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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-12771
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SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3630868
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10260 CAMPUS POINT DRIVE, SAN DIEGO, CALIFORNIA 92121
(Address of Registrant's principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 546-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
As of March 14, 1994, the aggregate market value of the voting stock held by
non-affiliates of Registrant was $318,399,037. 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 Registrant's employee benefit
plans. The Registrant disclaims the existence of any control relationship
between it and such employee benefit plans.
As of March 14, 1994, there were 44,125,061 shares of Registrant's Class A
Common Stock and 360,880 shares of Registrant's Class B Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement for the Company's 1994
Annual Meeting of Stockholders are incorporated by reference in Part III of this
Form 10-K Report.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Science Applications International Corporation (the "Company") provides
diversified professional and technical services ("Technical Services") and
designs, develops and manufactures high-technology products ("Products"). The
Company's Technical Services and Products are primarily sold to departments and
agencies of the U.S. Government, including the Department of Defense ("DOD"),
Department of Energy ("DOE"), Department of Transportation ("DOT"), Department
of Veterans Affairs ("VA"), Environmental Protection Agency ("EPA") and National
Aeronautics and Space Administration ("NASA"). Revenues generated from the sale
of Technical Services and Products to the U.S. Government as a prime contractor
or subcontractor accounted for 88% of revenues in fiscal years 1994, 1993 and
1992. The balance of the Company's revenues are attributable to the sales of
Technical Services and Products to foreign governments, commercial customers and
others. The percentage of revenues attributable to Technical Services and
Products has remained relatively constant at approximately 92% and 8%,
respectively, for fiscal years 1994, 1993 and 1992. The Company provides
Technical Services primarily in the areas of "National Security," "Environment,"
"Energy" and "Other Technical Services," the latter of which includes the
Company's health, space, transportation and commercial information technology
business areas. For certain financial information regarding the Company's
business segments, see Note B of Notes to Consolidated Financial Statements of
the Company set forth on page F-8 of this Form 10-K.
The principal office and corporate headquarters of the Company is located in
San Diego, California at 10260 Campus Point Drive, San Diego, California 92121
and its telephone number is (619) 546-6000. All references to the Company
include, unless the context indicates otherwise, the Company and its predecessor
and subsidiary corporations.
TECHNICAL SERVICES
NATIONAL SECURITY
The Company currently provides a wide array of national security related
Technical Services to its customers, including advanced research and technology
development, systems engineering and systems integration and technical,
operational and management support services. Examples of the Company's Technical
Services in the national security area include the following:
- Information system engineering and support services, including
requirements analysis and acquisition support, computer system design,
information and user environment modeling and data communication systems
support.
- Technical support in the areas of treaty negotiation and verification and
nuclear weapons reduction.
- Defense studies and analyses for various defense and intelligence agencies
of the U.S. Government, including studies regarding conventional and
nuclear warfare issues and the integration of military operational and
technological considerations with defense policy issues.
- Technology development and technical services to the U.S. Navy in the
general areas of undersea warfare, including surveillance, anti-submarine
warfare, port-area and harbor security and marine biosystems.
- Logistics engineering services and turnkey logistics information
management systems to a wide variety of government customers.
- Design, integration, implementation and operation of battle field
simulation training ranges on land, air and sea.
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- Testing and evaluation of communications systems, an advanced test range
data system and a strategic bomber test concept and other systems for the
U.S. Navy, the U.S. Air Force and other government agencies.
- Research, design, development, integration, evaluation, operation and
maintenance of a wide variety of training devices and simulators for the
military services.
- Systems engineering and technical assistance for cruise missiles, future
aircraft and ballistic missile concepts, systems analysis of sensors for
the detection and tracking of aircraft and ballistic missiles and studies
regarding the survivability of tactical aircraft and strategic missiles.
- Support to the DOD in imagery collection, processing, exploitation and
dissemination systems for digital processing, technology intelligence
communications and information management.
- Hardware development and systems engineering for national space programs.
- Research and engineering in the areas of underground nuclear testing,
nuclear weapons effects and the impact of nuclear effects on military
systems.
- Engineering support for a wide variety of naval avionics systems,
including scientific and engineering studies, hardware design, development
and fabrication, computer engineering and support, and reliability,
maintainability and logistics engineering.
- Maintenance engineering and training, including field technical services
and repair, electronic system design and hands-on operational support,
primarily to the U.S. Navy.
- Independent verification and validation and software quality assurance
support services for shipboard anti-submarine warfare combat systems,
mission planning functions, operational flight software command and
control processors, nuclear surety systems, soft copy imagery processing,
data storage and dissemination systems and various submarine, surface ship
and command, control and communications systems.
ENVIRONMENT
In the environment area, the Company performs site assessments, remedial
investigation and feasibility studies, sampling, monitoring and regulatory
compliance support and training. Examples of the Company's Technical Services in
the environment area include the following:
- Management and technical support to the DOE for the characterization of
the nation's first potential high level waste repository, including the
preparation and coordination of environmental assessments, field testing,
technical evaluations, public information, quality assurance and
information systems and training.
- Development, demonstration and evaluation of new technologies for
hazardous waste treatment, including bioremediation and high-energy plasma
treatment systems.
- Solid and hazardous waste services to federal, state and local governments
and the private sector, including environmental assessments, environmental
impact statements, design engineering, remedial investigations and
feasibility studies, regulatory and enforcement support, pollution
prevention and engineering services.
- Analysis of a broad range of environmental issues associated with the
marine sciences such as ocean dumping, mineral exploration, global change
and global ocean circulation and temperature trends.
- Support associated with the development of treatment technologies,
including treatability studies, development of protocols for technology
evaluation, pollution prevention assessments, waste minimization and
technology assessments.
- Development and implementation of information systems.
2
ENERGY
The energy related Technical Services of the Company include safety
evaluations, security, reliability and availability engineering evaluations,
technical reviews, quality assurance, information systems, plant monitoring
systems, instrumentation and control systems and project management. Examples of
the Company's Technical Services in the energy area include the following:
- Engineering and support services to nuclear, electric, gas and other
utility operations in the areas of computer systems, information
processing, configuration management, probabilistic risk assessment,
nuclear engineering, reliability and availability evaluations,
instrumentation and control systems, energy policy analysis and
alternative energy evaluation.
- Information systems services to the DOE, including collection, analysis
and storage of energy information, the development of geographic
information systems and the overall management of large computer
facilities.
- Support to DOE in fusion energy research, including facility management,
computer system development and project management support in connection
with an international thermonuclear experimental reactor.
- Management, operation and technical services for fossil energy research
laboratories.
OTHER TECHNICAL SERVICES
The Company provides Technical Services to government and commercial
customers in such other areas as health, space, transportation and commercial
information technology. The health related Technical Services of the Company
include medical information systems, technology development and adolescent
counseling. The Company also provides a wide variety of Technical Services in
the space, transportation, commercial information technology and other areas.
Examples of the Technical Services provided by the Company in all these areas
are described below:
- Security services for the U.S. Government and commercial customers,
including material control and accountability, computer security,
technical surveillance countermeasures, intrusion detection, access
control and physical plant threat assessments and vulnerability analysis.
- Development and installation of radiation monitoring systems for nuclear
reactor facilities.
- Development and implementation of an automated health care information
system for the DOD to service military medical treatment facilities.
- Policy and analysis support to the DOT and other transporation oriented
government agencies.
- Design, integration and implementation of complex automated toll revenue
collection systems.
- Scientific and computing services to federal agencies involved in global
change research, including processing, utilization and scientific analysis
of space, airborne and ground based remotely sensed data.
- Information technology and automatic data processing outsourcing services
for commercial clients.
3
PRODUCTS
The Company designs, develops and manufactures high-technology products for
government and commercial customers. Examples of the Company's Products are
described below:
- Automatic equipment identification technology for rail, truck, air and sea
transportation modes.
- Ruggedized/militarized computers for various military and industrial
applications.
- A portable ultrasonic imaging system primarily used for nondestructive
inspection of aircraft and nuclear power plant piping.
- Hardware products for multi-lateration based range instrumentation
systems, including transponders, airborne instrumentation pods and ground
reference interrogator/relay stations.
- A variety of flat panel displays for military applications based on plasma
and electroluminescent technology and liquid crystal display technology.
RESOURCES
The technical services and products provided by the Company utilize a wide
variety of resources. The Company anticipates the continued availability of the
resources required for the products and services provided to customers. A
substantial portion of the computers and other equipment, materials and
subcontracted work required by the Company could be procured from alternate
supply sources. However, with respect to certain products and programs, the
Company depends on a particular source or vendor. While a temporary or permanent
disruption in the supply of these materials or services could cause
inconvenience or delay or impact the profitability of the affected programs or
products, the Company believes it will not materially affect the profitability
or operations of the Company as a whole.
The availability of skilled employees who have the necessary education
and/or experience in specialized scientific and technological disciplines
remains critical to the future growth and profitability of the Company. To date,
the Company has not experienced any significant difficulty in obtaining or
retaining the services of such employees. As an inducement, the Company
maintains a variety of benefit programs for its employees, including retirement
and bonus plans, group life, health, accident and disability insurance, and
offers its employees the opportunity to participate in the Company's employee
ownership program. See "Business -- Employees And Consultants."
MARKETING
The Company's marketing activities are primarily conducted by its own
professional staff of engineers, scientists, analysts and other personnel. The
Company's marketing approach for its technical services begins with the
development of information concerning the requirements of the U.S. Government
and other potential customers for the types of services provided by the Company.
Such information is gathered in the course of contract performance and from
formal briefings, participation in professional organizations and published
literature. This information is then evaluated and exchanged among marketing
groups within the Company (organized along functional, geographic and other
lines) in order to devise and implement, subject to management review and
approval, the best means of taking advantage of available business
opportunities, including the preparation of proposals responsive to the stated
and perceived needs of customers.
The Company's high-technology products are marketed primarily through the
Company's own sales force, which is augmented by independent sales
representatives.
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COMPETITION
The businesses in which the Company is engaged are highly competitive. The
Company has a large number of competitors, some of which have been established
longer and have substantially greater financial resources and larger technical
staffs than the Company. Some of the other competitors, although smaller in
size, are more highly specialized. In addition, the U.S. Government's own in-
house capabilities and federal non-profit contract research centers are also
competitors of the Company because they perform certain types of services which
might otherwise be performed by the Company.
The primary competitive factors in the business areas in which the Company
is engaged are technical, management and marketing competence and price. The
Company's continued success is dependent upon its ability to hire and retain
highly qualified scientists, engineers, technicians, management and professional
personnel who will provide superior service and performance on a cost effective
basis.
SIGNIFICANT CUSTOMERS
During the fiscal years ended January 31, 1994, 1993 and 1992, approximately
89% of the Company's contract revenues from the Technical Services segment in
each such fiscal year, and 72%, 82% and 90%, respectively, of the Company's
contract revenues from the Products segment, were attributable to prime
contracts with the U.S. Government or to subcontracts with other contractors
engaged in work for the U.S. Government.
In fiscal years 1994, 1993 and 1992, the U.S. Air Force accounted for 12% of
consolidated revenues in each such fiscal year, the U.S. Army accounted for 17%,
15% and 13% of consolidated revenues, respectively, and the U.S. Navy accounted
for 10%, 12% and 13% of consolidated revenues, respectively. No single contract
in the Technical Services segment accounted for 10% or more of consolidated
revenues in fiscal years 1994, 1993 and 1992.
No single customer or contract in the Products segment accounted for 10% or
more of consolidated revenues in fiscal years 1994, 1993 and 1992.
GOVERNMENT CONTRACTS
Many of the U.S. Government programs in which the Company participates as a
contractor or subcontractor may extend for several years; however, such programs
are normally funded on an annual basis. All U.S. Government contracts and
subcontracts may be modified, curtailed or terminated at the convenience of the
government if program requirements or budgetary constraints change. In the event
that a contract is terminated for convenience, the Company would be reimbursed
for its allowable costs through the date of termination and would be paid a
proportionate amount of the stipulated profit or fee attributable to the work
actually performed.
Termination or curtailment of major programs or contracts of the Company,
particularly in research and development, could have a material adverse effect
on the results of the Company's operations. Although such contract and program
terminations have not had a material adverse effect on the Company in the past,
no assurance can be given that curtailments or terminations of U.S. Government
programs or contracts will not have a material adverse effect on the Company in
the future.
The Company's business with the U.S. Government and other customers is
generally performed under cost-reimbursement, time-and-materials, fixed-price
level-of-effort or firm fixed-price contracts. Under cost-reimbursement
contracts, the customers reimburse the Company for its direct costs and
allocable indirect costs, plus a fixed fee or incentive fee. Under
time-and-materials contracts, the Company is paid for labor hours at negotiated
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
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rates. Under firm fixed-price contracts, the Company is required to provide
stipulated products, systems or services for a fixed price. Because the Company
assumes the risk of performing a firm fixed-price contract at the stipulated
price, the failure to accurately estimate ultimate costs or to control costs
during performance of the work could result, and in some instances has resulted,
in losses.
During the fiscal years ended January 31, 1994, 1993 and 1992, approximately
65%, 62% and 62%, respectively, of the Technical Services segment contract
revenues were derived from cost-reimbursement type contracts and 12%, 16% and
22%, respectively, of the Technical Services segment contract revenues were from
firm fixed-price type contracts with the balance from time-and-materials and
fixed-price level-of-effort type contracts. In contrast, the majority of the
Company's Products segment contract revenues is derived from firm fixed-price
type contracts.
Contract costs for services or products supplied to the U.S. Government,
including allocated indirect costs, are subject to audit and adjustment by
negotiations between the Company and U.S. Government representatives. Indirect
contract costs have been agreed upon through the fiscal year ended January 31,
1990. Contract revenues for subsequent years have been recorded in amounts which
are expected to be realized upon final settlement.However, no assurance can be
given that audits and adjustments for subsequent years will not result in
decreased revenues or profits for those years.
PATENTS AND PROPRIETARY INFORMATION
Although the Company owns or has made application for patents on certain
products and processes, the nature of the technical services and products
provided by the Company is such that the Company does not presently consider its
competitive position to be dependent upon patent protection. The Company claims
a proprietary interest in certain of its products, software programs,
methodology and know-how. Such proprietary information is protected by
trademarks, tradenames, copyrights, trade secrets, licenses, contracts and other
means.
The U.S. Government has certain rights to data, computer codes and related
material developed by the Company under U.S. Government-funded contracts and
subcontracts. Generally, the U.S. Government may disclose such information to
third parties, including 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
The backlog, as defined below, for the Technical Services segment at January
31, 1994 and 1993 amounted to approximately $695,000,000 and $635,000,000,
respectively, and the backlog for the Products segment at those dates amounted
to approximately $109,000,000 and $78,000,000, respectively. The Company expects
that a substantial portion of its backlog at January 31, 1994 will be recognized
as revenues prior to January 31, 1995. Some contracts associated with the
backlog are incrementally funded and may continue for more than one year.
The backlog amounts include only the funded dollar amount of contracts in
process and do 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.
Any costs incurred by the Company prior to the execution of a contract or
contract amendment are incurred at the Company's risk, and it is possible that
such costs will not be reimbursed by the customer. Unbilled receivables in this
category which were included in the Technical Services segment
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contract revenues at January 31, 1994 were $16,047,000. Unbilled receivables in
this category which were included in the Products segment contract revenues at
January 31, 1994 were $181,000. Although no assurance can be given that the
contracts or contract amendments will be received or that the related costs will
be recovered, the Company expects to recover substantially all such costs.
EMPLOYEES AND CONSULTANTS
As of March 14, 1994, the Company employed approximately 15,600 persons on a
full-time basis and approximately 900 persons on a part-time basis. The Company
also utilizes the services of consultants to provide specialized technical and
other services on specific projects.
The highly technical and complex services and products provided by the
Company are dependent upon the availability of professional, administrative and
technical personnel having high levels of training and skills. The Company has
not experienced any significant difficulty in recruiting or retaining such
personnel. Management believes the Company's orientation towards employee
ownership is a major factor in the Company's ability to attract and retain
qualified personnel. As of March 14, 1994, approximately 9,000 employees,
consultants and their family members were stockholders of record.
None of the Company's employees are represented by a labor union. To date,
no strikes or work stoppages have been experienced and the Company considers its
relations with its employees to be good.
ITEM 2. PROPERTIES.
As of March 14, 1994, the Company conducted its operations in more than 263
offices and manufacturing and laboratory facilities located in 42 states, the
District of Columbia and various foreign countries, and occupied a total of
approximately 4,300,000 square feet of space. The Company has principal
locations in the San Diego, California and the Washington, D.C. metropolitan
areas and occupies over 1,000,000 square feet of space in each of these
locations.
The Company owns and occupies six buildings totalling approximately 550,000
square feet of space situated on 22.2 acres of land owned by the Company in the
Golden Triangle area of San Diego, California and leases a 128,500 square foot
office building located on that land. The Company also leases approximately
150,000 square feet of space in the Sorrento-Mesa area of San Diego, California.
The Company has options to purchase all of these leased facilities.
At the principal location of the Company in the Washington, D.C. area
(McLean, Virginia), the Company occupies two buildings containing a total of
approximately 425,000 square feet of space. The Company has certain rights to
purchase these buildings. In addition, the Company owns and occupies a 62,000
square foot building on 2.6 acres of land in Reston, Virginia.
The Company occupies a 62,500 square foot building on approximately 13 acres
of land in Virginia Beach, Virginia, owned by the Company and owns and occupies
an 83,000 square foot building on approximately 8.4 acres of land owned by the
Company in Oak Ridge, Tennessee. The Company also leases an office building
containing approximately 100,000 square feet of space in Huntsville, Alabama and
an office building in Orlando, Florida containing approximately 30,000 square
feet of space. The Company has options to purchase these buildings in the
future.
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 J of Notes to
Consolidated Financial Statements of the Company on page F-15 of this Form 10-K
for information regarding commitments under leases.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various investigations, claims and lawsuits
arising in the normal conduct of its business, none of which, in the opinion of
the Company's management, will have a material adverse effect on the Company's
consolidated financial condition or results of operations. On
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February 15, 1994, the Company was served with search warrants and a subpoena
for documents and records associated with the performance by an operating unit
of the Company under three contracts with the DOD. The search warrants and the
subpoena state that the government is seeking evidence regarding the making of
false statements and false claims to the DOD, as well as conspiracy to commit
such offenses. The Company has not been apprised of the details of the
allegations being investigated nor has it been charged with any wrongdoing.
Accordingly, the Company is unable to assess the impact, if any, of this
investigation on its consolidated financial position, results of operations or
its ability to conduct business. For additional information concerning this
investigation, reference is made to the Report on Form 8-K filed by the Company
with the Securities and Exchange Commission on February 18, 1994.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders during the fourth
quarter of fiscal year 1994.
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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
1994 Annual Meeting of Stockholders (the "1994 Proxy Statement").
The following is a list of the names and ages (as of April 9, 1994) 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.
NAME OF
EXECUTIVE
OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
- ---------------- --- ---------------------------------------------------------
A.L. Alm 57 Sector Vice President of the Company since April 1993 and
a Director of the Company since 1989. Mr. Alm served as a
Senior Vice President of the Company from 1989 to April
1993.
J.R. Beyster 69 Chairman of the Board, Chief Executive Officer and a
Director of the Company since the Company was founded and
President of the Company until 1988.
N.E. Carter 51 Sector Vice President since July 1992. Mr. Carter has
held various positions with the Company since 1987,
including serving as a Senior Vice President from June
1988 to July 1992.
V.N. Cook 59 Vice Chairman of the Board since January 1992 and a
Director of the Company since 1990. Mr. Cook was
associated with IBM for 26 years until his retirement in
1989. Mr. Cook held several executive positions at IBM,
including Vice President of IBM's Asia Pacific
Corporation and President of IBM's Federal System
Division. He is also the Chairman of Visions
Incorporated, an industry consulting firm.
S.J. Dalich 50 Executive Vice President of the Company since April 1992
and a Director of the Company since 1990. Dr. Dalich has
held various positions with the Company since 1972,
including serving as a Sector Vice President from 1986 to
April 1992.
M.A. Daniels 48 Sector Vice President of the Company since April 1993.
Mr. Daniels has held various positions with the Company
since 1986, including serving as a Group Senior Vice
President from January 1991 to April 1993.
D.H. Foley 49 Sector Vice President since January 1992. Prior to
joining the Company in November 1991, Dr. Foley served as
a Director of Special Projects for the Defense Advanced
Research Projects Agency since 1985. Dr. Foley was the
Executive Vice President of PAR Technology Corporation
from 1971 to 1985.
J.E. Glancy 48 Corporate Executive Vice President since January 1994 and
a nominee for Director. Dr. Glancy has held various
positions with the Company since 1976, including serving
as a Sector Vice President from April 1991 to January
1994.
J.D. Heipt 51 Senior Vice President for Administration and Secretary of
the Company since 1984. Mr. Heipt has held various
positions with the Company since 1979.
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NAME OF
EXECUTIVE
OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
- ---------------- --- ---------------------------------------------------------
A.P. Herskowitz 53 Sector Vice President of the Company since April 1993.
Mr. Herskowitz has held various positions with the
Company since 1979, including serving as a Group Senior
Vice President from June 1987 to April 1993.
M.V. Hughes, III 49 Sector Vice President since January 1991. From 1971 until
he joined the Company in 1990, Mr. Hughes held various
positions, including Senior Vice President and General
Manager, at Planning Research Corporation, a systems
integration and professional services company.
D.W. Hyde 51 Sector Vice President of the Company since April 1993.
Mr. Hyde has held various positions with the Company
since 1985, including serving as a Group Senior Vice
President from April 1988 to April 1993.
D.M. Kerr 55 Corporate Executive Vice President since January 1994 and
a Director of the Company since April 1993. Prior to
joining the Company, Dr. Kerr was President and a
Director of EG&G, Inc., a NYSE-listed company providing
diversified technical services and products to the U.S.
Government and commercial markets, from 1989 through
1992. From 1985 through 1989, Dr. Kerr held various
executive positions with EG&G, Inc.
L.A. Kull 56 President since 1988 and Chief Operating Officer since
1983. He has also served as a Director of the Company
since 1970 (except for the years 1974 and 1975) and has
held various positions with the Company since 1970.
J.J. Martin, Jr. 58 Sector Vice President of the Company since 1990. Dr.
Martin has held various positions with the Company since
1977.
J.W. McRary 54 Vice Chairman of the Board since 1988, Executive Vice
President since 1979 and a Director of the Company since
1972 (except for the year 1973). Dr. McRary has held
various positions with the Company since 1971.
P.N. Pavlics 33 Corporate Vice President and Controller of the Company
since July 1993. Mr. Pavlics has held various positions
with the Company since 1985, including serving as a Vice
President of Administration from June 1989 to July 1992.
S.D. Rockwood 51 Sector Vice President of the Company since 1987. Dr.
Rockwood has held various positions with the Company
since 1986. From 1972 until he joined the Company, Dr.
Rockwood was associated with Los Alamos National
Laboratory, a nuclear weapons design and test laboratory,
where he held various executive positions.
W.A. Roper, Jr. 48 Senior Vice President and Chief Financial Officer of the
Company since 1990. Prior to joining the Company, Mr.
Roper was Executive Vice President and Chief Financial
Officer of Intelogic Trace, Inc., a NYSE-listed computer
sales, leasing and software company. From 1981 to 1987,
Mr. Roper was Corporate Vice President and Treasurer of
Bell & Howell, a NYSE-listed international information
services and manufacturing company.
R.A. Rosenberg 59 Executive Vice President of the Company since July 1992.
Mr. Rosenberg has held various positions with the Company
since 1987. Prior to joining the Company, Mr. Rosenberg
was an officer with the U.S. Air Force from 1957 through
1987.
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NAME OF
EXECUTIVE
OFFICER AGE POSITIONS WITH THE COMPANY AND PRIOR BUSINESS EXPERIENCE
- ---------------- --- ---------------------------------------------------------
D.E. Scott 37 Corporate Vice President and General Counsel of the
Company since July 1992. Mr. Scott joined the Company in
1987 where he has served as a Corporate Counsel and
Associate General Counsel in the Legal Department. Prior
to joining the Company, Mr. Scott was an attorney with
O'Melveny & Myers, a professional law firm, from 1984
through 1987.
E.A. Straker 56 Sector Vice President of the Company since 1986 and a
Director since July 1992. Dr. Straker has held various
positions with the Company since 1971.
J.P. Walkush 41 Sector Vice President of the Company since January 1994.
Mr. Walkush has held various positions with the Company
since 1976, including serving as a Group Senior Vice
President from January 1992 to January 1994.
J.H. Warner, Jr. 53 Executive Vice President of the Company since 1989 and
Director since 1988. Dr. Warner has held various
positions with the Company since 1973.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
THE LIMITED MARKET
Since its inception, the Company has followed a policy of remaining
essentially employee owned. As a result, there has never been a general public
market for any of the Company's securities. In order to provide liquidity for
its stockholders, however, the Company has maintained a limited secondary market
(the "Limited Market") through its wholly-owned subsidiary, Bull, Inc., which
was organized in 1973 for the purpose of maintaining the Limited Market.
The Limited Market generally permits existing stockholders to sell shares of
Class A Common Stock on four predetermined days each year (each a "Trade Date").
All shares of Class B Common Stock to be sold in the Limited Market must first
be converted into five times as many shares of Class A Common Stock. All sales
are made at the prevailing Formula Price to employees, consultants and directors
of the Company who have been approved by the Board of Directors or the Operating
Committee as being entitled to purchase up to a specified number of shares of
Class A Common Stock. In addition, the trustees of the Company's Profit Sharing
Retirement Plan II, Employee Stock Ownership Plan, Cash or Deferred Arrangement,
1993 Employee Stock Purchase Plan, Stock Compensation Plan, Management Stock
Compensation Plan and certain retirement plans of the Company's subsidiaries 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) pay
Bull, Inc. a commission equal to two percent of the proceeds from such sales. No
commission is paid by purchasers in the Limited Market.
In the event that the aggregate number of shares offered for sale is greater
than the aggregate number of shares sought to be purchased by authorized buyers
and the Company, offers to sell 500 shares or less of Class A Common Stock or up
to the first 500 shares if more than 500 shares of Class A Common Stock are
offered by any seller will be accepted first. Offers to sell shares in excess of
500 shares of Class A Common Stock will be accepted on a pro-rata basis
determined by dividing the total number of shares remaining under purchase
orders by the total number of shares remaining under sell orders. If, however,
there are insufficient purchase orders to support the primary allocation of 500
shares of Class A Common Stock for each proposed seller, then the purchase
orders will be allocated equally among all of the proposed sellers up to the
total number of shares offered for sale. To the extent that the aggregate number
of shares sought to be purchased exceeds the aggregate number of shares offered
for sale, the Company may, but is not obligated to, sell authorized but unissued
shares of Class A Common Stock in the Limited Market.
The Company is currently authorized, but not obligated, to purchase up to
1,250,000 shares of Class A Common Stock in the Limited Market on any Trade
Date, but only if and to the extent that the number of shares offered for sale
by stockholders exceeds the number of shares sought to be purchased by
authorized buyers and the Company, in its discretion, determines to make such
purchases. The Company did not purchase shares in the Limited Market in fiscal
year 1994. In fiscal year 1993, the Company purchased 54,559 shares in the
Limited Market. The Company's purchases in fiscal year 1993 accounted for 2% of
the total shares purchased by all buyers in the Limited Market during that year.
During the 1994 and 1993 fiscal years, the trustees of the Company's Profit
Sharing Retirement Plan II, Employee Stock Ownership Plan, CODA and 1993
Employee Stock Purchase Plan purchased an aggregate of 1,824,077 shares and
1,808,961 shares, respectively, in the Limited Market. These purchases accounted
for approximately 81% and 79% of the total shares purchased by all buyers in the
Limited Market during fiscal years 1994 and 1993, respectively. Such purchases
may change in the future, depending on the levels of participation in and
contributions to such plans and the extent to which such contributions are
invested in Class A Common Stock. To the extent that purchases by the
12
trustees of the Company's employee 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.
The Company received a no-action letter from the SEC (the "SEC Letter") that
authorizes the Company and the Employee Stock Ownership Plan to commence on an
annual basis, at the Company's discretion, a joint tender offer (a "Tender
Offer") to purchase all shares of the Company's Class A Common Stock held by
persons who are not directors, employees or consultants of the Company (or
family members of, or trustees for, such employees, directors or consultants of
the Company) as of the date the Tender Offer is commenced (the "Outside
Stockholders"). Under current federal income tax laws, the Tender Offer, as
structured, would allow Outside Stockholders who tender certain shares purchased
by the Employee Stock Ownership Plan to defer the payment of federal income tax
under Section 1042 of the Code on any capital gain derived from the sale,
provided certain conditions are met.
The Company and the Employee Stock Ownership Plan have completed one Tender
Offer pursuant to which the Employee Stock Ownership Plan purchased on November
20, 1992 an aggregate of 700,444 shares of Class A Common Stock from 186 Outside
Stockholders. The Company has not yet determined whether it will commence a
Tender Offer during calendar year 1994. There can be no assurance that a Tender
Offer will be commenced in the future or, if commenced, that it will be
completed. If a Tender Offer is undertaken in the future, the Company will be
required to take certain actions to ensure that such Tender Offer does not
negatively affect the liquidity of the Limited Market on the Trade Date on which
such Tender Offer is completed.
PRICE RANGE OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The Formula set forth below is used to determine the Formula Price at which
the Class A Common Stock trades in the Limited Market. The Formula Price is
reviewed at least four times each year, generally in conjunction with Board of
Directors meetings which are currently scheduled for April, July, October and
January, and is subject to the limitation that the price may 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 the price revision is to
occur. Pursuant to the Certificate of Incorporation, the price applicable to
shares of Class B Common Stock is equal to five times the Formula Price.
The Formula Price is determined according to the following formula: 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 revision 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 ("W(1)") 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 revision ("P"), and the denominator of
which is the weighted average number of outstanding common shares and common
share equivalents for those four fiscal quarters, as used by the Company in
computing primary earnings per share ("W"). The number of outstanding common
shares and common share equivalents described above assumes the conversion of
each share of Class B Common Stock into five shares of Class A Common Stock. The
5.66 multiplier is a constant which was first included in the Formula in March
1976. The Market Factor is a numerical factor which is intended to reflect
existing securities market conditions relevant to the valuation of the Class A
Common Stock and the Class B Common Stock. The Market Factor is generally
reviewed quarterly by the Board of Directors in conjunction with an appraisal
which is prepared by an independent appraisal firm for the committee
administering the Company's
13
qualified retirement plans (the "Committee") and which is relied upon by the
Committee and the Board of Directors. Subject to the limitation set forth above,
the Formula Price of the Class A Common Stock, expressed as an equation, is as
follows:
E 5.66MP
Formula Price = -- + ------
W1 W
The Formula was adopted in its present form by the Board of Directors on
March 23, 1984 and became effective with the March 30, 1984 price revision. The
Board of Directors has reviewed the Market Factor on a quarterly basis since
that time. The Market Factor, as determined by the Board of Directors, remains
in effect until subsequently changed by the Board of Directors.
The following table sets forth information concerning the Formula Price for
the Class A Common Stock, the applicable price for the Class B Common Stock and
the Market Factor in effect for the periods beginning on the dates indicated.
There can be no assurance that the Class A Common Stock or the Class B Common
Stock will in the future provide returns comparable to historical rates.
PRICE PRICE
PER SHARE PER SHARE
MARKET OF CLASS A OF CLASS B
DATE FACTOR COMMON STOCK COMMON STOCK
- -------------------------------------------- ------ ------------ ------------
April 10, 1992.............................. 1.4 $11.17 $55.85
July 10, 1992............................... 1.4 $11.66 $58.30
October 9, 1992............................. 1.4 $11.83 $59.15
January 8, 1993............................. 1.4 $12.01 $60.05
April 9, 1993............................... 1.4 $12.63 $63.15
July 9, 1993................................ 1.4 $12.85 $64.25
October 8, 1993............................. 1.4 $13.12 $65.60
January 14, 1994............................ 1.5 $14.19 $70.95
April 9, 1994............................... 1.5 $14.46 $72.30
The Board of Directors believes that the Formula results in a fair market
value for the Class A Common Stock within a broad range of financial criteria.
Other than the quarterly review and possible modification of the Market Factor,
the Board of Directors will not change the Formula unless (i) in the good faith
exercise of its fiduciary duties and after consultation with the Company's
independent accountants as to whether the change would result in a charge to
earnings upon the sale of Class A Common Stock or Class B Common Stock, the
Board of Directors, including a majority of the directors who are not employees
of the Company, determines that the Formula no longer results in a fair market
value for the Class A Common Stock or (ii) a change in the Formula or the method
of valuing the Class A Common Stock is required under applicable laws.
HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK
As of March 14, 1994, there were 10,038 holders of record of Class A Common
Stock and 135 holders of record of Class B Common Stock. As of such date,
approximately 92% of the Class A Common Stock and approximately 37% of the Class
B Common Stock were beneficially owned by employees and consultants of the
Company and their respective family members.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and no cash dividends on the Class A Common Stock or Class B Common Stock
are contemplated in the foreseeable future. The Company's present intention is
to retain any future earnings for use in its business.
14
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected financial data of the
Company for each of the five years in the period ended January 31, 1994 and at
January 31 of each such year. This table should be read in conjunction with the
consolidated financial statements of the Company and the related notes thereto
appearing elsewhere in this Form 10-K Report.
YEAR ENDED JANUARY 31
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
Revenues............ $1,670,882 $1,504,112 $1,285,294 $1,162,934 $1,022,221
Cost of revenues.... 1,477,701 1,327,992 1,124,756 1,016,250 891,082
Selling, general and
administrative
expenses........... 120,387 113,174 101,935 90,722 81,805
Interest expense.... 2,966 2,841 2,964 1,999 1,327
Provision for income
taxes.............. 28,328 22,030 22,023 20,662 17,230
Net income.......... 41,500 38,075 33,616 33,301 30,777
Earnings per share
(1)................ $.89 $.83 $.75 $.73 $.67
Average number of
shares outstanding,
including common
stock
equivalents........ 47,429 46,179 44,825 45,921 45,976
JANUARY 31 (2)
----------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS)
Total assets........ $ 611,575 $ 523,613 $ 437,975 $ 372,788 $ 345,354
Working capital..... 206,580 162,298 131,177 115,122 115,899
Long-term
liabilities........ 25,060 25,851 27,036 26,079 12,550
Stockholders'
equity............. 335,502 280,047 234,874 205,751 188,395
- ------------------------
(1) Fully diluted earnings per share are substantially the same as primary
earnings per share for the years presented. The Company has never declared
or paid cash dividends on its capital stock and no cash dividends are
presently contemplated.
(2) Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The
Company applied the principles of the statement retroactively through
restatement of prior financial statements which decreased stockholders'
equity as of February 1, 1989 by $109,000 and increased stockholders'
equity as of February 1, 1991 by $1,035,000 in the aggregate. The
restatement had an immaterial effect on net income for the fiscal years
ended January 31, 1992 and 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
RESULTS OF OPERATIONS
Revenues increased 11%, 17% and 11% in 1994, 1993 and 1992, respectively,
over the prior year. Revenues in 1994 continued to shift toward lower cost
service type contracts. This trend reflects the increasingly competitive
business environment in the Company's traditional business areas, as well as the
Company's increased success in the engineering and field services market, which
typically involve lower cost contracts.
The sale of Technical Services and Products to the U.S. Government as a
prime contractor or subcontractor accounted for 88% of revenues in 1994, 1993
and 1992. The revenue mix between the Technical Services segment and the
Products segment shifted to 92% and 8% of consolidated revenues in 1994 and 1993
from 93% and 7% in 1992, respectively. Product revenues increased 21%, 28% and
32% in 1994, 1993 and 1992, respectively, over the prior year. Within the
Technical Services segment,
15
revenues are further classified between "National Security," "Environment,"
"Energy" and "Other Technical Services." Other Technical Services includes the
health, space, transportation and commercial information technology business
areas.
National Security revenues have decreased to 50% of total revenues in 1994
from 53% in 1992. Although National Security revenues declined as a percentage
of total revenues, these revenues increased 9% in 1994, 13% in 1993 and 9% in
1992 over the prior year, in spite of declines in the overall defense market
during these periods. The U.S. Government maintained funding in areas in which
the Company has strong capabilities, such as research and development, training
and test and evaluation. Revenues in the Environment business area have remained
relatively constant at 15% of total revenues for 1994 and 1993, a slight
increase from 14% in 1992. In contrast, Energy revenues have decreased as a
percentage of revenues to 9% in 1994 from 10% in 1993 and 13% in 1992. Other
Technical Services revenues have increased to 17% of total revenues in 1994 from
16% in 1993 and 13% in 1992. The growth in Other Technical Services reflects the
Company's expansion into the health, transportation and commercial markets. The
continued growth in the Environment and Other Technical Services revenues
mirrors the country's shift of priorities and resources from defense programs to
environmental, health care and transportation concerns. The Company expects that
the U.S. Government will continue to reduce overall defense spending as a result
of changing priorities and budget constraints. In order for the Company to
maintain or exceed historical revenue growth rates, it will need to continue to
increase its market share in the National Security business area or continue to
diversify into the environment, energy, health, space, transportation and
commercial information technology business areas.
Revenues are generated from the efforts of the Company's technical staff as
well as the pass through of costs for materials and subcontract efforts, which
primarily occur on large, multi-year contracts. At the end of 1994, the Company
had 15,400 full-time employees compared to 14,200 and 13,100 at the end of 1993
and 1992, respectively. Material and subcontract ("M&S") revenues were $458
million in 1994, $402 million in 1993 and $313 million in 1992. As a percentage
of total revenues, M&S revenues were 27% in 1994 and 1993 and 24% in 1992 and
have increased primarily due to the growth of product revenues as discussed
above. Product revenues generally have a very high percentage of M&S cost
content.
The Company's business is directly related to the receipt of contract awards
and contract performance. Approximately 77% of the Company's revenues in 1994
were derived from 294 contracts with individual revenues greater than $1
million. Of these contracts, 20 contracts had individual revenues greater than
$10 million. The remainder of the Company's revenues are produced from a large
number of contracts with individual revenues less than $1 million. Although the
Company has committed substantial resources and personnel required to pursue
larger contracts, the Company believes it maintains a suitable environment for
the performance of smaller, highly technical, research and study contracts.
These smaller programs often provide the foundation for the Company's success on
larger procurements.
The following table summarizes revenues by contract type for the last three
years:
Year ended January 31
-------------------------------
1994 1993 1992
--------- --------- ---------
Contract type:
Cost-reimbursement............................................... 60% 59% 58%
Time-and-materials and fixed-price level-of-effort............... 21 20 16
Firm fixed-price................................................. 19 21 26
--------- --------- ---------
Total.............................................................. 100% 100% 100%
--------- --------- ---------
--------- --------- ---------
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
16
the payment of negotiated 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 ultimate 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 type 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 Company incurred overruns
during the performance of certain firm fixed-price contracts in 1994, 1993 and
1992, resulting in losses or lower profits for such contracts.
The Company's principal customer, the U.S. Government, continues to shift
the procurement of product and system development contracts to
cost-reimbursement, T&M or FP-LOE contracts instead of firm fixed-price
contracts. This, along with more selective bidding of firm fixed-price
opportunities, resulted in the decrease of the percentage of the Company's
revenues attributable to the higher risk, firm fixed-price contracts.
The cost of revenues as a percentage of revenues (excluding interest income)
was 88.5% in 1994, 88.3% in 1993 and 87.5% in 1992. The higher percentage of
cost of revenues in 1994 and 1993 compared to 1992 is primarily attributable to
two factors: faster revenue growth in the lower cost service type contracts,
which typically have higher cost of revenues, and lower selling, general and
administrative components compared to the Company's more traditional research
and development contracts; and faster growth in M&S revenues which have nearly
all their associated costs in the cost of revenues category.
Selling, general and administrative ("SG&A") expenses as a percentage of
revenues (excluding interest income) were 7.2%, 7.5% and 7.9% in 1994, 1993 and
1992, respectively. SG&A is comprised of general and administrative ("G&A"), bid
and proposal ("B&P") and independent research and development ("IR&D") expenses.
B&P costs remained constant in relation to revenues over the past three years.
During this period, IR&D costs decreased in absolute dollars and as a percentage
of revenues, as development activity on new hardware and software systems
reached a cyclical low point. The overall level of IR&D spending fluctuates
depending on the stage of development for various hardware and software systems.
G&A expenses decreased slightly as a percentage of revenues over the past three
years. The relative decrease was primarily related to the growth in M&S revenues
and low cost service type contracts. The Company continues to closely monitor
G&A expenses as part of an on-going program to control indirect costs.
Operating profit margins by segment are strongly correlated to the Company's
financial performance on the contracts within each segment. The operating profit
margin in the Technical Services segment decreased to 3.8% in 1994 from 4.1% in
1993 and 4.4% in 1992 primarily as a result of a decrease in National Security
operating profit margin to 3.1% in 1994 from 4.3% in 1993 and 3.3% in 1992. In
1994, the Company experienced overruns on certain firm fixed-price contracts in
the National Security area. The operating profit margin in Other Technical
Services was 5.4% in 1994, 3.2% in 1993 and 6.5% in 1992. The increase in profit
margins from 1993 was a result of a decrease in the level of overruns incurred
on certain firm fixed-price contracts. Environment and Energy operating profit
margins remained relatively constant at 4.0% and 4.6%, respectively, for 1994.
The operating profit margin in the Products segment increased to 9.3% in 1994
from 5.2% in 1993 and 6.5% in 1992. The 1994 increase in profit margin is
attributable to higher margins on existing product lines. In general, operating
profit margins in 1994, 1993 and 1992 are lower than historical margins due to
increased competition and overruns on certain firm fixed-price contracts.
Interest expense in 1994, 1993 and 1992 relates to interest on a building
mortgage, deferred compensation, long-term notes payable and borrowings
outstanding under the Company's credit/term loan agreements. Although interest
expense on borrowings under the Company's credit/term loan agreements decreased
from 1993, overall interest expense increased primarily due to interest accrued
on the deferred compensation plans.
17
The provision for income taxes increased as a percentage of income before
income taxes to 40.6% in 1994 from 36.7% in 1993 and 39.6% in 1992. The increase
in the effective rate for 1994 is primarily attributable to the increase in the
federal statutory rate as a result of the Ominibus Budget Reconciliation Act of
1993 as well as a lower level of downward revisions of prior year tax estimates
caused by ongoing resolutions of certain issues relating to prior year federal
and state income tax returns.
As described in Note A of the Notes to Consolidated Financial Statements,
effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". SFAS No.
109 requires the use of the liability method for computing deferred income
taxes. One of the principal differences from the deferred method used in the
financial statements is that changes in tax rates and laws will be reflected in
income in the period such changes are enacted. Under the deferred method, such
changes are reflected over time, if at all. The Company has applied the
principles of the statement retroactively through restatement of prior financial
statements which decreased stockholders' equity by $109,000 as of February 1,
1989 and increased stockholders' equity as of February 1, 1991 by $1,035,000.
The restatement had an immaterial effect on net income for the years ended
January 31, 1992 and 1993.
The Company is involved in various investigations, claims and lawsuits
arising in the normal conduct of its business, none of which, the Company
anticipates will have a material adverse effect on its consolidated financial
position, results of operations or its ability to conduct business. On February
15, 1994, the Company was served with search warrants and a subpoena for
documents and records associated with the performance by an operating unit of
the Company under three contracts with the Department of Defense. The search
warrants and subpoena state that the Government is seeking evidence regarding
the making of false statements and false claims to the DOD, as well as
conspiracy to commit such offenses. The Company has not been apprised of the
details of the allegations being investigated nor has it been charged with any
wrongdoing. Accordingly, the Company is unable to assess the impact, if any, of
this investigation on its consolidated financial position, results of operations
or its ability to conduct business.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity continue to be funds provided by
operations and revolving credit/term loan agreements. At January 31, 1994 and
January 31, 1993, there were no borrowings outstanding under such agreements
while $17,200,000 was outstanding at January 31, 1992. Capital expenditures,
excluding land and buildings, were $21 million in 1994, $20 million in 1993 and
$26 million in 1992. Expenditures for land and buildings in 1994, 1993, and 1992
were $9 million, $2 million and $9 million, respectively. Capital expenditures
for 1995, including land and buildings, are expected to be approximately $38
million. Expenditures for rental of facilities and equipment were $57 million in
1994 and are expected to be approximately $60 million in 1995.
The Company continues to actively monitor receivables with emphasis placed
on collection activities and the negotiation of more favorable payment terms.
Although receivables increased to $357 million at January 31, 1994 from $341
million at January 31, 1993, average receivable days outstanding decreased by
two days in 1994 from 66 to 64 days. The decrease in average receivable days was
a major factor in the increased average cash balances available for investing
during the year. In addition, the Company was able to reduce average borrowings
from $6,724,000 in 1993 to $541,000 in 1994.
The Company's cash flows from operations plus borrowing capacity are
expected to provide sufficient funds for the Company's operations, business
acquisitions, common stock repurchases and planned capital expenditures.
EFFECTS OF INFLATION
The majority of the Company's contracts are cost-reimbursement type
contracts or are completed within one year. As a result, the Company has been
able to anticipate increases in costs when pricing its contracts. Bids for
longer term 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
18
performance. Consequently, while 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.
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.
During the fiscal years ended January 31, 1994 and 1993, the Company did not
have a change in accountants or a disagreement with accountants required to be
reported hereunder.
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 1994 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 caption "Executive Compensation" in the 1994 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 1994 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
captions "Compensation Committee Interlocks and Insider Participation" and
"Certain Transactions" in the 1994 Proxy Statement, which information is
incorporated by reference into this Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
The Consolidated Financial Statements of the Company are attached
hereto and listed on the Index to Consolidated Financial Statements set
forth on page F-1 of this Form 10-K.
2. Financial Statement Schedules
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation and Amortization of Property,
Plant and Equipment
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.
19
3. Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ----------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of the Registrant, as amended
July 19, 1990. Incorporated by reference to Exhibit 3(a) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1991 (the "1991 10-K").
3(b) Bylaws of the Registrant, as amended through April 10, 1992.
Incorporated by reference to Exhibit 3(b) to the Registrant's Annual
Report on Form 10-K for fiscal year ended January 31, 1992 (the "1992
10-K").
4(a)* Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan
of the Registrant (form dated August 1992). Incorporated by reference
to Exhibit 4(c) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 (the "1993 10-K").
4(b)* Form of Stock Restriction Agreement of the Registrant's Employee Stock
Ownership Plan (form dated March 1, 1985). Incorporated by reference
to Exhibit 4(e) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1985 (the "1985 10-K").
4(c)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated October 1990). Incorporated by reference
to Exhibit 4(f) to the 1991 10-K.
4(d)* Form of Stock Restriction Agreement of the Registrant's Cash or
Deferred Arrangement (TRASOP Account) (form dated March 1, 1985).
Incorporated by reference to Exhibit 4(g) to the 1985 10-K.
4(e)* Registrant's Bonus Compensation Plan, as amended through April 2,
1991. Incorporated by reference to Exhibit 4(l) to the 1991 10-K.
4(f)* Registrant's 1982 Stock Option Plan, as amended through June 9, 1989.
Incorporated by reference to Exhibit 4(n) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1990 (the
"1990 10-K").
4(g)* Registrant's 1992 Stock Option Plan. Incorporated by reference to
Exhibit 4(o) to the 1992 10-K.
4(h)* Form of Non-Qualified Stock Option Agreement (Employee, Director and
Consultant) - 1982 Stock Option Plan (form dated October 1990).
Incorporated by reference to Exhibit 4(p) to the 1991 10-K.
4(i)* Form of Stock Restriction Agreement of the Registrant's Employee Stock
Ownership Plan (TRASOP Account) (form dated April 1, 1991).
Incorporated by reference to Exhibit 4(r) to the 1991 10-K.
4(j)* Registrant's 1993 Employee Stock Purchase Plan. Incorporated by
reference to Annex I to the Registrant's Proxy Statement for the 1993
Annual Meeting of Stockholders as filed April 1993 with the SEC.
4(k)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated July 1992). Incorporated by reference to
Exhibit 4(v) to the 1993 10-K.
4(l)* Registrant's Stock Compensation Plan.
4(m)* Registrant's Management Stock Compensation Plan.
10(a)* Registrant's Keystaff Deferral Plan, as amended through January 31,
1991. Incorporated by reference to Exhibit 10(a) to the 1991 10-K.
10(b) Sixth Amendment dated as of August 10, 1993 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
20
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ----------------------------------------------------------------------
10(c) Fifth Amendment dated as of August 4, 1992 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1993 10-K.
10(d) Fourth Amendment dated as of June 30, 1992 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(c) to the 1993 10-K.
10(e) Third Amendment dated as of July 1, 1991 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1992 10-K.
10(f) Second Amendment dated as of August 31, 1990 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1991 10-K.
10(g) First Amendment dated as of June 24, 1989, to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1990 10-K.
10(h) Credit Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1989 (the
"1989 10-K").
10(i) Sixth Amendment dated as of July 22, 1993 to Registrant's Credit
Agreement with Bank of America NT&SA (successor by merger to Security
Pacific National Bank) dated as of October 31, 1988.
10(j) Fifth Amendment dated as of August 10, 1992 to Registrant's Credit
Agreement with Bank of America NT&SA (successor by merger to Security
Pacific National Bank) dated as of October 31, 1988. Incorporated by
reference to Exhibit 10(h) to the 1993 10-K.
10(k) Fourth Amendment dated as of June 26, 1992 to Registrant's Credit
Agreement with Bank of America NT&SA (successor by merger to Security
Pacific National Bank) dated as of October 31, 1988. Incorporated by
reference to Exhibit 10(i) to the 1993 10-K.
10(l) Third Amendment dated as of June 14, 1991 to Registrant's Credit
Agreement with Security Pacific National Bank dated as of October 31,
1988. Incorporated by reference to Exhibit 10(f) to the 1992 10-K.
10(m) Second Amendment dated as of June 14, 1990 to Registrant's Credit
Agreement with Security Pacific National Bank dated as of October 31,
1988. Incorporated by reference to Exhibit 10(c) to the 1991 10-K.
10(n) First Amendment dated as of June 15, 1989 to Registrant's Credit
Agreement with Security Pacific National Bank dated as of October 31,
1988. Incorporated by reference to Exhibit 10(c) to the 1990 10-K.
10(o) Credit Agreement with Security Pacific National Bank dated as of
October 31, 1988. Incorporated by reference to Exhibit 10(c) to the
1989 10-K.
10(p) Second Amendment dated as of July 30, 1993 and November 3, 1993 to
Registrant's Credit Agreement with Continental Bank, N.A. dated as of
May 26, 1992.
10(q) First Amendment dated as of June 18, 1992 to Registrant's Credit
Agreement with Continental Bank, N.A. dated as of May 26, 1992.
Incorporated by reference to Exhibit 10(n) to the 1993 10-K.
21
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ----------------------------------------------------------------------
10(r) Credit Agreement with Continental Bank dated as of May 26, 1992.
Incorporated by reference to Exhibit 10(o) to the 1993 10-K.
10(s) First Amendment dated as of July 22, 1993 to Registrant's Employee
Stock Purchase Loan Agreement with Bank of America NT&SA dated as of
November 10, 1992.
10(t) Registrant's Employee Stock Purchase Loan Agreement with Bank of
America NT&SA dated November 10, 1992.
10(u) Registrant's Overdraft Facility with Bank of America dated July 26,
1990, as amended through November 25, 1991. Incorporated by reference
to Exhibit 10(o) to the 1992 10-K.
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
28(a) Annual Report of the Registrant's Employee Stock Pur-chase Plan for
the plan year ended January 31, 1994.
28(b) Annual Report of the Registrant's Cash or Deferred Arrangement for the
year ended December 31, 1993.
- ------------------------
* Executive Compensation Plans and Arrangements.
(b) Reports on Form 8-K in the fourth quarter of the fiscal year ended
January 31, 1994: NONE.
22
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.
(Registrant)
SCIENCE APPLICATIONS
INTERNATIONAL CORPORATION
By: /s/ J.R. BEYSTER
-----------------------------------
J.R. Beyster
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Date: April 9, 1994
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.
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ J.R. BEYSTER
Chairman of the Board and
- ----------------------------------- Principal Executive April 9, 1994
J.R. Beyster Officer
/s/ W.A. ROPER, JR.
Principal Financial
- ----------------------------------- Officer April 9, 1994
W.A. Roper, Jr.
/s/ P.N. PAVLICS
Principal Accounting
- ----------------------------------- Officer April 9, 1994
P.N. Pavlics
/s/ A.L. ALM
- ----------------------------------- Director April 9, 1994
A.L. Alm
- -----------------------------------
V.N. Cook Director April , 1994
/s/ S.J. DALICH
- ----------------------------------- Director April 9, 1994
S.J. Dalich
/s/ C.K. DAVIS
- ----------------------------------- Director April 9, 1994
C.K. Davis
/s/ W.H. DEMISCH
- ----------------------------------- Director April 9, 1994
W.H. Demisch
- -----------------------------------
E.A. Frieman Director April , 1994
/s/ D.A. HICKS
- ----------------------------------- Director April 9, 1994
D.A. Hicks
23
SIGNATURE TITLE DATE
- ----------------------------------- ------------------------- ----------------
/s/ B.R. INMAN
- ----------------------------------- Director April 9, 1994
B.R. Inman
/s/ D.M. KERR
- ----------------------------------- Director April 9, 1994
D.M. Kerr
/s/ L.A. KULL
- ----------------------------------- Director April 9, 1994
L.A. Kull
/s/ M.R. LAIRD
- ----------------------------------- Director April 9, 1994
M.R. Laird
/s/ W.M. LAYSON
- ----------------------------------- Director April 9, 1994
W.M. Layson
/s/ C.B. MALONE
- ----------------------------------- Director April 9, 1994
C.B. Malone
/s/ J.W. MCRARY
- ----------------------------------- Director April 9, 1994
J.W. McRary
/s/ B.J. SHILLITO
- ----------------------------------- Director April 9, 1994
B.J. Shillito
/s/ E.A. STRAKER
- ----------------------------------- Director April 9, 1994
E.A. Straker
/s/ M.R. THURMAN
- ----------------------------------- Director April 9, 1994
M.R. Thurman
/s/ J.H. WARNER, JR.
- ----------------------------------- Director April 9, 1994
J.H. Warner, Jr.
/s/ J.A. WELCH
- ----------------------------------- Director April 9, 1994
J.A. Welch
/s/ J.B. WIESLER
- ----------------------------------- Director April 9, 1994
J.B. Wiesler
/s/ W.E. ZISCH
- ----------------------------------- Director April 9, 1994
W.E. Zisch
24
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
REPORT OF INDEPENDENT ACCOUNTANTS..................................... F-2
FINANCIAL STATEMENTS
Consolidated Statement of Income for the three years ended January 31,
1994................................................................. F-3
Consolidated Balance Sheet at January 31, 1994 and 1993............... F-4
Consolidated Statement of Stockholders' Equity for the three years
ended January 31, 1994............................................... F-5
Consolidated Statement of Cash Flows for the three years ended January
31, 1994............................................................. F-6
Notes to Consolidated Financial Statements............................ F-7
FINANCIAL STATEMENT SCHEDULES
Schedule V -- Property, Plant and Equipment........................... F-17
Schedule VI -- Accumulated Depreciation and Amortization of Property,
Plant and Equipment.................................... F-18
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.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Science Applications International Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Science Applications International Corporation and its subsidiaries
at January 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
San Diego, California
April 7, 1994
F-2
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 31
----------------------------------------
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
Revenues........................... $1,670,882 $1,504,112 $1,285,294
Costs and expenses:
Cost of revenues................. 1,477,701 1,327,992 1,124,756
Selling, general and
administrative expenses......... 120,387 113,174 101,935
Interest expense................. 2,966 2,841 2,964
---------- ---------- ----------
1,601,054 1,444,007 1,229,655
---------- ---------- ----------
Income before income taxes......... 69,828 60,105 55,639
Provision for income taxes......... 28,328 22,030 22,023
---------- ---------- ----------
Net income......................... $ 41,500 $ 38,075 $ 33,616
---------- ---------- ----------
---------- ---------- ----------
Earnings per share................. $ .89 $ .83 $ .75
---------- ---------- ----------
---------- ---------- ----------
Average number of shares
outstanding, including common
stock equivalents................ 47,429 46,179 44,825
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
F-3
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
JANUARY 31
------------------
1994 1993
-------- --------
(IN THOUSANDS)
Current assets:
Cash and cash equivalents................................. $ 53,556 $ 15,989
Receivables............................................... 356,836 341,109
Inventories............................................... 14,764 14,136
Prepaid expenses.......................................... 10,354 8,779
Deferred income taxes..................................... 22,083 12,499
-------- --------
Total current assets.................................... 457,593 392,512
Property and equipment...................................... 50,581 49,771
Land and buildings.......................................... 69,161 61,486
Other assets................................................ 34,240 19,844
-------- --------
$611,575 $523,613
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $133,433 $116,620
Accrued payroll and employee benefits..................... 106,548 87,318
Income taxes payable...................................... 9,889 13,643
Notes payable and current portion of long-term
liabilities.............................................. 1,143 134
-------- --------
Total current liabilities............................... 251,013 217,715
Long-term liabilities....................................... 25,060 25,851
Stockholders' equity, per accompanying statement:
Class A common stock, $.01 par value...................... 443 427
Class B common stock, $.05 par value...................... 19 19
Additional paid-in capital................................ 172,713 136,613
Retained earnings......................................... 162,327 142,988
-------- --------
Total stockholders' equity.............................. 335,502 280,047
Commitments and contingencies (Note J)......................
-------- --------
$611,575 $523,613
-------- --------
-------- --------
See accompanying notes to consolidated financial statements.
F-4
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK
-----------------------------------
CLASS A CLASS B
----------------- ---------------
100,000,000 5,000,000
SHARES SHARES
AUTHORIZED AUTHORIZED ADDITIONAL
----------------- --------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
-------- ------ ------ ------ --------- ---------
(IN THOUSANDS)
Balance at January 31,
1991................... 41,229 $412 448 $22 $ 93,203 $ 111,655
Restatement for change
in accounting
principle (Note A)... 1,963 (928)
Issuances of common
stock................ 2,602 26 19,948
Repurchases of common
stock................ (2,330) (23) (36) (1) (5,668) (19,830)
Income tax benefit
from employee stock
transactions......... 792
Net income............ 33,616
-------- ------ ------ ------ --------- ---------
Balance at January 31,
1992................... 41,501 415 412 21 110,238 124,513
Issuances of common
stock................ 3,311 33 29,962
Repurchases of common
stock................ (2,093) (21) (40) (2) (6,055) (19,600)
Income tax benefit
from employee stock
transactions......... 2,468
Net income............ 38,075
-------- ------ ------ ------ --------- ---------
Balance at January 31,
1993................... 42,719 427 372 19 136,613 142,988
Issuances of common
stock................ 3,922 39 40,196
Repurchases of common
stock................ (2,326) (23) (8) (7,873) (22,161)
Income tax benefit
from employee stock
transactions......... 3,777
Net income............ 41,500
-------- ------ ------ ------ --------- ---------
Balance at January 31,
1994................... 44,315 $443 364 $19 $ 172,713 $ 162,327
-------- ------ ------ ------ --------- ---------
-------- ------ ------ ------ --------- ---------
See accompanying notes to consolidated financial statements.
F-5
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 31
------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Cash flows from operating activities:
Net income...................................... $ 41,500 $ 38,075 $ 33,616
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................. 23,127 21,815 19,280
Non-cash compensation......................... 8,831 7,830 8,842
Gain on sales of certain business assets...... (396) (22) (1,129)
Loss on disposal of property and equipment.... 1,102 1,419 471
Loss on disposal of land and building......... 253
Increase (decrease) in cash resulting from
changes in:
Receivables................................. (14,224) (39,395) (15,317)
Inventories................................. 548 (403) 2,978
Prepaid expenses............................ (769) 2,154 (1,654)
Deferred income taxes....................... (9,584) (6,436) (6,063)
Other assets................................ (848) (1,924) 8,238
Progress payments........................... (2,243) (16,951) (36,155)
Accounts payable and accrued liabilities.... 16,813 35,284 16,414
Accrued payroll and employee benefits....... 19,215 17,293 4,288
Income taxes payable........................ 23 9,017 (1,223)
-------- -------- --------
83,095 68,009 32,586
-------- -------- --------
Cash flows from investing activities:
Expenditures for property and equipment......... (21,261) (20,168) (26,011)
Expenditures for land and buildings............. (9,012) (2,093) (8,515)
Acquisitions of certain business assets......... (10,393) (6,716) (2,003)
Proceeds from sales of certain business
assets......................................... 198 491 1,688
Proceeds from disposal of property and
equipment...................................... 368 290 282
Purchase of marketable securities............... (6,187)
Increase in prefunding of voluntary employee
beneficiary association........................ (806) (2,210) (1,012)
-------- -------- --------
(47,093) (30,406) (35,571)
-------- -------- --------
Cash flows from financing activities:
Net (repayments) borrowings under revolving
credit agreements.............................. (17,200) 17,200
Decrease in notes payable and long-term
liabilities.................................... (1,029) (2,805) (1,139)
Sales of common stock........................... 32,651 23,509 12,448
Repurchases of common stock..................... (30,057) (25,678) (25,522)
-------- -------- --------
1,565 (22,174) 2,987
-------- -------- --------
Increase in cash and cash equivalents........... 37,567 15,429 2
Cash and cash equivalents at beginning of
year........................................... 15,989 560 558
-------- -------- --------
Cash and cash equivalents at end of year........ $ 53,556 $ 15,989 $ 560
-------- -------- --------
-------- -------- --------
See accompanying notes to consolidated financial statements.
F-6
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CONSOLIDATION
The consolidated financial statements of the Company include the accounts of
Science Applications International Corporation and its subsidiaries. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
CONTRACT REVENUES
The major portion of the Company's revenues results from contract services
performed for the United States Government or from subcontracts with other
contractors engaged in work for the United States Government under a variety of
contracts, some of which provide for reimbursement of cost plus fees and others
which are fixed-price or time-and-materials type contracts. Generally, revenues
and fees on contracts are recognized as services are performed, using the
percentage-of-completion method of accounting, primarily based on contract costs
incurred to date compared with total estimated costs at completion. Revenues
from the sale of manufactured products are recorded when the products are
shipped.
The Company provides for anticipated losses on contracts by a charge to
income during the period in which the losses are first identified. Unbilled
receivables are stated at estimated realizable value. Contract costs, including
indirect costs, are subject to audit and adjustment by negotiations between the
Company and government representatives. Indirect contract costs have been agreed
upon through 1990. Contract revenues 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. The carrying amounts approximate fair value.
MARKETABLE SECURITIES
Marketable securities consist of long-term municipal bonds and are valued at
cost which approximates fair market value. Marketable securities of $6,187,000
are included in other assets at January 31, 1994.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the moving average and first-in, first-out methods.
BUILDINGS, PROPERTY AND EQUIPMENT
Depreciation and amortization of buildings and related improvements are
provided using the straight-line method over estimated useful lives of thirty to
forty years and ten years, respectively. Depreciation and amortization of
property and equipment are provided over the estimated useful lives of the
assets, primarily using a declining-balance method. The useful lives are three
to ten years for equipment and the shorter of the useful lives or the terms of
the leases for leasehold improvements.
Additions to property and equipment together with major renewals and
betterments are capitalized. Maintenance, repairs and minor renewals and
betterments are charged to expense. When assets are sold or otherwise disposed
of, the cost and related accumulated depreciation or amortization are removed
from the accounts and any resulting gain or loss is recognized.
INCOME TAXES
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." The adoption
of SFAS No. 109 changes the Company's method of accounting for income taxes from
the deferred method under Accounting Principles
F-7
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Board Opinion No. 11 to 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. Under the deferred method, changes in tax rates and laws were either
reflected over future periods or not at all.
The Company has applied the principles of SFAS No. 109 retroactively through
restatement of prior financial statements which increased stockholders' equity
as of February 1, 1991 by an aggregate of $1,035,000. The restatement had an
immaterial effect on net income for the years ended January 31, 1992 and 1993.
COMMON STOCK AND EARNINGS PER SHARE
Class A and Class B common stock are collectively referred to as common
stock in the Notes to Consolidated Financial Statements unless otherwise
indicated.
Computations of earnings per share are based on the weighted average number
of shares of common stock outstanding, increased by the effect of dilutive
options using the modified treasury stock method for 1994 and 1993, and the
treasury stock method for 1992. Fully diluted earnings per share was
substantially the same as primary earnings per share in 1994, 1993 and 1992.
A general public market for the Company's common stock does not exist.
Periodic determinations of fair value of the common stock are made by the Board
of Directors, with the assistance of an independent appraisal firm, pursuant to
a stock price formula. The Board of Directors reserves the right to alter the
formula.
RECLASSIFICATIONS
Certain amounts from previous years have been reclassified in the
consolidated financial statements to conform to the 1994 presentation.
NOTE B -- BUSINESS SEGMENT INFORMATION:
The Company's principal business involves the application of scientific
expertise, together with computer and systems technology, to solve complex
technical problems for government agencies and industrial customers. The skills
of the professional staff encompass a variety of scientific and technical
disciplines and the management structure is based upon broad technological
groupings, not necessarily related to any particular industry, line of business,
geographical area, market or class of customer.
For purposes of analyzing and understanding the Company's financial
statements, its operations have been classified into two broad segments:
Technical Services and Products. The Technical Services segment is further
classified between the National Security, Environment, Energy and all Other
business areas. Other business areas include health, space, transportation and
commercial information technology.
Technical services consist of applied and basic research; analyses and
development of new and existing policies, concepts, systems and programs; design
and development of computer software; systems engineering; systems integration;
test and evaluation of new products or systems; technical operational and
management support; environmental engineering; and engineering support to
existing facilities, laboratories, and systems.
Products include custom designed and standard hardware and software products
such as data display devices, "ruggedized" personal computers, sensors and
nondestructive imaging instruments. These products typically incorporate
Company-developed hardware and software as well as hardware and software
manufactured by others.
F-8
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Technical Services segment information from previous years has been
restated to conform to the 1994 presentation which reflects the change to
further classify revenues into the Environment and Energy business areas. The
restatement had no effect on the consolidated financial position or results of
operations for the years ended January 31, 1993 and 1992.
Industry segment information is as follows:
YEAR ENDED JANUARY 31
---------------------------------------
1994 1993 1992
----------- ----------- -----------
(IN THOUSANDS)
Contract revenues:
Technical Services--
National Security.................... $ 830,581 $ 764,280 $ 678,595
Environment.......................... 253,937 225,958 174,689
Energy............................... 156,694 157,320 168,307
Other................................ 287,622 239,926 172,309
Products............................... 140,741 116,349 91,204
Interest income.......................... 1,307 279 190
----------- ----------- -----------
Total revenues........................... $ 1,670,882 $ 1,504,112 $ 1,285,294
----------- ----------- -----------
----------- ----------- -----------
Operating profit:
Technical Services--
National Security.................... $ 25,560 $ 32,683 $ 22,423
Environment.......................... 10,158 9,189 8,407
Energy............................... 7,163 7,085 10,518
Other................................ 15,448 7,636 11,133
Products............................... 13,158 6,074 5,932
----------- ----------- -----------
71,487 62,667 58,413
Interest income.......................... 1,307 279 190
Interest expense......................... (2,966) (2,841) (2,964)
----------- ----------- -----------
Income before income taxes............... $ 69,828 $ 60,105 $ 55,639
----------- ----------- -----------
----------- ----------- -----------
Identifiable assets:
Technical Services--
National Security.................... $ 150,658 $ 165,088 $ 148,302
Environment.......................... 62,681 54,356 33,031
Energy............................... 37,296 46,409 55,081
Other................................ 82,161 44,793 30,202
Products............................... 38,803 43,956 31,268
----------- ----------- -----------
371,599 354,602 297,884
Corporate and other assets............... 239,976 169,011 139,369
----------- ----------- -----------
Total assets............................. $ 611,575 $ 523,613 $ 437,253
----------- ----------- -----------
----------- ----------- -----------
Because of the nature of the Company's business, sales between segments are
not material. Segment operating results reflect general corporate expense
allocations because all such expenses are allocated to individual cost
objectives by the Company, as required by Government Cost Accounting Standards.
Identifiable assets of the respective industry segments consist of receivables
and inventories. All other assets are either corporate in nature, are not
identifiable with particular segments or are not material. Capital expenditures
and depreciation and amortization are not identified as to industry segments for
similar reasons.
F-9
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1994, 1993 and 1992, approximately 88% of the Company's contract
revenues were attributable to prime contracts with the United States Government
or to subcontracts with other contractors engaged in work for the United States
Government. Foreign operations and revenues directly attributable to foreign
customers are not material.
NOTE C -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS:
JANUARY 31
------------------
1994 1993
-------- --------
(IN THOUSANDS)
Inventories:
Contracts-in-process, less progress payments of $3,903 and
$5,079 at January 31, 1994 and 1993, respectively........ $ 7,196 $ 2,964
Raw materials............................................. 7,568 11,172
-------- --------
$ 14,764 $ 14,136
-------- --------
-------- --------
Property and equipment at cost:
Computers and other equipment............................. $120,617 $111,979
Office furniture and fixtures............................. 15,551 16,211
Leasehold improvements.................................... 10,951 12,279
-------- --------
147,119 140,469
Less accumulated depreciation and amortization............ 96,538 90,698
-------- --------
$ 50,581 $ 49,771
-------- --------
-------- --------
Land and buildings at cost:
Buildings and improvements................................ $ 57,785 $ 49,991
Land...................................................... 17,078 15,860
Land held for future use.................................. 790 790
-------- --------
75,653 66,641
Less accumulated depreciation and amortization.............. 6,492 5,155
-------- --------
$ 69,161 $ 61,486
-------- --------
-------- --------
Accounts payable and accrued liabilities:
Accounts payable.......................................... $ 55,720 $ 64,703
Collections in excess of revenues on uncompleted
contracts................................................ 44,881 31,970
Other accrued liabilities................................. 32,832 19,947
-------- --------
$133,433 $116,620
-------- --------
-------- --------
Accrued payroll and employee benefits:
Salaries, bonuses and amounts withheld from employees'
compensation............................................. $ 59,891 $ 46,748
Accrued vacation.......................................... 36,731 32,237
Accrued contributions to employee benefit plans........... 9,926 8,333
-------- --------
$106,548 $ 87,318
-------- --------
-------- --------
F-10
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D -- RECEIVABLES:
Receivables consist of the following:
JANUARY 31
------------------
1994 1993
-------- --------
(IN THOUSANDS)
Receivables, primarily U.S. Government, less allowance for
doubtful accounts of $755 and $667 at January 31, 1994 and
1993, respectively:
Billed.................................................... $256,996 $231,334
Unbilled, less progress payments of $16,738 and $17,805 at
January 31, 1994 and 1993, respectively.................. 81,699 91,433
Contract retentions....................................... 18,141 18,342
-------- --------
$356,836 $341,109
-------- --------
-------- --------
Unbilled receivables at January 31, 1994 and 1993 include $16,228,000 and
$13,699,000, 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 a present 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 collected within one
year. The majority of the retention balance is expected to be collected beyond
one year.
NOTE E -- NOTES PAYABLE:
The Company has substantially equivalent unsecured revolving credit/term
loan agreements with three banks totaling $67,500,000 which allow borrowings on
a revolving basis until July 1, 1996. At that time, the Company has the option
to borrow under three-year term notes, payable in twelve quarterly installments.
The agreements enable borrowings at various interest rates, at the Company's
option, based on prime, money market, London interbank borrowing, certificate of
deposit, bankers' acceptance, or other negotiated rates. Annual facility fees
are 1/4 of 1% of the total commitment during the initial revolving credit term.
There were no balances outstanding under the credit/term loan agreements at
January 31, 1994 and January 31, 1993. At January 31, 1992, $17,200,000 was
outstanding at an interest rate of 4.5%. As of January 31, 1994 the entire
$67,500,000 was available under the most restrictive debt covenants of the
credit/term loan agreements. The maximum amounts outstanding were $19,200,000,
$31,000,000 and $36,500,000 in 1994, 1993 and 1992, respectively. The average
amount outstanding was $541,000, $6,724,000 and $11,308,000 during 1994, 1993
and 1992, respectively. The weighted average interest rate in 1994, 1993 and
1992 was 3.5%, 4.5% and 5.8%, respectively, based upon average daily balances.
NOTE F -- EMPLOYEE BENEFIT PLANS:
The Company has two principal Profit Sharing Retirement Plans. A majority of
employees participate in either plan and their 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 plans were $20,471,000, $19,114,000 and $16,320,000 for
1994, 1993 and 1992, respectively.
The Company has an Employee Stock Ownership Plan in which most employees
participate. The vesting requirements for the Employee Stock Ownership Plan are
the same as the Profit Sharing Retirement Plans. Contributions charged to income
under the plan were $15,096,000, $13,904,000 and $12,092,000 for 1994, 1993 and
1992, respectively.
F-11
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has a Cash or Deferred Arrangement (CODA) which allows
participants to defer a portion of their income through contributions. Such
contributions are not taxable to the participant until distributed from the
CODA. Company contributions to the CODA of $7,673,000, $6,608,000 and $5,962,000
were charged to income in 1994, 1993 and 1992, respectively. Benefits under the
CODA are fully vested to participants and are payable upon termination,
retirement, permanent disability or death.
The Company has a Bonus Compensation Plan providing for bonuses to reward
outstanding employee performance. Bonuses are paid in the form of cash, fully
vested Company common stock or vesting Company common stock. Awards of vesting
Company common stock made prior to July 10, 1992, vest at the rate of 10%, 20%,
30% and 40% after one, two, three and four years, respectively, from the date of
award. Awards of vesting Company common stock made after July 10, 1992, vest at
the rate of 20%, 20%, 20% and 40% after one, two, three and four years,
respectively. The amounts charged to income under the plan were $20,111,000,
$19,234,000 and $16,340,000 for 1994, 1993 and 1992, respectively.
The Company also has an Employee Stock Purchase Plan which allows eligible
employees to purchase shares of the Company's common stock, with the Company
contributing 5% of the existing formula price. There are no charges to income
under the plan.
NOTE G -- INCOME TAXES:
The provision for income taxes includes the following:
YEAR ENDED JANUARY 31
------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Payable currently:
Federal......................................... $ 31,482 $ 27,247 $ 13,985
State........................................... 7,408 7,224 4,086
Deferred:
Federal......................................... (8,650) (10,121) 3,543
State........................................... (1,912) (2,320) 409
-------- -------- --------
$ 28,328 $ 22,030 $ 22,023
-------- -------- --------
-------- -------- --------
F-12
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 temporary differences:
JANUARY 31
-------------------
1994 1993
-------- --------
(IN THOUSANDS)
Accrued vacation pay........................................ $ 14,011 $ 11,984
Income recognition:
Completed contract method................................. 6,727 6,730
Contractually billable method............................. 10,879 3,033
Deferred compensation....................................... 5,374 4,674
Vesting stock bonuses....................................... 3,720 3,154
State income taxes.......................................... 843 1,366
Other....................................................... 1,541 1,024
-------- --------
Total deferred tax assets................................. 43,095 31,965
-------- --------
Employee benefit plan contributions......................... (10,270) (10,011)
Depreciation and amortization............................... (5,054) (4,140)
Contributions to voluntary employee beneficiary
association................................................ (1,562) (2,041)
Other....................................................... (520) (909)
-------- --------
Total deferred tax liabilities............................ (17,406) (17,101)
-------- --------
Net deferred tax asset...................................... $ 25,689 $ 14,864
-------- --------
-------- --------
A reconciliation of the provision for income taxes to the amount computed by
applying the statutory federal income tax rate (35% for 1994, 34% for 1993 and
1992) to income before income taxes follows:
YEAR ENDED JANUARY 31
------------------------------
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
Amount computed at statutory rate................. $ 24,440 $ 20,436 $ 18,917
State income taxes, net of federal tax benefit.... 3,573 3,236 2,967
Revision of prior years' tax estimates............ (251) (1,887) (1,388)
Other............................................. 566 245 1,527
-------- -------- --------
$ 28,328 $ 22,030 $ 22,023
-------- -------- --------
-------- -------- --------
Other assets include deferred income taxes of $3,606,000 and $2,365,000 at
January 31, 1994 and 1993, respectively. Income taxes paid in 1994, 1993 and
1992 amounted to $38,392,000, $25,480,000 and $19,498,000, respectively. The
effective rates for 1994, 1993 and 1992 have been reduced as a result of ongoing
resolutions of certain issues relating to prior year federal and state income
tax returns.
F-13
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H -- LONG-TERM LIABILITIES:
Long-term liabilities consist of the following:
JANUARY 31
----------------
1994 1993
------- -------
(IN THOUSANDS)
Mortgage payable collateralized by real property.............. $12,654 $12,749
Deferred compensation......................................... 11,609 10,362
Other......................................................... 1,940 2,874
------- -------
26,203 25,985
Less current portion.......................................... 1,143 134
------- -------
$25,060 $25,851
------- -------
------- -------
In connection with the purchase of land and a building in 1991, the Company
assumed a mortgage note of $12,800,000. Terms of the note include an 8.88%
interest rate with interest only monthly payments until July 1, 1992 and monthly
payments of principal and interest of $102,000 from August 1, 1992 until July 1,
1997 when the remaining principal balance becomes due.
The Company maintains a Keystaff Deferral Plan 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 the plan but does credit participant accounts for
deferred compensation amounts and for interest earned on such deferred
compensation. Interest is accrued based on the Moody's Seasoned Corporate Bond
Rate (7.26% in 1994). Deferred balances will generally be paid upon the later of
ten years of plan participation or retirement unless participants elect an early
pay-out.
The fair value of the Company's long-term liabilities is estimated based on
the current rates offered to the Corporation for similar debt of the same
remaining maturities. The carrying amount of the Company's long-term liabilities
approximates fair value.
Maturities of long-term liabilities are as follows:
YEAR ENDING
JANUARY 31
- ----------------------------------------------------------------
(IN THOUSANDS)
1995............................................................ $ 1,143
1996............................................................ 8,392
1997............................................................ 158
1998............................................................ 13,952
1999............................................................ 38
2000 and after.................................................. 2,520
--------------
$26,203
--------------
--------------
NOTE I -- COMMON STOCK AND OPTIONS:
The Company has options outstanding under two stock option plans, the 1992
Stock Option Plan (the 1992 plan), which was adopted effective July 10, 1992,
and the 1982 Stock Option Plan (the 1982 Plan). Under the 1992 and 1982 Plans,
options are granted at prices not less than the formula price at the date of
grant and for terms not greater than ten years. Options granted prior to July
10, 1992 generally become exercisable 10%, 20%, 30% and 40% after one, two,
three and four years, respectively, from the date of grant. Options granted
after July 10, 1992 generally become exercisable 20%,
F-14
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20%, 20% and 40% after one, two, three and four years, respectively, from the
date of grant. No options have been granted under the 1982 Plan after July 10,
1992, the date on which the plan terminated. The Company makes no charge to
income in connection with these Plans.
As of January 31, 1994, 19,507,000 shares of Class A common stock were
reserved for issuance upon exercise of options which are outstanding or which
may be granted. As of January 31, 1994, options for 3,315,000 shares of Class A
common stock were exercisable and 8,818,000 shares of Class A common stock were
available for future grants.
A summary of changes in outstanding options under the Plans during the three
years ended January 31, 1994, is as follows:
SHARES OF
CLASS A
COMMON STOCK
OPTION PRICES UNDERLYING
PER SHARE OPTIONS
---------------- ---------------
(IN THOUSANDS)
January 31, 1991.............................. $ 5.71 to $ 9.76 8,678
Options granted............................. 9.76 to 10.83 3,403
Options canceled............................ 5.71 to 10.83 (507)
Options exercised........................... 5.71 to 9.74 (1,584)
-------
January 31, 1992.............................. 6.82 to 10.83 9,990
Options granted............................. 11.15 to 11.83 2,864
Options canceled............................ 6.82 to 11.83 (556)
Options exercised........................... 6.82 to 10.83 (1,759)
-------
January 31, 1993.............................. 7.04 to 11.83 10,539
Options granted............................. 12.01 to 13.12 2,580
Options canceled............................ 7.04 to 13.12 (442)
Options exercised........................... 7.04 to 11.83 (1,988)
-------
January 31, 1994.............................. $ 8.19 to $13.12 10,689
-------
-------
The Company has agreed to make available for issuance, purchase or options
approximately 1,635,000 shares of Class A common stock to employees, prospective
employees and consultants, generally contingent upon commencement of employment
or the occurrence of certain events. The selling price of shares and the
exercise price of options are to be the formula price at the date such shares
are made available or options are granted.
NOTE J -- COMMITMENTS AND CONTINGENCIES:
The Company occupies most of its facilities under operating leases. Most of
the leases require the Company to pay maintenance and operating expenses such as
taxes, insurance and utilities and also contain renewal options extending the
leases from one to twenty years. Certain of the leases contain purchase options
and provisions for periodic rate escalations to reflect cost-of-living
increases. Certain equipment, primarily computer-related, is leased under
short-term or cancelable leases. Rental expenses for facilities and equipment
totaled $57,213,000, $54,050,000 and $51,386,000 in 1994, 1993 and 1992,
respectively.
F-15
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Minimum rental commitments, primarily for facilities, under all
noncancelable operating leases in effect at January 31, 1994, are payable as
follows:
YEAR ENDING
JANUARY 31
- ----------------------------------------------------------------
(IN THOUSANDS)
1995............................................................ $ 36,644
1996............................................................ 21,305
1997............................................................ 15,326
1998............................................................ 10,222
1999............................................................ 7,914
2000 and after.................................................. 16,913
--------------
$108,324
--------------
--------------
The Company leases a general purpose office building and has guaranteed a
$12,250,000 loan on behalf of the building owner. Certain financial ratios and
balances required by the guarantee have been maintained.
Other commitments at January 31, 1994 include outstanding letters of credit
aggregating $8,442,000, principally related to guarantees on contracts with
commercial and foreign customers, and outstanding surety bonds aggregating
$79,291,000, principally related to performance and payment type bonds.
The Company is subject to certain Government inquiries and investigations of
its business practices. The Company does not anticipate any action as a result
of such inquiries and investigations which would have a material adverse effect
on its consolidated financial position, results of operations or its ability to
conduct business.
Subsequent to the year ended January 31, 1994, the Company was served with
search warrants and a subpoena for documents and records associated with the
performance by an operating unit of the Company under three contracts with the
Department of Defense (DOD). The search warrants and the subpoena state that the
Government is seeking evidence regarding the making of false statements and
false claims to the DOD, as well as conspiracy to commit such offenses. The
Company has not been apprised of the details of the allegations being
investigated nor has it been charged with any wrongdoing. Accordingly, the
Company is unable to assess the impact, if any, of this investigation on its
consolidated financial position or results of operations or its ability to
conduct business.
NOTE K -- SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Charges to costs and expenses for depreciation and amortization of
buildings, property and equipment were $20,120,000, $19,956,000 and $17,294,000
for 1994, 1993 and 1992, respectively.
The Company expensed $5,689,000, $8,238,000 and $9,362,000 of independent
research and development costs during 1994, 1993 and 1992, respectively.
Total interest paid in 1994, 1993 and 1992 amounted to $1,449,000,
$1,743,000 and $2,144,000, respectively.
F-16
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
SCHEDULE V -- PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)
COL E
COL B ----------- COL F
------------ COL C OTHER ----------
COL A BALANCE AT --------- COL D CHANGES BALANCE AT
- ------------------------------ BEGINNING OF ADDITIONS ----------- ADD END OF
CLASSIFICATION PERIOD AT COST RETIREMENTS (DEDUCT)(1) PERIOD
- ------------------------------ ------------ --------- ----------- ----------- ----------
Year ended January 31, 1992:
Computers and other
equipment.................. $ 90,792 $ 22,372 $ 9,746 $ (531) $ 102,887
Office furniture and
fixtures................... 14,814 2,840 1,422 3 16,235
Leasehold improvements...... 10,537 799 1,065 (18) 10,253
------------ --------- ----------- ----------- ----------
$116,143 $ 26,011 $12,233 $ (546) $ 129,375
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
Buildings and
improvements............... $ 40,801 $ 7,585 $ $ $ 48,386
Land........................ 13,884 930 1,118 15,932
Land held for future use.... 1,836 (1,118) 718
------------ --------- ----------- ----------- ----------
$ 56,521 $ 8,515 $-- $ 0 $ 65,036
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
Year ended January 31, 1993:
Computers and other
equipment.................. $102,887 $ 17,275 $ 7,906 $ (277) $ 111,979
Office furniture and
fixtures................... 16,235 915 613 (326) 16,211
Leasehold improvements...... 10,253 1,978 321 369 12,279
------------ --------- ----------- ----------- ----------
$129,375 $ 20,168 $ 8,840 $ (234) $ 140,469
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
Buildings and
improvements............... $ 48,386 $ 2,093 $ 488 $ $ 49,991
Land........................ 15,932 (72) 15,860
Land held for future use.... 718 72 790
------------ --------- ----------- ----------- ----------
$ 65,036 $ 2,093 $ 488 $ 0 $ 66,641
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
Year ended January 31, 1994:
Computers and other
equipment.................. $111,979 $ 18,946 $10,237 $ (71) $ 120,617
Office furniture and
fixtures................... 16,211 1,439 2,048 (51) 15,551
Leasehold improvements...... 12,279 876 2,204 10,951
------------ --------- ----------- ----------- ----------
$140,469 $ 21,261 $14,489 $ (122) $ 147,119
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
Buildings and
improvements............... $ 49,991 $ 7,794 $ $ $ 57,785
Land........................ 15,860 1,218 17,078
Land held for future use.... 790 790
------------ --------- ----------- ----------- ----------
$ 66,641 $ 9,012 $-- $-- $ 75,653
------------ --------- ----------- ----------- ----------
------------ --------- ----------- ----------- ----------
- ------------------------
(1) Transfers between classifications.
F-17
SCIENCE APPLICATIONS INTERNATIONAL CORPORATION
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED JANUARY 31, 1994, 1993 AND 1992
(IN THOUSANDS)
COL C COL E
COL B --------- ----------- COL F
------------ ADDITIONS OTHER ---------
COL A BALANCE AT CHARGED COL D CHANGES BALANCE
- ------------------------------ BEGINNING OF TO COSTS/ ----------- ADD AT END OF
CLASSIFICATION PERIOD EXPENSES RETIREMENTS (DEDUCT)(1) PERIOD
- ------------------------------ ------------ --------- ----------- ----------- ---------
Year ended January 31, 1992:
Computers and other
equipment.................. $56,929 $ 11,688 $ 8,625 $ 2 $ 59,994
Office furniture and
fixtures................... 10,978 1,248 1,295 (2) 10,929
Leasehold improvements...... 5,876 3,214 1,001 8,089
------------ --------- ----------- ----------- ---------
$73,783 $ 16,150 $10,921 $ 0 $ 79,012
------------ --------- ----------- ----------- ---------
------------ --------- ----------- ----------- ---------
Buildings and
improvements............... $ 2,703 $ 1,144 $-- $-- $ 3,847
------------ --------- ----------- ----------- ---------
------------ --------- ----------- ----------- ---------
Year ended January 31, 1993:
Computers and other
equipment.................. $59,994 $ 15,436 $ 5,959 $2,331 $ 71,802
Office furniture and
fixtures................... 10,929 1,667 524 (188) 11,884
Leasehold improvements...... 8,089 1,310 179 (2,208) 7,012
------------ --------- ----------- ----------- ---------
$79,012 $ 18,413 $ 6,662 $ (65) $ 90,698
------------ --------- ----------- ----------- ---------
------------ --------- ----------- ----------- ---------
Buildings and
improvements............... $ 3,847 $ 1,543 $ 235 $-- $ 5,155
------------ --------- ----------- ----------- ---------
------------ --------- ----------- ----------- ---------
Year ended January 31, 1994:
Computers and other
equipment.................. $71,802 $ 15,865 $ 8,738 $ (71) $ 78,858
Office furniture and
fixtures................... 11,884 1,631 1,846 (51) 11,618
Leasehold improvements...... 7,012 1,287 2,237 6,062
------------ --------- ----------- ----------- ---------
$90,698 $ 18,783 $12,821 $ (122) $ 96,538
------------ --------- ----------- ----------- ---------
------------ --------- ----------- ----------- ---------
Buildings and
improvements............... $ 5,155 $ 1,337 $-- $-- $ 6,492
------------ --------- ----------- ----------- ---------
------------ --------- ----------- ----------- ---------
- ------------------------
(1) Transfers between classifications.
F-18
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ----------------------------------------------------------------------
3(a) Restated Certificate of Incorporation of the Registrant, as amended
July 19, 1990. Incorporated by reference to Exhibit 3(a) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1991 (the "1991 10-K").
3(b) Bylaws of the Registrant, as amended through April 10, 1992.
Incorporated by reference to Exhibit 3(b) to the Registrant's Annual
Report on Form 10-K for fiscal year ended January 31, 1992 (the "1992
10-K").
4(a)* Form of Non-Qualified Stock Option Agreement -- 1992 Stock Option Plan
of the Registrant (form dated August 1992). Incorporated by reference
to Exhibit 4(c) to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993 (the "1993 10-K").
4(b)* Form of Stock Restriction Agreement of the Registrant's Employee Stock
Ownership Plan (form dated March 1, 1985). Incorporated by reference
to Exhibit 4(e) to Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1985 (the "1985 10-K").
4(c)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated October 1990). Incorporated by reference
to Exhibit 4(f) to the 1991 10-K.
4(d)* Form of Stock Restriction Agreement of the Registrant's Cash or
Deferred Arrangement (TRASOP Account) (form dated March 1, 1985).
Incorporated by reference to Exhibit 4(g) to the 1985 10-K.
4(e)* Registrant's Bonus Compensation Plan, as amended through April 2,
1991. Incorporated by reference to Exhibit 4(l) to the 1991 10-K.
4(f)* Registrant's 1982 Stock Option Plan, as amended through June 9, 1989.
Incorporated by reference to Exhibit 4(n) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1990 (the
"1990 10-K").
4(g)* Registrant's 1992 Stock Option Plan. Incorporated by reference to
Exhibit 4(o) to the 1992 10-K.
4(h)* Form of Non-Qualified Stock Option Agreement (Employee, Director and
Consultant) - 1982 Stock Option Plan (form dated October 1990).
Incorporated by reference to Exhibit 4(p) to the 1991 10-K.
4(i)* Form of Stock Restriction Agreement of the Registrant's Employee Stock
Ownership Plan (TRASOP Account) (form dated April 1, 1991).
Incorporated by reference to Exhibit 4(r) to the 1991 10-K.
4(j)* Registrant's 1993 Employee Stock Purchase Plan. Incorporated by
reference to Annex I to the Registrant's Proxy Statement for the 1993
Annual Meeting of Stockholders as filed April 1993 with the SEC.
4(k)* Form of Stock Restriction Agreement of the Registrant's Bonus
Compensation Plan (form dated July 1992). Incorporated by reference to
Exhibit 4(v) to the 1993 10-K.
4(l)* Registrant's Stock Compensation Plan.
4(m)* Registrant's Management Stock Compensation Plan.
10(a)* Registrant's Keystaff Deferral Plan, as amended through January 31,
1991. Incorporated by reference to Exhibit 10(a) to the 1991 10-K.
10(b) Sixth Amendment dated as of August 10, 1993 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
10(c) Fifth Amendment dated as of August 4, 1992 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1993 10-K.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ----------------------------------------------------------------------
10(d) Fourth Amendment dated as of June 30, 1992 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(c) to the 1993 10-K.
10(e) Third Amendment dated as of July 1, 1991 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1992 10-K.
10(f) Second Amendment dated as of August 31, 1990 to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1991 10-K.
10(g) First Amendment dated as of June 24, 1989, to Registrant's Credit
Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to the 1990 10-K.
10(h) Credit Agreement with Citibank, N.A. dated as of October 31, 1988.
Incorporated by reference to Exhibit 10(b) to Registrant's Annual
Report on Form 10-K for the fiscal year ended January 31, 1989 (the
"1989 10-K").
10(i) Sixth Amendment dated as of July 22, 1993 to Registrant's Credit
Agreement with Bank of America NT&SA (successor by merger to Security
Pacific National Bank) dated as of October 31, 1988.
10(j) Fifth Amendment dated as of August 10, 1992 to Registrant's Credit
Agreement with Bank of America NT&SA (successor by merger to Security
Pacific National Bank) dated as of October 31, 1988. Incorporated by
reference to Exhibit 10(h) to the 1993 10-K.
10(k) Fourth Amendment dated as of June 26, 1992 to Registrant's Credit
Agreement with Bank of America NT&SA (successor by merger to Security
Pacific National Bank) dated as of October 31, 1988. Incorporated by
reference to Exhibit 10(i) to the 1993 10-K.
10(l) Third Amendment dated as of June 14, 1991 to Registrant's Credit
Agreement with Security Pacific National Bank dated as of October 31,
1988. Incorporated by reference to Exhibit 10(f) to the 1992 10-K.
10(m) Second Amendment dated as of June 14, 1990 to Registrant's Credit
Agreement with Security Pacific National Bank dated as of October 31,
1988. Incorporated by reference to Exhibit 10(c) to the 1991 10-K.
10(n) First Amendment dated as of June 15, 1989 to Registrant's Credit
Agreement with Security Pacific National Bank dated as of October 31,
1988. Incorporated by reference to Exhibit 10(c) to the 1990 10-K.
10(o) Credit Agreement with Security Pacific National Bank dated as of
October 31, 1988. Incorporated by reference to Exhibit 10(c) to the
1989 10-K.
10(p) Second Amendment dated as of July 30, 1993 and November 3, 1993 to
Registrant's Credit Agreement with Continental Bank, N.A. dated as of
May 26, 1992.
10(q) First Amendment dated as of June 18, 1992 to Registrant's Credit
Agreement with Continental Bank, N.A. dated as of May 26, 1992.
Incorporated by reference to Exhibit 10(n) to the 1993 10-K.
10(r) Credit Agreement with Continental Bank dated as of May 26, 1992.
Incorporated by reference to Exhibit 10(o) to the 1993 10-K.
10(s) First Amendment dated as of July 22, 1993 to Registrant's Employee
Stock Purchase Loan Agreement with Bank of America NT&SA dated as of
November 10, 1992.
10(t) Registrant's Employee Stock Purchase Loan Agreement with Bank of
America NT&SA dated November 10, 1992.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- ----------------------------------------------------------------------
10(u) Registrant's Overdraft Facility with Bank of America dated July 26,
1990, as amended through November 25, 1991. Incorporated by reference
to Exhibit 10(o) to the 1992 10-K.
11 Statement re: computation of per share earnings.
21 Subsidiaries of the Registrant.
28(a) Annual Report of the Registrant's Employee Stock Purchase Plan for the
plan year ended January 31, 1994.
28(b) Annual Report of the Registrant's Cash or Deferred Arrangement for the
year ended December 31, 1993.
- ------------------------
* Executive Compensation Plans and Arrangements.