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September 28, 2005
By facsimile to (858) 450-8499 and U.S. Mail
Douglas E. Scott, Esq.
Senior Vice President, General Counsel, and Secretary
SAIC, Inc.
10260 Campus Point Drive
San Diego, CA 92121
Re: SAIC, Inc.
Registration Statement on Form S-4
Filed September 1, 2005
File No. 333-128022
Science Applications International Corporation
Annual Report on Form 10-K for the fiscal year ended January
31,
2005 and
Subsequent Exchange Act Reports
File No. 0-12771
Dear Mr. Scott:
We reviewed the filings and have the comments below.
Where indicated, we think that you should revise the
documents
in response to the comments. If you disagree, we will consider
your
explanation why a comment is inapplicable or a revision is
unnecessary. Be as detailed as necessary in your explanation. To
understand better your disclosure, we may ask you in some comments
to
provide us supplemental information. We may raise additional
comments after reviewing this information.
Our review`s purpose is to assist you in your compliance with
applicable disclosure requirements and to enhance the overall
disclosure in your documents. We look forward to working with you
to
achieve these objectives. We welcome any questions that you may
have
about comments or any other aspect of our review. You may call us
at
the telephone numbers listed at the end of this letter.
S-4
1. If applicable, comments on the S-4 are comments on the
registration statement on Form S-1 that was filed by SAIC, Inc. or
SAIC on September 1, 2005 and the 10-K and subsequent Exchange Act
reports of Science Applications International Corporation and vice
versa.
2. Comments applicable to the annual and interim financial
statements
should be addressed also in future periodic filings.
3. Provide updated financial statements and related disclosures
for
the interim period ended July 31, 2005 as required by Article 3-12
of
Regulation S-X.
4. We note that non-Rule 430A information is omitted throughout
the
S-4. To the extent practicable, complete the information before
you
amend the S-4.
5. We note that you intend to file by amendment the legality and
tax
opinions. Allow us sufficient time to review the opinions before
requesting acceleration of the S-4`s effectiveness.
6. We note that you refer sometimes to third parties in the
registration statement, including the notes to the financial
statements. For example, refer to "an independent appraiser" and
"the appraiser" on page 156 and "The Company`s Venezuelan counsel"
on
page F-43. If you refer to third parties, you need to identify
them
and obtain their consent. Otherwise, you should delete all
references to third parties. See Rule 436 of Regulation C under
the
Securities Act.
Registration Statement`s Facing Page
7. Refer to footnote (2) under the calculation of registration fee
table. You may not register an indeterminate number of shares of
common stock resulting from the class A preferred stock`s
conversion.
Rather, you must register an amount of shares of common stock
based
on a reasonable good faith estimate of the maximum amount needed.
Letter to Stockholders
8. Since the letter to stockholders is also the prospectus`
outside
front cover page, you must limit the letter to one page. See Item
501(b) or Regulation S-K, and revise. For example, the
information
in the third and fourth sentences of the third paragraph and
information in the fifth paragraph are better suited for other
sections of the prospectus.
9. Before discussing the technical mechanics of the merger and
merger
subsidiaries in the second paragraph, state in plain, clear
language
the effect and purpose of the reorganization and how you will
achieve
it. Also revise your notice of the special meeting to comply with
this comment.
Table of Contents, page i
10. Move all information except that required by Item 2 of Form S-
4
in the three paragraphs on page ii so that it follows the summary
and
risk factors sections. See Items 502 and 503(c) of Regulation S-
K.
We note that you did not include the information required by Item
2
of Form S-4.
Questions and Answers, page 1
11. The Q&A and summary sections are very lengthy. Also, you
repeat
information from the Q&A section in the summary section. The Q&A
should not repeat information that appears in the summary, and the
summary should not repeat information in the Q&A. For purposes of
eliminating redundancies and grouping together like information,
view
the Q&A and the summary as one section. For example, discuss
procedural questions such as voting procedures, appraisal
procedures,
transfer restrictions, the terms of the securities, and
information
about the initial public offering or IPO in the Q&A, and place
disclosure of the substantive aspects of the merger in the
summary.
12. Describe in Q2 what your "stock system" and "stock system
imbalance" are. It is unclear why you had to repurchase your
shares.
Please revise.
13. Delete the word "generally" in the answer to Q17 because the
word
"generally" may imply that stockholders cannot rely on the
disclosure. Similarly, delete the word "generally" under
"Material
Federal Income Tax Consequences to Stockholders-The Merger" on
page
19. Also delete the word "general" in the first paragraph under
"Material Federal Income Tax Consequences to Stockholders" on page
53
and the word "generally" in the second paragraph under "The
Special
Dividend" on page 55 for the same reason.
Summary, page 12
14. The information in the summary is very detailed and lengthy
and
provides too much information for summary disclosure. For
example,
the competitive strengths and our services and solutions
subsections
repeat disclosure from the business section. The summary should
provide a brief overview of the most important aspects of SAIC`s
business and the key aspects of the merger. Please revise. For
example, under competitive strengths and our services and
solutions,
consider including just the captions as the disclosure under the
captions is better suited for business section disclosure. See
Item
503 of Regulation S-K.
Summary Consolidated Financial Data, page 24
15. We note that as part of the merger agreement you are
significantly changing your capital structure by converting your
class A common stock and class B common stock into class A
preferred
stock on a 2-for-1 and 40-for-1 basis. Include pro forma earnings
per share or EPS to reflect this change in your capital structure.
Refer to Article 11-01(a)(8) of Regulation S-X for guidance. Your
disclosure should note your method of computing basic and diluted
earnings per share according to EITF D-95 and the impact of EITF
03-6
that is effective as of February 1, 2005.
16. We note that you intend to pay your class A preferred
stockholders a special dividend with the proceeds from your IPO.
Provide footnote disclosure wherever pro forma EPS is presented to
advise readers about the material adverse impact that this will
have
on EPS in the period of the transaction. It appears that a
separate
risk factor on this issue also would be appropriate.
Risk Factors, page 27
17. Avoid generic conclusions in the risk factors` captions or
headings and in the risk factors` discussions such as SAIC`s
results
of operations, business, and financial condition would or could be
materially and adversely affected or would or could be harmed.
For
example, refer to the fourth, seventh, eighth, ninth, twelfth,
thirteenth, fifteenth, sixteenth, eighteenth, nineteenth,
twentieth,
twenty-first, twenty-second, twenty-third, twenty-sixth, twenty-
seventh, twenty-eighth, twenty-ninth, and thirtieth risk factors.
Rather, explain specifically what the risk`s consequences or
effects
are for SAIC`s and its shareholders.
18. Include in each risk factor`s discussion information necessary
to
assess the risk, including its magnitude. For example:
* The fifth risk factor states that future sales of substantial
amounts of SAIC`s new common stock could depress its stock price.
Quantify the number of shares of SAIC`s new common stock that will
be
freely transferable without restriction or further registration.
Also quantify the number of shares of new class A preferred stock
that may be convertible on a one-for-one basis into shares of new
common stock after the restriction periods expire.
* The ninth risk factor states that SAIC may not realize as
revenues
the full amounts reflected in its backlog and that SAIC`s total
consolidated negotiated backlog consists of funded backlog plus
negotiated unfunded backlog. Quantify the amount of backlog
attributable to negotiated backlog and to negotiated unfunded
backlog
during each period presented in the financial statements.
* The tenth risk factor states that SAIC obtains significant
revenue
from indefinite delivery/indefinite quantity or IDIQ and other
contracts subject to a competitive bidding process. Quantify the
amount of revenue attributable to IDIQ and to other contracts such
as
government-wide acquisition contracts and U.S. General Services
Administration Schedule contracts during each period presented in
the
financial statements.
* The eleventh risk factor states that SAIC`s overall profit
margins
on its contracts may decrease if material and subcontract or M&S
revenues continue to grow at a faster rater than labor-related
revenues. Quantify the amount of revenues attributable to M&S
revenues and to labor-related revenues during each period
presented
in the financial statements.
* The twenty-sixth risk factor states that a significant amount of
SAIC`s total revenues is produced by work performed by
subcontractors
and that a significant amount of SAIC`s total revenues is based on
SAIC`s relationships with other contractors as their subcontractor
or
joint venture partner. Quantify the amount of SAIC`s revenues
attributable to its subcontractors and to SAIC`s relationships
with
other contractors as their subcontractor or joint venture partner
during each period presented in the financial statements.
* The thirty-first risk factor states that SAIC`s international
business operations are subject to risks of conducting a business
internationally. Quantify the amount of SAIC`s revenues
attributable
to its international business operations during each period
presented
in the financial statements.
19. We note that throughout your "Risks Relating to Our Business"
disclosures you identify numerous risks that could have a material
impact on your consolidated financial statements. However,
readers
are not advised whether any of these risks have had a material
impact
on your historical operating results. Revise your risk factors to
include a discussion of your historical experience. Examples of
where your disclosure could be revised include:
* The results of historical periodic reviews and investigations by
the U.S. Government on compliance with procurement rules and
regulations and government regulations and practices. See the
eighteenth risk factor.
* The results of past audits by the Defense Contract Audit Agency
or
other regulatory audit of your performance on contracts, cost
structure, compliance with applicable laws, regulations and
standards, and internal control systems and policies, including
whether any material adjustments were required to be made to
contract
costs. See the nineteenth risk factor.
* Your history in terms of recognizing cost overruns or losses on
contracts. Specifically, state if you have recognized material
losses on contracts, individually or in the aggregate, for any of
the
five years ended January 31, 2005 or subsequent interim periods.
See
the twentieth risk factor.
* Your history of compliance with environmental laws and
regulations,
including whether you have recognized any material costs related
to
your compliance with or violation of theses laws and regulations.
See the twenty-fourth risk factor.
* Your history of any subcontractor performance deficiencies or
delays, including whether there was a material impact to your
consolidated financial statements or customer relationships.
* Whether fluctuations in foreign exchange rates ever have had a
material adverse impact on your operating results.
20. Include a risk factor that addresses the risk to investors of
your substantial indebtedness, including a quantification of your
total long term debt. We note the disclosure on page 90.
21. Refer to the fourth risk factor. We note that you have taken
steps to remediate your material weakness. Disclose whether the
weakness has been remediated and whether your auditors have
concurred. Discuss the effects that a material weakness in
internal
controls has on the ability of investors to rely on your financial
statements.
22. The last paragraph of the twenty-seventh risk is the same as
the
last paragraph of the twenty-fifth risk factor. Similarly, the
twenty-eighth risk factor is the same as the twenty-sixth risk
factor. Similarly, the first paragraph of the twenty-ninth risk
factor is the same as the first paragraph of the twenty-seventh
risk
factor. We assume that these redundancies are inadvertent.
Please
revise.
Methods for Voting Proxies, page 42
23. You state that "If you sign and return your proxy
card...without
providing voting directions, your shares will be voted as
recommended
by our board of directors." Revise the form of proxy to state in
bold face type how it is intended to votes the shares represented
by
the proxy if a choice is not specified by the stockholder. See
Rule
14a-4(b)(1) of Regulation 14A. Alternatively, delete this
sentence.
Purposes of the Merger, page 44
24. Describe and discuss in sufficient detail the options reviewed
by
the board of directors and management before determining to pursue
the transactions to effect the merger and the initial public
offering. Also discuss why these other options were not pursued.
We
note the answer to Q4 on page 2.
What You Will Be Entitled to Receive Pursuant to the Merger, page
45
25. Explain how any fractional share interests will be aggregated
and
allocated to a series of class A preferred stock. We note the
disclosure in section 2.1(a)(i)(3) of annex A.
Interests of Our Directors and Executive Officers in the Merger,
page
49
26. If members of the board of directors and executive officers
have
interests in the merger that are different from or in addition to
those of other stockholders` interests, describe and quantify all
their additional interests, including any vested and unvested
stock
options, vested and unvested restricted stock awards, vested and
unvested stock units, or a combination of those components. Also
include this information in the summary section.
Conditions to the Merger, page 52
27. Refer to the last bullet point on page 52. Indicate the
status
of any governmental compliance or approval. See Item 3(i) of Form
S-
4 and instruction 7(b)(5) to Item 14 of Schedule 14A
Material Federal Income Tax Consequences to Stockholders, page 53
28. We understand that you intend to file by amendment the tax
opinion. If SAIC`s counsel elects to use a short form tax
opinion,
the exhibit 8 short form opinion and the proxy
statement/prospectus
both must state clearly that the discussion in this subsection is
the
opinion. It is unacceptable for a short form opinion or the proxy
statement/prospectus to state that the discussion in the
prospectus
is a fair and accurate summary or a fair and accurate discussion
of
the tax consequences.
Results of Operations, page 76
29. Quantify in dollar amounts each component that attributed to
changes in results of operations. We note that for some
components
you describe changes in dollar amounts, for some you describe
percentage changes, and for some you do not disclose the changes
at
all.
Cash Used in Investing Activities, page 88
30. We note your disclosure of 2004 capital expenditures. Discuss
anticipated capital expenditures and how you will fund them.
31. Describe briefly the business acquisitions that you completed
in
2004 and 2005.
Critical Accounting Policies, page 98
32. Expand your critical accounting policies disclosure to
include:
* Revenue recognition. State the amount of your loss contract
accrual recorded as of January 31, 2005 and July 31, 2005,
including
the amount of contract losses recognized in your consolidated
statements of income for the three years ended January 31, 2005
and
the six months ended July 31, 2005.
* Revenue recognition. Include your policy for recognizing pre-
contract costs, as we note they could be material to your
operating
results. See page 35. Also include your policy for recognizing
change orders and claims.
For your Telkom South Africa contingency, update your disclosure
for
any new events that have transpired. Also disclose, if true, that
you do not believe that a material loss is probable for this legal
issue. Your disclosure should make it clear to an investor how you
arrived at such a determination.
For your INTESA joint venture employee suits on unpaid severance
and
pension benefits, disclose the aggregate amount that the employees
are claiming to allow an investor to understand the exposure of
reasonably possible loss. Refer to paragraph 10 of SFAS 5 for
guidance.
Gracian v. SAIC Class Action Lawsuit, page 122
33. Quantify the amount of overtime compensation, penalties,
interest, punitive damages, and attorney fees that the plaintiff
is
seeking.
Overview, page 103
34. Explain what "IDIQ" stands for, and describe briefly the
program.
Management, page 123
35. In the biographical paragraph of Dr. Thomas P. Smith, III on
page
126, describe briefly his business experience during the past five
years. See Item 401(e)(1) of Regulation S-K.
Certain Relationships and Related Party Transactions, page 142
36. Describe in this section`s second paragraph the consulting
services provided by Mr. J.R. Beyster to SAIC.
37. The purpose and terms of the mechanics of the NetworkCar, Inc.
and The Reynolds and Reynolds Company merger are unclear. Clarify
whether The Reynolds and Reynolds Company is related to you or any
directors and officers. Describe the "certain stockholder
constituencies," and disclose who the other parties were who
received
the reallocated consideration, including whether they included
directors or officers. Clarify why the consideration was
necessary
to receive the stockholder constituencies` consent. Describe and
quantify the "certain capital contributions," to whom they were
made,
and why they were made.
Additional Preferred Stock, page 150
38. Indicate whether SAIC`s board of directors has any intent to
issue shares of preferred shares.
Stock Price Formula, page 156
39. Explain briefly how "5.66" was determined as a component of
the
equation and the reason for its inclusion in the formula.
Consolidated Balance Sheets, page F-7
40. We note that you have repurchased common stock from your
employees on a regular basis. However, it does not appear that
you
have presented the repurchased shares as treasury stock.
Furthermore, we did not note any disclosure stating that upon
repurchase of common stock by SAIC the common stock is retired.
Revise or confirm to us that the stock is retired when
repurchased.
Note 2. Business Segment Information, page F-18
41. We note in the "Message to Stockholders" in your fiscal year
2005
annual report that you have included a discussion of the five
operating groups comprising your government segment. In this
discussion each of these five operating groups, subsequently
reorganized into six operating groups, has a separate group
president
and materially disparate growth rates. It is unclear whether the
aggregated segments still have the similar economic
characteristics
that presumably existed in prior years. Provide us copies of all
the
different types of reports reviewed by your CODM on a regular
basis,
for example, daily, weekly, monthly, quarterly, annually. See the
guidance in paragraph 10(b) of SFAS 131.
Undertakings, page II-3
42. Include in the undertakings the "Provided, however" paragraph
specified by Item 512(a)(1) of Regulation S-K.
Form of Proxy
43. The form of proxy filed on the EDGAR system is illegible. See
Rule 420 of Regulation C under the Securities Act, and revise.
10-K
Evaluation of Disclosure Controls and Procedures, page 51
44. We note the disclosure that Messrs. Kenneth C. Dahlberg and
Thomas E. Darcy concluded that your disclosure controls and
procedures were effective. Revise in future filings to clarify,
if
true, that your officers concluded that your disclosure controls
and
procedures are effective also to ensure that information required
to
be disclosed in the reports that you file or submit under the
Exchange Act is accumulated and communicated to your management,
including your chief executive officer and chief financial
officer,
to allow timely decisions about required disclosure. See Rule
13a-
15(e) under the Exchange Act.
Exhibit 21
45. Include in future filings the state or other jurisdiction of
incorporation or organization of each listed subsidiary. See Item
601(b)(21)(i) of Regulation S-K.
Closing
File an amendment to the S-4 in response to the comments. To
expedite our review, SAIC may wish to provide us three marked
courtesy copies of the amendment. Include with the filing any
supplemental information requested and a cover letter tagged as
correspondence that keys the responses to the comments. If SAIC
thinks that compliance with any of the comments is inappropriate,
provide the basis in the letter. We may have additional comments
after review of the amendment, the responses to the comments, and
any
supplemental information.
We urge all persons responsible for the accuracy and adequacy
of
the disclosure in the registration statement reviewed by us to
ensure
that they have provided all information investors require for an
informed decision. Since SAIC, Science Applications International
Corporation, and their management are in possession of all facts
relating to the disclosure in the registration statement, they are
responsible for the adequacy and accuracy of the disclosures that
they have made.
If SAIC requests acceleration of the registration
statement`s
effectiveness, SAIC should furnish a letter at the time of the
request, acknowledging that:
* Should the Commission or the staff acting by delegated authority
declare the registration statement effective, it does not
foreclose
the Commission from taking any action on the filing.
* The action of the Commission or the staff acting by delegated
authority in declaring the registration statement effective does
not
relieve SAIC and Science Applications International Corporation
from
their full responsibility for the adequacy and accuracy of the
registration statement`s disclosures.
* SAIC and Science Applications International Corporation may not
assert our comments and the declaration of the registration
statement`s effectiveness as a defense in any proceedings
initiated
by the Commission or any person under the United States` federal
securities laws.
The Commission`s Division of Enforcement has access to all
information that SAIC and Science Applications International
Corporation provide us in our review of the registration statement
or
in response to our comments on the registration statement.
We will consider a written request for acceleration of the
registration statement`s effectiveness under Rule 461 of
Regulation C
under the Securities Act as confirmation that those requesting
acceleration are aware of their responsibilities under the
Securities
Act and the Exchange Act as they relate to the proposed public
offering of the securities specified in the registration
statement.
We will act on the request and by delegated authority grant
acceleration of the registration statement`s effectiveness.
You may direct questions on accounting comments to Tracey L.
Houser, Staff Accountant, at (202) 551-3736 or Alfred P. Pavot,
Jr.,
Staff Accountant, at (202) 551-3738. You
may direct questions on other comments and disclosure issues to
Edward M. Kelly, Senior Counsel, at (202) 551-3728 or me at (202)
551-3767.
Very truly yours,
Jennifer R. Hardy
Legal
Branch Chief
cc: Neal H. Brockmeyer, Esq.
Jeffrey C. Thacker, Esq.
Sarah A. Solomon, Esq.
Heller Ehrman LLP
4350 La Jolla Village Drive
San Diego, CA 92122
Douglas E. Scott, Esq.
September 28, 2005
Page 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE