SEC Filing Summary: SAIC, Inc. (10-Q)
Business Context and Reporting Period
Company: SAIC, Inc. (Note: Metadata referenced "Leidos," but the filing text identifies the registrant as SAIC, Inc.)
Reporting Period: Quarterly period ended October 31, 2009 (Nine months ended October 31, 2009).
Business Overview: SAIC provides scientific, engineering, systems integration, and technical services to U.S. military, intelligence, homeland security, and civil agencies, as well as commercial customers. The company operates through Government, Commercial, and Corporate segments.
Key Financial Metrics
| Metric (in millions) | 3 Months Ended Oct 31, 2009 | 3 Months Ended Oct 31, 2008 | 9 Months Ended Oct 31, 2009 | 9 Months Ended Oct 31, 2008 |
|---|---|---|---|---|
| Revenues | $2,765 | $2,631 | $8,163 | $7,552 |
| Operating Income | $233 | $205 | $658 | $568 |
| Operating Margin | 8.4% | 7.8% | 8.1% | 7.5% |
| Net Income | $135 | $120 | $374 | $332 |
| Diluted EPS (Continuing Ops) | $0.34 | $0.29 | $0.93 | $0.79 |
| Cash & Equivalents (Oct 31, 2009) | $991 | |||
| Long-Term Debt (Oct 31, 2009) | $1,103 | |||
| Operating Cash Flow (9 Months) | $522 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 5% ($134 million) for the quarter and 8% ($611 million) for the nine months compared to the prior year. Growth was driven by the Government segment (up 6% and 9%, respectively), while the Commercial segment declined 10% and 7% due to foreign currency impacts and reduced market activity.
- Profitability: Operating income increased 14% for the quarter and 16% for the nine months. Margins improved due to better contract performance on large programs and controlled infrastructure costs, partially offset by a higher mix of lower-margin material and subcontractor (M&S) revenues.
- Non-Operating Items: Net non-operating expense decreased significantly due to a $16 million reduction in impairment losses on investments compared to the prior year (which included impairments related to Danet GmbH and private equity securities).
- Acquisitions: The company acquired Atlan, Inc. ($9 million) and R.W. Beck Group, Inc. ($155 million) during the period, enhancing cybersecurity and energy/infrastructure capabilities.
Guidance, Outlook, Risks, and Contingencies
Outlook and Backlog: Total backlog stood at $16.6 billion as of October 31, 2009, a slight decrease from $16.8 billion at the start of the fiscal year. Management attributes the decline to industry-wide lengthening of contract award processes and competitor protests. Net bookings were approximately $3.0 billion for the quarter.
Significant Risks and Contingencies:
- False Claims Act Litigation (National Center): The DOJ filed a complaint alleging violations regarding a task order for the National Center for Critical Information Processing and Storage. Potential exposure is estimated up to $230 million. The company intends to vigorously defend the claim.
- Greek Government Contract: A firm-fixed-price contract for the 2004 Athens Olympics system remains in dispute. The company has recorded $124 million in losses and initiated arbitration seeking over $104 million in damages. Significant uncertainties remain regarding payment collection and bond releases.
- Telkom South Africa Arbitration: A contract dispute with Telkom South Africa is in the damages phase of arbitration. The company seeks over $200 million plus interest. Final determination is expected in fiscal 2011.
- Government Audits: The Defense Contract Audit Agency (DCAA) is re-auditing the company's accounting and billing systems. The company has recorded a $23 million liability for potential adjustments but notes that future adjustments could adversely affect profitability.
- Pension Obligations: A UK subsidiary has an underfunded pension plan ($35 million obligation) tied to a contract expiring in March 2010. Funding requirements depend on the outcome of a dispute with the customer and the award of a successor contract.
Investor Verification Checklist
- Legal Exposure: Verify the status of the DOJ False Claims Act complaint and the potential $230 million liability.
- Greek Contract Resolution: Monitor the arbitration outcome regarding the $124 million recorded loss and the potential recovery of $104 million in damages.
- Backlog Quality: Assess the impact of the Future Combat Systems (FCS) restructuring on the $16.6 billion backlog and future revenue recognition.
- Government Audit Outcomes: Track the results of the DCAA re-audits of accounting and billing systems, which could lead to retroactive cost adjustments.
- Stock Repurchases: Note the company's active share repurchase program, with 37 million shares remaining authorized as of October 31, 2009.