CityTime scandal hits SAIC's bottom line

Quarter, fiscal year numbers head south, but company initiates dividend in sign of confidence.

Science Applications International acknowledged Tuesday in words and numbers that its settlement of the CityTime contracting scandal cost $540 million and took a toll on the company’s fourth-quarter and fiscal 2012 numbers.

SAIC’s fourth quarter revenues totaled $2.49 billion. Full fiscal year revenues were $10.59 billion.

Revenues excluding the CityTime loss provision were $2.85 billion for the fourth quarter, reflecting 3 percent internal revenue growth, and $11 billion for the fiscal year.

“As a result of the previously announced CityTime settlement, the Company recorded an additional $308 million loss provision during the fourth quarter of fiscal 2012. Estimates made in the third quarter ended October 31, 2011, were adjusted during the fourth quarter to reflect the final settlement,” according to the earnings statement, which was released just after the stock market closing on March 20.

SAIC also is starting a quarterly dividend of 12 cents a share. The first payment will be April 30, for stockholders of record on April 15.

"Our decision to initiate a quarterly dividend reflects our confidence in SAIC's financial strength and our commitment to deploying capital to maximize shareholder value for the long-term," said CEO John Jumper.

Fourth quarter revenues were $2.49 billion, reduced by $358 million; selling, general and administrative expenses were reduced by $50 million to reflect the final settlement for the fiscal year ended January 31, the announcement said.

For the full fiscal year, the CityTime loss provision totaled $540 million, which was reflected as a $410 million reduction in revenue and a $130 million charge to selling, general and administrative expenses.

"With the CityTime settlement behind us, our full attention is now focused on growing the business,” Jumper said in the statement.

“SAIC's strategic advantage is our ability to rapidly develop and deploy technical solutions, and we are focused on leveraging those innovative solutions across and beyond our customer base," he said. "We plan to directly contribute to our strategic growth through leveraging these differentiating capabilities into adjacent markets by ensuring we have sufficient credibility, mass, and momentum in these areas, including health IT and energy."

"With our management team in place, a strong balance sheet, and capabilities well established and aligned with the more attractive areas of the markets we serve, SAIC is well-positioned to be a leader in the marketplace," Jumper added.

A breakdown by industry sector reported:

Intelligence and Cybersecurity Solutions operating income for the quarter was 7.3 percent of revenue, down from 9.2 percent in the fourth quarter of fiscal 2011. This was due to particularly strong program performance in the prior year quarter and an increase in internal research and development spending, SAIC said. Intelligence and Cybersecurity Solutions operating income for the fiscal year was 7.8 percent of revenue, down from 8.4 percent in fiscal 2011. This was due to the impairment of certain intangible assets, increased research and development spending, and increased bid and proposal costs, partially offset by increased sales of higher margin proprietary products.

Defense Solutions revenues for the quarter was $852 million. Operating loss for the quarter was $216 million (-25.4 percent of revenue). Defense Solutions revenues for the fiscal year were $4.19 billion. Operating loss was $171 million (-4.1 percent of revenue). The CityTime loss provision was recorded within the Defense Solutions segment.

Defense Solutions revenues excluding the revenue portion of the loss provision were $1.21 billion, and increased 3 percent, substantially all of which was attributable to internal growth, from the fourth quarter of fiscal 2011.

This growth was attributable to increased activity on systems integration and logistics programs for tactical and mine resistant ambush protected vehicles; the ramp-up of a program to operate the network IT infrastructure for the State Department; and increased activity on a systems and software maintenance upgrade program for the Army, SAIC said.

These increases were partially offset by the termination of the Army Brigade Combat Team Modernization contract, the June 2011 completion and delivery of the CityTime system, and reductions in various analytic studies and policy analysis operations.

Health, Energy and Civil Solutions revenues for the quarter increased 10 percent from the fourth quarter of fiscal 2011 and 2 percent from fiscal year 2011.

The company's net business bookings totaled $2.1 billion in the fourth quarter and $11.8 billion for the fiscal year, representing a book-to-bill ratio of 0.7 and 1.1 for the fourth quarter and fiscal year, respectively.

Notable awards received during the quarter include:

  • U.S. Patent and Trademark Office (USPTO) Automated Information Systems Support. SAIC received a multiple award IDIQ contract to provide software development integration and testing services in support of USPTO's Automated Information Systems. The five-year contract has a ceiling value of $525 million for all awardees.
  • Centers for Medicare & Medicaid Services Identity Proofing Support. Under a five-year, $78 million contract, the company will deliver an integrated enterprise remote identity proofing and multi-factor authentication cloud services solution designed to securely enable more than 35 million U.S. citizens access to the State and Federal Health Insurance Exchange.
  • Joint Improvised Explosive Device Defeat Organization Support. SAIC received a multiple award IDIQ contract from the General Services Administration Federal Systems Integration and Management Center. The company will provide analysis, combat planning and training, information technology sustainment and operations support for the Joint Improvised Explosive Device Defeat Organization Counter-IED Operations/Intelligence Integration Center. The five-year contract has a ceiling value of $900 million for all awardees.

SAIC, of McLean, Va., ranks No. 6 on Washington Technology’s 2011 Top 100 list of the largest federal government contractors.

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