRENT-LIABILITIES> 1,507,052
<BONDS> 143,051
0
0
<COMMON> 2,279
<OTHER-SE> 1,082,323
<TOTAL-LIABILITY-AND-EQUITY> 3,172,546
<SALES> 0
<TOTAL-REVENUES> 4,470,433
<CGS> 0
<TOTAL-COSTS> 3,732,890
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,813
<INCOME-PRETAX> 287,995
<INCOME-TAX> 137,307
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,688
<EPS-BASIC> 0.67
<EPS-DILUTED> 0.62
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME AND
CASH FLOWS FOR THE YEAR ENDED JANUARY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 214,731
<SECURITIES> 40,200
<RECEIVABLES> 810,385
<ALLOWANCES> 36,184
<INVENTORY> 12,471
<CURRENT-ASSETS> 1,175,800
<PP&E> 639,217
<DEPRECIATION> 155,401
<TOTAL-ASSETS> 2,415,234
<CURRENT-LIABILITIES> 1,081,212
<BONDS> 145,958
0
0
<COMMON> 2,093
<OTHER-SE> 752,685
<TOTAL-LIABILITY-AND-EQUITY> 2,415,324
<SALES> 0
<TOTAL-REVENUES> 3,089,351
<CGS> 0
<TOTAL-COSTS> 2,623,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,682
<INCOME-PRETAX> 158,493
<INCOME-TAX> 73,699
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 84,794
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS LEGEND CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> APR-30-1999
<CASH> 756,413
<SECURITIES> 528,566
<RECEIVABLES> 924,657
<ALLOWANCES> 69,118
<INVENTORY> 15,570
<CURRENT-ASSETS> 2,457,768
<PP&E> 804,541
<DEPRECIATION> 298,486
<TOTAL-ASSETS> 3,851,864
<CURRENT-LIABILITIES> 1,578,483
<BONDS> 137,525
0
0
<COMMON> 2,356
<OTHER-SE> 1,641,929
<TOTAL-LIABILITY-AND-EQUITY> 3,851,864
<SALES> 0
<TOTAL-REVENUES> 1,184,006
<CGS> 0
<TOTAL-COSTS> 910,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,594
<INCOME-PRETAX> 779,863
<INCOME-TAX> 331,442
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 448,421
<EPS-BASIC> 1.92
<EPS-DILUTED> 1.77
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 290,433
<SECURITIES> 107,876
<RECEIVABLES> 791,294
<ALLOWANCES> 30,197
<INVENTORY> 13,049
<CURRENT-ASSETS> 1,343,425
<PP&E> 716,031
<DEPRECIATION> 244,341
<TOTAL-ASSETS> 2,567,408
<CURRENT-LIABILITIES> 1,052,049
<BONDS> 138,250
0
0
<COMMON> 2,231
<OTHER-SE> 978,159
<TOTAL-LIABILITY-AND-EQUITY> 2,567,408
<SALES> 0
<TOTAL-REVENUES> 3,427,368
<CGS> 0
<TOTAL-COSTS> 2,705,293
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,314
<INCOME-PRETAX> 225,948
<INCOME-TAX> 108,641
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,307
<EPS-BASIC> 0.53
<EPS-DILUTED> 0.49
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE SIX MONTHS ENDED JULY 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 291,872
<SECURITIES> 79,516
<RECEIVABLES> 762,496
<ALLOWANCES> 31,136
<INVENTORY> 13,827
<CURRENT-ASSETS> 1,279,320
<PP&E> 683,948
<DEPRECIATION> 216,764
<TOTAL-ASSETS> 2,511,399
<CURRENT-LIABILITIES> 996,908
<BONDS> 145,028
0
0
<COMMON> 2,221
<OTHER-SE> 932,958
<TOTAL-LIABILITY-AND-EQUITY> 2,511,399
<SALES> 0
<TOTAL-REVENUES> 2,200,536
<CGS> 0
<TOTAL-COSTS> 1,756,437
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,726
<INCOME-PRETAX> 130,359
<INCOME-TAX> 60,226
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,133
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.29
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND RELATED CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> APR-30-1998
<CASH> 190,125
<SECURITIES> 78,881
<RECEIVABLES> 839,977
<ALLOWANCES> 35,100
<INVENTORY> 12,749
<CURRENT-ASSETS> 1,237,411
<PP&E> 666,297
<DEPRECIATION> 191,991
<TOTAL-ASSETS> 2,475,487
<CURRENT-LIABILITIES> 998,483
<BONDS> 147,025
0
0
<COMMON> 2,202
<OTHER-SE> 887,029
<TOTAL-LIABILITY-AND-EQUITY> 2,475,487
<SALES> 0
<TOTAL-REVENUES> 1,008,380
<CGS> 0
<TOTAL-COSTS> 798,944
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,758
<INCOME-PRETAX> 63,268
<INCOME-TAX> 29,230
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,038
<EPS-BASIC> 0.16
<EPS-DILUTED> 0.15
</TABLE>
<PAGE> 1
EXHIBIT 28(a)
Securities and Exchange Commission
Washington, D.C., 20549
Form 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the calendar year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
(Full Title of Plan)
Science Applications International Corporation
10260 Campus Point Drive, San Diego, California 92121
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the Science Applications International Corporation Retirement Plans
Committee duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
DATE 4-21-00 /s/ Daniel W. Baldwin
------------------------------- -----------------------------------
Daniel W. Baldwin
Corporate Executive Vice President
and Treasurer
Retirement Plans Committee
<PAGE> 3
- --------------------------------------------------------------------------------
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
CASH OR DEFERRED
ARRANGEMENT
Financial Statements for the Years Ended December 31, 1999 and 1998,
Supplemental Schedule for the Year Ended December 31, 1999, and
Independent Auditors' Reports
<PAGE> 4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORTS 1-2
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND 1998
AND FOR THE YEARS THEN ENDED:
Statements of Net Assets Available for Benefits 3
Statements of Changes in Net Assets Available for Benefits 4
Notes to Financial Statements 5-9
SUPPLEMENTAL SCHEDULE AS OF DECEMBER 31, 1999 AND
FOR THE YEAR THEN ENDED:
Schedule of Assets Held for Investment Purposes at End of Year 10
</TABLE>
All other schedules required by the Department of Labor's Rules and Regulations
for Reporting and Disclosure under the Employee Retirement Income Security Act
of 1974 are omitted because of the absence of conditions under which they are
required.
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
Retirement Plans Committee and Participants of the
Science Applications International Corporation
Cash or Deferred Arrangement:
We have audited the accompanying statement of net assets available for benefits
of the Science Applications International Corporation Cash or Deferred
Arrangement (the "Plan") as of December 31, 1999, and the related statement of
changes in net assets available for benefits for the year then ended. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1999, and the changes in net assets available for benefits of the
Plan for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic 1999
financial statements taken as a whole. The supplemental schedule listed in the
Table of Contents is presented for the purpose of additional analysis and is not
a required part of the basic 1999 financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
Such supplemental schedule has been subjected to the auditing procedures applied
in our audit of the basic 1999 financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic 1999 financial
statements taken as a whole.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
April 21, 2000
-1-
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Retirement Plan's Committee
and Participants of the Science Applications
International Corporation Cash or Deferred Arrangement
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Science Applications International Corporation Cash or Deferred
Arrangement (the "Plan") at December 31, 1998, and the changes in net assets
available for benefits for the year ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
financial statements of the Science Applications International Corporation Cash
or Deferred Arrangement for any period subsequent to December 31, 1998.
/s/ PricewaterhouseCoopers LLP
San Diego, California
April 15, 1999
-2-
<PAGE> 7
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
INVESTMENTS - At fair value:
<S> <C> <C>
SAIC Class A Common Stock $ 729,147,000 $ 512,183,000
Vanguard Funds 664,077,000 488,869,000
Participant loans 28,353,000 24,581,000
-------------- --------------
Total investments 1,421,577,000 1,025,633,000
-------------- --------------
RECEIVABLES:
Participant contributions 2,955,000 2,511,000
Company contributions 503,000 432,000
-------------- --------------
Total receivables 3,458,000 2,943,000
-------------- --------------
TOTAL ASSETS 1,425,035,000 1,028,576,000
-------------- --------------
LIABILITIES
Accrued plan expenses 36,000 28,000
-------------- --------------
NET ASSETS AVAILABLE FOR BENEFITS $1,424,999,000 $1,028,548,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE> 8
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONS 1999 1998
NET INVESTMENT INCOME:
<S> <C> <C>
Net appreciation in fair value of investments $ 223,674,000 $ 229,738,000
Interest and dividends 38,559,000 27,187,000
-------------- --------------
Total investment income 262,233,000 256,925,000
-------------- --------------
Contributions:
Participant 119,392,000 93,405,000
Employer 20,807,000 14,783,000
-------------- --------------
Total contributions 140,199,000 108,188,000
-------------- --------------
Net transfers from other plans 34,874,000
-------------- --------------
Total additions 437,306,000 365,113,000
-------------- --------------
DEDUCTIONS
Distributions to participants 40,777,000 39,144,000
Plan expenses 78,000 364,000
-------------- --------------
Total deductions 40,855,000 39,508,000
-------------- --------------
NET INCREASE 396,451,000 325,605,000
NET ASSETS AVAILABLE FOR BENEFITS:
BEGINNING OF YEAR 1,028,548,000 702,943,000
-------------- --------------
END OF YEAR $1,424,999,000 $1,028,548,000
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE> 9
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
GENERAL - The Science Applications International Corporation Cash or
Deferred Arrangement (the "Plan") is a defined contribution plan. It is
subject to the provisions of the Employee Retirement Income Security Act
of 1974 ("ERISA"). The Plan consists of a deferred fund which is the
fund in which assets acquired by the Plan in its function as a qualified
Cash or Deferred Arrangement are held and accounted for. Participants
should refer to the Plan document for a more complete description of the
Plan's provisions.
The authority to control and manage the operation and administration of
the Plan is vested in the Science Applications International Corporation
("SAIC" or the "Company") Retirement Plans Committee (the "Committee")
whose members are the named fiduciaries for purposes of Section 402(a)
of ERISA.
ELIGIBILITY - Generally, employees of SAIC and its subsidiaries who have
adopted the Plan are eligible to participate upon commencing employment,
except for employees in groups designated as ineligible.
CONTRIBUTIONS - The Plan permits participants to elect to defer up to
18% of their eligible compensation for the Plan year and to have such
deferred amount contributed directly by the Company to the Plan. The
Company, at its discretion, may make a matching contribution equal to a
specified percentage of the aggregate amounts deferred by participants.
The match is only provided on eligible participant deferrals of up to
10% of compensation. In 1999 and 1998, the Company contributed 50% of
the first $2,000 of a participant's annual deferred compensation and 15%
of such deferred compensation above $2,000. During 1999 and 1998, the
Company matching contribution was allocated to the SAIC stock fund. In
addition, the Company, at its discretion, may make an additional
contribution to the Plan for the benefit of non-highly-compensated
participants in order to comply with Section 401(k)(3) of the Internal
Revenue Code. The Company made no additional contributions for the
benefit of non-highly compensated participants during 1999 and 1998.
The Company's contribution to the Plan is to be paid in cash unless the
Company's Board of Directors determines to make the contribution in
shares of SAIC Class A Common Stock (the "Common Stock") or another
form. Contributions to the Plan cannot be in excess of the maximum
amount deductible for federal income tax purposes.
Employees hired prior to January 1, 1995 are immediately eligible for
the Company matching contributions. Employees hired on or after January
1, 1995, who have elected to participate, are eligible for Company
matching contributions if they have attained age 21 and have both 12
calendar months of employment and 850 hours of service.
INVESTMENT FUNDS - Participants may direct the investment of their
contributions to the following fund options offered by the Plan:
Vanguard GNMA Fund - Invests in fixed income securities guaranteed
by the U.S. government.
Vanguard 500 Index Fund - Invests in common stocks.
Vanguard Prime Money Market Fund - Invests in money market
instruments.
-5-
<PAGE> 10
Vanguard Short-Term Federal Fund - Invests in U.S. government
obligations.
Vanguard Wellesley Income Fund - Invests in fixed income securities
and common stocks.
Vanguard Windsor Fund - Invests in common stocks.
Vanguard International Growth Fund - Invests in common stock of
companies based outside the United States.
Vanguard U.S. Growth Fund - Invests in common stocks.
Vanguard Intermediate-Term Corporate Fund - Invests primarily in
investment grade corporate bonds.
Vanguard Small-Cap Index Fund - Invests primarily in common stocks
in the Russell 2000 Index.
Vanguard LifeStrategy Conservative Growth Fund - Invests in common
stock, bonds, and short-term reserves.
Vanguard LifeStrategy Moderate Growth Fund - Invests in common
stocks and bonds.
Vanguard LifeStrategy Growth Fund - Invests in common stocks and
bonds.
SAIC Exchangeable Stock Fund - Invests primarily in SAIC Class A
Common Stock and is participant directed to the extent that
participant contributions were used to purchase SAIC stock.
SAIC Non-Exchangeable Stock Fund - This fund is a non-participant
directed fund created to invest the Company's matching
contributions primarily in SAIC Class A Common Stock.
The SAIC Stock Purchase Fund - This fund is a temporary holding fund
designed to hold participant and Company contributions until the
following SAIC common stock quarterly trade date. Pending the
quarterly trade, the contributions are invested in the Vanguard
Prime Money Market Fund.
Participants may transfer their funds among investment options and
change their future contribution allocations at any time under rules
prescribed by the Committee.
During 1999, the Company enacted a provision of the Plan requiring
participants who have separated from service with SAIC to transfer their
balances in the SAIC Stock Funds to one or more of the Vanguard funds
offered by the Plan. If no election is made, the SAIC Stock Fund
investments will transfer automatically to the Vanguard Prime Money
Market Fund. The first mandatory divestiture will occur on April 28,
2000. A final determination of the value of the mandatory divestiture
cannot be completed at this time, however, the Company estimates that
SAIC Stock Fund balances held by former employees to be exchanged on
April 28, 2000 is approximately $240 million.
PARTICIPANT ACCOUNTS - Each participant's account is credited with
participant deferrals and Company contributions in accordance with
provisions of the Plan. A participant is entitled to the benefit that
can be provided from the participant's vested account balance.
VESTING - A participant's interest in the employee deferral portion of
the participant's account is 100% vested at all times. A participant's
interest in Company contributions is 100% vested if the participant was
hired prior to January 1, 1995. If the participant was hired on or after
January 1, 1995, the participant's interest in Company contributions
vests at a rate of 25% per year in years three through six, becoming
fully vested after six years of service, as defined. Participants are
deemed fully vested upon
-6-
<PAGE> 11
reaching age 59 1/2, permanent disability or death. Forfeitures, arising
from participants withdrawing from the Plan prior to achieving 100%
vesting are used to reduce the cost of the Company's matching
contribution. Plan forfeitures of $596,000 and $550,000 were used to
reduce Company matching contributions in 1999 and 1998, respectively.
PARTICIPANT LOANS - Participants may borrow up to 50% of their vested
account balance, up to a maximum of $50,000, excluding amounts invested
in the SAIC Stock Fund. The maximum loan term is generally five years.
The loans are secured by the balance in the participant's account and
bear interest at a reasonable rate. Principal and interest are paid
ratably through biweekly payroll deductions.
DISTRIBUTIONS TO PARTICIPANTS - Participants receive their vested
account balance in a single lump sum payment in cash following their
termination of employment with the Company, retirement date, permanent
disability or in the event of death. A participant may make withdrawals
from the Plan prior to attaining age 59-1/2 only if the Company
determines that the participant is incurring financial hardship. After
attaining age 59-1/2, a participant may make withdrawals even if still
employed by the Company.
TAX STATUS - The Company received its latest determination letter from
the Internal Revenue Service dated February 3, 1997, indicating the
Plan, as then designed, was in compliance with the applicable
requirements of the Internal Revenue Code. The Plan has been amended
since receiving the determination letter. The Plan administrator and the
Plan's tax counsel believe that the Plan is designed and is currently
being operated in compliance with the applicable requirements of the
Internal Revenue Code and is qualified and the related trust is
tax-exempt.
TERMINATION OF THE PLAN - Although it has not expressed any intent to do
so, the Company has the right under the Plan to discontinue its
contributions and to terminate the Plan at any time subject to the
provisions of ERISA. Upon termination of the Plan, the participants
become 100% vested in their accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The Plan's financial statements are prepared on
the accrual basis of accounting. Investment transactions are accounted
for on the trade date. Dividend income is recorded on the ex-dividend
date.
INVESTMENT VALUATION - Investments, except for SAIC Common Stock and
participant loans, are carried at fair value based on quoted market
prices. A general public market for the Company's Common Stock does not
exist; therefore, the fair market value of the Common Stock is
determined pursuant to a stock price formula and valuation process which
includes an appraisal prepared by an independent appraisal firm.
Periodic determinations of fair market value of the Common Stock are
made by the Board of Directors, with the assistance of the independent
appraisal firm. The Board of Directors reserves the right to alter the
formula. On August 31, 1999, the Company effected a four-for-one stock
split payable in the form of a stock dividend. All share and per share
information for SAIC Class A common stock has been retroactively
restated in these financial statements to reflect this split.
The gains or losses realized on distributions of investments and the
unrealized appreciation or depreciation are calculated as the difference
between the current fair market value and the fair market value of the
investments at the beginning of the year, or purchase price if purchased
during the year. As of December 31, 1999 and 1998, the fair market value
of the Company's Class A Common Stock was $19.99 and $14.72 per share
and the Plan held approximately 36,476,000 and 34,801,000 shares,
respectively.
-7-
<PAGE> 12
It is the policy of the Committee to keep the SAIC Stock Fund invested
primarily in Common Stock, except for estimated reserves for use in
distributions and investment exchanges by participants. Such reserves
are held in short-term investments. If reserves in the SAIC Stock Fund
are less than the amount required at any given time to make requested
distributions and investment changes, investment exchanges out of the
SAIC Stock Fund by participants may have to be deferred.
Participant loans are carried at the aggregate unpaid principal balance
of loans outstanding which approximates fair value.
BENEFITS PAYABLE - Benefit payments to participants are recorded upon
distribution. Benefits payable to participants are not reflected in the
accompanying financial statements. As of December 31, 1999 and 1998, net
assets available for Plan benefits included $14,915,000 and $6,345,000,
respectively, for participants who have elected to withdraw from the
Plan but have not yet been paid.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires Plan
management to make estimates and assumptions that affect the reported
amounts of assets at the date of the financial statements and the
reported amounts of additions and deductions during the reporting
period. Actual results may differ from those estimates.
RECLASSIFICATIONS - Certain amounts in the 1998 financial statements
have been reclassified to conform to the 1999 presentation.
3. INVESTMENT INFORMATION
The Plan's investments are held in a trust fund. The fair value of the
investments representing 5% or more of the Plan's assets at December 31,
1999 and 1998 are separately identified below.
<TABLE>
<CAPTION>
1999 1998
Mutual funds:
<S> <C> <C>
Vanguard 500 Index Trust $ 192,429,000 $ 126,895,000
Vanguard Windsor Fund 123,837,000 116,900,000
Vanguard U.S. Growth Fund 100,968,000 58,519,000
Vanguard Prime Money Market Fund 72,106,000 42,611,000
Other 174,737,000 143,944,000
-------------- --------------
Total mutual funds 664,077,000 488,869,000
-------------- --------------
SAIC Common Stock 729,147,000 512,183,000
Participant loans 28,353,000 24,581,000
-------------- --------------
Total investments $1,421,577,000 $1,025,633,000
============== ==============
During the years ended December 31, 1999 and 1998, the Plan's investments
(including investments bought, sold, and held during the year) appreciated in
value by $223,674,000 and $229,738,000, respectively, as follows:
Mutual funds $ 38,359,000 $ 35,349,000
SAIC Common Stock 185,315,000 194,389,000
-------------- --------------
Net appreciation in fair value $ 223,674,000 $ 229,738,000
============== ==============
</TABLE>
-8-
<PAGE> 13
4. NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and the significant components of
changes in net assets relating to the SAIC Non-Exchangeable Stock Fund,
a non-participant directed investment, is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998
<S> <C> <C>
Investments, at fair value:
SAIC common shares in the SAIC Non-Exchangeable
Stock Fund $ 210,973,000 $ 146,449,000
Year Ended
December 31,
----------------------------------
1999 1998
Net appreciation of investments $ 52,988,000 $ 56,607,000
Employer contributions 19,068,000 15,937,000
Distributions to participants (7,532,000) (4,945,000)
------------- -------------
$ 64,524,000 $ 67,599,000
============= =============
</TABLE>
5. NET TRANSFERS FROM OTHER PLANS
During 1999, the Company acquired several entities administering
separate defined contribution plans. The plan assets of the active
employees acquired by the Company were transferred to the Plan at
various times during the year. The Company also divested an entity
during 1999 and the Plan assets associated with the active employees in
the new organization were transferred to the new plan.
* * * * * *
-9-
<PAGE> 14
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CASH OR DEFERRED ARRANGEMENT
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES AT END OF YEAR
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FAIR
DESCRIPTION COST VALUE
<S> <C> <C>
* SAIC Class A Common Stock $ 543,833,000 $ 729,147,000
MUTUAL FUNDS
* Vanguard GNMA Fund 24,681,000 23,909,000
* Vanguard 500 Index Fund 119,407,000 192,429,000
* Vanguard Prime Money Market Fund 72,106,000 72,106,000
* Vanguard Short-Term Federal Fund 17,823,000 17,413,000
* Vanguard Wellesley Income Fund 39,843,000 36,508,000
* Vanguard Windsor Fund 127,415,000 123,837,000
* Vanguard International Growth Fund 31,105,000 41,570,000
* Vanguard U.S. Growth Fund 77,094,000 100,968,000
* Vanguard Intermediate-Term Corporate Fund 3,921,000 3,695,000
* Vanguard Small-Cap Index Fund 5,413,000 5,700,000
* Vanguard LifeStrategy Conservative Growth Fund 6,515,000 6,986,000
* Vanguard LifeStrategy Moderate Growth Fund 13,444,000 15,306,000
* Vanguard LifeStrategy Growth Fund 19,672,000 23,650,000
-------------- --------------
Total Mutual Funds 558,439,000 664,077,000
-------------- --------------
Participant Loans (interest rates from 6% to 10.5%; maturities
from January 2000 through November 2024) 28,353,000 28,353,000
-------------- --------------
TOTAL INVESTMENTS $1,130,625,000 $1,421,577,000
============== ==============
</TABLE>
* Party-in-interest
-10-
<PAGE> 1
EXHIBIT 28(b)
Securities and Exchange Commission
Washington, D.C., 20549
Form 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the calendar year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TELCORDIA TECHNOLOGIES SAVINGS AND SECURITY PLAN
------------------------------------------------
(Full Title of Plan)
Telcordia Technologies, Inc.
445 South Street, Morristown NJ 07960
-------------------------------------
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Benefits Plan Committee of the Telcordia Technologies Savings and
Security Plan, duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
DATE 4-21-00 s/ Carol Cole
----------------------- -----------------------------------------
Carol Cole
Chairman, Employee Benefits Plan
Committee
<PAGE> 3
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
Financial Statements for the Years Ended
December 31, 1999 and 1998, Supplemental Schedule for the Year Ended
December 31, 1999 and
Independent Auditors' Reports
<PAGE> 4
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORTS 1-2
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits
as of December 31, 1999 and 1998 3
Statements of Changes in Net Assets Available for Plan
Benefits for the Years Ended December 31, 1999 and 1998 4
Notes to Financial Statements 5-12
SUPPLEMENTAL SCHEDULE:
Schedule of Assets Held for Investment Purposes as of December 31, 1999 13-15
</TABLE>
<PAGE> 5
INDEPENDENT AUDITORS' REPORT
To the Trustees and Participants of the
Telcordia Technologies Savings and Security Plan
Morristown, New Jersey
We have audited the accompanying statements of net assets available for plan
benefits of Telcordia Technologies Savings and Security Plan (the "Plan") as of
December 31, 1999, and the related statement of changes in net assets available
for plan benefits for the year then ended. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits of the Plan as of December
31, 1999, and the changes in net assets available for plan benefits for the year
then ended in conformity with generally accepted accounting principles in the
United States of America. Our audit was conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole. The supplemental
schedule listed in the Table of Contents is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule is the
responsibility of the Plan's management. Such supplemental schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/S/ Deloitte & Touche LLP
Jericho, New York
March 20, 2000
1
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and the Administrative Committee
of the Bell Communications Research Savings and Security Plan
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Bell Communications Research Savings and Security Plan (the "Plan") at
December 31, 1998, and the changes in net assets available for benefits for the
year ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Plan's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above. We have not audited the financial statements of
the Bell Communications Research Savings and Security Plan for any period
subsequent to December 31, 1998.
/S/ PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
-2-
<PAGE> 7
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Investments, at fair value: (Note 3)
Telephone Equity Fund common shares $ -- $ 2,323
Diversified Telephone Portfolio common shares 309 350
SAIC common shares 1,229 746
Shares in registered investment companies 4,707 4,036
Temporary cash investments 256 404
------- -------
6,501 7,859
Investment contracts with insurance companies, at contract value 4,356 2,980
------- -------
Total investments 10,857 10,839
Receivables:
Company contributions 20 21
Loans to participants 257 227
Securities 29 154
Interest -- 2
------- -------
Total assets 11,163 11,243
------- -------
LIABILITIES:
Securities payable -- 148
------- -------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $11,163 $11,095
======= =======
</TABLE>
See notes to financial statements.
-3-
<PAGE> 8
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ADDITIONS:
Investment income:
Dividends $ 600 $ 513
Interest 17 22
Net appreciation of investments (Note 3) 585 1,778
-------- --------
Total investment income 1,202 2,313
-------- --------
Contributions:
Employee contributions 312 566
Employer contributions 359 315
-------- --------
Total contributions 671 881
-------- --------
Total additions 1,873 3,194
-------- --------
DEDUCTIONS:
Distributions to participants 1,801 3,366
Administrative expenses (Note 6) 4 3
-------- --------
Total deductions 1,805 3,369
-------- --------
NET INCREASE (DECREASE) DURING THE YEAR 68 (175)
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 11,095 11,270
-------- --------
End of year $ 11,163 $ 11,095
======== ========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 9
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
The Telcordia Technologies Savings and Security Plan (formerly the Bell
Communications Research Savings and Security Plan) (the "Plan") was
established by Telcordia Technologies, Inc. ("Telcordia" or the "Company")
to provide a convenient way for non-salaried employees to save on a regular
and long term basis. On November 14, 1997, the Company was sold to Science
Applications International Corporation ("SAIC"). Prior to the sale, the
Company was owned by the Regional Bell Operating Companies ("RBOC's").
Effective March 9, 1999, the Company changed its name to Telcordia
Technologies.
Effective March 17, 1999, the name of the Plan was changed to Telcordia
Technologies Savings and Security Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan Prospectus for a more complete
description of the Plan's provisions.
GENERAL - The Plan is a defined contribution plan covering all non-salaried
employees of the Company who have one month of service. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
CONTRIBUTIONS - Each year, participants may contribute up to 16 percent of
pretax annual compensation, as defined in the Plan. Participants may also
contribute amounts representing distributions from other qualified defined
benefit or contribution plans. After one year of service, the Company will
make a matching contribution equal to 70 percent of the first 6 percent of
compensation that a participant contributes to the Plan. In addition, after
one year of service, the Company will make an annual discretionary
contribution of a 1/2 percent of compensation on behalf of each
participant. The Company's discretionary contributions are deposited into
the SAIC Stock Purchase Fund until the following quarterly trade date and
then into the SAIC Non Exchangeable Stock Fund. The Company's discretionary
contributions are made during the first quarter for participant earnings of
the previous calendar year. The Company's discretionary contributions are
immediately vested. The Company's matching contributions are invested 50
percent in the SAIC Non Exchangeable Stock Fund and 50 percent are invested
in accordance with each participant's directed allocation. Contributions
are subject to certain IRS limitations.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contribution and allocations of the Company's contribution
and fund earnings, and each participant's account is charged with an
allocation of administrative expenses. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
-5-
<PAGE> 10
VESTING - Participants are immediately vested in their contributions and
the Company's discretionary contributions, plus actual earnings thereon.
Vesting in the Company's matching contributions plus actual earnings
thereon are based on years of continuous service. A participant is fully
vested after five years of credited service.
PARTICIPANT LOANS RECEIVABLE - Participants may borrow from their fund
accounts a minimum of $1 up to a maximum of the lesser of (a) $50 less the
participant's highest outstanding loan balance during the preceding one
year period; or (b) 50 percent of their vested account balance.
Additionally, loans may not exceed the vested value of the participant's
Plan account less their vested amounts in the SAIC Stock Fund within the
Plan. Loan transactions are treated as a transfer to (from) the investment
fund from (to) the Loan Fund. Loan terms range from 12 to 56 months. The
loans are secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as determined
quarterly by the Plan Administrator. Interest rates ranged from 9.50 to
8.75 percent during 1999 and 1998. Principal and interest is paid ratably
through monthly payroll deductions.
PAYMENT OF BENEFITS - On termination of service other than by death, a
participant may elect to receive either a lump-sum amount equal to the
value of the participant's vested interest in his or her account, or annual
installments not to exceed the life expectancy of the participant and
spouse, if applicable. For termination of service due to death, a
beneficiary may receive the value of the vested interest in his or her
account as a lump-sum distribution, or in two annual installments, if the
participant has so elected.
FORFEITED ACCOUNTS - Forfeited accounts are used to reduce future Company
contributions. Company contributions were reduced by $2 and $1 in 1999 and
1998, respectively.
INVESTMENT OPTIONS - The Plan is comprised of the following investments:
- VANGUARD TOTAL BOND MARKET INDEX FUND: This participant directed fund
invests in United States treasury obligations, federal agency mortgage
backed obligations and investment grade corporate obligations.
- VANGUARD EXPLORER FUND: This participant directed fund
invests in the common stock of a diversified group of small
capitalization companies.
- VANGUARD 500 INDEX FUND: This participant directed fund invests in all
of the 500 stocks that make up the Standard & Poor's 500 Composite
Stock Price Index.
- VANGUARD INTERNATIONAL GROWTH FUND: This participant
directed fund invests in the common stocks of companies
based outside of the United States.
- VANGUARD / PRIMECAP FUND: This participant directed fund
invests in the common stock of medium capitalization
companies.
- VANGUARD / WELLINGTON FUND: This participant directed fund invests
approximately 65 percent of its assets in common stocks and the
remaining 35 percent in bonds.
- VANGUARD / WINDSOR II: This participant directed fund
invests in the common stock of large capitalization
companies.
-6-
<PAGE> 11
- SAIC EXCHANGEABLE STOCK FUND: This fund invests primarily in SAIC
class A common stock and is participant directed to the extent that
participant contributions were used to purchase SAIC stock. Effective
October 1999, the company announced the closing of SAIC stock funds to
all inactive participants of the plan. Inactive participants would
have until July 2000 to move assets held in these funds. Any remaining
funds will be moved to the interest income fund.
- SAIC NON EXCHANGEABLE STOCK FUND: This is a non-participant directed
fund created to invest 50% of the Company's matching contributions and
the Company's annual discretionary contributions in SAIC class A
common stock. Effective October 1999, the company announced the
closing of SAIC stock funds to all inactive participants of the plan.
Inactive participants would have until July 2000 to move assets held
in these funds. Any remaining funds will be moved to the interest
income fund.
- The SAIC STOCK PURCHASE FUND is not a participant directed investment
option; it is a temporary holding fund designed to hold respective
participant and Company contributions until the following SAIC common
stock quarterly trade date. Pending the quarterly trade, the
respective contributions are invested in the Vanguard Money Market
Reserves Portfolio.
- TELCORDIA TECHNOLOGIES, INC. - INTEREST INCOME FUND: This
participant directed fund invests primarily in investment
contracts issued by insurance companies and banks.
- TELCORDIA TECHNOLOGIES, INC. - DIVERSIFIED TELEPHONE
PORTFOLIO STOCK FUND: This fund invests primarily in common
stock and has been frozen to new participant directed
contributions since 1984.
- TELCORDIA TECHNOLOGIES, INC. - TELEPHONE EQUITY FUND STOCK FUND: This
fund invested in the common stock of the RBOC's. Upon the sale of the
Company to SAIC, the fund was frozen to new participant directed
contributions, and then closed on January 31, 1999. Any remaining
balances that were held in Telephone Equity Fund were automatically
transferred to the Interest Income Fund on February 1, 1999.
Effective January 1, 2000, the Plan was amended to allow two new investment
options, the Vanguard US Growth Fund and the Vanguard Extended Market Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The accompanying financial statements have been
prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
significant estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of additions
to and deductions from net assets during the reporting period. Actual
results could differ from those estimates.
-7-
<PAGE> 12
INVESTMENT VALUATION AND INCOME RECOGNITION - The Plan's investments are
valued at fair value, except for its investment contracts which are valued
at contract value.
Shares of registered investment companies are valued at quoted market
prices which represent the net asset value of shares held by the Plan at
year end. Quoted market prices for the value of the common shares of each
company in the Telephone Equity Fund and the Diversified Telephone
Portfolio are obtained on the basis of the closing price on the New York
Stock Exchange on the year end date or, if no sales were made on that date,
at the closing price on the New York Stock Exchange on the next preceding
day on which sales were made.
Participant notes receivable are valued at outstanding principal balance
which approximates fair value.
A general public market for SAIC's common stock does not exist; therefore,
the fair value of the common stock is determined pursuant to a stock price
formula and valuation process which includes an appraisal prepared by an
independent appraisal firm. Periodic determinations of fair value of the
common stock are made by the SAIC Board of Directors, with the assistance
of the independent appraisal firm. The SAIC Board of Directors reserves the
right to alter the formula. On August 31, 1999, SAIC effected a
four-for-one stock split payable in the form of a stock dividend. All share
and per share information for SAIC's Class A Common Stock have been
retroactively restated in these financial statements to reflect this split.
The gains or losses realized on distributions of investments and the
increases or decreases in unrealized appreciation are calculated as the
difference between the current fair value and the fair value of the
investments at the beginning of the year, or purchase price if purchased
during the year. As of December 31, 1999, the fair value of SAIC's Class A
Common Stock was $19.99 per share and the Plan held approximately 61,384
shares.
It is the policy of the Company to keep the SAIC Common Stock Fund invested
primarily in common stock, except for estimated reserves for use in
distributions and investment exchanges by participants. Such reserves are
invested in the Vanguard Prime Money Market fund. If reserves in the SAIC
Common Stock Fund are less than the amount required at any given time to
make required distributions and investment changes, investment exchanges
out of the SAIC Common Stock Fund by participants may have to be deferred.
Purchases and sales of securities are reflected as of the trade date.
Investments are valued on a daily basis. Dividend income is recorded on the
ex-dividend date. Interest earned on investments is recorded on the accrual
basis.
BENEFIT PAYMENTS - Benefits are recorded when paid.
PLAN TERMINATION - The Company intends to continue the Plan indefinitely,
but reserves the right to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of the
termination of the Plan, participants would become fully vested in their
accounts; Company contributions would not be subject to forfeiture.
-8-
<PAGE> 13
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT - On September 15, 1999 the
Accounting Standards Executive Committee issued Statement of Position 99-3
"Accounting for Defined Contribution Benefit Plan Investments and Other
Disclosure Matters" ("SOP 99-3"), which eliminates the previous
requirements for a defined contribution plan to present investments by
general type for participant directed investments in the statement of net
assets available for plan benefits, total number of units and the net asset
value per unit during the period. SOP 99-3 is effective for plan years
beginning after December 15, 1999, however, early adoption is encouraged.
The Plan elected to early adopt the provisions of SOP 99-3 for the year
ended December 31, 1999 and the prior year financial statements have been
restated to conform with the current year presentation.
3. INVESTMENTS
Investments are summarized in the following schedule. Investments that
represent five percent or more of the Plan's net assets are separately
identified.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
<S> <C> <C>
Telephone Equity Fund common shares:
SBC Communications, Inc. $ -- $ 733
Other -- 1,590
------- -------
Total -- 2,323
------- -------
SAIC common shares:
SAIC Exchangeable Stock Fund 1,044 662
Other 185 84
------- -------
Total 1,229 746
------- -------
Shares in registered investment companies:
Vanguard 500 Index Fund 1,800 1,309
Vanguard Wellington Fund 766 843
Vanguard Windsor II Fund 741 902
Vanguard PRIMECAP Fund 962 510
Other 438 472
------- -------
4,707 4,036
Investment contracts with insurance companies, at contract value 4,356 2,980
Other 565 754
------- -------
Total investments $10,857 $10,839
======= =======
</TABLE>
-9-
<PAGE> 14
During 1999 and 1998, the Plan's investments (including gains and losses
on investments bought and sold, as well as held during the year)
appreciated in value as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
<S> <C> <C>
Mutual funds $ 616 $ 798
Common stock (14) 1,072
SAIC stock funds 299 240
Interest income fund 301 203
------- -------
Total appreciation of investments $ 1,202 $ 2,313
======= =======
4. NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and the significant components of changes
in net assets relating to the non-participant directed investments, is as
follows:
DECEMBER 31,
-------------
1999 1998
<S> <C> <C>
Investments, at fair value:
SAIC common shares in the SAIC
Non Exchangeable Stock Fund $185 $ 84
---- ----
Total net assets available for plan benefits $185 $ 84
==== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1999 1998
<S> <C> <C>
Changes in Net Assets:
Net appreciation of investments $ 35 $ 12
Employer contributions 2 153
Net transfers of participants balances 96 (76)
Distributions to participants (32) (5)
----- -----
Net increase in net assets 101 84
Net assets available for plan benefits:
Beginning of year 84 --
----- -----
End of year $ 185 $ 84
===== =====
</TABLE>
5. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES
The Plan maintains investments in fully benefit-responsive investment
contracts with a number of insurance companies and banks. (Benefit
responsiveness is the extent to which contract terms permit and require
withdrawals at contract value for benefit payments, loans, or transfers to
other investment options offered to the participants by the Plan). The
accounts are credited with earnings of the underlying investments
(principally bank certificates of deposit, and other fixed income
products) and charged for Plan withdrawals and administrative expenses.
The contracts are included in the financial statements at contract value,
which approximates fair value, as reported to the Plan by the respective
provider.
-10-
<PAGE> 15
Contract value represents contributions made under the contract, plus
earnings, less plan withdrawals and administrative expenses. See the
supplemental schedule for a complete list of all contracts held in the
fund.
Approximately 39 percent and 27 percent of total net assets at December
31, 1999 and 1998, respectively, were invested in investment contracts.
These contracts are subject to credit risk. If any of the companies fail
to perform on the contracts held, the asset value of the Interest Income
Fund, and therefore the Plan, could be adversely impaired.
6. PARTIES-IN-INTEREST
Transactions involving cash, securities or assets of the Company, the
Trustee or other affiliated persons are considered to be party-in-interest
transactions under Section 2520.103-10 of the Department of Labor Rules
and Regulations for Reporting and Disclosure. Reportable party-in-interest
transactions for the years ended December 31, 1999 and 1998 are summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
NUMBER OF NUMBER OF
SHARES TRANSACTIONS COST
<S> <C> <C> <C>
INVESTMENT SALES:
SAIC Class A Common Stock 10,502 4 $138
INVESTMENT PURCHASES:
SAIC Class A Common Stock 21,234 4 $374
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-------------------------------------
NUMBER OF NUMBER OF
SHARES TRANSACTIONS COST
<S> <C> <C> <C>
INVESTMENT SALES:
SAIC Class A Common Stock 452 4 $5
INVESTMENT PURCHASES:
SAIC Class A Common Stock 45,232 4 $501
</TABLE>
-11-
<PAGE> 16
Certain Plan investments are investment funds; and are shares of mutual
funds managed by The Vanguard Group. Vanguard Fiduciary Trust Company is
the trustee as defined by the Plan, and therefore these transactions
qualify as party-in-interest.
There were no known prohibited transactions with known parties in interest
as defined in ERISA Section 3(14) and regulations thereunder, including
those transactions set forth in ERISA Sections 406 and 407(a) and Internal
Revenue Code Section 4975(c). There was no known relationship in which The
Vanguard Fiduciary Trust Company had any direct or indirect financial
interest which would affect its capacity to perform the necessary
calculations.
Fees paid by the Plan for administrative expenses and investment management
services amounted to $4 and $3 for 1999 and 1998, respectively. All other
Plan expenses are paid by the Company.
7. TAX STATUS
The Internal Revenue Service has determined and informed the Company by
letter date February 24, 1999 that the Plan and related trust are designed
in accordance with applicable sections of the Internal Revenue Code (the
"Code"). The Plan Administrator and the Plan's counsel believe that the
Plan is currently being operated in compliance with the applicable
requirements of the Code. Therefore, no provision for income taxes has been
included in the Plan's financial statements.
******
-12-
<PAGE> 17
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVERSIFIED TELEPHONE PORTFOLIO
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Shares:
AT&T Corporation 950 $ 7 $ 48
Vodafone-Airtouch 352 1 17
Bell Atlantic Corporation 628 6 39
BellSouth Corporation 902 5 42
Lucent Technologies Corporation 824 3 62
Media One Group 167 -- 13
NCR Corporation 40 1 2
SBC Communications, Inc. 1,510 7 74
US West Communications, Inc. 172 8 12
------- -------
Total Diversified Telephone Portfolio Investments $ 38 $ 309
======= =======
Note: Media One Group shares acquired through AT&T acquisition
SAIC FUNDS
SAIC Exchangeable Stock Fund *
SAIC Class A Common Stock 52,202 $ 606 $ 1,044
Temporary Cash Investments 3 3
------- -------
Total SAIC Exchangeable Stock Fund $ 609 $ 1,047
======= =======
SAIC Non Exchangeable Stock Fund *
SAIC Class A Common Stock 9,182 $ 142 $ 185
======= =======
SAIC Stock Purchase Fund *
Temporary Cash Investments $ 32 $ 32
======= =======
</TABLE>
* Represents party-in-interest
-13-
<PAGE> 18
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES (Continued)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST INCOME FUND
PRINCIPAL CONTRACT FAIR
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE VALUE
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts with Insurance Companies:
AIG Life
6.95% due 5/15/01 $ 74 $ 74 $ 74
AIG
5.56% due 10/15/02 295 295 295
AIG FP
7.22% due 6/30/01 149 149 149
Allstate
5.55% due 1/15/03 179 179 179
Bayerische
6.87% due 7/15/04 119 119 119
CDC Capital, Inc.
6.41% due 12/31/01 250 250 250
6.45% due 11/15/03 176 176 176
Deutsche Bank
6.68% due 3/21/01 148 148 148
6.12% due 3/31/00 147 147 147
6.26% no maturity date 190 190 190
GE Life and Annuity
6.06% due 9/15/03 152 152 152
6.56% due 2/15/03 181 181 181
John Hancock
6.93% due 11/15/01 139 139 139
6.35% due 8/15/02 100 100 100
Metropolitan Life
7.02% due 12/15/03 147 147 147
Morgan Guaranty
6.59% due 9/30/01 86 86 86
New York Life Insurance Company
7.05% due 4/15/00 73 73 73
Principal Mutual Life Insurance
5.93% due 7/15/03 153 153 153
7.02% due 4/15/00 70 70 70
Rabobank Nederland
6.25% no maturity date 301 301 301
6.00% due 12/31/00 294 294 294
Sun Life Insurance Company of America
8.96% due 1/2/04 23 23 23
Travelers
5.91% due 7/15/01 183 183 183
Union Bank of Switzerland
7.27% no maturity date 397 397 397
7.22% no maturity date 165 165 165
6.39% no maturity date 165 165 165
------ ------ ------
Total Contracts with Insurance Companies 4,356 4,356 4,356
Temporary Cash Investments 221 221 221
------ ------ ------
Total Interest Income Fund Investments $4,577 $4,577 $4,577
====== ====== ======
</TABLE>
-14-
<PAGE> 19
TELCORDIA TECHNOLOGIES
SAVINGS AND SECURITY PLAN
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS AND SECURITY PLAN)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES (Continued)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VANGUARD MUTUAL FUNDS
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard 500 Index Fund * 13,304 $ 1,556 $ 1,800
Vanguard Explorer Fund * 1,756 98 121
Vanguard International Growth Fund * 9,061 153 204
Vanguard PRIMECAP Fund * 15,500 739 962
Vanguard Total Bond Market Index * 11,862 119 113
Vanguard Wellington Fund * 27,389 751 766
Vanguard Windsor II Fund * 29,670 820 741
------- -------
$ 4,236 $ 4,707
======= =======
LOAN FUND
Participant Loans $ 257 $ 257
======= =======
</TABLE>
* Represents party-in-interest
-15-
<PAGE> 1
EXHIBIT 28(c)
Securities and Exchange Commission
Washington, D.C., 20549
Form 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the calendar year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
TELCORDIA TECHNOLOGIES SAVINGS PLAN FOR SALARIED EMPLOYEES
----------------------------------------------------------
(Full Title of Plan)
Telcordia Technologies, Inc.
445 South Street, Morristown NJ 07960
-------------------------------------
(Name of issuer of the securities held pursuant to
the Plan and the address of its principal executive office)
<PAGE> 2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Employee Benefits Plan Committee of the Telcordia Technologies Savings Plan for
Salaried Employees, duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED
EMPLOYEES
DATE 4-21-00 s/ Carol Cole
------------------------- -----------------------------------------
Carol Cole
Chairman, Employee Benefits
Plan Committee
<PAGE> 3
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR
SALARIED EMPLOYEES)
Financial Statements for the Years Ended
December 31, 1999 and 1998, Supplemental Schedule for the Year Ended
December 31, 1999 and
Independent Auditors' Reports
<PAGE> 4
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED
EMPLOYEES)
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
INDEPENDENT AUDITORS' REPORTS 1-2
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Plan Benefits
as of December 31, 1999 and 1998 3
Statements of Changes in Net Assets Available for Plan
Benefits for the Years Ended December 31, 1999 and 1998 4
Notes to Financial Statements 5-12
SUPPLEMENTAL SCHEDULE:
Schedule of Assets Held for Investment Purposes as of December 31, 1999 13-15
</TABLE>
-0-
<PAGE> 5
INDEPENDENT AUDITORS REPORT
To the Trustees and Participants of the
Telcordia Technologies Savings Plan for Salaried Employees
Morristown, New Jersey
We have audited the accompanying statements of net assets available for plan
benefits of Telcordia Technologies Savings Plan for Salaried Employees (the
"Plan") as of December 31, 1999, and the related statement of changes in net
assets available for plan benefits for the year then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for plan benefits of the Plan as of December
31, 1999, and the changes in net assets available for plan benefits for the year
then ended in conformity with generally accepted accounting principles in the
United States of America. Our audit was conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole. The supplemental
schedule listed in the Table of Contents is presented for the purpose of
additional analysis and is not a required part of the basic financial
statements, but is supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedule is the
responsibility of the Plan's management. Such supplemental schedule has been
subjected to the auditing procedures applied in our audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects when
considered in relation to the basic financial statements taken as a whole.
/S/ Deloitte & Touche LLP
Jericho, New York
March 20, 2000
-1-
<PAGE> 6
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and the Administrative Committee
of the Bell Communications Research Savings Plan for Salaried Employees
In our opinion, the accompanying statement of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the Bell Communications Research Savings Plan for Salaried Employees (the
"Plan") at December 31, 1998, and the changes in net assets available for
benefits for the year ended December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Plan's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above. We have not audited the
financial statements of the Bell Communications Research Savings Plan for
Salaried Employees for any period subsequent to December 31, 1998.
/S/ PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
-2-
<PAGE> 7
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED EMPLOYEES)
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS:
Investments, at fair value: (Note 3)
Telephone Equity Fund common shares $ -- $ 101,287
Diversified Telephone Portfolio common shares 23,733 24,199
SAIC common shares 285,113 158,793
Shares in registered investment companies 865,572 716,405
Temporary cash investments 20,222 31,205
---------- ----------
1,194,640 1,031,889
Investment contracts with insurance companies, at contract value 294,524 235,355
---------- ----------
Total investments 1,489,164 1,267,244
Receivables:
Company contributions 2,100 2,881
Participant contrbutions -- 2,831
Loans to participants 10,979 10,145
Securities 1,964 7,917
Interest 40 150
---------- ----------
Total assets 1,504,247 1,291,168
---------- ----------
LIABILITIES:
Securities payable -- 6,591
Trust fees payable 21 33
---------- ----------
Total liabilities 21 6,624
---------- ----------
NET ASSETS AVAILABLE FOR PLAN BENEFITS $1,504,226 $1,284,544
========== ==========
</TABLE>
See notes to financial statements.
-3-
<PAGE> 8
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED EMPLOYEES)
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ADDITIONS:
Investment income:
Dividends $ 64,038 $ 51,472
Interest 945 1,012
Net appreciation of investments (Note 3) 152,054 200,804
---------- ----------
Total investment income 217,037 253,288
---------- ----------
Contributions:
Employee contributions 52,350 52,671
Employer contributions 19,073 22,779
---------- ----------
Total contributions 71,423 75,450
---------- ----------
Total additions 288,460 328,738
---------- ----------
DEDUCTIONS:
Distributions to participants 68,553 80,391
Administrative expenses (Note 6) 225 264
---------- ----------
Total deductions 68,778 80,655
---------- ----------
NET INCREASE (DECREASE) DURING THE YEAR 219,682 248,083
NET ASSETS AVAILABLE FOR PLAN BENEFITS:
Beginning of year 1,284,544 1,036,461
---------- ----------
End of year $1,504,226 $1,284,544
========== ==========
</TABLE>
See notes to financial statements.
-4-
<PAGE> 9
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED
EMPLOYEES)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
1. DESCRIPTION OF PLAN
The Telcordia Technologies Savings Plan for Salaried Employees (formerly
the Bell Communications Research Savings Plan for Salaried employees) (the
"Plan") was established by Telcordia Technologies, Inc. ("Telcordia" or the
"Company") to provide a convenient way for salaried employees to save on a
regular and long term basis. On November 14, 1997, the Company was sold to
Science Applications International Corporation ("SAIC"). Prior to the sale,
the Company was owned by the Regional Bell Operating Companies ("RBOC's").
Effective March 9, 1999, the Company changed its name to Telcordia
Technologies.
Effective March 17, 1999, the name of the Plan was changed to Telcordia
Technologies Savings and Security Plan.
The following description of the Plan provides only general information.
Participants should refer to the Plan Prospectus for a more complete
description of the Plan's provisions.
GENERAL - The Plan is a defined contribution plan covering all salaried
employees of the Company who have one month of service. It is subject to
the provisions of the Employee Retirement Income Security Act of 1974
("ERISA").
CONTRIBUTIONS - Each year, participants may contribute up to 16 percent of
pretax annual compensation, as defined in the Plan. Participants may also
contribute amounts representing distributions from other qualified defined
benefit or contribution plans. After one year of service, the Company will
make a matching contribution equal to 70 percent of the first 6 percent of
compensation that a participant contributes to the Plan. In addition, after
one year of service, the Company will make an annual discretionary
contribution of a 1/2 percent of compensation on behalf of each
participant. The Company's discretionary contributions are deposited into
the SAIC Stock Purchase Fund until the following quarterly trade date and
then into the SAIC Non Exchangeable Stock Fund. The Company's discretionary
contributions are made during the first quarter for participant earnings of
the previous calendar year. The Company's discretionary contributions are
immediately vested. The Company's matching contributions are invested 50
percent in the SAIC Non Exchangeable Stock Fund and 50 percent are invested
in accordance with each participant's directed allocation. Contributions
are subject to certain IRS limitations.
PARTICIPANT ACCOUNTS - Each participant's account is credited with the
participant's contribution and allocations of the Company's contribution
and fund earnings, and each participant's account is charged with an
allocation of administrative expenses. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
-5-
<PAGE> 10
VESTING - Participants are immediately vested in their contributions and
the Company's discretionary contributions, plus actual earnings thereon.
Vesting in the Company's matching contributions plus actual earnings
thereon are based on years of continuous service. A participant is fully
vested after five years of credited service.
PARTICIPANT LOANS RECEIVABLE - Participants may borrow from their fund
accounts a minimum of $1 up to a maximum of the lesser of (a) $50 less the
participant's highest outstanding loan balance during the preceding one
year period; or (b) 50 percent of their vested account balance.
Additionally, loans may not exceed the vested value of the participant's
Plan account less their vested amounts in the SAIC Stock Fund within the
Plan. Loan transactions are treated as a transfer to (from) the investment
fund from (to) the Loan Fund. Loan terms range from 12 to 56 months. The
loans are secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as determined
quarterly by the Plan Administrator. Interest rates ranged from 9.50 to
8.75 percent during 1999 and 1998. Principal and interest is paid ratably
through monthly payroll deductions.
PAYMENT OF BENEFITS - On termination of service other than by death, a
participant may elect to receive either a lump-sum amount equal to the
value of the participant's vested interest in his or her account, or annual
installments not to exceed the life expectancy of the participant and
spouse, if applicable. For termination of service due to death, a
beneficiary may receive the value of the vested interest in his or her
account as a lump-sum distribution, or in two annual installments, if the
participant has so elected.
FORFEITED ACCOUNTS - Forfeited accounts are used to reduce future Company
contributions. Company contributions were reduced by $889 and $168 in 1999
and 1998, respectively.
INVESTMENT OPTIONS - The Plan is comprised of the following investments:
- VANGUARD TOTAL BOND MARKET INDEX FUND: This participant directed fund
invests in United States treasury obligations, federal agency mortgage
backed obligations and investment grade corporate obligations.
- VANGUARD EXPLORER FUND: This participant directed fund
invests in the common stock of a diversified group of small
capitalization companies.
- VANGUARD 500 INDEX FUND: This participant directed fund invests in all
of the 500 stocks that make up the Standard & Poor's 500 Composite
Stock Price Index.
- VANGUARD INTERNATIONAL GROWTH FUND: This participant
directed fund invests in the common stocks of companies
based outside of the United States.
- VANGUARD / PRIMECAP FUND: This participant directed fund
invests in the common stock of medium capitalization
companies.
- VANGUARD / WELLINGTON FUND: This participant directed fund invests
approximately 65 percent of its assets in common stocks and the
remaining 35 percent in bonds.
- VANGUARD / WINDSOR II: This participant directed fund
invests in the common stock of large capitalization
companies.
-6-
<PAGE> 11
- SAIC EXCHANGEABLE STOCK FUND: This fund invests primarily in SAIC
class A common stock and is participant directed to the extent that
participant contributions were used to purchase SAIC stock. Effective
October 1999, the company announced the closing of SAIC stock funds to
all inactive participants of the plan. Inactive participants would
have until July 2000 to move assets held in these funds. Any remaining
funds will be moved to the interest income fund.
- SAIC NON EXCHANGEABLE STOCK FUND: This is a non-participant directed
fund created to invest 50% of the Company's matching contributions and
the Company's annual discretionary contributions in SAIC class A
common stock. Effective October 1999, the company announced the
closing of SAIC stock funds to all inactive participants of the plan.
Inactive participants would have until July 2000 to move assets held
in these funds. Any remaining funds will be moved to the interest
income fund.
- The SAIC STOCK PURCHASE FUND is not a participant directed investment
option; it is a temporary holding fund designed to hold respective
participant and Company contributions until the following SAIC common
stock quarterly trade date. Pending the quarterly trade, the
respective contributions are invested in the Vanguard Money Market
Reserves Portfolio.
- TELCORDIA TECHNOLOGIES, INC. - INTEREST INCOME FUND: This participant
directed fund invests primarily in investment contracts issued by
insurance companies and banks.
- TELCORDIA TECHNOLOGIES, INC. - DIVERSIFIED TELEPHONE PORTFOLIO STOCK
FUND: This fund invests primarily in common stock and has been frozen
to new participant directed contributions since 1984.
- TELCORDIA TECHNOLOGIES, INC. - TELEPHONE EQUITY FUND STOCK FUND: This
fund invested in the common stock of the RBOC's. Upon the sale of the
Company to SAIC, the fund was frozen to new participant directed
contributions, and then closed on January 31, 1999. Any remaining
balances that were held in Telephone Equity Fund were automatically
transferred to the Interest Income Fund on February 1, 1999.
Effective January 1, 2000, the Plan was amended to allow two new investment
options, the Vanguard US Growth Fund and the Vanguard Extended Market Fund.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The accompanying financial statements have been
prepared on the accrual basis of accounting in accordance with generally
accepted accounting principles.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
significant estimates and assumptions that affect the reported amounts of
assets, liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of additions
to and deductions from net assets during the reporting period. Actual
results could differ from those estimates.
-7-
<PAGE> 12
INVESTMENT VALUATION AND INCOME RECOGNITION - The Plan's investments are
valued at fair value, except for its investment contracts which are valued
at contract value.
Shares of registered investment companies are valued at quoted market
prices which represent the net asset value of shares held by the Plan at
year end. Quoted market prices for the value of the common shares of each
company in the Telephone Equity Fund and the Diversified Telephone
Portfolio are obtained on the basis of the closing price on the New York
Stock Exchange on the year end date or, if no sales were made on that date,
at the closing price on the New York Stock Exchange on the next preceding
day on which sales were made.
Participant notes receivable are valued at outstanding principal balance
which approximates fair value.
A general public market for SAIC's common stock does not exist; therefore,
the fair value of the common stock is determined pursuant to a stock price
formula and valuation process which includes an appraisal prepared by an
independent appraisal firm. Periodic determinations of fair value of the
common stock are made by the SAIC Board of Directors, with the assistance
of the independent appraisal firm. The SAIC Board of Directors reserves the
right to alter the formula. On August 31, 1999, SAIC effected a
four-for-one stock split payable in the form of a stock dividend. All share
and per share information for SAIC's Class A Common Stock have been
retroactively restated in these financial statements to reflect this split.
The gains or losses realized on distributions of investments and the
increases or decreases in unrealized appreciation are calculated as the
difference between the current fair value and the fair value of the
investments at the beginning of the year, or purchase price if purchased
during the year. As of December 31, 1999, the fair value of SAIC's class A
common stock was $19.99 per share and the Plan held approximately
14,262,760 shares.
It is the policy of the Company to keep the SAIC Common Stock Fund invested
primarily in common stock, except for estimated reserves for use in
distributions and investment exchanges by participants. Such reserves are
invested in the Vanguard Prime Money Market fund. If reserves in the SAIC
Common Stock Fund are less than the amount required at any given time to
make required distributions and investment changes, investment exchanges
out of the SAIC Common Stock Fund by participants may have to be deferred.
Purchases and sales of securities are reflected as of the trade date.
Investments are valued on a daily basis. Dividend income is recorded on the
ex-dividend date. Interest earned on investments is recorded on the accrual
basis.
BENEFIT PAYMENTS - Benefits are recorded when paid.
PLAN TERMINATION - The Company intends to continue the Plan indefinitely,
but reserves the right to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of the
termination of the Plan, participants would become fully vested in their
accounts; Company contributions would not be subject to forfeiture.
-8-
<PAGE> 13
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT - On September 15, 1999 the
Accounting Standards Executive Committee issued Statement of Position 99-3
"Accounting for Defined Contribution Benefit Plan Investments and Other
Disclosure Matters" ("SOP 99-3"), which eliminates the previous
requirements for a defined contribution plan to present investments by
general type for participant directed investments in the statement of net
assets available for plan benefits, total number of units and the net asset
value per unit during the period. SOP 99-3 is effective for plan years
beginning after December 15, 1999, however, early adoption is encouraged.
The Plan elected to early adopt the provisions of SOP 99-3 for the year
ended December 31, 1999 and the prior year financial statements have been
restated to conform with the current year presentation.
3. INVESTMENTS
Investments are summarized in the following schedule. Investments that
represent five percent or more of the Plan's net assets are separately
identified.
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1999 1998
<S> <C> <C>
SAIC common shares:
SAIC Exchangeable Stock Fund $ 264,278 $ 151,052
Other 20,835 7,741
---------- ----------
Total 285,113 158,793
---------- ----------
Shares in registered investment companies:
Vanguard 500 Index Fund 428,745 343,936
Vanguard Wellington Fund 76,095 77,639
Vanguard Windsor II Fund 102,824 126,446
Vanguard PRIMECAP Fund 147,409 76,594
Other 110,499 91,790
---------- ----------
865,572 716,405
---------- ----------
Investment contracts with insurance companies, at contract value 294,524 235,355
Other 43,955 156,691
---------- ----------
Total investments $1,489,164 $1,267,244
========== ==========
</TABLE>
During 1999 and 1998, the Plan's investments (including gains and losses
on investments bought and sold, as well as held during the year)
appreciated in value as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
<S> <C> <C>
Mutual funds $130,797 $124,776
Common stock 776 60,689
SAIC stock funds 65,477 52,011
Interest income fund 19,987 15,812
-------- --------
Total appreciation of investments $217,037 $253,288
======== ========
</TABLE>
-9-
<PAGE> 14
4. NON-PARTICIPANT DIRECTED INVESTMENTS
Information about the net assets and the significant components of changes
in net assets relating to the non-participant directed investments, is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
<S> <C> <C>
Investments, at fair value:
SAIC common shares in the SAIC
Non Exchangeable Stock Fund $20,835 $ 7,741
Temporary cash investments 128 14
------- -------
Total net assets available for benefits $20,963 $ 7,755
======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------
1999 1998
<S> <C> <C>
Changes in Net Assets:
Net appreciation of investments $ 3,551 $ 1,202
Employer contributions 75 6,621
Net transfers of participants' balances 9,787 (18)
Distributions to participants (205) (50)
-------- --------
Net increase in net assets 13,208 7,755
Net assets available for plan benefits:
Beginning of year 7,755 --
-------- --------
End of year $ 20,963 $ 7,755
======== ========
</TABLE>
5. INVESTMENT CONTRACTS WITH INSURANCE COMPANIES
The Plan maintains investments in fully benefit-responsive investment
contracts with a number of insurance companies and banks. (Benefit
responsiveness is the extent to which contract terms permit and require
withdrawals at contract value for benefit payments, loans, or transfers to
other investment options offered to the participants by the Plan). The
accounts are credited with earnings of the underlying investments
(principally bank certificates of deposit, and other fixed income products)
and charged for Plan withdrawals and administrative expenses. The contracts
are included in the financial statements at contract value, which
approximates fair value, as reported to the Plan by the respective
provider.
Contract value represents contributions made under the contract, plus
earnings, less plan withdrawals and administrative expenses. See the
supplemental schedule for a complete list of all contracts held in the
fund.
Approximately 20 percent and 18 percent of total net assets at December 31,
1999 and 1998, respectively, were invested in investment contracts. These
contracts are subject to credit risk. If any of the companies fail to
perform on the contracts held, the asset value of the Interest Income Fund,
and therefore the Plan, could be adversely impaired.
-10-
<PAGE> 15
6. PARTIES-IN-INTEREST
Transactions involving cash, securities or assets of the Company, the
Trustee or other affiliated persons are considered to be party-in-interest
transactions under Section 2520.103-10 of the Department of Labor Rules
and Regulations for Reporting and Disclosure. Reportable party-in-interest
transactions for the years ended December 31, 1999 and 1998 are summarized
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
--------------------------------------
NUMBER OF NUMBER OF
SHARES TRANSACTIONS COST
<S> <C> <C> <C>
INVESTMENT SALES:
SAIC Class A Common Stock 121,709 4 $1,392
INVESTMENT PURCHASES:
SAIC Class A Common Stock 3,595,085 4 $63,643
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
----------------------------------------
NUMBER OF NUMBER OF
SHARES TRANSACTIONS COST
<S> <C> <C> <C>
INVESTMENT SALES:
SAIC Class A Common Stock 165,696 4 $ 2,021
INVESTMENT PURCHASES:
SAIC Class A Common Stock 6,073,264 4 $66,339
</TABLE>
Certain Plan investments are investment funds; and are shares of mutual
funds managed by The Vanguard Group. Vanguard Fiduciary Trust Company is
the trustee as defined by the Plan, and therefore these transactions
qualify as party-in-interest.
There were no known prohibited transactions with known parties in interest
as defined in ERISA Section 3(14) and regulations thereunder, including
those transactions set forth in ERISA Sections 406 and 407(a) and Internal
Revenue Code Section 4975(c). There was no known relationship in which The
Vanguard Fiduciary Trust Company had any direct or indirect financial
interest which would affect its capacity to perform the necessary
calculations.
Fees paid by the Plan for administrative expenses and investment management
services amounted to $225 and $264 for 1999 and 1998, respectively. All
other Plan expenses are paid by the Company.
-11-
<PAGE> 16
7. TAX STATUS
The Internal Revenue Service has determined and informed the Company by
letter date February 24, 1999 that the Plan and related trust are designed
in accordance with applicable sections of the Internal Revenue Code (the
"Code"). The Plan Administrator and the Plan's counsel believe that the
Plan is currently being operated in compliance with the applicable
requirements of the Code. Therefore, no provision for income taxes has been
included in the Plan's financial statements.
******
-12-
<PAGE> 17
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED EMPLOYEES)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
DIVERSIFIED TELEPHONE PORTFOLIO
<TABLE>
<CAPTION>
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Shares:
AT&T Corporation 73,113 $ 572 $ 3,710
Vodafone-Airtouch 27,099 58 1,341
Bell Atlantic Corporation 48,341 463 2,976
BellSouth Corporation 69,388 380 3,248
Lucent Technologies Corporation 63,374 234 4,741
Media One Group 12,822 -- 985
NCR Corporation 3,073 30 117
SBC Communications, Inc. 116,197 566 5,665
US West Communications, Inc. 13,198 639 950
----------- -----------
Total Common Shares $ 2,942 $ 23,733
Temporary Cash Investments 8 8
----------- -----------
Total Diversified Telephone Portfolio Investments $ 2,950 $ 23,741
=========== ===========
Note: Media One Group shares acquired through AT&T acquisition
SAIC FUNDS
SAIC Exchangeable Stock Fund *
SAIC Class A Common Stock 13,220,507 $ 153,514 $ 264,278
Temporary Cash Investments 939 939
----------- -----------
Total SAIC Exchangeable Stock Fund $ 154,453 $ 265,217
=========== ===========
SAIC Non Exchangeable Stock Fund *
SAIC Class A Common Stock 1,042,253 $ 16,114 $ 20,835
Temporary Cash Investments 128 128
----------- -----------
Total SAIC Exchangeable Stock Fund $ 16,242 $ 20,963
=========== ===========
SAIC Stock Purchase Fund *
Temporary Cash Investments $ 4,467 $ 4,467
=========== ===========
</TABLE>
* Represents party-in-interest
-13-
<PAGE> 18
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED EMPLOYEES)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES (Continued)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTEREST INCOME FUND
PRINCIPAL CONTRACT FAIR
NAME OF ISSUER AND TITLE OF ISSUE AMOUNT VALUE VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Contracts with Insurance Companies:
AIG Life
6.95% due 5/15/01 $ 4,987 $ 4,987 $ 4,987
AIG
5.56% due 10/15/02 19,926 19,926 19,926
AIG FP
7.22% due 6/30/01 10,057 10,057 10,057
Allstate
5.55% due 1/15/03 12,126 12,126 12,126
Bayerische
6.87% due 7/15/04 8,060 8,060 8,060
CDC Capital, Inc.
6.41% due 12/31/01 16,897 16,897 16,897
6.45% due 11/15/03 11,919 11,919 11,919
Deutsche Bank
6.68% due 3/21/01 10,008 10,008 10,008
6.12% due 3/31/00 9,967 9,967 9,967
6.26% no maturity date 12,861 12,861 12,861
GE Life and Annuity
6.06% due 9/15/03 10,303 10,303 10,303
6.56% due 2/15/03 12,212 12,212 12,212
John Hancock
6.93% due 11/15/01 9,391 9,391 9,391
6.35% due 8/15/02 6,786 6,786 6,786
Metropolitan Life
7.02% due 12/15/03 9,928 9,928 9,928
Morgan Guaranty
6.59% due 9/30/01 5,791 5,791 5,791
New York Life Insurance Company
7.05% due 4/15/00 4,937 4,937 4,937
Principal Mutual Life Insurance
5.93% due 7/15/03 10,370 10,370 10,370
7.02% due 4/15/00 4,744 4,744 4,744
Rabobank Nederland
6.25% no maturity date 20,340 20,340 20,340
6.00% due 12/31/00 19,887 19,887 19,887
Sun Life Insurance Company of America
8.96% due 1/2/04 1,533 1,533 1,533
Travelers
5.91% due 7/15/01 12,387 12,387 12,387
Union Bank of Switzerland
7.27% no maturity date 26,857 26,857 26,857
7.22% no maturity date 11,147 11,147 11,147
6.39% no maturity date 11,103 11,103 11,103
-------- -------- --------
Total Contracts with Insurance Companies 294,524 294,524 294,524
Temporary Cash Investments 14,680 14,680 14,680
-------- -------- --------
Total Interest Income Fund Investments $309,204 $309,204 $309,204
======== ======== ========
</TABLE>
-14-
<PAGE> 19
TELCORDIA TECHNOLOGIES
SAVINGS PLAN FOR SALARIED EMPLOYEES
(FORMERLY BELL COMMUNICATIONS RESEARCH SAVINGS PLAN FOR SALARIED EMPLOYEES)
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES (Continued)
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
- --------------------------------------------------------------------------------
VANGUARD MUTUAL FUNDS
<TABLE>
<CAPTION>
NUMBER FAIR
NAME OF ISSUER AND TITLE OF ISSUE OF SHARES COST VALUE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Vanguard 500 Index Fund * 3,168,146 $ 228,130 $ 428,745
Vanguard Explorer Fund * 342,478 19,740 23,501
Vanguard International Growth Fund * 2,738,595 45,566 61,555
Vanguard PRIMECAP Fund * 2,374,891 108,029 147,409
Vanguard Total Bond Market Index * 2,661,358 26,780 25,443
Vanguard Wellington Fund * 2,721,573 74,320 76,095
Vanguard Windsor II Fund * 4,117,901 104,703 102,824
---------- ----------
$ 607,268 $ 865,572
========== ==========
LOAN FUND
Participant Loans $ 10,979 $ 10,979
========== ==========
</TABLE>
* Represents party-in-interest
-15-
