Leidos 8K Completion of Acquisition or Disposition of Assets | SEC 21 Mar 05

Exhibit 99.3

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Pro Forma Condensed Consolidated Financial Statements

(Unaudited)

The following unaudited pro forma condensed consolidated financial statements give effect to the disposition of Telcordia Technologies, Inc. (“Telcordia”) by Science Applications International Corporation (“the Company”) in a transaction that is a disposition of a business that meets the definition of a significant subsidiary pursuant to Securities and Exchange Commission (“SEC”) Regulation S-X, Rule 1-01. The assumptions and adjustments described in the accompanying notes reflect the disposition of Telcordia effective February 1, 2001. Therefore, Telcordia’s results of operations are no longer reflected in income from continuing operations and its assets and liabilities are no longer reflected in the condensed consolidated balance sheet.

The unaudited pro forma condensed consolidated balance sheet is based on the condensed consolidated balance sheets of the Company and has been prepared to reflect the disposition of Telcordia as of October 31, 2004. The unaudited pro forma condensed consolidated statements of income for the interim period ended October 31, 2004 and years ended January 31, 2004, 2003 and 2002 reflect the disposition of Telcordia as if the sale closed on February 1, 2001. Therefore, as required by SEC Regulation S-X, Rule 11-01 “Pro Forma Financial Information,” only the portion of the statement of income through “income from continuing operations” is presented.

The unaudited pro forma condensed consolidated financial statements are based on assumptions and adjustments the Company believes are reasonable, factually supportable and directly attributable to the disposition of Telcordia.

The unaudited pro forma condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, including the notes thereto, of the Company in its Annual Report on Form 10-K/A for the year ended January 31, 2004 and the unaudited interim condensed consolidated financial statements, including the notes thereto, of the Company in its Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2004. These unaudited pro forma condensed consolidated financial statements are shown for illustrative purposes only and are not necessarily indicative of the results of operations or financial position of the consolidated Company that might have occurred had the sale been completed at the beginning of the periods specified, nor are they necessarily indicative of future operating results or financial position.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Pro Forma Condensed Consolidated Balance Sheet

(Unaudited, in millions)


	October 31, 2004
	Historical			Pro Forma Adjustments (Note 1)			Pro Forma Results
ASSETS
Current assets:
Cash and cash equivalents	$	779		$	964	(a)	$	1,849
					110	(a)
					(4	)(a)
Investments in marketable securities		1,363			—			1,363
Receivables, net		1,631			(100	)(a)		1,531
Prepaid expenses and other current assets		162			(10	)(a)		152
Deferred income taxes		35			(35	)(c)		—

Total current assets		3,970			925			4,895

Property, plant and equipment		456			(118	)(a)		338
Intangible assets		76			(44	)(a)		32
Goodwill		478			(94	)(a)		384
Prepaid pension assets		535			(535	)(a)		—
Deferred income taxes					100	(c)		100
Other assets		114			(15	)(a)		99

	$	5,629		$	219		$	5,848

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	983		$	(199	)(a)	$	784
Accrued payroll and employee benefits		414			(48	)(a)		366
Income taxes payable		284						547
					263	(d)
Deferred income taxes					7	(c)		7
Notes payable and current portion of long-term debt		63			—			63

Total current liabilities		1,744			23			1,767

Long-term debt, net of current portion		1,217			—			1,217
Deferred income taxes		45			(45	)(c)		—
Other long-term liabilities		276			(187	)(a)		89
Minority interest in consolidated subsidiaries		44			—			44
Stockholders’ equity:
Common stock		2			—			2
Additional paid-in capital		2,234			—			2,234
Retained earnings		210			428	(a)		638
Other stockholders’ equity		(113	)		10	(a)		(103	)
Accumulated other comprehensive loss		(30	)		(10	)(a)		(40	)

Total stockholders’ equity		2,303			428			2,731

	$	5,629		$	219		$	5,848

See accompanying notes to unaudited pro forma condensed consolidated financial statements

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Pro Forma Condensed Consolidated Statements of Income

(Unaudited, in millions, except per share amounts)


	Nine Months Ended October 31, 2004
	Historical			Pro Forma Adjustments			Pro Forma Results
Revenues	$	5,954		$	(642	)(b)	$	5,312
Costs and expenses:
Cost of revenues		5,043			(362	)(b)		4,681
Selling, general and administrative expenses		437			(171	)(b)		266
Goodwill impairment

Operating income		474			(109	)		365

Non-operating income (expense):
Net loss on marketable securities and other investments, including impairment losses		(15	)					(15	)
Interest income		33						33
Interest expense		(67	)					(67	)
Other expense, net		(3	)					(3	)
Minority interest in income of consolidated subsidiaries		(10	)					(10	)

Income from continuing operations before income taxes		412			(109	)		303
Provision for income taxes		151			(38	)(b)		113

Income from continuing operations	$	261		$	(71	)	$	190

Earnings per share:
Basic:
Income from continuing operations	$	1.43		$	(.39	)(b)	$	1.04

Diluted:
Income from continuing operations	$	1.39		$	(.38	)(b)	$	1.01

Common equivalent shares:
Basic		183			183			183

Diluted		188			188			188

See accompanying notes to unaudited pro forma condensed consolidated financial statements

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Pro Forma Condensed Consolidated Statements of Income

(Unaudited, in millions, except per share amounts)


	Year Ended January 31, 2004
	Historical			Pro Forma Adjustments			Pro Forma Results
Revenues	$	6,720		$	(887	)(b)	$	5,833
Costs and expenses:
Cost of revenues		5,584			(484	)(b)		5,100
Selling, general and administrative expenses		589			(258	)(b)		331
Goodwill impairment		7						7

Operating income		540			(145	)		395

Non-operating income (expense):
Net gain on marketable securities and other investments, including impairment losses		6						6
Interest income		49						49
Interest expense		(80	)					(80	)
Other income, net		5			(1	)(b)		4
Minority interest in income of consolidated subsidiaries		(10	)					(10	)

Income from continuing operations before income taxes		510			(146	)		364
Provision for income taxes		159			(20	)(b)		139

Income from continuing operations	$	351		$	(126	)	$	225

Earnings per share:
Basic:
Income from continuing operations	$	1.90		$	(.68	)(b)	$	1.22

Diluted:
Income from continuing operations	$	1.86		$	(.67	)(b)	$	1.19

Common equivalent shares:
Basic		185			185			185

Diluted		189			189			189

See accompanying notes to unaudited pro forma condensed consolidated financial statements

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Pro Forma Condensed Consolidated Statements of Income

(Unaudited, in millions, except per share amounts)


	Year Ended January 31, 2003
	Historical			Pro Forma Adjustments			Pro Forma Results
Revenues	$	5,903		$	(1,068	)(b)	$	4,835
Costs and expenses:
Cost of revenues		4,815			(604	)(b)		4,211
Selling, general and administrative expenses		581			(276	)(b)		305
Goodwill impairment		13						13
Gain on sale of business units, net		(5	)					(5	)

Operating income		499			(188	)		311

Non-operating income (expense):
Net loss on marketable securities and other investments, including impairment losses		(134	)					(134	)
Interest income		37						37
Interest expense		(45	)					(45	)
Other income, net		7			(1	)(b)		6
Minority interest in income of consolidated subsidiaries		(7	)					(7	)

Income from continuing operations before income taxes		357			(189	)		168
Provision for income taxes		98			(37	)(b)		61

Income from continuing operations	$	259		$	(152	)	$	107

Earnings per share:
Basic:
Income from continuing operations	$	1.32		$	(.78	)(b)	$	.54

Diluted:
Income from continuing operations	$	1.28		$	(.75	)(b)	$	.53

Common equivalent shares:
Basic		196			196			196

Diluted		203			203			203

See accompanying notes to unaudited pro forma condensed consolidated financial statements

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Pro Forma Condensed Consolidated Statements of Income

(Unaudited, in millions, except per share amounts)


	Year Ended January 31, 2002
	Historical			Pro Forma Adjustments			Pro Forma Results
Revenues	$	5,771		$	(1,397	)(b)	$	4,374
Costs and expenses:
Cost of revenues		4,611			(786	)(b)		3,825
Selling, general and administrative expenses		735			(422	)(b)		313
Goodwill impairment		3			(3	)		—
Gain on sale of business units, net		(10	)					(10	)

Operating income		432			(186	)		246

Non-operating income (expense):
Net loss on marketable securities and other investments, including impairment losses		(456	)					(456	)
Interest income		50						50
Interest expense		(14	)					(14	)
Other income, net		8			2	(b)		10
Minority interest in income of consolidated subsidiaries		(5	)					(5	)

Income (loss ) from continuing operations before income taxes		15			(184	)		(169	)
Provision for (benefit from) income taxes		4			(84	)(b)		(80	)

Income (loss) from continuing operations	$	11		$	(100	)	$	(89	)

Earnings per share:
Basic:
Income (loss) from continuing operations	$	.05		$	(.46	)(b)	$	(.41	)

Diluted:
Income (loss) from continuing operations	$	.05		$	(.44	)(b)	$	(.39	)

Common equivalent shares:
Basic		215			215			215

Diluted		228			228			228

See accompanying notes to unaudited pro forma condensed consolidated financial statements

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements

Note 1– On November 17, 2004, the Company entered into a definitive stock purchase agreement to sell its ownership in Telcordia to TTI Holding Corporation (“Buyer”), an affiliate of Warburg Pincus LLC and Providence Equity Partners Inc., for cash of $1.35 billion. On March 15, 2005, the sale of Telcordia was completed. The initial sales price of $1.35 billion is subject to a working capital adjustment, a reduction for the net proceeds from a sale leaseback of certain real estate by Telcordia with an unrelated third party in conjunction with the closing of the sale of Telcordia and other adjustments as agreed upon between the Buyer and the Company.

The preliminary working capital adjustment as reflected in the pro forma adjustment represents the actual preliminary adjustment calculated based on the closing date of March 15, 2005. For pro forma purposes, the Company did not calculate a hypothetical working capital adjustment as of October 31, 2004. The most significant difference would be the deferred revenue from certain Telcordia customer contract prepayments that occurred in the month of December 2004 and January 2005. If the sale had occurred as of October 31, 2004, the Company has estimated that the working capital adjustment would have been approximately $201 million lower than the actual preliminary working capital adjustment at March 15, 2005 due to the customer contract prepayments and assuming all other components of the working capital adjustment remain unchanged. Accordingly, the pro forma cash adjustment and after-tax gain adjustment would have been $201 million and $125 million higher, respectively.

In addition to the cash purchase price payable at closing, the Company is entitled to receive additional amounts as contingent purchase price, including the net proceeds from any judgment or settlement of the litigation Telcordia initiated against Telkom South Africa and 50% of the net proceeds Telcordia receives in connection with the prosecution of certain patent rights of Telcordia. The Company also has customary indemnification obligations owing to the Buyer as well as an obligation to indemnify the Buyer against any loss Telcordia may incur as a result of an adverse judgment in the Telkom South Africa litigation.

The unaudited pro forma condensed consolidated balance sheet and statements of income have been prepared to reflect the disposition of Telcordia by the Company as if it occurred February 1, 2001. The pro forma adjustments reflect the initial sales price of $1.35 billion adjusted for a preliminary working capital adjustment, proceeds from the sale leaseback transaction between Telcordia and an unrelated third party, which was consummated in conjunction with the completion of the sale of Telcordia, and other agreed-upon adjustments as contemplated in the “Stock Purchase Agreement between Science Applications International Corporation and TTI Holding Corporation dated as of November 17, 2004, as amended on February 14, 2005 and March 11, 2005,” and included as exhibit 99.1 of this filing. The preliminary purchase price is subject to final adjustment which would occur no earlier than 60 days from the closing date as the Buyer and Telcordia have 30 days to complete the final closing balance sheet for the final purchase price adjustments and then the Company has 30 days to review the final closing balance sheet to determine whether further purchase price adjustments are warranted. The pro forma adjustments do not reflect any further assumptions of purchase price adjustments other than those described above and reflected in Note 1(a) below, and no assumptions or adjustments related to contingent purchase price and customary indemnification obligations have been made. In addition, the working capital pro forma adjustment represents the actual preliminary adjustment, as described above, and does not reflect an estimated working capital adjustment as if the sale was completed as of October 31, 2004. Pro forma adjustments are made to reflect the following:

(a) Allocation of cash proceeds to net assets sold:


	in millions
*Sale of Telcordia:*
Initial purchase price	$	1,350
Less: Proceeds from sale leaseback of land and building to an unrelated third party		(110	)
Working capital adjustment (primarily due to certain Telcordia customer contract prepayments received prior to completion of the sale)		(225	)
Other adjustments per the February 14, 2005 and March 11, 2005 amendments to the definitive stock purchase agreement		(16	)
Direct and incremental selling costs		(35	)

Net cash		964

*Sale leaseback of land and building by Telcordia to an unrelated third party in conjunction with sale of Telcordia:*
Proceeds from sale of land and building	$	110

*Elimination of book value of assets and (liabilities) sold in connection with the transactions previously described:*
Cash and cash equivalents	$	4
Receivables, net		100
Prepaid expenses and other current assets		10
Deferred income taxes current		42
Property, plant and equipment		118
Intangible assets		44

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION


Goodwill		94
Prepaid pension assets		535
Other assets		15
Accounts payable and accrued liabilities		(199	)
Accrued payroll and employee benefits		(48	)
Deferred income taxes non current		(145	)
Other long-term liabilities		(187	)
Other stockholders’ equity		10
Accumulated other comprehensive loss		(10	)

Net assets sold		383

Gain on sale before income taxes		691
Less: Income tax expense (assuming 38% tax rate)		(263	)

Gain on sale, net of income taxes	$	428

(b)	Elimination of Telcordia’s operating results from continuing operations that have been reclassified to discontinued operations, and to reflect the related effect on earnings per share from continuing operations.

(c)	Preliminary estimated adjustments to reflect reclassification of deferred taxes resulting from the sale of Telcordia and the elimination of Telcordia related deferred taxes (Note 1(a)).

(d)	Preliminary estimated income taxes payable related to the gain on sale of Telcordia assuming a 38% income tax rate.

Leidos 8-KCompletion of Acquisition or Disposition of Assets