SEC Filing Summary: SAIC, Inc. (Form 10-K)
Business Context and Reporting Period
Company: SAIC, Inc. (formerly Science Applications International Corporation)
Filing Type: Annual Report (Form 10-K)
Period Ended: January 31, 2009 (Fiscal 2009)
Business Overview: SAIC provides scientific, engineering, systems integration, and technical services to U.S. military branches, Department of Defense (DoD), intelligence community, Department of Homeland Security (DHS), and select commercial markets. The company operates through three segments: Government (95% of revenue), Commercial (5% of revenue), and Corporate and Other.
Key Financial Metrics
| Metric (in millions) | Fiscal 2009 | Fiscal 2008 |
|---|---|---|
| Total Revenues | $10,070 | $8,926 |
| Operating Income | $776 | $673 |
| Operating Margin | 7.7% | 7.5% |
| Net Income | $452 | $416 |
| Diluted EPS (Continuing Ops) | $1.10 | $0.94 |
| Cash and Cash Equivalents | $936 | $1,096 |
| Operating Cash Flow | $583 | $346 |
| Total Backlog | $16,793 | $14,974 |
| Long-Term Debt | $1,099 | $1,098 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 13% to $10.07 billion, driven by a 14% increase in the Government segment. Internal (non-acquisition) revenue growth was 10%.
- Profitability: Operating income rose 15% to $776 million. Margins improved due to increased sales of higher-margin border/port security products and infrastructure cost reductions, partially offset by a higher mix of lower-margin material and subcontractor revenues.
- Commercial Segment: Revenues declined 6% to $476 million due to reduced consulting volume and foreign exchange impacts.
- Cash Flow: Operating cash flow increased significantly by $237 million to $583 million, aided by improved receivables collection. However, total cash decreased by $160 million due to $445 million in stock repurchases and $201 million in acquisitions.
- Backlog: Total backlog increased by $1.8 billion to $16.8 billion, with funded backlog at $5.6 billion.
Guidance, Outlook, Risks, and Contingencies
Outlook and Initiatives: Management focuses on internal revenue growth, improving operating margins, and disciplined capital deployment. The company continues a multi-year implementation of a new enterprise accounting system, with 25% of revenues migrated as of year-end.
Key Risks:
- Government Dependence: 88% of revenue is derived from U.S. Government contracts. Budget delays or shifts in defense priorities could materially impact results.
- Competition: Intense competition for contracts, particularly under multi-award IDIQ vehicles, creates pricing pressure.
- Contract Performance: Risks associated with cost overruns on firm-fixed-price contracts and potential audit adjustments on cost-reimbursement contracts.
Material Contingencies:
- Greek Government Contract: A firm-fixed-price contract for a C4I system has recorded losses of $124 million. The customer accepted the system in November 2008 but withheld $28 million for omissions. Significant uncertainty remains regarding final payments and potential additional losses.
- Nuclear Regulatory Commission (NRC): A jury verdict in October 2008 resulted in a $7 million liability (trebled damages and penalties) for False Claims Act violations. The company plans to appeal if post-trial motions are denied.
- Telkom South Africa: Arbitration proceedings regarding a former subsidiary (Telcordia) are ongoing. The company seeks damages exceeding $200 million, but the outcome is not determinable.
- UK Pension Plan: An underfunded defined benefit plan has a projected benefit obligation of $35 million and an unrecognized actuarial loss of $42 million. A dispute with the customer regarding funding timing exists.
Investor Verification Checklist
- Backlog Realization: Verify the convertibility of the $11.2 billion in "negotiated unfunded backlog" into actual revenue, given the U.S. Government's ability to cancel contracts.
- Greek Contract Resolution: Monitor the status of negotiations regarding the $28 million withheld payment and the potential for further loss recognition on the Greek C4I contract.
- Government Audit Adjustments: Review the $22 million liability recorded for potential audit adjustments on indirect costs incurred since fiscal 2005.
- Stock Repurchase Program: Confirm the remaining $24 million share authorization and the company's commitment to capital return amidst economic uncertainty.
- IT System Migration: Assess the progress and risks associated with the phased implementation of the new enterprise accounting system, scheduled for completion in fiscal 2011.