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SAIC Announces Financial Results for the Fourth Quarter and Fiscal Year 2014

Companies mentioned in this article: SAIC

MCLEAN, Va., April 8, 2014 /PRNewswire/ -- Science Applications International Corporation (NYSE: SAIC), a technical, engineering and enterprise information technology company, today announced financial results for the fourth quarter and fiscal year which ended January 31, 2014. The Company commenced operations on September 27, 2013 following completion of a separation transaction from its former parent.

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"Fiscal year 2014 was a transformational year that provides the foundation for the future," said Tony Moraco, SAIC Chief Executive Officer. "Through deliberate and focused action, we have positioned SAIC to be more competitive in our marketplace as a new $4 billion company."

"This was the first full quarter as a separate company and was largely in line with our expectations," Moraco continued. "It provides SAIC a baseline to measure the progress of SAIC's strategic objectives for business performance aimed at increasing shareholder value."

Fourth Quarter Summary Operating Results

Revenues for the fourth quarter were $941 million ($931 million excluding revenues performed by former parent), compared to $1,155 million during the fourth quarter of the prior year ($1,130 million excluding revenues performed by former parent). Revenues contracted primarily due to the loss of the DISN Global Solutions program, decreased activity on information technology and logistics programs primarily due to in-theater force drawdown and completion of a program to supply technical support to the Army.

Operating income for the quarter was $56 million (6.0 percent of revenues excluding revenues performed by former parent), down from $61 million (5.4 percent of revenues excluding revenues performed by former parent) in the prior year period. The reduction was largely due to lower revenue volume which was only partially offset by lower separation transaction and restructuring expenses in the current quarter relative to the fourth quarter in the previous year.

Net income for the quarter was $33 million compared to $43 million in the prior year period. Net income declined relative to the prior year quarter primarily due to the above-described reduction in operating income as well as interest expense on long-term debt acquired in connection with the separation.

Diluted earnings per share were $0.66 for the fourth quarter. The weighted average diluted shares outstanding during the quarter was 49.7 million.

Fiscal Year 2014 Summary Operating Results

Full year revenues were $4.1 billion ($4.0 billion excluding revenues performed by former parent), compared to $4.8 billion during the prior year ($4.7 billion excluding revenues performed by former parent). Approximately $300 million of the $700 million contraction in revenue from fiscal 2013 to fiscal 2014 was due to the DISN Global Solutions program being transitioned to a successor contractor. Other factors contributing to the revenue contraction included decreased activity on information technology and logistics programs primarily related to in-theater force drawdown, lower funding levels for material and subcontracts on Navy contract vehicles, completion of a program to supply technical support to the Army and delays in U.S. government contract awards due to budget pressures.

Operating income for the fiscal year was $183 million (4.6 percent of revenues excluding revenues performed by former parent), down from $281 million (6.0 percent of revenues excluding revenues performed by former parent) in the prior year. The reduction in operating income for the year was primarily attributable to lower revenue volume and higher separation transaction and restructuring costs.

Net income for the fiscal year was $113 million compared to $182 million in the prior year. Net income declined primarily due to the above-described reduction in operating income as well as interest expense on long-term debt acquired in connection with the separation.

Diluted earnings per share were $2.27 for the year. The weighted average diluted shares outstanding at year end was 49.7 million.

Cash Generation and Capital Deployment

Cash flows provided by operating activities for the fourth quarter was $125 million, which was a $92 million improvement compared to the same period in the previous year. The improvement was largely due to strong customer collections.

Cash flows provided by operating activities for the full year totaled $183 million which was a decrease of $97 million compared to the prior year. The decrease was primarily due to lower net income and a reduction in accrued vacation during fiscal 2014 due to a change in the Company's vacation policy. The change resulted in a onetime payment to employees for previously accrued vacation pay above the revised maximum level.

As of January 31, 2014, the Company had $254 million in cash and cash equivalents and $502 million in long-term debt.

Quarterly Dividend Declared

As previously announced, the Board of Directors has authorized and declared a regular quarterly cash dividend of $0.28 per share payable on April 30, 2014, to stockholders of record on April 15, 2014. The Company intends to continue paying dividends on a quarterly basis, although the declaration of any future dividends will be determined by the Company's Board of Directors each quarter and will depend on earnings, financial condition, capital requirements and other factors.

New Business Awards

Net Bookings for the fourth quarter were approximately $270 million which reflects a book-to-bill ratio of 0.3. Net bookings during fiscal 2014 totaled $3 billion, representing a book-to-bill ratio of 0.7. Notable awards received during the fourth quarter included:

    --  United States Army Communications-Electronics Research, Development and
        Engineering Center (CERDEC): SAIC was awarded a prime position on a
        multiple award, indefinite-delivery/indefinite-quantity contract for
        Technical, Administrative and Operations Support Services (TAOSS). The
        contract is to provide services including, but not limited to, research
        and development, engineering, logistics and business development
        operations support for the US Army CERDEC Space and Terrestrial
        Communications Directorate at Aberdeen Proving Ground, Maryland. The
        contract has a five year period of performance and a total contract
        ceiling value of $497 million available to all awardees.
    --  Naval Air Systems Command: SAIC was awarded a prime contract to provide
        technical and scientific research, development, integration, analysis,
        assessment, and test and evaluation for its Anti-Submarine Warfare (ASW)
        sensor systems by the Avionics Department (AIR-4.5) at the Naval Air
        Systems Command, Naval Air Station Patuxent River. The multiple-award,
        indefinite-delivery/indefinite-quantity contract has a five-year period
        of performance and a total contract ceiling value of approximately $50
        million available to all awardees.

In the first few weeks after the end of fiscal 2014, the company has seen incremental increases in contract awards including:

    --  U.S. Army Aviation and Missile Command (AMCOM): SAIC was awarded a
        follow-on task order to provide professional and engineering support
        services to the U.S. Army Aviation and Missile Research Development and
        Engineering Center Software Engineering Directorate (SED). This single
        award task order has a three-year period of performance and a total
        contract value of more than $836 million. The task order was awarded
        under the AMCOM Expedited Professional and Engineering Support Services
        (EXPRESS) contract vehicle that provides for systems and computer
        resources support. Work will be performed primarily at Redstone Arsenal
        in Huntsville, Alabama.
    --  U.S. Army Human Resources Command (HRC): SAIC was awarded a task order
        to provide the U.S. Army HRC with full lifecycle information technology
        support, including maintenance, enhancement and development support for
        systems, programs, applications and databases vital to managing the
        Army's personnel in peacetime and at war. The single award task order
        has a one-year base period of performance, two one-year options and a
        total contract value of approximately $221 million if all options are
        exercised. Work will be performed primarily in Fort Knox, Kentucky.

The Company's backlog of signed business orders at the end of the year was $6.7 billion. Negotiated backlog does not include any estimate of future task orders expected to be awarded under indefinite-delivery/indefinite-quantity (IDIQ), U.S. General Services Administration (GSA) schedules or other master agreement contract vehicles.

About SAIC

SAIC management will discuss operations and financial results in an earnings conference call beginning at 5 p.m. Eastern on April 8, 2014. A live audio broadcast of the conference call along with a supplemental presentation will be available to the public through links to the Investor Relations section of the SAIC website (http://investors.saic.com). Interested parties may listen to the conference call by dialing +1.877.941.0844 (toll-fee U.S.) or +1.480.629.9835 (International/Local) and entering passcode 4670471.

SAIC is a leading technology integrator providing full life-cycle services and solutions in the technical, engineering, and enterprise information technology markets. SAIC's deep domain knowledge and customer relationships enable the delivery of systems engineering and integration offerings for large, complex government and commercial projects. SAIC's approximately 13,000 employees serve customers in the U.S. federal government, state/local, and global commercial markets, specializing in providing a broad range of higher-end, differentiated technical capabilities. Headquartered in McLean, Va., SAIC has annual revenues of about $4 billion. For more information, visit http://www.saic.com/. For ongoing news, please visit our newsroom.

Forward-Looking Statements

Certain statements in this release contain or are based on "forward-looking" information within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by words such as "expects," "intends," "plans," "anticipates," "believes," "estimates," "guidance," and similar words or phrases. Forward-looking statements in this release include, among others, estimates of future revenues, operating income, earnings, earnings per share, charges, backlog, outstanding shares and cash flows, as well as statements about future dividends, share repurchases and other capital deployment plans. These statements reflect our belief and assumptions as to future events that may not prove to be accurate. Actual performance and results may differ materially from the guidance and other forward-looking statements made in this release depending on a variety of factors, including: developments in the U.S. government defense budget, including budget reductions, implementation of spending cuts (sequestration) or changes in budgetary priorities; delays in the U.S. government budget process or approval to raise the U.S. debt ceiling; delays in the U.S. government contract procurement process or the award of contracts; delays or loss of contracts as result of competitor protests; changes in U.S. government procurement rules, regulations and practices; our compliance with various U.S. government and other government procurement rules and regulations; governmental reviews, audits and investigations of our company; our ability to effectively compete and win contracts with the U.S. government and other customers; our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees; our ability to accurately estimate costs associated with our firm-fixed-price and other contracts; cybersecurity, data security or other security threats, systems failures or other disruptions of our business; resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues; our ability to effectively deploy capital and make investments in our business; our ability to maintain relationships with prime contractors, subcontractors and joint venture partners; our ability to manage performance and other risks related to customer contracts, including complex engineering projects; the adequacy of our insurance programs designed to protect us from significant product or other liability claims; our ability to declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable laws and contractual agreements; risks associated with our recently completed spin-off transaction from our former parent, such as disruption to business operations, unanticipated expenses or a failure to realize the expected benefits of the spin-off; and our ability to execute our business plan and long-term management initiatives effectively and to overcome these and other known and unknown risks that we face. These are only some of the factors that may affect the forward-looking statements contained in this release. For further information concerning risks and uncertainties associated with our business, please refer to the filings we make from time to time with the U.S. Securities and Exchange Commission, including the "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Legal Proceedings" sections of our Annual Report on Form 10-K which may be viewed or obtained through the Investor Relations section of our web site at www.saic.com.

All information in this release is as of April 8, 2014. The Company expressly disclaims any duty to update any forward-looking statement provided in this release to reflect subsequent events, actual results or changes in the Company's expectations. The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by investment analysts or others.

Schedule 1:



                                                                         SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

                                                                         CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

                                                                        (Unaudited, in millions, except per share amounts)



                                                   Three Months Ended                      Fiscal Year Ended
                                                   ------------------                      -----------------

                                                         January                                January                    January         January
                                                                      31,                                    31,                      31,             31,

                                                                     2014                                   2013                     2014            2013
                                                                     ----                                   ----                     ----            ----


    Revenues                                                         $931                                 $1,130                   $4,017          $4,690

    Revenues performed by former
     parent                                                            10                                     25                      104              91
                                                                      ---                                    ---                      ---             ---

                        Total revenues                                941                                  1,155                    4,121           4,781

    Costs and expenses:

                         Cost of
                         revenues                                     851                                  1,041                    3,684           4,282

                         Cost of
                         revenues
                         performed by
                         former parent                                 10                                     25                      104              91
                        ----------

                        Total cost of revenues                        861                                  1,066                    3,788           4,373

                         Selling,
                         general and
                         administrative
                         expenses                                      23                                     15                       92              99

                         Separation
                         transaction
                         and
                         restructuring
                         expenses                                       1                                     13                       58              28
                        ----------

    Operating income                                                   56                                     61                      183             281

    Interest expense                                                    4                                      -                        7               -
                                                                      ---                                    ---                      ---             ---

    Income before income taxes                                         52                                     61                      176             281

    Provision for income taxes                                        (19)                                   (18)                     (63)            (99)

    Net income                                                        $33                                    $43                     $113            $182
                                                                      ===                                    ===                     ====            ====


    Weighted average number of shares outstanding:

                        Basic                                        48.6                                   48.6                     48.6            48.6

                        Diluted                                      49.7                                   49.7                     49.7            49.7


    Earning per share (EPS):

                        Basic                                       $0.68                                  $0.88                    $2.33           $3.74

                        Diluted                                     $0.66                                  $0.87                    $2.27           $3.66

Schedule 2:


                                           SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

                                              CONSOLIDATED AND COMBINED BALANCE SHEETS

                                                      (Unaudited, in millions)



                                                                       January 31,             January 31,

                                                                                    2014                    2013
                                                                                    ----                    ----

    ASSETS

    Current assets:

                             Cash and cash
                             equivalents                                            $254                      $1

                             Receivables,
                             net                                                     621                     691

                             Inventory,
                             prepaid
                             expenses and
                             other current
                             assets                        119                             117
                            ---------

                            Total current assets                                     994                     809

    Property, plant and equipment, net                                                60                      29

    Intangible assets, net                                                             4                       6

    Goodwill                                                                         379                     379

    Deferred income taxes                                                              1                      18

    Other assets                                                                       9                       4

                            Total assets                                          $1,447                  $1,245
                                                                                  ======                  ======



    LIABILITIES AND EQUITY

    Current liabilities:

                             Accounts payable
                             and accrued
                             liabilities                  $387                            $435

                             Accrued payroll
                             and employee
                             benefits                      149                             185

                             Deferred tax
                             liabilities,
                             current                                                  15                      16

                             Long-term debt
                             and capital
                             lease
                             obligations,
                             current portion                13                               2
                            ---------

                             Total current
                             liabilities                                             564                     638

    Long-term debt and capital lease
     obligations, net of current portion                                             489                       1

    Other long-term liabilities                                                       17                      10


    Equity:

    Common stock, $.0001 par value 1 billion
     shares authorized, 49 million                                                     -                       -

    shares issued and outstanding at January 31, 2014.

    No shares were issued or outstanding as of January 31, 2013.

    Additional paid-in capital                                                       349                       -

    Retained earnings                                                                 30                       -

    Accumulated other comprehensive loss                                              (2)                      -

    Former parent company investment                                                   -                     596

                            Total equity                                             377                     596
                                                                                     ---                     ---

                             Total liabilities and
                             equity                                               $1,447                  $1,245
                                                                                  ======                  ======

Schedule 3:


                                                                                    SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

                                                                                  CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

                                                                                               (Unaudited, in millions)




                                                            Three Months Ended January                    Fiscal Year Ended January
                                                                        31                                            31

                                                                                    2014                                       2013  2014  2013
                                                                                    ----                                       ----  ----  ----


    Cash flows from operating activities:

                        Net income                                                   $33                                         43   113   182

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

                        Depreciation and amortization                                  3                                          3    13    13

                        Deferred income taxes                                          5                                         13    18    13

                        Stock-based compensation                                       8                                          5    33    30

                         Net gain on sales and disposals of
                         assets                                                        -                                          -     -     -

                         Increase
                         (decrease) in
                         cash resulting
                         from changes in:

                        Receivables, net                                             101                                         59    70   123

                         Inventory, prepaid expenses and
                         other current assets                                        (25)                                        (2)   (2)  (13)

                        Other assets                                                  (1)                                         -     -     2

                         Accounts payable and accrued
                         liabilities                                                  15                                        (53)  (33)  (82)

                        Income taxes payable                                          (5)                                         -     -     -

                         Accrued payroll and employee
                         benefits                                                    (16)                                       (34)  (36)   11

                        Other long-term liabilities                                    7                                         (1)    7     1
                                                                                     ---                                        ---   ---   ---

    Total cash flows provided by
     operating activities                                                            125                                         33   183   280

    Cash flows from investing activities:

                         Expenditures for
                         property, plant
                         and equipment                                                (6)                                        (1)  (16)   (7)

                         Proceeds from
                         sale of assets                                                -                                          -     -     1
                        --------------

    Total cash flows used in investing
     activities                                                                       (6)                                        (1)  (16)   (6)

    Cash flows from financing activities:

                         Borrowing under
                         term loan
                         facility                                                      -                                          -   500     -

                         Payment of debt
                         issuance costs                                                -                                          -    (5)    -

                         Dividend paid to
                         former Parent                                                 -                                          -  (295)    -

                         Contribution from
                         former Parent                                                 3                                          -    29     -

                         Dividend payments
                         to common
                         stockholders                                                (13)                                         -   (27)    -

                         Issuances of
                         common stock                                                  1                                          -     1     -

                         Repurchases of
                         common stock                                                (13)                                         -   (13)    -

                         Payments on
                         capital leases
                         and notes
                         payable                                                       -                                         (1)   (1)   (4)

                         Net transfers to
                         former Parent                                                 -                                        (30) (103) (270)
                        -----------------

    Total cash flows provided by (used
     in) financing activities                                                        (22)                                       (31)   86  (274)
                                                                                     ---                                        ---   ---  ----

    Total increase in cash and cash
     equivalents                                                                      97                                          1   253     -
                                                                                     ---                                        ---   ---   ---

    Cash and cash equivalents at
     beginning of period                                                             157                                          -     1     1
                                                                                     ---                                        ---   ---   ---

    Cash and cash equivalents at end of
     period                                                                         $254                                          1   254     1
                                                                                    ====                                        ===   ===   ===

Schedule 4:



         SCIENCE APPLICATIONS INTERNATIONAL
                     CORPORATION

                       BACKLOG

              (Unaudited, in millions)


    Backlog represents the estimated amount of
     future revenues to be recognized under
     negotiated contracts as work is performed
     and excludes contract awards which have
     been protested by competitors.  The Company
     segregates its backlog into two categories:
     funded backlog and negotiated unfunded
     backlog. Funded backlog for contracts with
     government agencies primarily represents
     contracts for which funding is appropriated
     less revenues previously recognized on
     these contracts, and does not include the
     unfunded portion of contracts where funding
     is incrementally appropriated or authorized
     on a quarterly or annual basis by the U.S.
     government and other customers, even though
     the contract may call for performance over
     a number of years. Funded backlog for
     contracts with non-government agencies
     represents the estimated value on
     contracts, which may cover multiple future
     years, under which the Company is obligated
     to perform, less revenues previously
     recognized on these contracts. Negotiated
     unfunded backlog represents the estimated
     amounts of revenue to be earned in the
     future from (1) negotiated contracts for
     which funding has not been appropriated or
     otherwise authorized and (2) unexercised
     priced contract options. Negotiated
     unfunded backlog does not include any
     estimate of future potential task orders
     expected to be awarded under indefinite-
     delivery/indefinite-quantity (IDIQ), U.S.
     General Services Administration (GSA)
     Schedule or other master agreement contract
     vehicles.


    The estimated value of backlog as of the
     dates presented was as follows:

                                January 31,         January 31,

                                             2014                2013
                                             ----                ----


    Funded backlog                           $1,639              $1,953

    Negotiated unfunded backlog               5,012               5,811

    Total backlog                          $6,651              $7,764
                                           ======              ======

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