SAIC Announces Financial Results for Second Quarter of Fiscal Year 2011

CONTACTS:

Investor Relations:

Paul Levi

703-676-2283

Media Relations:

Laura Luke

Melissa Koskovich

703-676-6533

703-676-6762

[email protected]

[email protected]

SAIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in millions, except per share amounts)

Three Months Ended

Six Months Ended

July 31

July 31

2010

2009

2010

2009

Revenues

$ 2,794

$             2,749

$           5,479

$               5,398

Costs and expenses (a):

Cost of revenues

2,388

2,369

4,740

4,664

Selling, general and administrative expenses

133

159

259

309

Operating income

273

221

480

425

Non-operating income (expense):

Interest income

1

-

1

1

Interest expense

(19)

(19)

(37)

(38)

Other income (expense), net

(2)

-

(2)

3

Income from continuing operations before income taxes

253

202

442

391

Provision for income taxes

(95)

(77)

(159)

(149)

Income from continuing operations

158

125

283

242

Discontinued operations:

Income (loss) from discontinued operations before income taxes

53

(3)

51

(4)

Benefit (provision) for income taxes

(22)

1

(20)

1

Income (loss) from discontinued operations

31

(2)

31

(3)

Net income

$    189

$                123

$              314

$                  239

Earnings per share (b):

Basic:

Income from continuing operations

$   0.42

$               0.32

$             0.74

$                 0.60

Income (loss) from discontinued operations

0.08

(0.01)

0.08

-

$   0.50

$               0.31

$             0.82

$                 0.60

Diluted:

Income from continuing operations

$   0.42

$               0.31

$             0.74

$                 0.60

Income (loss) from discontinued operations

0.08

-

0.08

(0.01)

$   0.50

$               0.31

$             0.82

$                 0.59

Weighted average number of shares outstanding:

Basic

363

384

369

388

Diluted

365

388

371

392

(a) Effective February 1, 2010, the Company updated its disclosure statements with the Defense Contract Management Agency, resulting in certain costs being classified differently as overhead (included in cost of revenues) or general and administrative expenses on a prospective basis.  This change has caused a net increase in reported cost of revenues and a net decrease in reported SG&A expenses in fiscal 2011 as compared to fiscal 2010; however, total operating costs were not affected by this change.  

(b) On February 1, 2009, the company adopted an accounting standard regarding earnings per share that requires an allocation of income from continuing operations and net income to the company's unvested stock awards which are considered participating securities in accordance with the standard. The company's unvested stock awards are excluded from the weighted average number of shares outstanding. The company allocated the following amounts of income from continuing operations and net income to unvested stock awards for the purposes of calculating earnings per share (EPS):  

Income from continuing operations for basic and diluted EPS

$        5

$                    4

$                10

$                      8

Net income for basic and diluted EPS

$        7

$                    4

$                11

$                      8

SAIC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions)

July 31,
2010

January 31,
2010

ASSETS

Current assets:

Cash and cash equivalents

$              604

$                  861

Receivables, net

2,032

2,044

Inventory, prepaid expenses and other current assets

320

288

Total current assets

2,956

3,193

Property, plant and equipment, net

382

389

Intangible assets, net

130

106

Goodwill

1,548

1,434

Deferred income taxes

87

103

Other assets

71

70

$           5,174

$               5,295

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued liabilities

$           1,118

$               1,191

Accrued payroll and employee benefits

484

512

Income taxes payable

14

-

Notes payable and long-term debt, current portion

3

3

Total current liabilities

1,619

1,706

Notes payable and long-term debt, net of current portion

1,102

1,103

Other long-term liabilities

173

195

Stockholders' equity:

Common stock, $.0001 par value, 2 billion shares authorized, 372 million and 388 million shares issued and outstanding at July 31, 2010 and January 31, 2010, respectively

-

-

Additional paid-in capital

2,077

2,096

Retained earnings

241

239

Accumulated other comprehensive loss

(38)

(44)

Total stockholders’ equity

2,280

2,291

$           5,174

$               5,295

SAIC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

Three Months Ended

Six Months Ended

July 31

July 31

2010

2009

2010

2009

Cash flows from operations:

Net income

$    189

$                123

$              314

$                  239

Loss (income) from discontinued operations

(31)

2

(31)

3

Adjustments to reconcile net income to net cash provided by operations:

Depreciation and amortization

26

22

51

44

Stock-based compensation

27

26

51

51

Excess tax benefits from stock-based compensation

1

(1)

(13)

(14)

Impairment losses

-

1

-

1

Other items

2

2

2

1

Increase (decrease) in cash and cash equivalents, excluding effects of acquisitions and divestitures, resulting from changes in:

  Receivables

42

54

16

(70)

  Inventory, prepaid expenses and other current assets

1

(29)

(16)

11

  Deferred income taxes

(2)

1

(4)

1

  Other assets

1

3

2

4

  Accounts payable and accrued liabilities

(53)

(49)

(99)

(13)

  Accrued payroll and employee benefits

(47)

(32)

(24)

(8)

  Income taxes payable

(39)

(15)

2

18

  Other long-term liabilities

(6)

1

(2)

4

Total cash flows provided by operations

111

109

249

272

Cash flows from investing activities:

Expenditures for property, plant and equipment

(10)

(16)

(35)

(28)

Acquisitions of businesses, net of cash acquired

-

(9)

(140)

(9)

Net receipts for purchase price adjustments related to prior year acquisitions

-

8

-

8

Other

-

(1)

1

10

Total cash flows used in investing activities

(10)

(18)

(174)

(19)

Cash flows from financing activities:

Payments on notes payable and long-term debt

(1)

(1)

(1)

(16)

Sales of stock and exercises of stock options

9

14

22

34

Repurchases of stock

(154)

(53)

(445)

(276)

Excess tax benefits from stock-based compensation

(1)

1

13

14

Total cash flows used in financing activities

(147)

(39)

(411)

(244)

Increase (decrease) in cash and cash equivalents from continuing operations

(46)

52

(336)

9

Cash flows from discontinued operations:

Cash used in operating activities of discontinued operations

(1)

-

-

(1)

Cash provided by (used in) investing activities of discontinued operations

83

(3)

81

2

Increase (decrease) in cash and cash equivalents from discontinued operations

82

(3)

81

1

Effect of foreign currency exchange rate changes on cash and cash equivalents

-

4

(2)

5

Total increase (decrease) in cash and cash equivalents

36

53

(257)

15

Cash and cash equivalents at beginning of period

568

898

861

936

Cash and cash equivalents at end of period

$    604

$                951

$              604

$                  951

SAIC, INC.

INTERNAL REVENUE GROWTH PERCENTAGE CALCULATIONS (NON-GAAP RECONCILIATION)

(Unaudited, $ in millions)

In this release, SAIC, Inc. refers to internal revenue growth percentage, which is a non-GAAP financial measure that is reconciled to the most directly comparable GAAP financial measure.  The company calculates its internal revenue growth percentage by comparing reported revenue for the current year period to the revenue for the prior year period adjusted to include the actual revenue of acquired businesses for the comparable prior year period before acquisition. This calculation has the effect of adding revenue for the acquired businesses for the comparable prior year period to the company's prior year period reported revenue.

SAIC, Inc. uses internal revenue growth percentage as an indicator of how successful it is at growing its base business and how successful it is at growing the revenues of the businesses that it acquires.  The company believes that the integration of acquired businesses allows current management to leverage business development capabilities, drive internal resource collaboration, utilize access to markets and qualifications, and refine strategies to realize synergies, which benefits both acquired and existing businesses.  As a result, the performance of the combined enterprise post-acquisition is an important measurement.  In addition, as a means of rewarding the successful integration and growth of acquired businesses, and not acquisitions themselves, incentive compensation for executives and the broader employee population is based, in part, on achievement of revenue targets linked to internal revenue growth.

The limitation of this non-GAAP financial measure as compared to the most directly comparable GAAP financial measure is that internal revenue growth percentage is one of two components of the total revenue growth percentage, which is the most directly comparable GAAP financial measure.  The company addresses this limitation by presenting the total revenue growth percentage next to or near disclosures of internal revenue growth percentage.  This financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in conjunction with SAIC, Inc.'s consolidated financial statements prepared in accordance with GAAP. The method that the company uses to calculate internal revenue growth percentage is not necessarily comparable to similarly titled financial measures presented by other companies.

Internal revenue growth percentages for the three and six months ended July 31, 2010 were calculated as follows:

Three Months
Ended
July 31,
2010

Six Months
Ended
July 31,
2010

Government segment:

Prior year period's revenues, as reported

$             2,634

$           5,170

Revenues of acquired businesses for the comparable prior year period

61

132

Prior year period's revenues, as adjusted

$             2,695

$           5,302

Current year period's revenues, as reported

2,704

5,284

Internal revenue growth

$                    9

$              (18)

Internal revenue growth percentage

- %

- %

Commercial segment:

Prior year period's revenues, as reported

$                117

$              231

Revenues of acquired businesses for the comparable prior year period

-

-

Prior year period's revenues, as adjusted

$                117

$              231

Current year period's revenues, as reported

91

198

Internal revenue growth

$                 (26)

$              (33)

Internal revenue growth percentage

(22)%

(14)%

Total:

Prior year period's revenues, as reported

$             2,749

$           5,398

Revenues of acquired businesses for the comparable prior year period

61

132

Prior year period's revenues, as adjusted

$             2,810

$           5,530

Current year period's revenues, as reported

2,794

5,479

Internal revenue growth

$                 (16)

$              (51)

Internal revenue growth percentage

(1)%

(1)%

SAIC, INC.

FISCAL YEAR 2011 GUIDANCE AND YEAR-TO-DATE RESULTS EXCLUDING CHARGES FROM

SCOTTISH POWER CONTRACT EXPIRATION (NON-GAAP RECONCILIATION)

(Unaudited, $ in millions, except per share amounts)

In this release, SAIC, Inc. refers to year-to-date and expectations of operating income margin improvement and growth in diluted earnings per share (EPS) from continuing operations excluding charges from the expiration of the Scottish Power IT Outsourcing Contract, which are non-GAAP financial measures. The company calculates these measures by excluding the year-to-date and expected Scottish Power charges from operating income and diluted EPS from continuing operations, the most directly comparable GAAP financial measures.  Those reconciliations, which are provided below, have the impact of decreasing operating margin improvement and diluted EPS from continuing operations growth.

The company uses these non-GAAP financial measures to provide investors with visibility to how it expects its business to perform excluding the impact of the year-to-date and expected charges arising from the expiration of the Scottish Power IT Outsourcing Contract.  The limitation of these non-GAAP financial measures as compared to the most directly comparable GAAP financial measures is that the company has incurred and expects to incur charges associated with this contract expiration which are not reflected in these non-GAAP financial measures.  The company addresses this limitation by presenting this reconciliation to the most directly comparable GAAP financial measures.  These financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measures and should be read only in connection with the company's consolidated financial statements prepared in accordance with GAAP.  

Reconciliation of Expected Operating Income Margin Improvement for the Year Ending January 31, 2011:

Low End

High End

Expected Operating Income Margin Improvement Excluding Charges from Scottish Power Contract Expiration

20 basis pts.

40 basis pts.

Less:  Expected Charges from Scottish Power Contract Expiration*

(20 basis pts.)

(20 basis pts.)

Expected Operating Income Margin Improvement on a GAAP basis

0 basis pts.

20 basis pts.

Reconciliation of Expected Diluted EPS From Continuing Operations Growth for the Year Ending January 31, 2011:

Low End

High End

Expected Diluted EPS from Continuing Operations Growth Excluding Charges from Scottish Power Contract Expiration

14%

18%

Less:  Expected Charges from Scottish Power Contract Expiration*

(3)%

(3)%

Expected Diluted EPS from Continuing Operations Growth on a GAAP basis

11%

15%

*Expected impact computed utilizing mid-point of estimated pre-tax charge of $20 to $30 million

Reconciliation of Operating Income Margin Improvement -- Year-to-Date Fiscal Year 2011:

Operating Income

Operating Income Margin

Current Year, as reported

$              480

8.8%

 Year-to-Date Charges from Scottish Power Contract Expiration

3

-

Current Year, as adjusted

$              483

8.8%

Prior Year, as Reported

$              425

7.9%

Improvement Excluding Charges from Scottish Power Contract Expiration

90 basis pts.

Reconciliation of Diluted EPS From Continuing Operations Growth -- Year-to-Date Fiscal Year 2011:

Current Year, as adjusted for Year-to-Date Charges from Scottish Power Contract Expiration

$                 0.74

 Current Year, as reported

0.74

Difference

$0.00

Prior Year, as Reported

$                 0.60

Growth Excluding Charges from Scottish Power Contract Expiration

$                 0.14

Growth % Excluding Charges from Scottish Power Contract Expiration

23%