No. 5: IPO catapults SAIC into a new era

Science Applications International Corp.

Top 100 Revenue: $4.4 billion

44,100 Employees

2007 revenue: $8.3 billion*

2007 net earnings: $391 million

2006 revenue: $7.8 billion

2006 net earnings: $927 million

* fiscal year ended Jan. 31

"By communicating with employees, we've been able to realize a lot of growth." Arnold Punaro

Rick Steele

Science Applications International Corp.'s top officials have worked to gingerly manage employee expectations, while balancing the demands of Wall Street and honoring a rich tradition of employee ownership.

San Diego-based SAIC launched its initial public offering in October 2006 and immediately entered the throes of a capital restructuring. This double whammy easily could have shaken many of the company's 44,000 employees, who made SAIC the largest U.S. employee-owned research and engineering company.

To combat employee distraction surrounding the IPO and restructuring, SAIC leadership took quick measures. For instance, company officials established call centers designed to educate employees on the ins and outs of the IPO process and assigned a senior executive to smooth the flow of information to them and outside investors. Mostly, however, SAIC officials encouraged workers to focus on the customer and day-to-day operations instead of fretting the details of the IPO.

The results helped the company grab the No. 5 spot on the Top 100 with $4.4 billion in prime government services revenue.

Shielding employees from Wall Street wrangling while keeping the lines of communication open was critical, said Stuart Davis, SAIC senior vice president and director of investor relations. "A big part of my job is to deflect our dealings with Wall Street from the rest of the company, so our employees can continue to focus on operations," he said.

That philosophy stands in direct contrast with the days of early Internet IPOs. "The big message to our employees was that they were not going to drive up the share price by constantly looking at it," Davis said. "In the dot-com days, a lot of corporate focus was geared toward stock prices, which were often going up every day. Some companies even posted the stock prices in their lobbies, and the people working there would get obsessed with these figures," he said.

SAIC encourages employees to take a longer view of the IPO's implications for their own financial well-being and stick to the job at hand to keep the company successful, said Arnold Punaro, executive vice president of government affairs, communications and support operations at SAIC. "The IPO's impact on business operations and performance has been relatively transparent," he said.

SAIC's fourth-quarter and annual financial results seem to back that up. "We ended the year strongly in all categories," Punaro said. In early April, SAIC reported annual revenues of $8.3 billion, a 7 percent increase compared with the previous year's results. The company's operating income is up 19 percent, and SAIC has booked $2.7 billion for the fourth quarter of fiscal 2007.

Along with the healthy growth figures, Punaro trumpeted new awards the company has landed during the IPO process. "By communicating with employees, we've been able to realize a lot of growth," he said. The company won a $394 million contract from the Air Force for command-and-control-related work and a $95 million NATO contract to provide services surrounding ballistic missile defense capabilities.

Being frank with employees during the process of taking a company public is not always easy. "One of the largest dangers in this whole area is around communication, especially with a company that has generally been very, very open with its employees," Davis said. "One of the greatest ironies in this process is that you have to become much more private as you become public."

One challenge of the IPO was SAIC's need to keep employees from rushing to sell millions of shares of stock from their retirement accounts. The answer was a temporary lock-up on the sale of portions of retirement stocks. Under SAIC terms, employees could begin selling a percentage of stocks 90 days after the IPO, the company is gradually making additional percentages available on a rolling schedule.

Although the message had the potential to spook employees, Kenneth Dahlberg, SAIC chairman and chief executive officer, issued detailed guidance to allay concerns. "It turned out to be a nonevent," Davis said. "People have not been actively trading their retirement accounts."

Company officials said that employees long motivated by the slogan "I own because I care, and I care because I own," have weathered the organizational change. "We made sure that all of our core values stayed in place," Punaro said. "We helped employees avoid any unnecessary concerns by keeping them fully informed."

Profiles of the Top 20 companies in the 2007 Top 100

No. 1: Lockheed Martin's reinvention

No. 2: With SBInet, Boeing IDS takes flight

No. 3: Northrop Grumman rises to new challenges

No. 4: KBR gets down to business

No. 5: IPO catapults SAIC into a new era

No. 6: Raytheon strives for balance

No. 7: General Dynamics in full sprint

No. 8: Fluor's ready in a pinch

No. 9: L-3 leadership stays the course

No. 10 EDS, Hard-learned lesson

No. 11 CSC, Experience that counts

No. 12: Battelle seeks new frontiers

No. 13: Booz Allen, Quality over quantity

No. 14: Bechtel telecom makes a splash

No. 15: For BAE, persistence pays off

No. 16: ITT makes a push into new markets

No. 17: Dell, Talking about evolution

No. 18: Technology and service fuel IBM

No. 19: Verizon caps off a busy year with a big win

No. 20: United Technologies gains altitude

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