SAIC has paid $38M for split so far

March 31, 2013

As McLean-based Science Applications International Corp. prepares to split itself in two, the company is revealing just how much it costs to divide a contracting giant.

Some of the costs are administrative — lawyers and bankers and accountants — while others cover more creative needs, such as the roughly $1 million spent with a branding firm that helped come up with a name for one of the new businesses.

And for SAIC, many of the expenses are short-term ones associated with long-term restructuring measures that are going along with the split, such as trimming staff and facilities.

Here’s a look at the numbers:

Thus far, SAIC has spent $38 million for work related to the split, which it has dubbed Project Gemini, according to a company spokeswoman.

The contractor is dividing into a services business that will retain the SAIC name and an IT company that will be named Leidos. Company officials said in a conference call with investors last week that they have updated the revenue breakdown, and the services business should have fiscal 2013 revenues of about $4.7 billion, while Leidos is expected to have approximately $6.5 billion in revenue. The company had previously said SAIC would have about $4 billion and Leidos $7 billion.

The company is already forecasting spending much more in fiscal 2014 for the split. In the call with investors, SAIC executives said the contractor is anticipating paying about $140 million that year to cover the costs of dividing up the company and restructuring operations.

A large chunk of the expense —$55 million — will cover fees for bankers, lawyers, accountants, and consultants and to cover severance, among other things, said Mark W. Sopp, SAIC’s chief financial officer, during the call.

The contractor also anticipates spending about $65 million to shrink its real estate footprint.

It will cost another $20 million to complete the move of corporate employees who have remained in San Diego — where the company previously was based — to McLean and other offices.

Still, K. Stuart Shea, SAIC’s chief operating officer, said the contractor is taking aggressive steps to lower its costs and “position current SAIC and the two future companies for better cost competitiveness.”

“Although not a cost-cutting exercise in and of itself, Project Gemini has allowed us to look critically at the needs for all overhead and [general and administrative] costs in meeting those company designs,” Shea said during the call.

Shea said the contractor plans to cut about $350 million in annual costs, including $220 million by simplifying its organizational structure and cutting “indirect” staff not tied to specific contracts.

To put that figure in context, the company reported that in the fiscal year ended Jan. 31, it paid $576 million in general, administrative and bid and proposal expenses.

Another $70 million in savings will come from reducing SAIC’s facility footprint by about 30 percent, which would be about 2.8 million square feet of the company’s 9.2 million total square footage.

The contractor also plans to save about $30 million through improving its corporate procurement.

Byron Callan, a director at District-based investment research firm Capital Alpha Partners, said the split is providing an opportunity for SAIC to reconsider the way it has done business.

“With the cost structure they had ... in some of these services [competitions], they were not going to be as competitive,” he said. “These charges and taking costs out — that’s a very clear part of their game plan.”

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