SAIC takes $232 million charge in connection with troubled program

December 6, 2011

McLean-based Science Applications International Corp. said Tuesday that its third-quarter profit was wiped out by $232 million in anticipated losses relating to a contract with New York City that now figures in a criminal investigation.

The U.S. Attorney’s Office for the Southern District of New York has alleged that “a massive and elaborate scheme to defraud the city” corrupted the program, and two former SAIC employees have been charged with receiving millions of dollars in kickbacks.

New York Mayor Michael R. Bloomberg (I) has called on SAIC to reimburse the city for the more than $600 million it spent on the program over an 11-year period.

In October, SAIC said it removed three top executives — Deborah Alderson, president of the company’s defense solutions group; John Lord, her deputy; and Peter Dube, general manager of the enterprise and mission solutions business — and began an internal review of CityTime, an employment timekeeping system that SAIC was under contract to manage.

At the time, the company said there was no evidence that any of the three departing executives were personally involved in the fraud.

On Tuesday, SAIC reported a loss of $89 million (27 cents per share) in the three-month period ended Oct. 31, compared with a profit of $173 million (46 cents per share) in the same period a year earlier. Quarterly revenue stayed roughly flat at $2.8 billion.

A company spokeswoman said in a statement that SAIC “believes that a loss related to the outcome of the CityTime investigations is probable and now estimates that the loss will be at least $232 million” but added that the figure could grow.

The financial hit comes at a tough time for SAIC. The company’s chief executive, Walter P. Havenstein,announced this fall that he will depart next year, and in November, the Pentagon directed SAIC to provide a year of credit monitoring services to as many as 4.9 million patients of military hospitals and clinics after an SAIC employee reported that computer backup tapes had been stolen from his car.

Still, Havenstein said in a call with investors Tuesday that the company saw encouraging results in the quarter, including an increased number of large contract victories and a greater number of awards in strategic growth areas, such as maintaining older military equipment.

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