No. 3: SAIC prepares for public debut

Officials predict more growth for firm when IPO comes about later this year

Science Applications international Corp.

Prime IT contracting revenue: $3.3 billion

Location: San Diego

Leader: Ken Dahlberg, chairman and CEO

Employees: 43,000


2006 revenue: $7.8 billion

2006 net earnings: $927 million

2005 revenue: $7.2 billion

2005 net earnings: $409 million

Fiscal 2006 ended Jan. 31.

After a strong 2005, SAIC Chairman and CEO Ken Dahlberg has the company holding steady at the No. 3 spot on the Washington Technology Top 100 list.

Rick Steele

Science Applications International Corp. began a seismic shift in 2005 when it moved from its status as an employee-owned company to a publicly traded one.

When the initial public offering finally hits the streets, an event expected to occur this fall, it will have a huge impact on the company's federal business, said Herb Strauss, a research analyst for Gartner Inc. Whether that impact will be positive or negative will depend on how well the company's leaders handle the transition, he said.

"They have to do a lot of things right," Strauss said. "An IPO is a difficult thing."

SAIC officials, now in a quiet period and thus circumspect in their statements, have estimated that the IPO, the largest for a defense contractor in several years, will raise $1.7 billion in cash that will fund organic growth and strategic acquisitions.

The intangible benefit that comes from being a public company is the visibility it will give SAIC, Strauss said.

"I think they will end up stronger in the U.S. government marketplace," he said. But also, he said, the financial and operational transparency that comes with being a public company could afford SAIC greater foreign government opportunities as well.

Under its new business model, SAIC will have to operate differently internally and set corporatewide methodologies. The company has a reputation for allowing acquisitions to continue to operate autonomously, but now "that's really going to be in their [past]," Strauss said. "They have to integrate and perform like a single company."

SAIC did much of the internal integration work in 2005, reorganizing its business groups and putting a strong leader in charge of each.

"That's pretty painful stuff, but they've been doing it in a very disciplined, effective way, as you would expect a high-achieving company such as SAIC to do," Strauss said.

When SAIC announced the IPO, officials expected it would occur in early 2006. But the company decided that continued inquiry into its performance on its 2004 Athens Summer Olympics contract could be a concern for potential investors, so it held back. SAIC had won a contract from the Greek government to provide components of the security infrastructure.

"Given our strong financial position, we have the luxury of deciding the most appropriate time to proceed with an IPO," SAIC Chairman and CEO Ken Dahlberg wrote in a Dec. 16, 2005, memo to employees and stockholders.

SAIC is coming off a strong year in 2005; its federal business is holding it steady at No. 3 on the Top 100 list, with $3.3 billion in prime contracting revenue.

The company captured several strategically significant contracts from its defense customers in 2005, including an opportunity to provide lifecycle software support for 35 aerospace systems through the Army Materiel Command Software Engineering Directorate, said Arnold Punaro, executive vice president and general manager of Washington Operations for SAIC, in response to e-mailed questions.

The contract "will position us well for the expansion of support to the Army Materiel Command as it moves to Huntsville, Ala., which is also an SAIC business hub," Punaro wrote.

SAIC also won an award to support the Air Force Electronic Systems Center at Hanscom Air Force Base, Mass.

The company will design, develop, integrate, test and deliver joint mission planning capabilities and converge multiple mission planning systems into a common environment.

"Through this contract, we'll be the non-platform-centric systems integrator for major Defense Department command and control systems," Punaro said.

The company spent 2005 "on the leading edge of the important field of weather forecasting and warning," he said. SAIC provided support for the National Data Buoy Center and the National Oceanic and Atmospheric Administration's Marine Observation Network, and Deep Ocean Assessment and Reporting of Tsunami Systems at NASA's Stennis Space Center in Mississippi near the Gulf Coast.

SAIC was especially proud of its employees on those contracts in the aftermath of Hurricane Katrina, Punaro said. Faced with the possibility of losing their homes, "they still came in to do their jobs and get the NBDC systems up and running in record time."

In 2005, SAIC also made a string of strategic acquisitions, including Geo-Centers Inc., an engineering and professional services company that provides research and development for chemical and biological detection, life-science research and other services for the Homeland Security and Defense departments and first responders. The company will help SAIC go after new chemical, biological, radiological, nuclear and explosives projects, Punaro said.

SAIC in 2005 furthered its already strong presence in that market when it won a $98 million contract to offer chemical and biological testing and evaluation expertise to Air Force Operational Test and Evaluation Center personnel at Kirtland Air Force Base in New Mexico.

Other key acquisitions in 2005 were Imaps LLC, which offers geographic information systems and marine navigation, aviation flight planning and navigation software to government and commercial customers, and IT solutions provider Object Sciences Corp.

Both acquisitions will improve SAIC's ability to support the national security and intelligence communities, Punaro said.

Additional 2006 Top 100 Profiles
  • No. 1: 12 times the fun for Lockheed

  • No. 2: Northrop takes aim on health IT

  • No. 3: SAIC prepares for public debut

  • No. 4: Revving the acquisition engine

  • No. 5: CSC holds a lure for a buyer

  • No. 6: Raytheon works the system

  • No. 7: L-3 cuts bigger slice of govt pie

  • No. 8: For EDS, steady as she goes

  • No. 9: Booz Allen adapts to stay on top

  • No. 10: Dell solutions get superpowered

  • No. 11: BAE keeps acquisition fires burning

  • No. 12: Despite sale, Anteon's vision lives on

  • No. 13: Intelligence work fuels CACI's growth

  • No. 14: Verizon-MCI combination packs a punch

  • No. 15: Restructured IDS lets Boeing help clients

  • No. 16: ITT Industries aims for the sweet spot

  • No. 17: IBM Corp. steps up as a subcontractor

  • No. 18: Sprint Nextel goes for convergence

  • No. 19: For SRA, the profit is in its people

  • No. 20: It's always mission possible for Unisys

  • Overview: The Billion-Dollar Club

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