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SAIC, Inc. (SAI)

F3Q10 Earnings Call

December 8, 2008 5:00 pm ET

Executives

Laura Luke – Vice President Media Relations

Walter P. Havenstein – Chief Executive Officer & Director

Mark W. Sopp – Chief Financial Officer & Executive Vice President

Analysts

Jason A. Kupferberg – UBS Securities, LLC.

Robert Spingarn – Credit Suisse

Joseph B. Nadol, III – JPMorgan

Cai von Rumohr – Cowen & Company, LLC

Joseph A. Vafi – Jefferies & Company, Inc.

William R. Loomis – Stifel Nicolaus & Company, Inc.

Jeff Houston – William Blair & Company

Presentation

Operator

Welcome to the third quarter fiscal year 2010 earnings conference call. At this time all participants are in listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call Ms. Laura Luke, Vice President Media Relations.

Laura Luke

Here on today’s call are Walt Havenstein, our CEO; Mark Sopp, our CFO; and other members of our team. During this call we will make forward-looking statements to assist you in understanding the company and our expectations about its future financial and operating performance. These statements are subject to a number of risks that could cause actual events to differ materially and I refer you to our SEC filings for a discussion of these risks.

In addition, the statements may represent our views as of today. We anticipate that subsequent events and developments will cause our views to change. We may elect to update the forward-looking statements at some point in the future but we specifically disclaim any obligation to do so. With that, I will turn the call over to Walt.

Walter P. Havenstein

I am glad to be joining you today in my first earnings call as SAIC’s new Chief Executive Officer. I’m delighted to have been given the opportunity to lead this exciting company and look forward to discuss on third quarter results in the current business environment. You can see form our press release that we turned in a solid performance this quarter including an upturn in bookings and contract vehicle wins to provide for growth capacity going forward. We are on a steady course and accomplishing our objectives.

Mark will provide color on the financial details in a few minutes after I describe the market dynamics and our key business drivers. Federal spending is SAIC’s most important market driver, therefore we pay close attention to the federal government’s fiscal year ’10 budget which covers the last quarter of our FY ’10 and the first three quarters of next year. Spending consists of 12 separate appropriation bills and supplemental. Five of these bills have been enacted leaving seven bills in the legislative process and the affected agencies are operating under a continuing resolution that is set to expire on December 18th.

The defense appropriation bill is in conference and most observers expect a free standing defense bill before the Christmas recess. The spending levels in all of the bills represent a modest increase in overall discretionary spending over the prior fiscal year in the range of 4% to 6%. Delays in passing the remaining spend and bills have resulted from extended debates on domestic programs particularly healthcare. As work on the remaining bills continues and the healthcare debate progresses, it is possible that some of the remaining appropriation bills will become part of a mini omnibus resolution that extends current year funding levels.

We do not believe an omnibus covering the unenacted bills will have a positive or negative impact on SAIC. There is however, increased concern about deficit spending which will place pressure on FY ’11 discretionary spending, the largest part of which is defense spending. Consequently, most believe the future direction of defense spending growth will be flat to slightly negative. Even if the defense budget receives a modest increase over inflation for FY ’11 we expect most of that increase will cover must pay personnel care and O&M bills.

The intelligence community marketplace has softened this year as a result of delays in planned procurement actions and numerous contract award protests. Over $2 billion in SAIC’s business opportunity pipeline that was initially to be decided in calendar year 2009 has since slipped in to calendar year 2010. In most cases the intelligence community has compensated for program delays by extending current contracts for up to one year.

In cases where SAIC was the incumbent, we maintained our position. Where SAIC sought to replace an incumbent however or to enter a newly emerging intelligence market segment, our plans have often been delayed. Nevertheless we are actively pursuing several areas of high growth in the intelligence market including the national and homeland security components of the cyber market and manned and unmanned air born intelligence, surveillance and reconnaissance systems that support the forces in Iraq and Afghanistan.

The next most important market driver for SAIC is the overall government contracting environment which can be characterized as increased oversight with an anti contractor undercurrent. We are seeing government delays in releasing new definitions and rules for federal acquisitions, stricter limits on contractor interactions with government officials, new provisions for organizational conflict of interest or OCI and an expansion of actual planned government insourcing including growth in the government acquisition work force. The focus on the government’s contracting practices aims to reduce high risk contracts and save $40 billion from overall contracted spending levels.

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