SEC Filing Summary: SAIC, Inc. (10-Q)
Business Context and Reporting Period
Company: SAIC, Inc. (Note: Metadata referenced "Leidos Holdings," but the filing text identifies the registrant as SAIC, Inc.)
Reporting Period: Quarterly period ended July 31, 2009 (Six months ended July 31, 2009 also presented).
Business Overview: SAIC provides scientific, engineering, systems integration, and technical services to U.S. military branches, Department of Defense agencies, the intelligence community, and other government and commercial customers. The company operates through Government, Commercial, and Corporate and Other segments.
Key Financial Metrics
| Metric (in millions) | Three Months Ended July 31, 2009 |
Three Months Ended July 31, 2008 |
Six Months Ended July 31, 2009 |
Six Months Ended July 31, 2008 |
|---|---|---|---|---|
| Revenues | $2,749 | $2,554 | $5,398 | $4,921 |
| Operating Income | $221 | $189 | $425 | $363 |
| Operating Margin | 8.0% | 7.4% | 7.9% | 7.4% |
| Net Income | $123 | $109 | $239 | $212 |
| Diluted EPS (Continuing Ops) | $0.31 | $0.26 | $0.60 | $0.50 |
| Cash and Equivalents (End of Period) | $951 (as of July 31, 2009) | |||
| Long-Term Debt (Net of Current) | $1,103 (as of July 31, 2009) | |||
| Operating Cash Flow (6 Months) | $272 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 8% ($195 million) for the quarter and 10% ($477 million) for the six months compared to the prior year. Growth was driven primarily by the Government segment (9% and 11% increases, respectively), specifically in defense solutions and logistics/product support. The Commercial segment declined 9% and 6% due to foreign currency impacts.
- Profitability: Operating income rose 17% for both the quarter and six-month periods. Operating margins improved to 8.0% (quarter) and 7.9% (six months) due to infrastructure cost controls and improved program performance, partially offset by a higher mix of lower-margin material and subcontractor (M&S) revenues.
- Discontinued Operations: The company recorded a loss from discontinued operations of $2 million for the quarter and $3 million for the six months, primarily related to tax and litigation matters concerning the former Telcordia Technologies subsidiary.
- Share Count: Diluted weighted average shares outstanding decreased by approximately 3% due to active stock repurchases.
Guidance, Outlook, Risks, and Contingencies
Outlook and Management Commentary: Management highlighted internal revenue growth of 7% for the quarter. The company continues to focus on internal growth, improving operating margins, and disciplined capital deployment. Backlog totaled $16.3 billion at July 31, 2009, a decrease from $16.8 billion at the start of the fiscal year, reflecting an industry-wide slowdown in contract awards. The company anticipates a significant role in the restructured Army Brigade Combat Team Modernization program following the restructuring of the Future Combat Systems (FCS) program.
Significant Risks and Contingencies:
- NCCIPS Contract Litigation: The U.S. Department of Justice filed a False Claims Act complaint seeking approximately $116 million in damages plus trebling and penalties. The company estimates a reasonable possibility of additional exposure up to $230 million but believes the claims lack merit.
- Greek Government Contract: The company initiated arbitration against the Greek government regarding a firm-fixed-price contract for the 2004 Olympics security system. The company has recorded $124 million in losses to date. The arbitration seeks over $99 million in damages and the release of $26 million in bonds. Significant uncertainties remain regarding payment and bond release.
- Telkom South Africa Arbitration: A former subsidiary (Telcordia) is in the damage phase of arbitration against Telkom South Africa. The company is entitled to proceeds net of taxes, but the amount is not presently determinable.
- 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.
Investor Verification Checklist
- Legal Exposure: Verify the status of the NCCIPS False Claims Act lawsuit and the potential $230 million exposure.
- Greek Contract Resolution: Monitor the outcome of the arbitration with the Greek government and the potential for reversal of the $124 million recorded loss if payments are received.
- Backlog Trends: Assess the impact of the FCS program restructuring on future revenue recognition and the overall backlog decline.
- Government Audit Results: Track the DCAA re-audits of accounting systems for potential retroactive cost adjustments and refunds.
- Stock Repurchases: Confirm the remaining authorized shares under the repurchase program (10 million shares remaining as of July 31, 2009) and future buyback activity.