Filing Compare · Leidos, Inc.

WithTable a substantial portion of our business derived from U.S. Government contracts, we have been in discussions with our U.S. Government customers regarding the CityTime matter, including the deferred prosecution agreement (DPA) and resolution of the matter with the U.S. Attorney’s Office for the Southern District of New York and the City of New York. While we do not expect to be terminated on existing U.S. Government contracts or precluded from bidding on new U.S. Government contracts, we are working to resolve these matters with these government customers as quickly as possible, but no assurances can be given as to the timing or outcome of these discussions. If our contracts are terminated or we are precluded from bidding on new U.S. Government contracts, our financial position, results of operations and cash flows would be materially and adversely affected. In addition, our compliance with the terms and conditions of the DPA, including the appointment of an independent monitor, will require significant resources and management involvement. If we fail to comply with any terms or conditions of the DPA, including ongoing legal and regulatory compliance obligations, the U.S. Attorney’s Office may extend the term of the DPA or independent monitor or we could face criminal prosecution, additional damages and penalties. Publicity about the CityTime investigations and the terms of the settlement may also damage our reputation, which could make it more difficult to compete effectively and may adversely affect our future revenues and growth prospects. Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, ~~2012~~2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


Commission File Number	Exact Name of Registrant as Specified in its Charter, Address of Principal Executive Offices and Telephone Number	State or jurisdiction of Incorporation	I.R.S. Employer Identification No.
001-33072	SAIC, Inc.	Delaware	20-3562868
	1710 SAIC Drive, McLean, Virginia 22102
	(703) 676-4300
000-12771	Science Applications International Corporation	Delaware	95-3630868
	1710 SAIC Drive, McLean, Virginia 22102
	(703) 676-4300

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
SAIC, Inc. Common Stock, Par Value $.0001 Per Share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


SAIC, Inc.	Yes x	No ¨
Science Applications International Corporation	Yes x	No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


SAIC, Inc.	Yes ¨	No x
Science Applications International Corporation	Yes ¨	No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


SAIC, Inc.	Yes x	No ¨
Science Applications International Corporation	Yes x	No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate ~~Web site~~website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).


SAIC, Inc.	Yes x	No ¨
Science Applications International Corporation	Yes x	No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

SAIC, Inc.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Science Applications

International Corporation

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).


SAIC, Inc.	Yes ¨	No x
Science Applications International Corporation	Yes ¨	No x

As of July 2931, ~~2011~~2012, the aggregate market value of SAIC, Inc. common stock (based upon the closing price of the stock on the New York Stock Exchange) held by non-affiliates of the registrant was $43,~~485~~314,~~593~~483,~~895.~~629

The number of shares issued and outstanding of each ~~issuer~~ registrant’s classes of common stock as of March 98, ~~2012~~2013 was as follows:

SAIC, Inc.		341,~~095~~917,~~644~~569 shares of common stock ($.0001 par value per share)
Science Applications International Corporation		5,000 shares of common stock ($.01 par value per share) held by SAIC, Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of SAIC, Inc.’s definitive Proxy Statement for the ~~2012~~2013 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K.

Explanatory Note

This Annual Report on Form 10-K is a combined report being filed by SAIC, Inc. (“SAIC”) and Science Applications International Corporation (“Science Applications”). SAIC is a holding company and Science Applications is a direct, 100%-owned subsidiary of SAIC. Each of SAIC and Science Applications is filing on its own behalf all of the information contained in this report that relates to such company. Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined in this report. Where information or an explanation is not substantially the same for each company, separate information and explanation has been provided. In addition, separate consolidated financial statements for each company, along with combined notes to the consolidated financial statements, are included in this report. Unless indicated otherwise, references in this report to the “Company”, “we”, “us” and “our” refer collectively to SAIC, Science Applications and its consolidated subsidiaries.

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

FORM 10-K

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business		1
Item 1A.	Risk Factors		8
Item 1B.	Unresolved Staff Comments		1921
Item 2.	Properties		1921
Item 3.	Legal Proceedings		1922
Item 4.	Mine Safety Disclosures		2022
Executive and Other Key Officers of the Registrant			2123
Part II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		2326
Item 6.	Selected Financial Data		2528
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2629
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		4144
Item 8.	Financial Statements and Supplementary Data		4145
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		4245
Item 9A.	Controls and Procedures		4245
Item 9B.	Other Information		4649
Part III
Item 10.	Directors, Executive Officers and Corporate Governance		4750
Item 11.	Executive Compensation		4750
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		4750
Item 13.	Certain Relationships and Related Transactions, and Director Independence		4851
Item 14.	Principal Accounting Fees and Services		4851
Part IV
Item 15.	Exhibits, Financial Statement Schedules		4952
Signatures			5256
Index to Consolidated Financial Statements			F-1

PART I

Item 1. Business

The Company

SAIC is a holding company. Its principal operating company, Science Applications, was formed in 1969. In October 2006, in connection with SAIC becoming a publicly-traded company, Science Applications completed a ~~merger (~~reorganization merger) in which it became a 100%-owned subsidiary of SAIC, after which SAIC completed an initial public offering of its common stock.

We use the terms “Company,” “we,” “us,” and “our” to refer to SAIC, Science Applications and its consolidated subsidiaries. Unless otherwise noted, references to years are for fiscal years ended January 31. For example, we refer to the fiscal year ended January 31, 2013 ~~2012~~ as “fiscal ~~2012~~2013”.

We are a provider of scientific, engineering, systems integration and technical services and solutions in the areas of defense, health, energy, infrastructure, intelligence, surveillance, reconnaissance and cybersecurity to agencies of the U.S. Department of Defense (DoD), the intelligence community, the U.S. Department of Homeland Security (DHS), and other U.S. Government civil agencies, state and local government agencies, foreign governments and customers in select commercial markets. Our business is focused on using deep domain knowledge to solve ~~issues~~problems of vital importance to the nation and the world , in the areas of national security, energy and the environment, ~~health~~critical infrastructure and ~~cybersecurity~~health. We are focusing our investments in our strategic growth areas including: intelligence, surveillance and reconnaissance; cybersecurity; logistics, readiness and sustainment; energy and environment; and health information technology. In each of the last three fiscal years, we generated over 9085% of our total revenues from contracts with the U.S. Government, either as a prime contractor or as a subcontractor to other contractors engaged in work for the U.S. Government. For additional discussion and analysis related to recent business developments, see “Business Environment and Trends” in Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

In August 2012, we announced that our board of directors authorized management to pursue a plan to separate into two independent, publicly traded companies: (i) a company focused on technical, engineering and enterprise information technology services; and (ii) a company focused on delivering science and technology solutions primarily in the areas of national security, engineering and health. The proposed separation is intended to take the form of a tax-free spin-off of the technical, engineering and enterprise information technology services business. The separation transaction is expected to occur in the latter half of calendar year 2013, subject to final approval of the board of directors and certain other customary conditions, including receipt of an opinion from tax counsel and a ruling from the Internal Revenue Service (IRS) as to the tax free nature of the transaction. Management is continuing to develop detailed plans on capital structure, management, governance and other significant matters. Although we expect that the separation of our businesses will be completed, there can be no assurance that a separation will ultimately occur. Upon completion of the separation transaction, the operating results of the separated business will be included in discontinued operations. See “Item 1A—Risk Factors” contained in this Annual Report on Form 10-K for certain risk factors relating to the proposed separation transaction.

For additional discussion and analysis related to recent business developments, see “Business Environment and Trends” in Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

Reportable Segments

Our business is aligned into four reportable segments: Defense Solutions; Health, Energy and Civil Solutions; Intelligence and Cybersecurity Solutions; and Corporate and Other. While each reportable segment is organized around the markets served and the nature of the products and services provided to customers in those markets as described in the segment descriptions below, we provide a wide array of scientific, engineering, systems integration and technical services and solutions across these reportable segments, but which are performed specifically to meet the needs of the market and customers served in a particular segment. These services and solutions include:

•

Systems Engineering and Integration. We provide systems engineering and implementation services and solutions to help our customers design and integrate complex network processes and infrastructure. These services and solutions include designing, installing, testing, repairing, maintaining and upgrading systems and processes.

•

Software Development. We provide software development services and solutions to help our customers maximize value by extending and renovating critical systems through software capabilities. These services include automating code generation, managing computer resources, and merging and evaluating large amounts of data.

•

Cybersecurity. We provide services and solutions to help our customers prepare for, protect against, and respond to a wide array of cybersecurity threats. These services and solutions include designing comprehensive cyber-risk management programs to identify and neutralize cyber attacks, integrating and managing information security services to protect customers’ mission-critical data, identifying and advising in connection with the selection of disaster recovery plans and performing tests to certify that information technology (IT) systems operate in accordance with design requirements.

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•

Secure Information Sharing and Collaboration. We provide services and solutions to help our customers share information and resources, including designing and developing information systems that access, process and analyze vast amounts of data from various sources to facilitate timely information sharing, collaboration and decision making.

•

Communication Systems and Infrastructure. We provide services and solutions to help our customers design and implement state-of-the-art communication systems. These services and solutions include designing, installing, testing, repairing and maintaining voice, data and video communication systems and infrastructures.

•

Research and Development. We conduct leading-edge research and development of new technologies with applications in areas such as national security, intelligence and life sciences.

•

Securing Critical Infrastructure. We provide customers with services and solutions to protect critical infrastructure from acts of terrorism and natural disasters as well as from threats due to error, maliciousness, wear and tear, planning oversights and previously unforeseen vulnerabilities. These services and solutions include risk management (vulnerability assessments and threat identification), training exercises and simulations, awareness programs, physical security, protection and detection systems and critical infrastructure continuity and contingency planning as well as casualty and damage assessment tools and disaster recovery services.

SAIC, Inc. Annual Report 1

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•

Modeling and Simulation. We provide applied research and technology and modeling and simulation services and solutions to the U.S. military, space and intelligence communities, including support related to mission preparation, launch and execution.

•

Enterprise Information Solutions. We provide a comprehensive set of IT service offerings including enterprise information technology optimization, business intelligence, enterprise resource planning maintenance and staff augmentation services.

In preparation for the proposed separation transaction which is expected to occur in the latter half of calendar year 2013, effective February 1, 2013, we transferred certain business operations primarily focused on providing enterprise information technology services to federal civilian agencies of the U.S. Government from the Health, Engineering, and Civil Solutions segment to the Defense Solutions segment. We also transferred certain business operations primarily focused on providing command, control, communications, and computer solutions to the DoD from the Defense Solutions segment to the Intelligence and Cybersecurity Solutions segment. As a result, our operating segments for fiscal 2014 will be reflective of this new business alignment, and one of our operating segments will represent the entirety of the technical, engineering and enterprise information services business that will be included in the separation transaction.

Defense Solutions

Defense Solutions provides systems engineering and specialized technical services and solutions in support of command and control, communications, modeling and simulation, logistics, readiness and sustainment and network operations to a broad customer base within the defense industry. Defense Solutions helps design and implement advanced, networked command and control systems to enable U.S. and allied defense customers to plan, direct, coordinate and control forces and operations at strategic, operational and tactical levels. Defense Solutions also provides a wide range of logistics, product support and force modernization solutions, including supply chain management, demand forecasting, distribution, sustaining engineering, maintenance and training services, to enhance the readiness and operational capability of U.S. military personnel and their weapons and support systems. Major customers of Defense Solutions include most branches of the U.S. military. Defense Solutions represented 4042%, 4340% and 43% of total revenues for fiscal ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, respectively.

Health, Energy and Civil Solutions

Health, Energy and Civil Solutions provides services and solutions in the areas of critical infrastructure, homeland security, safety and mission assurance, training, environmental assessments and restoration, engineering design, construction, electronic health record implementations and other sophisticated IT services across a broad federal and commercial customer base. These services and solutions range from engineering, design and construction services, energy management, renewables and energy distribution/smart-grid, to healthcare IT, data management and analytics, health infrastructure and biomedical support and research. Health, Energy and Civil Solutions also provides integrated security solutions and training expertise in the detection of chemical, biological, radiological, nuclear and explosive threats and designs and develops products and applied technologies that aid anti-terrorism and homeland security efforts, including border, port and security inspection systems and checked baggage explosive detection systems. Major customers of Health, Energy and Civil Solutions primarily include the U.S. federal government, state and local governmental agencies, foreign governments and commercial enterprises in various industries. Health, Energy and Civil Solutions represented 2725%, 26% and 2725% of total revenues for fiscal ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, respectively.

Intelligence and Cybersecurity Solutions

Intelligence and Cybersecurity Solutions provides systems and services focused on intelligence, surveillance, reconnaissance and cybersecurity across a broad spectrum of national security programs. Intelligence and Cybersecurity Solutions provides quick reaction, manned and unmanned airborne, maritime, space and ground-based surveillance systems which leverage an understanding of the underlying physics of operating in space, weight and power-constrained environments. Intelligence and Cybersecurity Solutions also provides intelligence collection, processing, exploitation, and dissemination solutions, including systems designed to optimize decision-making in high rate, large volume, and complex data environments. Intelligence and Cybersecurity Solutions provides cybersecurity technology and information management solutions, analytics and forensics, accreditation and testing services, and products that protect data, applications, and modern information technology infrastructures from advanced and persistent threats as well as mission support in the geospatial, intelligence analysis, technical operations, and linguistics domains. Major customers of Intelligence and Cybersecurity Solutions include national and military intelligence agencies, and other federal, civilian and commercial customers in the national security complex. Intelligence and Cybersecurity Solutions represented 33%, 31% and 30% of total revenues for fiscal 2012, 2011 and 2010, respectively.

Corporate and Other

Corporate and Other includes the operations of our internal real estate management subsidiary, various corporate activities, certain corporate expense items that are not reimbursed by our U.S. Government customers and certain other revenue and expense items.

For additional information regarding our reportable segments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II and Note 15 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

2 SAIC, Inc. Annual Report

PART I

quick reaction, manned and unmanned airborne, maritime, space and ground-based surveillance systems which leverage an understanding of the underlying physics of operating in space, weight and power-constrained environments. Intelligence and Cybersecurity Solutions also provides intelligence collection, processing, exploitation, and dissemination solutions, including systems designed to optimize decision-making in high rate, large volume, and complex data environments. Intelligence and Cybersecurity Solutions provides cybersecurity technology and information management solutions, analytics and forensics, accreditation and testing services, and products that protect data, applications, and modern information technology infrastructures from advanced and persistent threats as well as mission support in the geospatial, intelligence analysis, technical operations, and linguistics domains. Major customers of Intelligence and Cybersecurity Solutions include national and military intelligence agencies, and other federal, civilian and commercial customers in the national security complex. Intelligence and Cybersecurity Solutions represented 33%, 34% and 32% of total revenues for fiscal 2013, 2012 and 2011, respectively.

Corporate and Other

Acquisitions

The acquisition of businesses is part of our growth strategy to provide new or enhance existing capabilities and offerings to customers and to establish new or enhance existing relationships with customers. During the last five fiscal years, we have completed 1514 acquisitions, most notably:

• In fiscal ~~2012~~2013, we acquired ~~Vitalize~~maxIT ~~Consulting~~Healthcare ~~Solutions~~Holdings, Inc., a provider of clinical, business and information technology services ~~for~~primarily ~~healthcare~~to ~~enterprises~~commercial hospital groups and other medical delivery organizations. This acquisition by our Health, Energy and Civil Solutions segment ~~expands~~expanded our ~~capabilities~~commercial consulting practice in ~~both~~electronic ~~federal~~health record (EHR) implementation and ~~commercial~~optimization ~~markets~~and strengthened our capabilities to ~~help~~provide these services to our federal healthcare customers ~~better~~as ~~address~~those ~~electronic~~customers ~~health~~migrate ~~record~~to ~~implementation~~commercial ~~and~~off-the-shelf ~~optimization~~EHR ~~demand~~applications.

•

In fiscal 2012, we acquired Vitalize Consulting Solutions, Inc., a provider of clinical, business and information technology services for healthcare enterprises. This acquisition by our Health, Energy and Civil Solutions segment expanded our capabilities in both federal and commercial markets to help customers better address EHR implementation and optimization demand.

•

In fiscal 2011, we acquired Cloudshield Technologies, Inc., a provider of cybersecurity and management services solutions. This acquisition by our Intelligence and Cybersecurity Solutions segment enhanced our cybersecurity offerings and positioned us to bring to market deep packet inspection solutions for high speed networks, enabling us to better meet emerging customer requirements. We also acquired Reveal Imaging Technologies, Inc., a provider of threat detection products and services. This acquisition by our Health, Energy and Civil Solutions segment enhanced our homeland security solutions portfolio by adding U.S. Transportation Security Administration certified explosive detection systems for checked baggage screening to our passenger and cargo inspections systems product offerings.

•

In fiscal 2010, we acquired R.W. Beck Group, Inc., a provider of business, engineering, energy and infrastructure consulting services. This acquisition by our Health, Energy and Civil Solutions segment both enhanced our existing capabilities and offerings in the areas of energy and infrastructure consulting services and provided new capabilities and offerings in disaster preparedness and recovery services. We also acquired Science, Engineering and Technology Associates Corporation, a provider of intelligence, surveillance and reconnaissance information technologies. This acquisition by our Intelligence and Cybersecurity Solutions segment enhanced our service offerings and capabilities by adding information technologies that detect human behaviors to identify human-borne suicide bombers.

•

In fiscal 2009, we acquired SM Consulting, Inc., a provider of language translation, interpretation and training, and other consulting services to federal, state and local governments and commercial customers. While this acquisition by our Intelligence and Cybersecurity Solutions segment enhanced our existing capabilities and offerings, it also expanded our relationships with DoD customers in adjacent markets for these services. We also acquired Icon Systems, Inc., a provider of laser-based systems and products for military training and testing. This acquisition by our Defense Solutions segment enhanced our wireless live training offerings.

~~• In fiscal 2008~~SAIC, ~~we acquired The Benham Companies LLC, a consulting, engineering, and architectural design company~~ Inc. ~~This~~Annual ~~acquisition~~Report 3 by our Health, Energy and Civil Solutions segment provided us with new capabilities and offerings in the areas of industrial manufacturing and facilities design/build and enhanced our existing capabilities and offerings in the areas of energy consulting services and software development and integration services.

PART I

Divestitures

From time to time, we divest non-strategic components of our business. During the last five fiscal years, our most notable divestitures included:

• In fiscal ~~2012~~2013, we completed the sale of certain components of our business, which were historically included in our Health, Energy and Civil Solutions segment, primarily focused on providing ~~information~~operational ~~technology~~test and evaluation services to ~~international~~U.S. ~~oil~~Government ~~and gas companies~~customers.

• In fiscal ~~2008~~2012, we completed athe ~~reorganization~~sale ~~transaction~~of ~~involving~~certain ~~our~~components ~~55%~~of ~~interest~~our inbusiness ~~AMSEC~~which ~~LLC,~~were ahistorically ~~consolidated~~included ~~majority-owned subsidiary, resulting~~ in ~~the~~our ~~disposition~~Health, ofEnergy ~~our~~and ~~55%~~Civil ~~interest~~Solutions insegment, ~~AMSEC~~primarily ~~LLC~~focused inon ~~exchange~~providing ~~for~~information ~~our~~technology ~~acquisition~~services ofto ~~certain~~international ~~divisions~~oil and ~~subsidiaries~~gas ~~of AMSEC LLC~~companies.

Key Customers

Substantially all of our revenues and tangible long-lived assets are generated by or owned by entities located in the United States. In each of fiscal ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, over 9085% of our total revenues were attributable to prime contracts with the U.S. Government or to subcontracts with other contractors engaged in work for the U.S. Government. We generated more than 10% of our total revenues during each of the last three fiscal years from each of the U.S. Army and U.S. Navy. Each of these customers has a number of subsidiary agencies which have separate budgets and procurement functions. Our contracts may be with the highest level of these agencies or with the subsidiary agencies of these customers.

The percentage of total revenues attributable to the U.S. Army and U.S. Navy for each of the last three fiscal years was as follows:

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
U.S. Army		2628	%		2326	%		2423	%
U.S. Navy		13			13			13

SAIC, Inc. Annual Report 3

PART I

Contract Procurement

Our business is heavily regulated and we must comply with and are affected by laws and regulations relating to the formation, administration and performance of U.S. Government and other contracts. The U.S. Government procurement environment has evolved due to statutory and regulatory procurement reform initiatives. Today, U.S. Government customers employ several ~~procurement~~ contracting methods to purchase services and ~~solutions~~products. Budgetary pressures and reforms in the procurement process have caused many U.S. Government customers to increasingly purchase services and products using contracting ~~processes~~methods that give them the ability to select multiple contract winners or pre-qualify certain contractors to ~~provide~~ ~~various~~ provide services or products on established general terms and conditions rather than through single award contracts. The predominant contracting methods through which U.S. Government agencies procure services and products include the following:

• Single Award Contracts. U.S. Government agencies may procure services and products through single award contracts which specify the scope of services ~~and~~or products ~~that~~purchased ~~will be delivered~~ and identify the contractor that will provide the specified services or products. When an agency has a requirement, ~~interested~~the ~~contractors~~agency ~~are~~will ~~solicited,~~issue ~~qualified~~a ~~and~~solicitation ~~then~~or ~~provided~~request ~~with~~for aproposal ~~request~~to ~~for~~which interested contractors can submit a proposal. The process of ~~qualification,~~issuing solicitations or request for proposals and ~~evaluation~~evaluating of contractor bids requires the agency to maintain a large, professional procurement staff and the bidding and selection process can take a year or more to complete. For the contractor, this method of contracting may provide greater certainty of the timing and amounts to be received at the time of contract award because it generally results in the customer contracting for a specific scope of services or products from the single successful awardee.

• Indefinite Delivery/Indefinite Quantity (IDIQ) Contracts. The U.S. Government uses IDIQ contracts to obtain commitments from contractors to provide certain services or products on pre-established terms and conditions. The U.S. Government then issues task orders under the IDIQ contracts to purchase the specific services or products it needs. IDIQ contracts are awarded to one or more contractors following a competitive procurement process. Under a single-award IDIQ contract, all task orders under that contract are awarded to one pre-selected contractor. Under a ~~multi~~multiple-award IDIQ contract, task orders can be awarded to any of the pre-selected contractors, which can result in further limited competition for the award of task orders. ~~Multi~~Multiple-award IDIQ contracts that are open for any government agency to use for ~~the~~ procurement ~~of services~~ are commonly referred to as “government-wide acquisition contracts”. IDIQ contracts often have multi-year terms and unfunded ceiling amounts, therefore enabling, but not committing, the U.S. Government to purchase substantial amounts of services or products from one or more contractors. At the time an IDIQ contract is awarded (prior to the award of any task orders), a contractor may have limited or no visibility as to the ultimate amount of services or products that the U.S. Government will purchase under the contract, and in the case of a ~~multi~~multiple-award IDIQ, the contractor from which such purchases may be made.

• U.S. General Services Administration (GSA) Schedule Contracts. The GSA maintains listings of approved suppliers of services and products with agreed-upon prices for use throughout the U.S. Government. In order for a company to provide services under a GSA Schedule contract, a company must be pre-qualified and awarded a contract by the GSA. When an agency uses a GSA Schedule contract to meet its requirements, the agency, or the GSA on behalf of the agency, conducts the procurement. The user agency, or the GSA on its behalf, evaluates the user agency’s requirements and initiates a competition limited to GSA Schedule qualified contractors. GSA Schedule contracts are designed to provide the user agency with reduced procurement time and lower procurement costs. Similar to IDIQ contracts, at the time a GSA Schedule contract is awarded, a contractor may have limited or no visibility as to the ultimate amount of services or products that the U.S. Government will purchase under the contract.

We often team with other parties, including our competitors, to submit bids for large U.S Government procurements or other opportunities where we believe that the combination of services and products that we can provide as a team will help us win and perform the contract. Our relationships with our teammates, including whether we serve as the prime contractor or as a subcontractor, vary with each contract opportunity and typically depend on the program, contract or customer requirements, as well as the relative size, qualifications, capabilities, customer relationships and experience of our company and our teammates.

Contracting with the U.S. Government also subjects us to substantial regulation and unique risks, including the U.S. Government’s ability to cancel any contract at any time. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed. These regulations and risks are described in more detail below under “Business–Regulation” and “Risk Factors” in this Annual Report on Form 10-K.

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•

U.S. General Services Administration (GSA) Schedule Contracts. The GSA maintains listings of approved suppliers of services and products with agreed-upon prices for use throughout the U.S. Government. In order for a company to provide services under a GSA Schedule contract, a company must be pre-qualified and awarded a contract by the GSA. When an agency uses a GSA Schedule contract to meet its requirements, the agency, or the GSA on behalf of the agency, conducts the procurement. The user agency, or the GSA on its behalf, evaluates the user agency’s requirements and initiates a competition limited to GSA Schedule qualified contractors. GSA Schedule contracts are designed to provide the user agency with reduced procurement time and lower procurement costs. Similar to IDIQ contracts, at the time a GSA Schedule contract is awarded, a contractor may have limited or no visibility as to the ultimate amount of services or products that the U.S. Government will purchase under the contract.

Contracting with the U.S. Government also subjects us to substantial regulation and unique risks, including the U.S. Government’s ability to cancel any contract at any time through a termination for the convenience of the U.S. Government. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed where the U.S. Government issues a termination for convenience. These regulations and risks are described in more detail below under “Business–Regulation” and “Risk Factors” in this Annual Report on Form 10-K.

Contract Types

Generally, the type of contract for our services and products is determined by or negotiated with the U.S. Government and may depend on certain factors, including the type and complexity of the work to be performed, degree and timing of the responsibility to be assumed by the contractor for the costs of performance, the extent of price competition and the amount and nature of the profit incentive offered to the contractor for achieving or exceeding specified standards or goals. We generate revenues under several types of contracts, including the following:

•

Cost-reimbursement contracts provide for reimbursement of our direct contract costs and allocable indirect costs, plus a fee. This type of contract is generally used when uncertainties involved in contract performance do not permit costs to be estimated with sufficient accuracy to use a fixed-price contract. Cost-reimbursement contracts generally subject us to lower risk, but generally require us to use our best efforts to accomplish the scope of the work within a specified time and amount of costs.

•

Time-and-materials (T&M) contracts typically provide for negotiated fixed hourly rates for specified categories of direct labor plus reimbursement of other direct costs. This type of contract is generally used when there is uncertainty of the extent or duration of the work to be performed by the contractor at the time of contract award or it is not possible to anticipate costs with any reasonable degree of confidence. On T&M contracts, we assume the risk of providing appropriately qualified staff to perform these contracts at the hourly rates set forth in the contracts over the period of performance of the contracts.

•

Fixed-price-level-of-effort (FP-LOE) contracts are substantially similar to T&M contracts except they require a specified level of effort over a stated period of time on work that can be stated only in general terms. This type of contract is generally used when the contractor is required to perform an investigation or study in a specific research and development area and to provide a report showing the results achieved based on the level of effort. Payment is based on the effort expended rather than the results achieved.

•

Firm-fixed-price (FFP) contracts provide for a fixed price for specified products, systems and/or services. This type of contract is generally used when the government acquires products and services on the basis of reasonably definitive specifications and which have a determinable fair and reasonable price. These contracts offer us potential increased profits if we can complete the work at lower costs than planned. While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns.

Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract, the nature of services or products provided, as well as the achievement of performance objectives and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined. Cost reimbursement and T&M contracts generally have lower profitability than FFP contracts. For the proportionate amount of revenues derived from each type of contract for fiscal ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, see “Key ~~Financial~~Performance ~~Metrics~~Measures—Contract Types” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

Backlog

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. Our backlog consists of funded backlog and negotiated unfunded backlog, each of which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K. We expect to recognize a substantial portion of our funded backlog as revenues within the next 12 months. However, the U.S. Government may cancel any contract at any time. In addition, certain contracts with commercial customers include provisions that allow the customer to cancel at any time. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed. For additional discussion and analysis of backlog, see “Key Financial Metrics—Bookings and Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

Competition

Competition for contracts is intense and we often compete against a large number of established multinational corporations which may have greater financial capabilities than we do. We also compete against smaller, more specialized companies that concentrate their resources on particular areas, as well as the U.S. Government’s own capabilities and federal non-profit contract research centers. As a result of the diverse requirements of the U.S. Government and our commercial customers, we frequently collaborate with other companies to compete for large contracts, and bid against these team members in other situations. We believe that our principal competitors currently include the following companies:

• the engineering and technical services divisions of large defense contractors which provide U.S. Government IT services in addition to other hardware systems and products, including such companies as The Boeing Company, General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, BAE Systems plc, L-3 Communications Corporation and Raytheon Company;

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•Backlog contractors focused principally on technical services, including U.S. Government IT services, such as Battelle Memorial Institute, Booz Allen Hamilton Inc., CACI International Inc, ManTech International Corporation, Serco Group plc and SRA International, Inc.;

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. Our backlog consists of funded backlog and negotiated unfunded backlog, each of which are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K. We expect to recognize a substantial portion of our funded backlog as revenues within the next 12 months. However, the U.S. Government may cancel any contract at any time through a termination for the convenience of the U.S. Government. In addition, certain contracts with commercial customers include provisions that allow the customer to cancel at any time. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed. For additional discussion and analysis of backlog, see “Key Performance Measures—Bookings and Backlog” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of this Annual Report on Form 10-K.

Competition

Competition for contracts is intense and we often compete against a large number of established multinational corporations which may have greater name recognition, financial resources and larger technical staffs than we do. We also compete against smaller, more specialized companies that concentrate their resources on particular areas, as well as the U.S. Government’s own capabilities and federal non-profit contract research centers. As a result of the diverse requirements of the U.S. Government and our commercial customers, we frequently collaborate with other companies to compete for large contracts, and bid against these same companies in other situations. We believe that our principal competitors currently include the following companies:

•

the engineering and technical services divisions of large defense contractors which provide U.S. Government IT services in addition to other hardware systems and products, including companies such as The Boeing Company, General Dynamics Corporation, Lockheed Martin Corporation, Northrop Grumman Corporation, BAE Systems plc, L-3 Communications Corporation and Raytheon Company;

•

contractors focused principally on technical services, including U.S. Government IT services, such as Battelle Memorial Institute, Booz Allen Hamilton Inc., Engility Holdings, Inc., CACI International Inc, ManTech International Corporation, Serco Group plc and SRA International, Inc.;

•

diversified commercial and U.S. Government IT providers, such as Accenture plc, Computer Sciences Corporation, HP Enterprise Services, International Business Machines Corporation and Unisys Corporation;

•

contractors who provide engineering, consulting, design and construction services, such as Jacobs Engineering Group, URS Corporation, KBR, Inc. and CH2M Hill Companies Ltd.; and

• contractors focused on supplying homeland security product solutions, including American Science and Engineering, Inc., OSI Systems, Inc., L-3 Communications Corporation, General Electric Company and Smiths Group plc and contractors providing supply chain management and other logistics services, including Agility Logistics, ~~Inc~~Corp. ~~(a subsidiary of Agility Public Warehousing Company K.S.C.).~~

We compete on various factors, including, our technical expertise and qualified professional and/or security-cleared personnel, our ability to deliver innovative cost-effective solutions in a timely manner, successful program execution, our reputation and standing with customers, pricing and the size and geographic presence of our company.

The U.S. Government has indicated that it intends to increase industry competition for future procurement of products and services, which has led to fewer sole source awards and more emphasis on cost competitiveness and affordability. In addition, procurement initiatives to improve efficiency, refocus priorities and enhance best practices could result in fewer new opportunities for our industry as a whole, which would intensify competition within the industry as companies compete for a more limited set of new programs.

Patents and Proprietary Information

Our technical services and products are not generally dependent upon patent protection, although we do selectively seek patent protection. We claim a proprietary interest in certain of our products, software programs, methodologies and know-how. This proprietary information is protected by copyrights, trade secrets, licenses, contracts and other means. We selectively pursue opportunities to license or transfer our technologies to third parties.

In connection with the performance of services, the U.S. Government has certain rights to inventions, data, software codes and related material that we develop under U.S. Government-funded contracts and subcontracts. Generally, the U.S. Government may disclose or license such information to third parties, including, in some instances, our competitors. In the case of some subcontracts that we perform, the prime contractor may also have certain rights to the programs and products that we develop under the subcontract.

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Research and Development

We conduct research and development activities under customer-funded contracts and with company-funded internal research and development (IR&D) funds. IR&D efforts consist of projects involving basic research, applied research, development, and systems and other concept formulation studies. IR&D expenses are included in selling, general and administrative expenses and are generally allocated to U.S. Government contracts. In fiscal ~~2012~~2013, ~~2011~~ 2012 and ~~2010~~2011, our company-funded IR&D expense was $9364 million, $5592 million and $4955 million, respectively. We charge expenses for research and development activities performed under customer contracts directly to cost of revenues. for those contracts.

Seasonality

The U.S. Government’s fiscal year ends on September 30 of each year. It is not uncommon for U.S. Government agencies to award extra tasks or complete other contract actions in the timeframe leading up to the end of its fiscal year in order to avoid the loss of unexpended fiscal year funds, which may favorably impact our third fiscal quarter ending October 31. In addition, as a result of the cyclical nature of the U.S. Government budget process and a greater number of holidays in our fourth fiscal quarter ending January 31, as compared to our third fiscal quarter ending October 31, we typically experience sequentially higher revenues in our third fiscal quarter and lower revenues in our fourth fiscal quarter. For selected quarterly financial data, see Note 2019 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

Regulation

We are heavily regulated in most of the fields in which we operate. We provide services and products to numerous U.S. Government agencies and entities, including ~~agencies~~ ofto the DoD, the intelligence community and DHS. When working with these and other U.S. Government agencies and entities, we must comply with various laws and regulations relating to the formation, administration and performance of contracts. ~~Among~~U.S. Government contracts generally are subject to the Federal Acquisition Regulation (FAR), which sets forth policies, procedures and requirements for the acquisition of goods and services by the U.S. Government, agency-specific regulations that implement or supplement FAR, such as the DoD’s Defense Federal Acquisition Regulation Supplement (DFARS) and other applicable laws and regulations. These regulations impose a broad range of requirements, many of which are unique to government contracting, including various procurement, import and export, security, contract pricing and cost, contract termination and adjustment, and audit requirements. Among other things, these laws and regulations:

•

require certification and disclosure of all cost and pricing data in connection with certain contract negotiations;

6 SAIC, Inc. Annual Report

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•

define allowable and unallowable costs and otherwise govern our right to reimbursement under various cost-based U.S. Government contracts;

• require reviews by the Defense Contract Audit Agency (DCAA), Defense Contract Management Agency (DCMA) and other U.S. Government agencies of compliance with government standards for ~~accounting~~a ~~and~~contractor’s ~~management~~business ~~internal control~~ systems;

•

restrict the use and dissemination of information classified for national security purposes and the export of certain products and technical data; and

• require us not to compete for ~~or to divest~~ work if an organizational conflict of interest, as defined by these laws and regulations, related to such work exists and/or cannot be appropriately mitigated.

The U.S. Government may revise its procurement practices or adopt new contract rules and regulations at any time. In order to help ensure compliance with these complex laws and regulations, all of our employees are required to complete ethics training and other compliance training relevant to their position.

Some of our operations and service offerings involve access to and use by us of personally identifiable information and/or protected health information, which activities are regulated by extensive federal and state privacy and data security laws requiring organizations to provide certain privacy protections and security safeguards for such information.

Internationally, we are subject to special U.S. Government laws and regulations, local government laws and regulations and procurement policies and practices (including laws and regulations relating to bribery of foreign government officials, import-export control, investments, exchange controls and repatriation of earnings) and varying currency, political and economic risks.

Environmental Matters

Our operations are subject to various foreign, federal, state and local environmental protection and health and safety laws and regulations. In addition, our operations may become subject to future laws and regulations, including those related to climate change and environmental sustainability. Failure to comply with these laws and regulations could result in civil, criminal, regulatory, administrative or contractual sanctions, including fines, penalties or suspension or debarment from contracting with the U.S. Government, or could cause us to incur costs to change, upgrade, remediate and/or close some of our operations or properties. Some environmental laws hold current or previous owners or operators of businesses and real property liable for hazardous substance releases, even if they did not know of and were not responsible for the releases. Our services and operations involve the assessment or remediation of environmental hazards, as well as using, handling or disposing of hazardous substances. Environmental laws may impose liability on any person who disposes, transports, or arranges for the disposal or transportation of hazardous substances to any site. In addition, we may face liability for personal injury, property damage and natural resource damages relating to hazardous substance releases for which we are otherwise liable or relating to exposure to or the mishandling of hazardous substances in connection with our current and former operations or services, including our current and prior ownership of properties. Although we do not currently anticipate that the costs of complying with, or the liabilities associated with, environmental laws will materially and adversely affect us, we cannot ensure that we will not incur material costs or liabilities in the future.

Employees and Consultants

As of January 31, 2012, we employed approximately 41,100 full and part-time employees. We also utilize consultants to provide specialized technical and other services on specific projects. To date, we have not experienced any strikes or work stoppages and we consider our relations with our employees to be good.

The highly technical and complex services and products that we provide are dependent upon the availability of professional, administrative and technical personnel having high levels of training and skills and, in many cases, security clearances. Due to the increased competition for qualified personnel, it has become more difficult to retain employees and meet all of our needs for employees in a timely manner, which has affected and may to continue to affect our growth. We intend to continue to devote significant resources to recruit, develop and retain qualified employees.

Company Website and Information

Our website can be accessed at www.saic.com. The website contains information about us and our operations. Through a link on the Investor Relations section of our website, copies of each of our filings with the Securities and Exchange Commission (SEC) on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference into and is not a part of this Annual Report on Form 10-K.

SAIC, Inc. Annual Report 7

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criminal, regulatory, administrative or contractual sanctions, including fines, penalties or suspension or debarment from contracting with the U.S. Government, or could cause us to incur costs to change, upgrade, remediate and/or close some of our operations or properties. Some environmental laws hold current or previous owners or operators of businesses and real property liable for hazardous substance releases, even if they did not know of and were not responsible for the releases. Our services and operations involve the assessment or remediation of environmental hazards, as well as using, handling or disposing of hazardous substances. Environmental laws may impose liability on any person who disposes, transports, or arranges for the disposal or transportation of hazardous substances to any site. In addition, we may face liability for personal injury, property damage and natural resource damages relating to hazardous substance releases for which we are otherwise liable or relating to exposure to or the mishandling of hazardous substances in connection with our current and former operations or services, including our current and prior ownership of properties. Although we do not currently anticipate that the costs of complying with, or the liabilities associated with, environmental laws will materially and adversely affect us, we cannot ensure that we will not incur material costs or liabilities in the future.

Employees and Consultants

As of January 31, 2013, we employed approximately 40,000 full and part-time employees. We also utilize consultants to provide specialized technical and other services on specific projects.

Company Website and Information

Our website can be accessed at www.saic.com. The website contains information about our company and operations. Through a link on the Investor Relations section of our website, copies of each of our filings with the Securities and Exchange Commission (SEC) on Form 10-K, Form 10-Q and Form 8-K, and all amendments to those reports, can be viewed and downloaded free of charge as soon as reasonably practicable after the reports and amendments are electronically filed with or furnished to the SEC. The information on our website is not incorporated by reference into and is not a part of this Annual Report on Form 10-K.

You may request a copy of the materials identified in the preceding paragraph, at no cost, by writing or telephoning us at our corporate headquarters at the following:

SAIC, Inc.

1710 SAIC Drive

McLean, VA 22102

Attention: Corporate Secretary

Telephone: (703) 676-4300

Item 1A. Risk Factors

In your evaluation of our company and business, you should carefully consider the risks and uncertainties described below, together with information included elsewhere in this Annual Report on Form 10-K and other documents we file with the SEC. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed and the price of our stock could decline. Our business is also subject to general risks and uncertainties that affect many other companies, such as our ability to collect receivables, overall U.S. and global economic and industry conditions, geopolitical events, changes in laws or accounting rules, fluctuations in interest and exchange rates, terrorism, international conflicts, major health concerns, climate change or other disruptions of expected economic and business conditions. Additional risks and uncertainties not currently known to us or that we currently believe are immaterial also may materially harm our business, financial condition or operating results and result in a decline in the price of our stock.

Risks Relating to Our Business

We depend on government agencies as our primary customer and if our reputation or relationships with these agencies were harmed, our future revenues and growth prospects would be adversely affected.

We generated over 9085% of our total revenues during each of the last three fiscal years from contracts with the U.S. Government (including all branches of the U.S. military), either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. Government. We generated more than 10% of our total revenues during each of the last three fiscal years from each of the U.S. Army and U.S. Navy. We expect to continue to derive most of our revenues from work performed under U.S. Government contracts. Our reputation and relationship with the U.S. Government, and in particular with the agencies of the DoD and the U.S. intelligence community, are key factors in maintaining and growing these revenues. Negative press reports or publicity, which could pertain to employee or subcontractor misconduct, conflicts of interest, poor contract performance, defects in products, reports or other deliverables, information security breaches or other aspects of our business, regardless of accuracy, could harm our reputation, particularly with these agencies. In addition, negative publicity regarding our work for state and local government and commercial customers may harm our reputation with these customers as well as with our federal government customers. If our reputation is negatively affected, or if we are suspended or debarred from contracting with government agencies for any reason, the amount of business with government and other customers would decrease and our future revenues and growth prospects would be adversely affected.

A decline in the U.S. Government defense budget, changes in budgetary priorities or timing of contract awards may adversely affect our future revenues and limit our growth prospects.

Revenues under contracts with the DoD, either as a prime contractor or subcontractor to other contractors, represented approximately 75% of our total revenues in fiscal 2012. Our operating results could be adversely affected by spending caps or changes in the budgetary priorities of the U.S. Government or the DoD, as well as delays in program starts or the award of contracts or task orders under contracts. Current U.S. Government spending levels for defense-related programs may not be sustained and future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of the rapid growth of the federal budget deficit, increasing political pressure and legislation, including the Budget Control Act of 2011, designed to reduce overall levels of government spending, shifts in spending priorities from defense-related programs as a result of competing demands for federal funds, the number and intensity of military conflicts or other factors. The Budget Control Act of 2011 enacted 10-year discretionary spending caps which are expected to generate over $1 trillion in savings for the U.S. Government, a significant portion of which comes from DoD baseline spending reductions. In addition, unless the Budget Control Act is amended, additional automatic spending cuts (referred to as sequestration) totaling $1.2 trillion over 10 years will be triggered beginning in the U.S. Government fiscal year ending September 30, 2013. These spending cuts are expected to further reduce DoD and homeland security spending, as well as other federal agency spending. The U.S. Government also conducts periodic reviews of U.S. defense strategies and priorities, which may shift DoD budgetary priorities, reduce overall U.S. Government spending or delay contract or task order awards for defense-related programs, including programs from which we expect to derive a significant portion of our future revenues. In addition, changes to the DoD acquisition system and contracting models could affect whether and how we pursue certain opportunities and the terms under which we are able to do so. A significant decline in overall U.S. Government spending, including in the areas of national security, intelligence and homeland security, a

8 SAIC, Inc. Annual Report

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~~significant~~performed ~~shift~~under inU.S. ~~its~~Government ~~spending~~contracts. ~~priorities~~Our reputation and relationship with the U.S. Government, and in particular with the ~~substantial~~agencies ~~reduction~~of the DoD and the U.S. intelligence community, are key factors in maintaining and growing our revenues. Negative press reports or ~~elimination~~publicity, ofwhich ~~particular~~could ~~defense-related~~pertain ~~programs~~to employee or ~~significant~~subcontractor ~~delays~~misconduct, inconflicts of interest, poor contract orperformance, ~~task~~deficiencies ~~order~~in ~~awards~~services, ~~for~~reports, ~~large~~products or other ~~programs~~deliverables, information security breaches or other aspects of our business, regardless of accuracy, could ~~adversely~~harm ~~affect~~our reputation, particularly with these agencies. If our ~~future~~reputation ~~revenues~~is negatively affected, or if we are suspended or debarred from contracting with government agencies for any reason, the amount of business with government and ~~limit~~other customers would decrease and our future revenues and growth prospects would be adversely affected.

A decline in the U.S. Government defense budget, changes in spending or budgetary priorities or delays in contract awards may significantly and adversely affect our future revenues and limit our growth prospects.

Revenues under contracts with the DoD, either as a prime contractor or subcontractor to other contractors, represented approximately 70% of our total revenues in fiscal 2013. Levels of DoD spending are difficult to predict and subject to significant risk. Our operating results could be adversely affected by spending caps or changes in the budgetary priorities of the U.S. Government or the DoD, as well as delays in program starts or the award of contracts or task orders under contracts. Current U.S. Government spending levels for defense-related programs may not be sustained and future spending and program authorizations may not increase or may decrease or shift to programs in areas in which we do not provide services or are less likely to be awarded contracts. Such changes in spending authorizations and budgetary priorities may occur as a result of the rapid growth of the federal budget deficit, increasing political pressure and legislation, including the Budget Control Act of 2011, designed to reduce overall levels of government spending, including through sequestration, shifts in spending priorities from defense-related programs as a result of competing demands for federal funds, the number and intensity of military conflicts or other factors.

The Budget Control Act of 2011 enacted 10-year discretionary spending caps which are expected to generate over $1 trillion in savings for the U.S. Government, a substantial portion of which comes from DoD baseline spending reductions. In addition, the Budget Control Act of 2011 provides for additional automatic spending cuts (referred to as sequestration) totaling $1.2 trillion over nine years which are being implemented beginning in the current U.S. Government fiscal year ending September 30, 2013 (GFY13). These reduction targets will further reduce DoD and other federal agency budgets. Although the Office of Management and Budget has recently provided guidance to agencies on implementing sequestration cuts, there remains much uncertainty about how exactly sequestration cuts will be implemented and the impact those cuts will have on contractors supporting the government. In light of the current uncertainty, we are not able to predict the impact of budget cuts, including sequestration, on our company or our financial results. However, we expect that budgetary constraints and concerns related to the national debt will continue to place downward pressure on DoD spending levels and that implementation of the automatic spending cuts without change will reduce, delay or cancel funding for certain of our contracts – particularly those with unobligated balances—and programs and could adversely impact our operations, financial results and growth prospects.

The U.S. Government also conducts periodic reviews of U.S. defense strategies and priorities, which may shift DoD budgetary priorities, reduce overall U.S. Government spending or delay contract or task order awards for defense-related programs, including programs from which we expect to derive a significant portion of our future revenues. In addition, changes to the DoD acquisition system and contracting models could affect whether and how we pursue certain opportunities and the terms under which we are able to do so. A significant decline in overall U.S. Government spending, including in the areas of national security, intelligence and homeland security, a significant shift in its spending priorities, the substantial reduction or elimination of particular defense-related programs or significant delays in contract or task order awards for large programs could adversely affect our future revenues and limit our growth prospects.

Because we depend on U.S. Government contracts, a delay in the completion of the U.S. Government’s budget process could delay procurement of the products, services and solutions we provide and have an adverse effect on our future revenues.

The funding of U.S. Government programs is subject to an annual congressional budget authorization and appropriation process. In years when the U.S. Government does not complete its budget process before the end of its fiscal year on September 30, government operations are typically funded pursuant to a “continuing resolution,” which allows federal government agencies to operate at spending levels approved in the previous budget cycle, but does not authorize new spending initiatives. When the U.S. Government operates under a continuing resolution, delays can occur in the procurement of the products, services and solutions that we provide and may result in new initiatives being cancelled. We have from time to time experienced a decline in revenues in our fourth quarter ending January 31 and beyond as a result of this annual budget cycle, and we could experience similar declines in revenues from future delays in the budget process. InCertain ~~years~~agencies ~~when~~of the U.S. Government ~~fails~~do tonot ~~complete~~have ~~its~~approved ~~budget~~GFY13 ~~process~~spending orbills toand ~~provide~~are ~~for~~operating under a continuing resolution, athrough ~~federal~~September ~~government~~30, ~~shutdown may result~~2013. ~~This~~The ~~could~~continuing inresolution ~~turn~~contains ~~result~~standard ~~in our~~restrictions, ~~incurrence~~including ofno ~~substantial~~new ~~labor~~program orstarts ~~other~~and ~~costs~~no ~~without~~program ~~reimbursement~~increases ~~under~~beyond ~~customer~~current ~~contracts,~~service orlevels ~~the delay or cancellation of key programs,~~ which could ~~have~~adversely aimpact ~~negative effect on~~ our ~~cash~~future ~~flows~~revenues and growth ~~adversely affect our future results~~prospects. In ~~addition,~~ years when ~~supplemental appropriations are required to operate~~ the U.S. Government orfails ~~fund~~to ~~specific~~complete ~~programs~~its ~~and~~budget ~~passage~~process ofor ~~legislation needed~~ to ~~approve~~provide ~~any~~for ~~supplemental~~a ~~appropriation~~continuing ~~bill is delayed~~resolution, ~~the overall funding environment for our business could be adversely affected.~~

~~We face significant uncertainties related to the settlement of the CityTime investigations~~SAIC, ~~which~~Inc. ~~may~~Annual ~~have~~Report 9 ~~an adverse effect on our business and reputation.~~

PART I

a federal government shutdown may result. A federal government shutdown could in turn result in our incurrence of substantial labor or other costs without reimbursement under customer contracts, or the delay or cancellation of key programs, which could have a negative effect on our cash flows and adversely affect our future results. In addition, when supplemental appropriations are required to operate the U.S. Government or fund specific programs and passage of legislation needed to approve any supplemental appropriation bill is delayed, the overall funding environment for our business could be adversely affected.

Our failure to comply with a variety of complex procurement rules and regulations could result in our being liable for penalties, including termination of our U.S. Government contracts, disqualification from bidding on future U.S. Government contracts and suspension or debarment from U.S. Government contracting.

We must comply with laws and regulations relating to the formation, administration and performance of U.S. Government contracts, which affect how we do business with our customers and may impose added costs on our business. Some significant statutes and regulations that affect us include:

• the ~~Federal Acquisition Regulation (~~FAR) and supplements, which regulate the formation, administration and performance of U.S. Government contracts;

•

the Truth in Negotiations Act, which requires certification and disclosure of cost and pricing data in connection with certain contract negotiations;

•

the Procurement Integrity Act, which regulates access to competitor bid and proposal information and government source selection information, and our ability to provide compensation to certain former government officials;

•

the Civil False Claims Act, which provides for substantial civil penalties for violations, including for submission of a false or fraudulent claim to the U.S. Government for payment or approval; and

•

the U.S. Government Cost Accounting Standards, which impose accounting requirements that govern our right to reimbursement under certain cost-based U.S. Government contracts.

The FAR and many of our U.S. Government contracts contain organizational conflict of interest clauses that may limit our ability to compete for or perform certain other contracts or other types of services for particular customers. Organizational conflicts of interest arise when we engage in activities that may make us unable to render impartial assistance or advice to the U.S. Government, impair our objectivity in performing contract work, or provide us with an unfair competitive advantage. A conflict of interest issue that precludes our competition for or performance on a significant program or contract could harm our prospects.

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the U.S. Government, impair our objectivity in performing contract work, or provide us with an unfair competitive advantage. A conflict of interest issue that precludes our competition for or performance on a significant program or contract could harm our prospects.

The U.S. Government may adopt new contract rules and regulations or revise its procurement practices in a manner adverse to us at any time.

Our industry has experienced, and we expect it will continue to experience, significant changes to business practices as a result of an increased focus on affordability, efficiencies, and recovery of costs, among other items. U.S. Government agencies may face restrictions or pressure regarding the type and amount of services that they may obtain from private contractors. Legislation, regulations and initiatives dealing with procurement reform, mitigation of potential conflicts of interest and environmental responsibility or sustainability, as well as any resulting shifts in the buying practices of U.S. Government agencies, such as increased usage of fixed price contracts, multiple award contracts and small business set-aside contracts, could have adverse effects on government contractors, including us. Any of these changes could impair our ability to obtain new contracts or renew our existing contracts when those contracts are recompeted. Any new contracting requirements or procurement methods could be costly or administratively difficult for us to implement and could adversely affect our future revenues, profitability and prospects.

Our business is subject to reviews, audits and cost adjustments by the U.S. Government, which, if resolved unfavorably to us, could adversely affect our profitability, cash position or growth prospects.

U.S. Government agencies, including the DCAA, DCMA and others, routinely audit and review a contractor’s performance on government contracts, indirect rates and pricing practices, and compliance with applicable contracting and procurement laws, regulations and standards. They also review the adequacy of the contractor’s compliance with government standards for its ~~accounting~~business ~~and management internal control~~ systems, including: ~~control~~a ~~environment~~contractor’s ~~and~~accounting ~~overall~~system, ~~accounting~~earned value management system, estimating system, ~~purchasing~~materials management and accounting system, property management system and ~~earned~~purchasing ~~value management~~ system.

Both contractors and the U.S. Government agencies conducting these audits and reviews have come under increased scrutiny. For example, it was determined that the audit procedures the DCAA previously used in reviewing some of our systems and other government contractors’ systems were not in compliance with the requirements of Generally Accepted Government Auditing Standards. As a result, ~~certain previous audit reports were rescinded,~~ the current audits and reviews have become more rigorous and the standards to which we are held are being more strictly interpreted, increasing the likelihood of an audit or review resulting in an adverse outcome. During the course of its current audits, the DCAA is closely examining and questioning several of our long established and disclosed practices that it had previously audited and accepted, increasing the uncertainty as to the ultimate conclusion that will be reached.

A finding of significant control deficiencies in our system audits or other reviews can result in decremented billing rates to our U.S. Government customers until the control deficiencies are corrected and our corrections are accepted by DCMA. Government audits and reviews may conclude that our practices are not consistent with applicable laws and regulations and result in adjustments to contract costs and mandatory customer refunds. Such adjustments can be applied retroactively, which could result in significant customer refunds. Our receipt of adverse audit findings or the failure to obtain an “approved” determination of our various accounting and management internal control systems, including our changes to indirect cost and direct labor estimating systems, from the responsible U.S. Government agency could significantly and adversely affect our business, including our ability to bid on new contracts and our competitive position in the bidding process. A determination of non-compliance with applicable contracting and procurement laws, regulations and standards could also result in the U.S. Government imposing penalties and sanctions against us, including withholding of payments, suspension of payments and increased government scrutiny that could delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S. Government.

Our indirect cost audits by the DCAA have not been completed for fiscal 2005 and subsequent fiscal years. Although we have recorded contract revenues subsequent to fiscal 2004 based upon our estimate of costs that we believe will be approved upon final audit or review, we do not know the outcome of any ongoing or future audits or reviews and adjustments and, if future adjustments exceed our estimates, our profitability would be adversely affected.

Our business is subject to governmental review and investigation which could adversely affect our profitability, cash position and growth prospects.

We are routinely subject to governmental investigations relating to our contracts and operations. If a review or investigation identifies improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including the termination of contracts, forfeiture of profits, the triggering of price reduction clauses, suspension of payments, fines and suspension or debarment from doing business with governmental agencies. We may suffer harm to our reputation if allegations of impropriety are made against us, which would impair our ability to win new contract awards or receive contract renewals. Penalties and sanctions are not uncommon in our industry. If we incur a material penalty or administrative sanction or otherwise suffer harm to our reputation, our profitability, cash position and future prospects could be adversely affected.

10 SAIC, Inc. Annual Report

PART I

A finding of significant control deficiencies in our system audits or other reviews can result in decremented ~~More~~billing ~~generally,~~rates ~~increases~~to our U.S. Government customers until the control deficiencies are corrected and our remediations are accepted by DCMA. Government audits and reviews may conclude that our practices are not consistent with applicable laws and regulations and result in ~~scrutiny~~adjustments to contract costs and ~~investigations~~mandatory ~~from~~customer ~~government~~refunds. ~~organizations~~Such adjustments can be applied retroactively, ~~legislative~~which ~~bodies~~could result in significant customer refunds. Our receipt of adverse audit findings or ~~agencies~~the ~~into~~failure to obtain an “approved” determination of our various business ~~practices~~systems from the responsible U.S. Government agency could significantly and ~~into~~adversely ~~major~~affect ~~programs~~our ~~supported~~business, byincluding ~~contractors~~our ~~may lead~~ability to ~~increased~~bid ~~legal~~on ~~costs~~new contracts and ~~may~~our ~~harm~~competitive ~~our~~position ~~reputation~~in the bidding process. A determination of non-compliance with applicable contracting and procurement laws, ~~profitability~~regulations and ~~growth~~standards ~~prospects~~could also result in the U.S. Government imposing penalties and sanctions against us, including withholding of payments, suspension of payments and increased government scrutiny that could delay or adversely affect our ability to invoice and receive timely payment on contracts, perform contracts or compete for contracts with the U.S. Government.

Our indirect cost audits by the DCAA have not been completed for fiscal 2006 and subsequent fiscal years. Although we have recorded contract revenues subsequent to fiscal 2005 based upon our estimate of costs that we believe will be approved upon final audit or review, we do not know the outcome of any ongoing or future audits or reviews and adjustments and, if future adjustments exceed our estimates, our profitability would be adversely affected.

Our business is subject to governmental review and investigation which could adversely affect our financial position, operating results and growth prospects.

We are routinely subject to governmental investigations relating to compliance with various laws and regulations with respect to our role as a contractor to federal, state and local government customers and in connection with performing services in countries outside the United States. If a review or investigation identifies improper or illegal activities, we may be subject to civil or criminal penalties or administrative sanctions, including the termination of contracts, forfeiture of profits, the triggering of price reduction clauses, suspension of payments, fines and suspension or debarment from doing business with governmental agencies. We may suffer harm to our reputation if allegations of impropriety are made against us, which would impair our ability to win new contract awards or receive contract renewals. Penalties and sanctions are not uncommon in our industry. If we incur a material penalty or administrative sanction or otherwise suffer harm to our reputation, our revenues, profitability, cash position and future prospects could be adversely affected. More generally, increases in scrutiny and investigations from government organizations, legislative bodies or agencies into business practices and into major programs supported by contractors may lead to increased legal costs and may harm our reputation, revenues, profitability and growth prospects.

Misconduct of employees, subcontractors, agents and business partners could cause us to lose existing contracts or customers and adversely affect our ability to obtain new contracts and customers and could have a significant adverse impact on our business and reputation.

Misconduct could include fraud or other improper activities such as falsifying time or other records and violations of laws, including the Anti-Kickback Act. Other examples could include the failure to comply with our policies and procedures or with federal, state or local government procurement regulations, regulations regarding the use and safeguarding of classified or other protected information, legislation regarding the pricing of labor and other costs in government contracts, laws and regulations relating to environmental, health or safety matters, bribery of foreign government officials, import-export control, lobbying or similar activities, and any other applicable laws or regulations. Any data loss or information security lapses resulting in the compromise of personal information or the improper use or disclosure of sensitive or classified information could result in claims, remediation costs, regulatory sanctions against us, loss of current and future contracts and serious harm to our reputation. Although we have implemented policies, procedures and controls to prevent and detect these activities, these precautions may not prevent all misconduct, and as a result, we could face unknown risks or losses. Our failure to comply with applicable laws or regulations or misconduct by any of our employees, subcontractors, agents or business partners could damage our reputation and subject us to fines and penalties, restitution or other damages, loss of security clearance, loss of current and future customer contracts and suspension or debarment from contracting with federal, state or local government agencies, any of which would adversely affect our business, reputation and our future results.

Due to the competitive process to obtain contracts and anthe ~~increase~~likelihood inof bid protests, we may be unable to achieve or sustain revenue growth and profitability.

We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process. The U.S. Government has increasingly relied on contracts that are subject to a competitive bidding process, including IDIQ, ~~GSA~~ GSA Schedule and other multi-award contracts, which has resulted in greater competition and increased pricing pressure. ~~The~~For ~~competitive~~example, ~~bidding~~during ~~process~~fiscal ~~involves substantial costs and a number of risks~~2013, ~~including~~we ~~significant~~were ~~cost and managerial time to prepare bids and proposals for contracts that may~~ not be awarded tothe ~~us,~~successor orcontract ~~that~~to ~~may~~the beDISN ~~awarded~~Global ~~but~~Solutions ~~for~~(DGS) ~~which~~program wewith ~~do not receive meaningful task orders, and to~~ the Defense ~~risk~~Information ofSystems ~~inaccurately~~Agency. ~~estimating~~In ~~the~~fiscal ~~resources~~2013, ~~and~~we ~~costs~~recognized ~~that~~approximately ~~will~~$425 bemillion ~~required~~in ~~to fulfill~~revenue ~~any~~on ~~contract~~this ~~we win~~program. ~~Following~~Revenues ~~contract~~from ~~award,~~the weDSG ~~may~~program ~~encounter~~are ~~significant~~expected ~~expense,~~to ~~delay,~~be ~~contract~~approximately ~~modifications~~$40 ormillion ~~even~~over ~~contract~~the ~~loss~~first ashalf ~~a result~~ of ~~our~~fiscal ~~competitors~~2014 ~~protesting~~as the ~~award~~activity transitions ofto ~~contracts~~the tosuccessor uscontractor. inThe competitive bidding. ~~Any resulting~~process ~~loss~~involves orsubstantial ~~delay~~costs ~~of start up~~ and ~~funding~~a number of ~~work~~risks, ~~under~~including ~~protested~~significant ~~contract~~cost ~~awards~~and ~~may~~managerial ~~adversely~~time ~~affect~~to ~~our~~prepare ~~revenues~~bids and~~/or~~ ~~profitability.~~proposals Infor ~~addition, multi-award~~ contracts ~~require~~ that ~~we make sustained post-award efforts to obtain task orders under the contract. As a result, we~~ may not be ~~able~~awarded to ~~obtain~~us, ~~these task orders~~ or that ~~recognize~~may ~~revenues~~be ~~under~~awarded ~~these~~but ~~multi-award~~for ~~contracts.~~which ~~Our~~we ~~failure~~do tonot ~~compete~~receive ~~effectively~~meaningful ~~in this procurement environment would adversely affect our revenues and/or profitability.~~

The U.S. Government may terminate, cancel, modify or curtail our contracts at any time prior to their completion and, if we do not replace them, we may be unable to achieve or sustain revenue growth and may suffer a decline in revenues.

Many of the U.S. Government programs in which we participate as a contractor or subcontractor may extend for several years and include one or more base years and one or more option years. These programs are normally funded on an annual basis. Under our contracts, the U.S. Government generally has the right not to exercise options to extend or expand our contracts and may otherwise terminate, cancel, modify or curtail our contracts at its convenience. Any decision by the U.S. Government not to exercise contract options or to terminate, cancel, modify or curtail our major programs or contracts would adversely affect our revenues, revenue growth and profitability.

We have experienced and continue to experience periodic performance issues under certain of our contracts. If a government customer terminates a contract for default, we may be exposed to liability, including for excess costs incurred by the customer in procuring undelivered services and products from another source. Depending on the nature and value of the contract, a performance issue or termination for default could cause our actual results to differ from those anticipated and could harm our reputation.

We face aggressive competition that can impact our ability to obtain contracts and therefore affect our future revenues and growth prospects.

Our business is highly competitive and we compete with larger companies that have greater name recognition, financial resources and larger technical staffs. We also compete with smaller, more specialized companies that are able to concentrate their resources on particular areas. Additionally, we compete with the U.S. Government’s own capabilities and federal non-profit contract research centers.

The markets in which we operate are characterized by rapidly changing technology and the needs of our customers change and evolve regularly. Accordingly, our success depends on our ability to develop services and products that address these

SAIC, Inc. Annual Report 11

PART I

~~changing~~task ~~needs~~orders, and to ~~provide~~the ~~people~~risk of inaccurately estimating the resources and ~~technology~~costs ~~needed~~that will be required to ~~deliver~~fulfill ~~these~~any ~~services~~contract ~~and~~we ~~products~~win. ToFollowing ~~remain~~contract ~~competitive~~award, we ~~must~~may ~~consistently~~encounter ~~provide~~significant expense, ~~superior service~~delay, ~~technology~~contract ~~and~~modifications ~~performance on~~or aeven ~~cost-effective~~contract ~~basis~~loss toas ~~our~~a ~~customers.~~result ~~Our~~of our competitors ~~may~~protesting bethe ~~able~~award toof ~~provide~~contracts ~~our~~to ~~customers~~us ~~with~~in ~~different~~competitive orbidding. ~~greater~~Any ~~capabilities~~resulting orloss ~~technologies~~ or ~~better~~delay ~~contract~~of ~~terms~~start ~~than~~up weand ~~can~~funding ~~provide,~~of ~~including~~work ~~technical~~under ~~qualifications,~~protested ~~past~~ contract awards ~~experience,~~may ~~geographic~~adversely ~~presence,~~affect ~~price~~our revenues and/or ~~the~~profitability. ~~availability~~In ofaddition, ~~qualified~~multi-award ~~professional~~contracts ~~personnel.~~require Inthat ~~addition,~~we ~~our~~make ~~competitors~~sustained ~~may~~post-award ~~consolidate~~efforts orto ~~establish~~obtain ~~teaming~~task ororders ~~other~~under ~~relationships~~the ~~among~~contract. ~~themselves~~As ora ~~with~~result, ~~third~~we ~~parties~~may tonot ~~increase~~be ~~their ability~~able to ~~address~~obtain ~~customers’~~these ~~needs.~~task ~~Accordingly,~~orders weor recognize ~~anticipate~~revenues ~~that~~under ~~larger~~these ormulti-award ~~new~~contracts. ~~competitors~~Our orfailure ~~alliances~~to ~~among~~compete ~~competitors~~effectively ~~may~~in ~~emerge~~this ~~which~~procurement ~~may~~environment would adversely affect our ~~ability~~revenues toand/or ~~compete~~profitability.

~~Our~~The ~~failure~~U.S. toGovernment ~~attract~~may terminate, ~~train~~cancel, ~~and~~modify ~~retain~~or ~~skilled~~curtail ~~employees,~~our ~~including~~contracts ~~our~~at ~~management~~any ~~team~~time prior to their completion and, ~~would~~if ~~adversely~~we ~~affect~~do ~~our~~not ~~ability~~replace them, we may be unable to ~~execute~~achieve ~~our~~or sustain revenue ~~strategy~~growth and may suffer a decline in revenues and profitability.

~~Our~~Many ~~business~~of ~~involves~~ the ~~development~~U.S. ofGovernment ~~tailored~~programs ~~solutions~~in ~~for~~which ~~our~~we ~~customers,~~participate as a ~~process~~contractor ~~that~~or subcontractor ~~relies~~extend ~~heavily~~for ~~upon~~several ~~the~~years ~~expertise~~ and ~~services~~ ofinclude ~~our~~one ~~employees.~~or ~~Our~~more ~~continued~~base ~~success~~years ~~depends on our ability to recruit~~ and ~~retain~~one ~~highly~~or ~~trained~~more ~~and~~option ~~skilled engineering, technical and professional personnel~~years. ~~Competition~~These ~~for~~programs ~~skilled~~are ~~personnel~~normally isfunded ~~intense~~on ~~and~~an ~~competitors~~annual ~~aggressively recruit key employees~~basis. InUnder ~~addition~~our contracts, ~~many~~the U.S. Government ~~programs~~generally ~~require~~has ~~contractors to have security clearances. Depending on~~ the ~~level~~right ofnot ~~required clearance, security clearances can be difficult and time-consuming~~ to ~~obtain~~exercise ~~and personnel with~~options ~~security clearances are in great demand. Particularly in highly specialized areas, it has become more difficult~~ to ~~retain~~extend ~~employees~~or ~~and~~expand ~~meet all of~~ our ~~needs~~contracts ~~for~~and ~~employees~~may inotherwise aterminate, ~~timely manner~~cancel, ~~which~~modify ~~may~~or ~~affect~~curtail our ~~growth~~contracts inat ~~the~~its ~~current~~convenience. ~~fiscal~~Any ~~year and~~decisions inby ~~future~~the ~~years~~U.S. ~~Although~~Government wenot ~~intend~~ to ~~continue~~exercise tocontract ~~devote~~options ~~significant~~or ~~resources~~ to ~~recruit~~terminate, ~~train and retain qualified employees~~cancel, wemodify ~~may~~or ~~not~~curtail ~~be able to attract and retain these employees. Any failure to do so could impair~~ our ~~ability to perform~~major ~~our~~programs ~~contractual~~or ~~obligations~~contracts ~~efficiently~~would ~~and~~adversely ~~timely~~affect ~~meet~~ our ~~customers’ needs and win new business~~revenues, ~~which~~revenue ~~could~~growth ~~adversely~~and ~~affect our future results~~profitability.

InWe ~~addition~~have toexperienced ~~attracting~~ and ~~retaining~~continue ~~qualified~~to ~~engineering,~~experience ~~technical~~periodic performance ~~and~~issues ~~professional~~under ~~personnel,~~certain weof ~~believe that~~ our ~~success~~contracts. ~~will~~Some ~~also~~of ~~depend~~our oncontracts involve the ~~continued employment~~development of acomplex ~~highly~~systems ~~qualified~~ and ~~experienced~~products ~~senior~~to ~~management~~achieve ~~team~~challenging ~~and~~customer ~~its~~goals ~~ability~~in toa ~~retain~~competitive ~~existing~~procurement ~~business~~environment. ~~and~~As ~~generate~~a ~~new~~result, ~~business.~~we ~~Our~~sometimes ~~senior~~experience technological ~~management~~or ~~team~~other isperformance ~~important~~difficulties, towhich ~~our~~have ~~business~~in ~~because~~the ~~personal~~past ~~reputations~~ and ~~individual business~~may ~~relationships~~in ~~are~~the afuture ~~critical~~result ~~element~~in ofdelays, ~~retaining~~cost overruns and ~~obtaining~~failures ~~customer contracts~~ in our ~~industry,~~performance ~~particularly~~of ~~with~~these ~~agencies~~contracts. ~~performing~~If ~~classified~~a ~~operations.~~government Incustomer ~~the~~terminates ~~past~~a ~~year~~contract for default, we ~~have~~may ~~experienced~~be exposed ~~changes~~to inliability, ~~our~~including ~~senior~~for ~~executive~~excess ~~team, including~~costs incurred by the ~~appointment~~customer ofin aprocuring ~~new~~undelivered ~~Chief~~services ~~Executive~~and ~~Officer~~products ~~effective~~from ~~March 1,~~another ~~2012~~source. ~~Our~~Depending ~~inability~~on tothe ~~retain~~nature ~~appropriately~~and ~~qualified~~value ~~and~~of ~~experienced~~the ~~senior~~contract, ~~executives~~a ~~could~~performance issue or termination for default could cause usour actual results to ~~lose~~differ ~~customers~~from orthose ~~new~~anticipated ~~business~~and ~~opportunities~~could harm our reputation.

We ~~may~~face ~~not~~aggressive ~~realize~~competition asthat ~~revenues~~can impact ~~the~~our ~~full~~ability ~~amounts~~to ~~reflected~~obtain incontracts ~~our~~and ~~backlog,~~therefore ~~which could adversely~~ affect our ~~expected~~ future revenues and growth prospects.

AsOur ofbusiness ~~January 31,~~is ~~2012,~~highly ~~our~~competitive ~~total~~and ~~backlog was $18.0 billion, which included $5.5 billion in funded backlog. Due to~~we ~~the~~compete ~~U.S.~~with ~~Government’s~~larger ~~ability~~companies tothat ~~not~~have ~~exercise~~greater ~~contract~~name ~~options or to terminate~~recognition, ~~modify~~financial orresources ~~curtail our programs or contracts~~ and ~~the~~larger ~~rights~~technical ~~of our non-U~~staffs.S. ~~Government~~We ~~customers~~also tocompete ~~cancel~~with ~~contracts and purchase orders in certain circumstances~~smaller, ~~we may~~more ~~realize~~specialized ~~less~~companies ~~than expected or in some cases never realize revenues from some of the contracts~~ that are ~~included~~able into ~~our~~concentrate ~~backlog.~~their ~~Our~~resources ~~unfunded~~on ~~backlog, in~~ particular, ~~contains management’s estimate of amounts expected to be realized on~~areas. ~~unfunded~~Additionally, ~~contract~~we ~~work~~compete ~~that~~with ~~may~~the ~~never be realized as revenues~~U.S. IfGovernment’s weown ~~fail~~capabilities ~~to realize as revenues amounts included in our backlog, our expected future revenues, growth prospects~~ and ~~profitability~~federal ~~could~~non-profit becontract ~~adversely~~research ~~affected~~centers.

~~Our~~The ~~earnings~~markets ~~and~~in ~~profitability~~which ~~may~~we operate ~~vary~~are ~~based~~characterized onby rapidly changing technology and the ~~mix~~needs of our ~~contracts~~customers change and ~~may~~evolve beregularly. ~~adversely~~Accordingly, ~~affected~~our bysuccess depends on our ~~failure~~ability to ~~accurately~~develop ~~estimate~~services and products that address these changing needs and to provide people and ~~manage~~technology ~~costs~~needed to deliver these services and products. To remain competitive, ~~time~~we must consistently provide superior service, technology and ~~resources~~performance on a cost-effective basis to our customers. Our competitors may be able to provide our customers with different or greater capabilities or technologies or better contract terms than we can provide, including technical qualifications, past contract experience, geographic presence, price and the availability of qualified professional personnel. In addition, our competitors may consolidate or establish teaming or other relationships among themselves or with third parties to increase their ability to address customers’ needs. Accordingly, we anticipate that larger or new competitors or alliances among competitors may emerge which may adversely affect our ability to compete.

WeA ~~generate~~failure to ~~revenues under various types of contracts~~attract, ~~which~~train ~~include cost reimbursement, T&M, FP-LOE~~ and ~~FFP~~retain ~~contracts.~~skilled ~~Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract~~employees, ~~the~~including ~~nature~~our ofmanagement ~~services or products provided~~team, aswould ~~well~~adversely asaffect ~~the~~our ~~achievement~~ability ~~of performance objectives and the stage of performance at which the right~~ to ~~receive~~execute ~~fees,~~our ~~particularly~~strategy ~~under incentive~~ and ~~award fee contracts, is finally determined. Cost reimbursement and T&M contracts generally have lower profitability than FFP contracts. Our operating results in any period~~ may ~~also~~disrupt ~~be affected, positively or negatively, by variable purchasing patterns by~~ our ~~customers of our more profitable proprietary products~~operations.

Our ~~profitability~~business isinvolves ~~adversely~~the ~~affected~~development ~~when~~of wetailored ~~incur~~solutions ~~contract~~for ~~costs~~our customers, a process that werelies ~~cannot~~heavily ~~bill~~upon tothe expertise and services of our ~~customers~~employees. ToOur ~~varying~~continued ~~degrees,~~success ~~each~~depends ofon our ~~contract~~ability ~~types~~to ~~involves~~recruit and ~~some~~retain ~~risk~~highly ~~that~~trained weand ~~could~~skilled ~~underestimate~~engineering, ~~the~~technical ~~costs~~and professional personnel. Competition for skilled personnel is intense and ~~resources~~ ~~necessary~~competitors toaggressively ~~fulfill~~recruit ~~the~~key ~~contract~~employees. ~~While~~In ~~FFP~~addition, ~~contracts~~many ~~allow~~U.S. usGovernment programs require contractors to ~~benefit~~have ~~from~~security ~~cost~~clearances. ~~savings~~Depending on the level of required clearance, ~~these~~security ~~contracts~~clearances ~~also~~can ~~increase~~be ~~our~~difficult ~~exposure~~and time-consuming to ~~the~~obtain ~~risk~~and ofpersonnel ~~cost~~with ~~overruns~~security clearances are in great demand. ~~Revenues~~Particularly ~~derived~~in ~~from~~highly ~~FFP~~specialized ~~contracts~~areas, ~~represented~~it ~~approximately~~has become ~~25%~~more difficult to retain employees and meet all of our ~~total~~ ~~revenues~~needs for ~~fiscal~~employees ~~2012.~~in ~~When~~a ~~making~~timely ~~proposals~~manner, onwhich ~~these~~may ~~types~~affect ofour ~~contracts,~~growth. Although we ~~rely~~intend ~~heavily~~to oncontinue ~~our~~to ~~estimates~~devote ofsignificant ~~costs~~resources ~~and~~to ~~timing~~recruit, ~~for~~train ~~completing~~and ~~the~~retain ~~associated~~qualified ~~projects~~employees, aswe may ~~well~~not asbe ~~assumptions~~able ~~regarding~~to ~~technical~~attract, ~~issues~~effectively train and retain these employees. InAny ~~each~~failure ~~case,~~to do so could impair our ~~failure~~ ability to ~~accurately~~perform ~~estimate~~our ~~costs~~contractual orobligations ~~the~~efficiently ~~resources~~and timely meet our customers’ needs and ~~technology~~win ~~needed~~new tobusiness, ~~perform~~which could adversely affect our ~~contracts~~future orresults. toAdditionally, ~~effectively~~we ~~manage~~are ~~and~~concurrently ~~control~~completing the relocation of our ~~costs~~corporate ~~during~~functions and the planned separation transaction, which has resulted in higher than typical employee turnover and will result in the transfer of

12 SAIC, Inc. Annual Report

PART I

~~performance~~personnel ofto ~~our~~the ~~work could result~~technical, engineering and inenterprise ~~some~~information ~~instances~~technology ~~has~~services ~~resulted,~~business. inWhile ~~reduced~~we ~~profits~~are orhiring inand ~~losses.~~training ~~More~~replacement ~~generally~~personnel, ~~any~~there ~~increased~~is orlittle ~~unexpected~~redundancy ~~costs~~ or ~~unanticipated~~overlap ~~delays~~of responsibilities in ~~connection with the performance of~~ our ~~contracts,~~corporate ~~including~~functions ~~costs~~ and ~~delays~~loss ~~caused~~of bykey ~~contractual~~personnel ~~disputes~~in orcritical ~~other~~functions ~~factors~~could ~~outside~~lead ofto ~~our~~lack ~~control, such as performance failures~~ of ~~our~~business ~~subcontractors,~~continuity ~~natural disasters~~ or ~~other~~disruptions ~~force~~in ~~majeure~~our ~~events~~operations, ~~could~~financial ~~make our~~reporting ~~contracts less profitable than expected~~ or ~~unprofitable~~control processes.

In addition to attracting and retaining qualified engineering, technical and professional personnel, we believe that our success will also depend on the continued employment of a highly qualified and experienced senior management team and its ability to retain existing business and generate new business. Our senior management team is important to our business because personal reputations and individual business relationships are a critical element of retaining and obtaining customer contracts in our industry, particularly with agencies performing classified operations. Our inability to retain appropriately qualified and experienced senior executives could cause us to lose customers or new business opportunities.

We may not realize as revenues the full amounts reflected in our backlog, which could adversely affect our expected future revenues and growth prospects.

As of January 31, 2013 our total backlog was $17.9 billion including $5.4 billion in funded backlog. Due to the U.S. Government’s ability to not exercise contract options or to terminate, modify or curtail our programs or contracts and the rights of our non-U.S. Government customers to cancel contracts and purchase orders in certain circumstances, we may realize less than expected or in some cases never realize revenues from some of the contracts that are included in our backlog. Our unfunded backlog, in particular, contains management’s estimate of amounts expected to be realized on unfunded contract work that may never be realized as revenues. If we fail to realize as revenues amounts included in our backlog, our future revenues, profitability and growth prospects could be adversely affected.

Our earnings and profitability may vary based on the mix of our contracts and may be adversely affected by our failure to accurately estimate and manage costs, time and resources.

We generate revenues under various types of contracts, which include cost reimbursement, T&M, FP-LOE and FFP contracts. Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract, the nature of services or products provided, as well as the achievement of performance objectives and the stage of performance at which the right to receive fees, particularly under incentive and award fee contracts, is finally determined. Cost reimbursement and T&M contracts are generally less profitable than FFP contracts. Our operating results in any period may also be affected, positively or negatively, by customer’s variable purchasing patterns of our more profitable proprietary products.

Our profitability is adversely affected when we incur contract costs that we cannot bill to our customers. To varying degrees, each of our contract types involves some risk that we could underestimate the costs and resources necessary to fulfill the contract. While FFP contracts allow us to benefit from cost savings, these contracts also increase our exposure to the risk of cost overruns. Revenues from FFP contracts represented approximately 29% of our total revenues for fiscal 2013. When making proposals on these types of contracts, we rely heavily on our estimates of costs and timing to complete the associated projects, as well as assumptions regarding technical issues. In each case, our failure to accurately estimate costs or the resources and technology needed to perform our contracts or to effectively manage and control our costs during performance could result, and in some instances has resulted, in reduced profits or in losses. More generally, any increased or unexpected costs or unanticipated delays in the performance of our contracts, including costs and delays caused by contractual disputes or other factors outside of our control, such as performance failures of our subcontractors, natural disasters or other force majeure events, could make our contracts less profitable than expected or unprofitable.

We use estimates in recognizing revenues and if we make changes to estimates used in recognizing revenues, our profitability may be adversely affected.

Revenues from our contracts are primarily recognized using the percentage-of-completion method or on the basis of partial performance towards completion. These methodologies require estimates of total costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical nature of the services ~~being~~ performed and the long-term nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained and additional information becomes known, even though the scope of the work required under the contract may not change. Any adjustment as a result of a change in estimate is recognized as events become known. Changes in the underlying assumptions, circumstances or estimates could result in adjustments that may adversely affect ~~future~~our future financial results.

Our ~~business~~failure ~~and financial~~to ~~results~~comply ~~could~~with bethe ~~negatively~~terms ~~affected~~of byour ~~cyber~~deferred prosecution agreement or ~~other~~our ~~security~~administrative ~~threats~~agreement would have a material adverse effect on our business and future prospects.

AsIn aconnection ~~U.S.~~with ~~Government~~the ~~contractor~~resolution ~~and a provider~~ of ~~information technology~~certain ~~services~~investigations ~~operating in multiple regulated industries and geographies, we handle sensitive information. Therefore, we are continuously exposed~~ related to cyber and other security threats, including computer viruses, attacks by hackers or physical break-ins. Any electronic or physical break-in or other security breach or compromise may jeopardize security of information stored or transmitted through our ~~information~~CityTime ~~technology systems and networks. This could lead to disruptions in mission critical systems~~contract, ~~unauthorized release of confidential or otherwise protected information and corruption of data. Although~~ we ~~have~~entered ~~implemented~~into ~~policies,~~a ~~procedures~~three ~~and~~year ~~controls~~deferred toprosecution ~~protect~~agreement against, detect and mitigate these threats, attempts by others to gain unauthorized access to our information technology systems are becoming more sophisticated. These attempts include covertly introducing malware to our computers and networks and impersonating authorized users, among others, and may be perpetrated by well funded organized crime or state sponsored efforts. We seek to detect and investigate all security incidents and to prevent their occurrence or recurrence. We continue to improve our threat protection, detection and mitigation policies, procedures and controls. In addition, we work with ~~other companies in~~ the ~~industry and government participants on increased awareness and enhanced protections against cybersecurity threats~~U.S. ~~However,~~Attorney’s ~~because~~Office offor the ~~evolving nature~~Southern ofDistrict ~~these security threats, there can be no assurance that our policies, procedures and controls have or will detect or prevent any~~ of ~~these~~New ~~threats and we cannot predict the full impact of any such incident~~York. We ~~may~~also ~~experience~~entered ~~similar security~~into ~~threats~~a tofive ~~the~~year ~~information~~administrative ~~technology~~agreement ~~systems that we develop, install or maintain under customer contracts. Although we work cooperatively~~ with ~~our customers and other business partners to seek to minimize~~ the ~~impacts~~Army ~~of cyber and other security threats, we must rely~~ on ~~the~~behalf ~~safeguards put in place by those entities. Any remedial costs or other liabilities related to cyber or other security threats may not be fully insured or indemnified by other means. Occurrence~~ of ~~any of these~~ ~~security~~the ~~threats could adversely affect our reputation, ability to work on sensitive~~ U.S. Government ~~contracts,~~in ~~business~~order ~~operations~~to ~~and~~confirm ~~financial~~our ~~results.~~continuing

Internal system or service failures could disrupt our business and impair our ability to effectively provide our services and products to our customers, which could damage our reputation and adversely affect our revenues and profitability.

Any system or service disruptions, including those caused by ongoing projects to improve our information technology systems and the delivery of services, whether through our shared services organization or outsourced services, if not anticipated and appropriately mitigated, could have a material adverse effect on our business including, among other things, an adverse effect on our ability to bill our customers for work performed on our contracts, collect the amounts that have been billed and produce accurate financial statements in a timely manner. We are also subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, cybersecurity threats, natural disasters, power shortages, terrorist attacks or other events, which could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs, subject us to claims and damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our future results could be adversely affected.

Customer systems failures could damage our reputation and adversely affect our revenues and profitability.

SAIC, Inc. Annual Report 13

PART I

~~programs~~eligibility ~~designed~~ to ~~comply~~enter into and perform contracts with ~~relevant~~the ~~privacy~~U.S. Government. Our compliance with the terms and ~~security~~conditions ~~laws~~of both the deferred prosecution agreement and ~~restrictions,~~the ifadministrative aagreement, including ~~system~~the orappointment ~~network~~of ~~that~~an weindependent ~~develop~~monitor, ~~install~~will orrequire ~~maintain~~significant ~~were~~resources toand management involvement. If we fail orto ~~experience~~comply awith ~~security~~the ~~breach~~deferred ~~or service~~prosecution ~~interruption~~agreement, ~~whether~~including ~~caused~~its byongoing ~~us,~~legal ~~third-party~~and ~~service~~regulatory ~~providers~~compliance obligations, ~~cybersecurity~~the U.S. ~~threats~~Attorney’s Office may extend the term of the deferred prosecution agreement or ~~other~~independent ~~events~~monitor or we could face criminal prosecution, additional damages and penalties. If we fail to comply with the administrative agreement, the Army may ~~experience~~extend ~~loss~~the term of ~~revenue,~~the ~~remediation~~administrative ~~costs~~agreement or ~~face~~initiate ~~claims~~suspension ~~for~~or ~~damages~~debarment orproceedings ~~contract~~against ~~termination~~us. ~~Any~~The ~~such~~CityTime ~~event~~investigations ~~could~~received ~~cause~~adverse publicity and we are required to disclose information concerning the deferred prosecution ~~serious~~agreement ~~harm~~in certain proposals for contracts, which may make it more difficult to compete effectively and may adversely affect our ~~reputation~~revenues and ~~prevent~~growth usprospects. ~~from~~In ~~having~~addition, ~~access~~we continue to orbe ~~being~~subject ~~eligible~~to ~~for~~risks ~~further~~in ~~work~~connection onwith ~~such~~government ~~systems~~reviews and investigations and ~~networks.~~other ~~Our~~legal ~~errors~~disputes ~~and~~unrelated ~~omissions~~to ~~liability~~the ~~insurance~~CityTime matter, which may besubject ~~inadequate~~us to ~~compensate~~civil usor ~~for~~criminal ~~all~~penalties ofor administrative sanctions, including the ~~damages~~termination ~~that~~of wecontracts, ~~may~~forfeiture of profits, the triggering of price ~~incur~~reduction ~~and~~clauses, assuspension aof ~~result~~payments, ~~our~~fines ~~future~~and ~~results~~suspension ~~could~~or bedebarment ~~adversely~~from ~~affected~~doing business with governmental agencies.

We have contracts with the U.S. Government that are classified which may limit investor insight into portions of our business.

We derive a portion of our revenues from programs with the U.S. Government that are subject to security restrictions (classified programs), which preclude the dissemination of information that is classified for national security purposes. We are limited in our ability to provide information about these classified programs, their risks or any disputes or claims relating to such programs. As a result, investors have less insight into our classified programs than our other businesses and therefore less ability to fully evaluate the risks related to our classified business.

Legal disputes could require us to pay potentially large damage awards and could be costly to defend, which would adversely affect our cash balances and profitability, and could damage our reputation.

We are subject to a number of lawsuits and claims described in ~~Note~~“Legal Proceedings” 17in ofPart ~~the~~1 ~~combined~~of ~~notes to our consolidated financial statements contained within~~ this Annual Report on Form 10-K, as may be updated in our future filings with the SEC, including our Quarterly Reports on Form 10-Q. We are also subject to, and may become a party to, a variety of other litigation or claims and suits that arise from time to time in the ordinary course of our business. Adverse judgments or settlements in some or all of these legal disputes may result in significant monetary damages, penalties or injunctive relief against us. Any claims or litigation could be costly to defend, and even if we are successful or if fully indemnified or insured, could damage our reputation and make it more difficult to compete effectively or obtain adequate insurance in the future. Litigation and other claims, including those described in ~~Note~~“Legal ~~17 of the combined notes to our consolidated financial statements~~Proceedings,” are subject to inherent uncertainties and management’s view of these matters may change in the future.

Our business and operations expose us to numerous legal and regulatory requirements and any violation of these requirements could harm our business.

We are subject to numerous federal, state and foreign legal requirements on matters as diverse as data privacy and protection, employment and labor relations, immigration, taxation, anticorruption, import/export controls, trade restrictions, internal and disclosure control obligations, securities regulation and anti-competition. Compliance with diverse and changing legal requirements is costly, time-consuming and requires significant resources. For example, the SEC’s adoption of a complicated new rule requiring certain disclosures about “conflict minerals” in certain products increases our compliance costs, requires management attention and could reduce our profitability and expose us to additional risk. We are also focused on expanding our business in certain identified growth areas, such as health information technology, energy and environment, which are highly regulated and may expose us to increased compliance risk. ~~Compliance with~~ ~~diverse and changing legal requirements is costly, time-consuming and requires significant resources.~~ Violations of one or more of these diverse legal requirements in the conduct of our business could result in significant fines and other damages, criminal sanctions against us or our officers, prohibitions on doing business and damage to our reputation. Violations of these regulations or contractual obligations related to regulatory compliance in connection with the performance of customer contracts could also result in liability for significant monetary damages, fines and/or criminal prosecution, unfavorable publicity and other reputational damage, restrictions on our ability to compete for certain work and allegations by our customers that we have not performed our contractual obligations.

Our business and financial results could be negatively affected by cyber or other security threats.

As a U.S. Government contractor and a provider of information technology services operating in multiple regulated industries and geographies, we handle sensitive information. Therefore, we are continuously exposed to cyber attacks and other security threats, including physical break-ins. Any electronic or physical break-in or other security breach or compromise may jeopardize security of information stored or transmitted through our information technology systems and networks. This could lead to disruptions in mission-critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. Although we have implemented policies, procedures and controls to protect against, detect and mitigate these threats, we face advanced and persistent attacks on our information systems and attempts by others to gain unauthorized access to our information technology systems are becoming more sophisticated. These attempts include covertly introducing malware to our computers and networks and impersonating authorized users, among others, and may be perpetrated by well funded organized crime or state sponsored efforts. We seek to detect and investigate all security incidents and to prevent their occurrence or recurrence. We continue to invest in and improve our threat protection, detection and mitigation policies, procedures and controls. In addition, we work with other companies in the industry and government participants on increased awareness and enhanced protections against cybersecurity threats. However, because of the evolving nature and sophistication of these security threats, which can be difficult to detect, there can be no assurance that our policies, procedures and controls have or will detect or prevent any of these threats and we cannot predict the full impact of any such past or future incident. We may experience similar security threats to the information

14 SAIC, Inc. Annual Report

PART I

technology systems that we develop, install or maintain under customer contracts. Although we work cooperatively with our customers and other business partners to seek to minimize the impacts of cyber and other security threats, we must rely on the safeguards put in place by those entities. Any remedial costs or other liabilities related to cyber or other security threats may not be fully insured or indemnified by other means. Occurrence of any of these security threats could expose us to claims, contract terminations and damages and could adversely affect our reputation, ability to work on sensitive U.S. Government contracts, business operations and financial results.

Any system or service disruptions, including those caused by ongoing projects to improve our information technology systems and the delivery of services, as well as projects to separate our information technology infrastructure in connection with the planned separation transaction, whether through our shared services organization or outsourced services, if not anticipated and appropriately mitigated, could have a material adverse effect on our business including, among other things, an adverse effect on our ability to bill our customers for work performed on our contracts, collect the amounts that have been billed and produce accurate financial statements in a timely manner. We are also subject to systems failures, including network, software or hardware failures, whether caused by us, third-party service providers, cybersecurity threats, natural disasters, power shortages, terrorist attacks or other events, which could cause loss of data and interruptions or delays in our business, cause us to incur remediation costs, subject us to claims and damage our reputation. In addition, the failure or disruption of our communications or utilities could cause us to interrupt or suspend our operations or otherwise adversely affect our business. Our property and business interruption insurance may be inadequate to compensate us for all losses that may occur as a result of any system or operational failure or disruption and, as a result, our future results could be adversely affected.

Customer systems failures could damage our reputation and adversely affect our revenues and profitability.

Many of the systems and networks that we develop, install and maintain for our customers involve managing and protecting personal information and information relating to national security and other sensitive government functions. While we have programs designed to comply with relevant privacy and security laws and restrictions, if a system or network that we develop, install or maintain were to fail or experience a security breach or service interruption, whether caused by us, third-party service providers, cybersecurity threats or other events, we may experience loss of revenue, remediation costs or face claims for damages or contract termination. Any such event could cause serious harm to our reputation and prevent us from having access to or being eligible for further work on such systems and networks. Our errors and omissions liability insurance may be inadequate to compensate us for all of the damages that we may incur and, as a result, our future results could be adversely affected.

We have contracts with the U.S. Government that are classified, which may limit investor insight into portions of our business.

We have made and continue to make acquisitions, investments, joint ventures and divestitures that involve numerous risks and uncertainties.

~~One~~We ~~component of our growth strategy is to~~ selectively pursue strategic acquisitions, investments and joint ventures. These transactions require significant investment of time and resources and may disrupt our business and distract our management from other responsibilities. Even if successful, these transactions could reduce earnings for a number of reasons, including the amortization of intangible assets, impairment charges, acquired operations that are not yet profitable or the payment of additional consideration under earn-out arrangements if an acquisition performs better than expected. Acquisitions, investments and joint ventures pose many other risks that could adversely affect our reputation, operations or financial results, including:

•

we may not be able to identify, compete effectively for or complete suitable acquisitions and investments at prices we consider attractive;

•

we may not be able to accurately estimate the financial effect of acquisitions and investments on our business and we may not realize anticipated synergies or acquisitions may not result in improved operating performance;

•

we may encounter performance problems with acquired technologies, capabilities and products, particularly with respect to those that are still in development when acquired;

14 SAIC, Inc. Annual Report 15

PART I

•

we may have trouble retaining key employees and customers of an acquired business or otherwise integrating such businesses, such as incompatible accounting, information management, or other control systems, which could result in unforeseen difficulties;

•

we may assume material liabilities that were not identified as part of our due diligence or for which we are unable to receive a purchase price adjustment or reimbursement through indemnification;

•

we may assume legal or regulatory risks, particularly with respect to smaller businesses that have immature business processes and compliance programs;

•

acquired entities or joint ventures may not operate profitably, which could adversely affect our operating income or operating margins and we may be unable to recover investments in any such acquisitions;

•

acquisitions, investments and joint ventures may require us to spend a significant amount of cash or to issue capital stock, resulting in dilution of ownership; and

•

we may not be able to effectively influence the operations of our joint ventures or we may be exposed to certain liabilities if our joint venture partners do not fulfill their obligations.

If our acquisitions, investments or joint ventures fail, perform poorly or their value is otherwise impaired for any reason, including contractions in credit markets and global economic conditions, our business and financial results could be adversely affected.

In addition, we periodically divest businesses, including businesses that are no longer a part of our ongoing strategic plan. These divestitures similarly require significant investment of time and resources, may disrupt our business, distract management from other responsibilities and may result in losses on disposal or continued financial involvement in the divested business, including through indemnification, guarantee or other financial arrangements, for a period of time following the transaction, which would adversely affect our financial results.

Goodwill and other intangible assets represent approximately 3040% of our total assets and any impairment of these assets could negatively impact our results of operations.

Intangible assets, including goodwill, are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of events or changes in circumstances indicating that the carrying value of intangible assets may not be recoverable could include a significant adverse change in legal factors or in the business climate, an adverse action or assessment by a regulator, unanticipated competition, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of. We face continued uncertainty in our business environment due to the substantial fiscal and economic challenges facing the U.S. Government, such as the manner in which budget cuts are implemented, including sequestration, and issues related to the nation’s debt ceiling. Any future impairment of goodwill or other intangible assets would have a negative impact on our profitability and financial results.

We depend on our teaming arrangements and relationships with other contractors and subcontractors. If we are not able to maintain these relationships, or if these parties fail to satisfy their obligations to us or the customer, our revenues, profitability and growth prospects could be adversely affected.

We rely on our teaming relationships with other prime contractors and subcontractors in order to submit bids for large procurements or other opportunities where we believe the combination of services and products provided by us and the other companies will help us to win and perform the contract. Our future revenues and growth prospects could be adversely affected if other contractors eliminate or reduce their contract relationships with us, or if the U.S. Government terminates or reduces these other contractors’ programs, does not award them new contracts or refuses to pay under a contract. Companies that do not have access to U.S. Government contracts may perform services as our subcontractor and that exposure could enhance such companies’ prospect of securing a future position as a prime U.S. Government contractor which could increase competition for future contracts and impair our ability to perform on contracts.

We may have disputes with our subcontractors arising from, among other things, the quality and timeliness of work performed by the subcontractor, customer concerns about the subcontractor, our failure to extend existing task orders or issue new task orders under a subcontract, our hiring of a subcontractor’s personnel or the subcontractor’s failure to comply with applicable law. Current uncertain economic conditions heighten the risk of financial stress of our subcontractors, which could adversely impact their ability to meet their contractual requirements to us. If any of our subcontractors fail to timely meet their contractual obligations or have regulatory compliance or other problems, our ability to fulfill our obligations as a prime contractor or higher tier subcontractor may be jeopardized. Significant losses could arise in future periods and subcontractor performance deficiencies could result in our termination for default. A termination for default could eliminate a revenue source, expose us to liability and have an adverse effect on our ability to compete for future contracts and task orders, especially if the customer is an agency of the U.S. Government.

16 SAIC, Inc. Annual Report 15

PART I

We provide professional engineering and other services, including engineering-procurement-construction, design build, project delivery and commissioning, in connection with complex projects that involve significant risks and may require long-term capital.

In connection with certain projects, we may commit to a specific completion date or performance standards, which may expose us to significant additional costs and reputational damage if we miss the completion date or fail to achieve the performance standards, including agreed upon financial damages. Project performance can be affected by a number of factors beyond our control, including delays from governmental inaction, public opposition, inability to obtain financing, weather, unavailability of materials, changes in project scope, accidents, environmental hazards, labor disruptions and other factors. If we assume risks related to these events, such risks may not be insurable or may only be insurable on unacceptable terms. If these events occur, the total project costs could exceed our estimates and we could experience reduced profits or, in some cases, incur a loss on a project, which may reduce or eliminate overall profitability and have an adverse effect on our financial position and cash flows.

In some projects, we may commit substantial resources before receiving payments, either because of project cash flow timing or because we agree to delay payment for services until after project completion. We may also provide interim or other financing before the project is completed or otherwise secures capital from other sources. If a project is not successful, if a customer is unable to repay us, or if any source of financing does not provide its anticipated capital, we could incur losses, including amounts relating to work performed prior to execution of a customer contract or in connection with financing we provided, which would have an adverse effect on our financial position and cash flows. ~~Tightening~~Tight of credit or equity markets could increase this risk, as customers or other financing sources may be unable to secure funds.

Our services and operations sometimes involve using, handling or disposing of hazardous substances, which could expose us to potentially significant liabilities.

~~Our~~Some of our services and ~~operations~~ operations involve the assessment or remediation of environmental hazards, as well as the use, handling or disposal of hazardous substances. These activities and our operations generally subject us to extensive foreign, federal, state and local ~~environmental~~ environmental protection and health and safety laws and regulations, which, among other things, require us to incur costs to comply with these regulations and could impose liability on us for handling or disposing of hazardous substances. Furthermore, failure to comply with these environmental protection and health and safety laws and regulations could result in civil, criminal, regulatory, administrative or contractual sanctions, including fines, penalties or suspension or debarment from contracting with the U.S. Government. ~~Additionally,~~Our ~~our~~ current and previous ownership and operation of real property also subjects us to environmental protection laws, some of which hold current or previous owners or operators of businesses and real property liable for hazardous substance releases, even if they did not know of and were not responsible for the releases. If we have any violations of, or incur liabilities pursuant to, these laws or regulations, our financial condition and operating results could be adversely affected.

We could incur significant liabilities and suffer negative publicity if our inspection or detection systems fail to detect bombs, explosives, weapons, contraband or other threats.

We design, develop, manufacture, sell, service and maintain various inspection systems that are designed to assist in the detection of bombs, explosives, weapons, contraband or other threats. In some instances, we also train operators of such systems. Many of these systems utilize software algorithms that are probabilistic in nature and subject to significant technical limitations. Many of these systems are also dependent on the performance of their operators. There are many factors, some of which are beyond our control, which could result in the failure of our products to help detect the presence of bombs, explosives, weapons, contraband or other threats. Some of these factors could include operator error, inherent limitations in our systems, and misuse or malfunction of our systems. The failure of our systems to help detect the presence of any of these dangerous materials could lead to injury, death and extensive property damage and may lead to product liability, professional liability, or other claims against us. Further, if our systems fail to, or are perceived to have failed to help detect a threat, the negative publicity from such incident could have a material adverse effect on our business.

Our insurance may be insufficient to protect us from product and other liability claims or losses.

We maintain insurance coverage with third-party insurers as part of our overall risk management strategy and because some of our contracts require us to maintain specific insurance coverage limits. However, not every risk or liability is or can be protected by insurance, and, for those risks we insure, the limits of coverage we purchase or that are reasonably obtainable in the market may not be sufficient to cover all actual losses or liabilities incurred. If any of our third-party insurers fail, cancel our coverage or otherwise are unable to provide us with adequate insurance coverage, then our overall risk exposure and our operational expenses would increase and the management of our business operations would be disrupted. Our insurance may be insufficient to protect us from significant product and other liability claims or losses. Moreover, there is a risk that commercially available liability insurance will not continue to be available to us at a reasonable cost, if at all. If liability claims or losses exceed our current or available insurance coverage, our business ~~and prospects may be harmed. Regardless of the adequacy of our liability insurance coverages~~, ~~any~~financial ~~significant claim may have an adverse affect on our industry and market reputation~~position, ~~leading~~operating toresults ~~a substantial decrease in demand for our products~~ and ~~services and reduced revenues.~~

16 SAIC, Inc. Annual Report 17

PART I

prospects may be harmed. Regardless of the adequacy of our liability insurance coverages, any significant claim may have an adverse effect on our industry and market reputation, leading to a substantial decrease in demand for our products and services and reduced revenues.

We face risks associated with our international business.

Our international business operations may be subject to additional and different risks than our U.S. business. Failure to comply with U.S. Government laws and regulations applicable to international business, such as the Foreign Corrupt Practices Act or U.S. export control regulations, could have an adverse impact on our business with the U.S. Government and could expose us to administrative, civil or criminal penalties. Additionally, these risks relating to international operations may expose us to potentially significant contract losses.

In some countries, there is an increased chance for economic, legal or political changes that may adversely affect the performance of our services, sale of our products or repatriation of our profits. International transactions can also involve increased financial and legal risks arising from foreign exchange rate variability, imposition of tariffs or additional taxes, restrictive trade policies and differing legal systems. We provide services and products in support of U.S. Government customers in countries with governments that may be or may become unstable, which increases the risk of an incident resulting in injury or loss of life, or damage or destruction of property, or inability to meet our contractual obligations. Although our international operations have historically generated a small proportion of our revenues, we do not know the impact that these regulatory, geopolitical and other factors may have on our business in the future and any of these factors could adversely affect our business.

Our financial results may be adversely affected by our underfunded United Kingdom pension plan.

Our financial results may be adversely impacted by the expense amount that we record for a pension plan that we sponsor in the United Kingdom for plan participants that primarily performed services on aan ~~specific~~expired customer contract~~, which has expired~~. While benefits are no longer accruing under this plan, we have continuing defined benefit pension obligations with respect to certain plan participants.

We recognize all net actuarial gains or losses in excess of 10% of the greater of the market-related value of plan assets or ~~the~~ the plans’ projected benefit obligation (which is referred to as the “corridor”) annually in continuing operations in the fourth quarter of each fiscal year and whenever a plan is remeasured, which may cause our pension expense in our fourth quarter ~~ending~~ ~~January 31~~ to be volatile and our financial results to fluctuate, potentially adversely. Our pension plan expense and the amount and timing of required contributions may also be affected by economic factors, such as the level of return on on pension plan assets and changes in interest rates, legislation and other government regulatory changes.

We have only a limited ability to protect our intellectual property rights, which are important to our success. Our failure to adequately protect our proprietary information and intellectual property rights could adversely affect our competitive position.

We rely principally on trade secrets to protect much of our intellectual property in cases where we do not believe that patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although our employees are subject to confidentiality obligations, this protection may be inadequate to deter or prevent misappropriation of our confidential information. We may be unable to detect unauthorized use of our intellectual property or otherwise take appropriate steps to enforce our rights. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position. If we are unable to prevent third parties from infringing or misappropriating our copyrights, trademarks or other proprietary information, our competitive position could be adversely affected. In addition, in connection with the performance of services, the U.S. Government has certain rights to inventions, data, software codes and related material that we develop under government-funded contracts and subcontracts, which means that U.S. Government may disclose or license our information to third parties, including, in some instances, our competitors.

In the course of conducting our business, we may inadvertently infringe the intellectual property rights of others, resulting in claims against us or our customers. Our contracts generally indemnify our customers for third-party claims for intellectual property infringement by the services and products we provide. The expense of defending these claims may adversely affect our financial results.

Business disruptions caused by natural disasters and other crises could adversely affect our profitability and our overall financial position.

We have significant operations located in regions of the United States that may be exposed to damaging storms and other natural disasters, such as hurricanes, tornadoes, blizzards, flooding, wildfires or earthquakes. Our business could also be disrupted by pandemics and other national or international crises. Although preventative measures may help mitigate the damage from such occurrences, the damage and disruption to our business resulting from any of these events may be significant. If our insurance and other risk mitigation mechanisms are not sufficient to recover all costs, including loss of revenues from sales to customers, we could experience a material adverse effect on our financial position and results of operations. Performance failures and disruptions by our subcontractors due to these types of events may also adversely affect our ability to perform our obligations on a prime contract, which could reduce our profitability due to damages or other costs that may not be fully recoverable from the subcontractor or the customer and could result in a termination of the prime contract and have an adverse effect on our ability to compete for future contracts.

18 SAIC, Inc. Annual Report 17

PART I

significant. If our insurance and other risk mitigation mechanisms are not sufficient to recover all costs, including loss of revenues from sales to customers, we could experience a material adverse effect on our financial position and results of operations. Performance failures and disruptions by our subcontractors due to these types of events may also adversely affect our ability to perform our obligations on a prime contract, which could reduce our profitability due to damages or other costs that may not be fully recoverable from the subcontractor or the customer and could result in a termination of the prime contract and have an adverse effect on our ability to compete for future contracts.

Our financial results may vary significantly from period-to-period.

Our financial results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our financial results may be negatively affected by any of the risk factors listed in this “Risk Factors” section and other matters described elsewhere in this Annual Report on Form 10-K.

Risks Relating to the Proposed Separation Transaction

We are pursuing a plan to spin-off our technical, engineering and enterprise information technology services business into a new, independent publicly traded company. We are incurring significant costs in connection with this transaction, which also requires significant time and attention of our management and we may not be able to complete the transaction or, if the transaction is completed, realize the anticipated benefits.

In August 2012, we announced a plan to separate into two independent public companies through a spin-off of our technical, engineering and enterprise information technology services business. Completion of the transaction will be contingent upon the approval of our board of directors, our receipt of an opinion from tax counsel and a ruling from the IRS as to the tax-free nature of the transaction, the effectiveness of a Registration Statement on Form 10 and certain other conditions. Additionally, our ability to complete the spin-off in a timely manner, if at all, could be affected by several factors, including but not limited to:

•

our ability to obtain any necessary financing for the newly-created entity on acceptable terms;

•

our ability to obtain any necessary consents or approvals;

•

changes in governmental regulations;

•

changes in the underlying businesses, contracts, or customers; and

•

political and economic conditions at the time of the transaction.

For these and other reasons, we may not be able to complete the spin-off within the expected time frame or at all. Even if the transaction is completed, we may not realize some or all of the anticipated benefits from the spin-off, including additional revenues as a result of removing certain organizational conflicts of interest and a reduced cost structure. Moreover, we have incurred and will continue to incur significant costs in connection with this transaction, which has and will affect our profitability and operating results through completion of the transaction. Executing the proposed spin-off also requires significant time and attention from management, which could distract them from other tasks in operating our business and executing our other strategic initiatives.

The proposed spin-off of our technical, engineering and enterprise information technology services business could result in substantial tax liability to us and our stockholders.

Among the conditions to completing the spin-off will be our receipt of a private letter ruling from the IRS and an opinion of tax counsel substantially to the effect that, for U.S. federal income tax purposes, the spin-off and certain related transactions will qualify for tax-free treatment under certain sections of the Internal Revenue Code. However, if the factual assumptions or representations made in the private letter ruling request or the opinion are inaccurate or incomplete in any material respect, including those relating to the past and future conduct of our business, we will not be able to rely on the ruling or the opinion. Furthermore, the opinion will cover certain matters on which the IRS does not rule and will not be binding on the IRS or the courts. Accordingly, the IRS or the courts may challenge the conclusions stated in the opinion and such challenge could prevail.

If, notwithstanding receipt of the private letter ruling and opinion, the spin-off and certain related transactions are determined to be taxable, we would be subject to a substantial tax liability. In addition, if the spin-off transaction is taxable, each holder of our common stock who receives shares of the new company would generally be treated as receiving a taxable distribution of property in an amount equal to the fair market value of the shares received, thereby potentially increasing such holder’s tax liability.

Even if the spin-off otherwise qualifies as a tax-free transaction, the distribution could be taxable to us (but not to our stockholders) in certain circumstances if future significant acquisitions of our stock or the stock of the new technical, engineering and enterprise information technology services company are deemed to be part of a plan or series of related transactions that include the spin-off. In this event, the resulting tax liability could be substantial. In connection with the spin-

SAIC, Inc. Annual Report 19

PART I

off, we expect to enter into a tax matters agreement with the new company, under which it will agree not to enter into any transaction without our consent that could cause any portion of the spin-off to be taxable to us and to indemnify us for any tax liabilities resulting from such transactions. These obligations and potential tax liabilities may discourage, delay or prevent a change of control of us or of the technical, engineering and enterprise information technology services business.

Risks Relating to SAIC’s Stock

We cannot assure you that we will continue to pay dividends on SAIC common stock.

In March 2012, our board of directors approved the initiation of a quarterly dividend program. The timing, declaration, amount and payment of any future dividends fall within the discretion of our board of directors and will depend on many factors, including our available cash, estimated cash needs, earnings, financial condition, operating results, capital requirements, as well as limitations in our contractual agreements, applicable law, regulatory constraints, industry practice and other business considerations that our board of directors considers relevant. A change in our dividend program could have an adverse effect on the market price of SAIC common stock.

Provisions in SAIC’s charter documents and under Delaware law could delay or prevent transactions that many stockholders may favor.

Some provisions of SAIC’s certificate of incorporation and bylaws may have the effect of delaying, discouraging or preventing a merger or acquisition that our stockholders may consider favorable, including transactions in which stockholders might receive a premium for their shares. These restrictions, which may also make it more difficult for our stockholders to elect directors not endorsed by our current directors and management, include the following:

•

SAIC’s certificate of incorporation provides that its bylaws and certain provisions of its certificate of incorporation may be amended by only two-thirds or more voting power of all of the outstanding shares entitled to vote. These supermajority voting requirements could impede our stockholders’ ability to make changes to SAIC’s certificate of incorporation and bylaws.

•

SAIC’s certificate of incorporation contains certain supermajority voting provisions, which generally provide that mergers and certain other business combinations between SAIC and a related person be approved by the holders of securities having at least 80% of SAIC’s outstanding voting power, as well as by the holders of a majority of the voting power of such securities that are not owned by the related person.

•

SAIC’s stockholders may not act by written consent. As a result, a holder, or holders, controlling a majority of SAIC’s capital stock are limited in their ability to take certain actions other than in connection with its annual stockholders’ meeting or a special meeting called at the request of qualified stockholders as provided in SAIC’s certificate of incorporation and bylaws.

•

SAIC’s board of directors may issue, without stockholder approval, shares of undesignated preferred stock. The ability to authorize undesignated preferred stock makes it possible for SAIC’s board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.

As a Delaware corporation, SAIC is also subject to certain restrictions on business combinations. Under Delaware law, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years, or among other things, SAIC’s board of directors has approved the business combination or the transaction pursuant to which such person became a 15% holder prior to the time the person became a 15% holder.

Forward-Looking Statement Risks

You may not be able to rely on forward-looking statements.

This Annual Report on Form 10-K contains forward-looking statements that are based on our management’s belief and assumptions about the future in light of information currently available to our management. In some cases, you can identify forward-looking statements by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” and similar words or phrases or the negative of these words or phrases. These statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable when made, we cannot guarantee future results, levels of activity, performance or achievements. There are a number of important factors that could cause our actual results to differ materially from those results anticipated by our forward-looking statements, which include, but are not limited to:

• ~~uncertainties~~developments ~~related~~in tothe U.S. Government defense budget, including budget reductions, sequestration, implementation of spending limits or changes in budgetary priorities, or delays in the ~~CityTime~~U.S. ~~settlement~~Government budget process or approval of raising the debt ceiling;

~~• developments in the U.S. Government defense budget~~20 SAIC, ~~including budget reductions, implementation of spending limits or changes in budgetary priorities, or delays in the U~~ Inc.S. ~~Government~~Annual ~~budget~~Report ~~process;~~

PART I

•

delays in the U.S. Government contract procurement process or the award of contracts and delays or loss of contracts as a result of competitor protests;

•

changes in U.S. Government procurement rules, regulations, and practices;

•

our compliance with various U.S. Government and other government procurement rules and regulations;

18 SAIC, Inc. Annual Report

PART I

•

governmental reviews, audits and investigations of our company;

•

our ability to effectively compete and win contracts with the U.S. Government and other customers;

•

our ability to attract, train and retain skilled employees, including our management team, and to obtain security clearances for our employees;

•

our ability to accurately estimate costs associated with our firm-fixed-price and other contracts;

• ~~cybersecurity,~~our ~~data~~ability ~~security~~to orcomply ~~other~~with ~~security~~certain ~~threats,~~agreements ~~system~~entered ~~failures~~into orin ~~other~~connection ~~disruptions~~with ofthe ~~our~~CityTime ~~business~~matter;

•

resolution of legal and other disputes with our customers and others or legal or regulatory compliance issues;

•

cybersecurity, data security or other security threats, system failures or other disruptions of our business;

•

our ability to effectively acquire businesses and make investments;

•

our ability to maintain relationships with prime contractors, subcontractors and joint venture partners;

•

our ability to manage performance and other risks related to customer contracts, including complex engineering or design build projects;

•

the failure of our inspection or detection systems to detect threats;

•

the adequacy of our insurance programs designed to protect us from significant product or other liability claims;

• our ability to manage risks associated with our international business; ~~and~~

•

our ability to declare future dividends based on our earnings, financial condition, capital requirements and other factors, including compliance with applicable law and our agreements;

•

risks associated with the proposed spin-off of our technical, engineering and enterprise information technology services business, such as disruption to business operations, unanticipated expenses, significant transaction costs and/or unknown liabilities, the timing of the spin-off or a failure to complete the proposed spin-off or realize the expected benefits of the proposed spin-off; and

•

our ability to execute our business plan and long-term management initiatives effectively and to overcome these and other known and unknown risks that we face.

We do not undertake any obligation to update or revise any of the forward-looking statements to reflect events, circumstances, changes in expectations, or the occurrence of unanticipated events after the date of those statements or to conform these statements to actual results.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

As of January 31, ~~2012~~2013, we conducted our operations in approximately ~~416~~386 offices located in 4245 states, the District of Columbia and various foreign countries. We consider our facilities suitable and adequate for our present needs. We occupy approximately 9.72 million square feet of floor space. Of this amount, we own approximately 2.1 million square feet, and the remaining balance is leased. Our major locations are in the Washington, D.C. and San Diego, California metropolitan areas, where we occupy approximately 3.0 million square feet of floor space and 0.9 million square feet of floor space, respectively. We also have employees working at customer sites throughout the United States and in other countries. As of January 31, 2012, we owned the following properties:

Location	Number ofbuildings		Squarefootage		Acreage
McLean, Virginia		4		896,000		18.3
San Diego, California		4		455,000		11.4
Virginia Beach, Virginia		2		159,000		22.5
Huntsville, Alabama		1		102,000		11.3
Columbia, Maryland		1		95,000		7.3
Colorado Springs, Colorado		1		86,000		5.8
Orlando, Florida		1		85,000		18.0
Oak Ridge, Tennessee		1		83,000		12.5
Dayton, Ohio		2		79,000		4.5
Reston, Virginia		1		62,000		2.6
Richland, Washington		1		24,000		3.1

SAIC, Inc. Annual Report 21

PART I

where we occupy approximately 2.8 million square feet of floor space and 0.6 million square feet of floor space, respectively. We also have employees working at customer sites throughout the United States and in other countries. As of January 31, 2013, we owned the following properties:


Location	Number of buildings		Square footage		Acreage
McLean, Virginia		4		896,000		18.3
San Diego, California		4		455,000		11.4
Virginia Beach, Virginia		2		159,000		22.5
Huntsville, Alabama		1		102,000		11.3
Columbia, Maryland		1		95,000		7.3
Colorado Springs, Colorado		1		86,000		5.8
Orlando, Florida		1		85,000		18.0
Oak Ridge, Tennessee		1		83,000		12.5
Dayton, Ohio		1		44,000		2.5
Reston, Virginia		1		62,000		2.6

As of January 31, 2013, we had five properties comprising 614,000 square feet of floor space that were classified as held for sale in the consolidated financial statements contained within this Annual Report on Form 10-K. Two of these properties were sold subsequent to January 31, 2013.

The nature of our business is such that there is no practicable way to relate occupied space to our reportable segments. See Note 13 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K for information regarding commitments under leases.

Item 3. Legal Proceedings

We have provided information about legal proceedings in which we are involved in Note 17 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

~~SAIC~~In addition to the matters disclosed in Note 17, we are ~~Inc~~routinely subject to investigations and reviews relating to compliance with various laws and regulations. Additional information regarding such investigations and reviews is set forth in Note 18 “Commitments and Contingencies – Government Investigations and Reviews” of the combined notes to the consolidated financial statements contained with this Annual Report 19 on Form 10-K.

PART I

In addition to the matters disclosed in Note 17, we are routinely subject to investigations and reviews relating to compliance with various laws and regulations, including those associated with contract performance and organizational conflicts of interest, with respect to our role as a contractor to governmental agencies and departments and in connection with performing services in countries outside of the United States. Adverse findings in these investigations or reviews can lead to criminal, civil or administrative proceedings and we could face penalties, fines, repayments, compensatory damages or suspension or debarment from doing business with governmental agencies. Adverse findings could also have a material adverse effect on our reputation, our business, consolidated financial position, results of operations and cash flows due to our reliance on government contracts.

Item 4. Mine Safety Disclosures

Not applicable.

2022 SAIC, Inc. Annual Report

PART I

Executive and Other Key Officers of the Registrant

The following is a list of the names and ages (as of March 2726, ~~2012~~2013) of ~~all~~our ofexecutive ~~our~~and other key officers, indicating all positions and offices held by each such person and each such person’s business experience during at least the past five years. Except as otherwise noted, each of the persons listed below has served in his or her present capacity for us for at least the past five years. All such persons have been elected to serve until their successors are elected and qualified or until their earlier resignation or removal. Science Applications became a 100%-owned subsidiary of SAIC in October 2006 through a reorganization merger in connection with SAIC’s initial public offering and listing on the New York Stock Exchange. Accordingly, in the following biographical information, references to terms of service as an ~~executive~~ officer ~~beginning~~that begin or ~~continuing~~continue after the reorganization ~~merger~~ merger refer to service for both companies, while service prior to the reorganization merger refers to service for Science Applications only.

Name of officer	Age	Position(s) with the company and prior business experience
Amy E. Alving	4950	Chief Technology Officer and Senior Vice President since 2007. Dr. Alving held various positions with us since 2005, including serving as Chief Scientist from June 2007 to December 2007. Prior to joining us, Dr. Alving served as the Director of the Special Projects Office with Defense Advanced Research Projects Agency from 2001 to 2005 and was a White House fellow at the Department of Commerce from 1997 to 1998.
Thomas G. Baybrook*	6768	Group Chief of Administration and Operations since February 2013. Mr. Baybrook previously served as Group President (Acting) ~~since~~from October 2011 to January 2013. ~~Upon~~He ~~joining~~held various positions with us since joining in 1999, ~~Mr.~~including ~~Baybrook~~serving ~~led~~as ~~U.S.~~General ~~Navy~~Manager ~~and~~of ~~Marine~~the ~~Corps~~Defense ~~marketing~~and ~~efforts~~Maritime ~~for~~Solutions ~~the~~business ~~then~~unit ~~Systems~~from ~~Engineering~~May ~~group. In~~ 2005, heto ~~served~~October as2011, ~~the~~and Deputy Business Unit Manager ~~prior to becoming General Manager~~ of the Defense and Maritime Solutions business unit from January 2005 to May 2005. Upon joining us, Mr. Baybrook led U.S. Navy and Marine Corps marketing efforts for the then Systems Engineering group. Prior to joining us, Mr. Baybrook held various positions with Intergraph Corporation and he is retired from the U.S. Army.
Joseph W. Craver III*	5354	Sector President, Health and Engineering, since February 2013. Mr. Craver also served in this same role as Group President since 2007. Mr. Craver previously held various positions with us since 1989, including serving in successive line managerial positions from 1997 to 2007. Prior to joining us, Mr. Craver held various positions with the U.S. Navy nuclear submarine program from 1981 to 1989.
James E. Cuff*	5253	Executive Vice President for Corporate Development since 2010. Mr. Cuff has held various positions with us since 1991, including Senior Vice President and General Manager of our Logistics and Engineering Solutions business unit from April 2001 to August 2010. Prior to joining us through our acquisition of Logistics Systems Architects in 1991, Mr. Cuff served four years in several senior positions, and seven years in the private sector systems integration business, serving in a variety of management and business development positions.
Steven P. Fisher	5152	Treasurer and Senior Vice President since 2001. Mr. Fisher has held various positions with us since 1988, including serving as Assistant Treasurer and Corporate Vice President for Finance from 1997 to 2001 and Vice President from 1995 to 1997.
John R. Hartley*	4647	Senior Vice President and Corporate Controller since 2005. Mr. Hartley has held various positions within our finance organization since 2001. For 12 years prior to that, Mr. Hartley was with the accounting firm currently known as Deloitte & Touche LLP.
Deborah L. James*	5354	Sector President, Technical and Engineering, of the Government Solutions Group since February 2013. Ms. James served as Executive Vice President for Communications and Government Affairs ~~since~~from August 2010. ~~Ms.~~to ~~James~~January ~~served~~2013 and as Business Unit General Manager for the Command, Control, Communications, Computers, and Information Technology business unit from March 2005 to August 2010. Immediately prior to joining us in 2002, Ms. James was the Executive Vice President and Chief Operating Officer of the Business Executives for National Security. She has served in senior homeland and national security management, policy and program positions in government and the private sector for more than 25 years.

SAIC, Inc. Annual Report 2123

PART I

Name of officer	Age	Position(s) with the company and prior business experience
John P. Jumper*	6768	Chair of the Board since June 2012, Chief Executive Officer and President since March 2012 and Director since ~~2005~~2007. General ~~John P.~~ Jumper retired from the United States Air Force in 2005 after nearly 40 years of service. From September 2001 to November 2005, ~~General~~he ~~Jumper~~ was the Chief of Staff of the United States Air Force, serving as the senior uniformed Air Force officer responsible for the organization, training and equipping of 750,000 active-duty, ~~guard~~Air National Guard, ~~reserve~~Air Force Reserve and civilian forces serving inaround the ~~United States and overseas~~world. As a member of the Joint Chiefs of Staff, General Jumper functioned as a military advisor to the Secretary of Defense, National Security Council and the President. General Jumper iscurrently ~~also~~serves aas ~~member~~an ofindependent ~~the~~director ~~Boards~~on ofthe ~~Directors~~boards of ~~Goodrich Corporation,~~ NACCO Industries, Inc., and ~~Wesco~~Hyster-Yale ~~Aircraft~~Materials ~~Hardware~~Handling, Inc., Heboth ~~was~~publicly traded companies. He previously aserved ~~director~~on the boards of ~~TechTeam~~Goodrich ~~Global~~Corporation, Jacobs Engineering Group, Inc., ~~until~~WESCO ~~May~~Aircraft ~~2009~~Holdings, Inc., Somanetics Corporation ~~until June 2010~~, and ~~Jacobs~~Tech ~~Engineering~~Team ~~Group~~Global, Inc. ~~until February 2012.~~
Brian F. Keenan*	5556	Executive Vice President for Human Resources since 2007. Mr. Keenan previously held various positions with us since 2000, including serving as Vice President and Director of U.S. Human Resource operations from 2004 to 2007. Prior to joining us, Mr. Keenan held various positions with Mobil and ExxonMobil from 1985 to 2000.
Vincent A. Maffeo*	6162	Executive Vice President and General Counsel since 2010. Prior to joining us in June 2010, from 1977 to 2009, Mr. Maffeo was with ITT Corporation, a high-technology engineering and manufacturing company, where he served as Senior Vice President and General Counsel from 1995 until 2009. He held various other increasingly responsible legal positions at ITT Corporation in the telecommunications, defense and automotive businesses, and at the European Headquarters of ITT Europe, before becoming General Counsel.
Anthony J. Moraco*	5253	Group President, Government Solutions, since February 2013. Mr. Moraco previously served as Group President, Intelligence, Surveillance and Reconnaissance, from March 2012 to February 2013. Mr. Moraco ~~also~~ served as Executive Vice President for Operations and Performance Excellence from August 2010 to March 2012 and as Business Unit General Manager and deputy of the Space and Geospatial Intelligence business unit from February 2006 to August 2010. Prior to joining us in 2006, Mr. Moraco was with the Boeing Company from 2000 to 2006 and served as the Deputy General Manager of Mission Systems in the Space & Intelligence Systems organization and also the Director of Homeland Security Technology Integration.
K. Stuart Shea*	5556	Chief Operating Officer since March 2012. Mr. Shea also served as Group President from 2007 to March 2012 and as Senior Vice President and Business Unit General Manager from 2005 to 2007. Prior to joining us, Mr. Shea served as Vice President and Executive Director of Northrop Grumman Corporation’s TASC Space and Intelligence operating unit from 1999 to 2005, and led other organizations from 1987 to 1999. Mr. Shea held positions with PAR Technology Corporation from 1982 to 1987.
Mark W. Sopp*	4647	Executive Vice President and Chief Financial Officer since 2005. Prior to joining us, Mr. Sopp served as Senior Vice President, Chief Financial Officer and Treasurer of Titan Corporation, a defense and intelligence contractor, from April 2001 to July 2005 and Vice President and Chief Financial Officer of Titan Systems Corporation, a subsidiary of Titan Corporation, from 1998 to 2001.

24 SAIC, Inc. Annual Report

PART I


Name of officer	Age	Position(s) with the company and prior business experience

John D. Thomas	66	Sector President (Acting), National Security, since February 2013. Mr. Thomas also served as Senior Vice President and Business Unit General Manager of the Intelligence Systems Business Unit from February 2011 to February 2013, and General Manager of Operations, Intelligence and Security Business Unit from October 2004 to February 2011. Mr. Thomas joined SAIC in 2002 as an executive for U.S. Army intelligence programs within the then-Intelligence Solutions Group following a 33-year career in the U.S. Army, where he retired with the rank of major general.

*	Indicates an executive officer.

Pursuant to General Instruction G(3) of General Instructions to Form 10-K, the list above is included as an unnumbered Item in Part I of this Annual Report on Form 10-K in lieu of being incorporated by reference from the definitive Proxy Statement to be used in connection with the solicitation of proxies for SAIC’s ~~2012~~2013 Annual Meeting of Stockholders (~~2012~~2013 Proxy Statement).

22 SAIC, Inc. Annual Report 25

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

SAIC’s common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol “SAI.” Science Applications is a wholly-owned subsidiary of SAIC and there is no public trading market for common stock of Science Applications.

Historical Stock Prices

The range of high and low sales prices at closing of SAIC’s common stock on the NYSE for each fiscal quarter during the last two fiscal years was as follows:


	Fiscal 2013
Fiscal Quarter	High		Low
1^stquarter (February 1, 2012 to April 30, 2012)	$	13.61	$	11.98
2^ndquarter (May 1, 2012 to July 31, 2012)	$	12.26	$	10.38
3^rdquarter (August 1, 2012 to October 31, 2012)	$	12.98	$	10.80
4^thquarter (November 1, 2012 to January 31, 2013)	$	12.21	$	10.92


	Fiscal 2012
Fiscal Quarter	High		Low
1^stquarter (February 1, 2011 to April 30, 2011)	$	17.55	$	15.88
2^ndquarter (May 1, 2011 to July 31, 2011)	$	17.56	$	16.03
3^rdquarter (August 1, 2011 to October 31, 2011)	$	15.59	$	11.32
4^thquarter (November 1, 2011 to January 31, 2012)	$	13.26	$	11.26

	Fiscal 2011
Fiscal Quarter	High		Low
1st quarter (February 1, 2010 to April 30, 2010)	$	19.70	$	17.20
2nd quarter (May 1, 2010 to July 31, 2010)	$	18.09	$	16.43
3rd quarter (August 1, 2010 to October 31, 2010)	$	17.16	$	14.88
4th quarter (November 1, 2010 to January 31, 2011)	$	16.69	$	15.13

Holders of Common Stock

As of March 98, ~~2012~~2013, there were approximately 3230,600 holders of record of SAIC common stock. The number of stockholders of record of SAIC common stock is not representative of the number of beneficial owners due to the fact that many shares are held by depositories, brokers, or nominees. SAIC is the holder of record of all Science Applications’ common stock.

Dividend Policy

Prior to fiscal 2013, SAIC ~~has~~did ~~never~~not ~~paid~~pay any cash dividends on its capital stock. InDuring ~~March~~fiscal ~~2012~~2013, SAIC’s ~~board~~declared ofand ~~directors~~paid ~~approved the initiation of a~~ quarterly ~~dividend~~dividends ~~and~~totaling ~~declared a dividend of~~ $0.1248 per share of SAIC common stock ~~payable on April 30, 2012 to stockholders of record on April 16, 2012~~. SAIC currently intends to continue paying dividends on a quarterly basis, although the declaration of any future dividends will be determined by SAIC’s board of directors and will depend on available cash, estimated cash needs, earnings, financial condition, operating results, capital requirements, ~~applicable~~as well as limitations in our contractual ~~restrictions~~agreements, applicable law, regulatory constraints, industry practice and other ~~factors~~business considerations that our board of directors ~~deems~~considers relevant. InOur ~~addition, our~~ ability to declare and pay future dividends on SAIC stock may be restricted by the provisions of Delaware law and covenants in our revolving credit facility.

InFollowing ~~connection with~~ the ~~October 2006~~ reorganization merger (in which ~~Science~~it ~~Applications~~ became a subsidiary of SAIC~~) and initial public offering~~, Science Applications ~~declared a special dividend. Science Applications~~ has ~~never~~ not declared or paid cash dividends to ~~its sole stockholder,~~ SAIC~~, following the reorganization merger~~. Science Applications may declare and pay cash dividends to SAIC from time to time, but there is no present intention to do so in the foreseeable future.

26 SAIC, Inc. Annual Report 23

PART II

Stock Performance Graph

The following graph compares the total cumulative five-year return on SAIC common stock through our fiscal year ended January 31, ~~2012~~2013 to two indices: (i) the Standard & Poor’s 500 Composite Stock Index and (ii) the Standard & Poor’s North American Technology-Services Index (formerly known as the Goldman Sachs Technology-Services Index). As of January 31, ~~2012~~2013, SAIC common stock was a component of each of the comparison indices. The graph assumes an initial investment of $100 on February 1, ~~2007~~2008 and that dividends, if any, have been reinvested. The comparisons in the graph are required by the SEC, based upon historical data and are not intended to forecast or be indicative of possible future performance of SAIC common stock.

LOGO

Purchases of Equity Securities

In ~~December~~March ~~2010~~2012, our board of directors authorized a stock repurchase program (~~the~~2012 ~~2010~~Stock Repurchase Program) under which we ~~could~~may repurchase up to 40 million shares of SAIC common stock. As of January 31, 2012, we repurchased an aggregate of 36 million shares under the 2010 Repurchase Program. In March 2012, our board of directors terminated the 2010 Repurchase Program and authorized a new stock repurchase program under which we may repurchase up to 40 million shares of SAIC common stock. Stock repurchases may be made on the open market or in privately negotiated transactions with third parties. Whether repurchases are made and the timing and actual number of shares repurchased depends on a variety of factors including price, corporate capital requirements, other market conditions and regulatory requirements.

The following table presents repurchases of SAIC’s common stock during the quarter ended January 31, ~~2012~~2013:

Period	(a) Total Number ofShares (or Units)Purchased (1)		(b)Average PricePaid per Share(or Unit)		(c) Total Number ofShares (orUnits) Purchased asPart of PubliclyAnnouncedRepurchase Plansor Programs (2)		(d)Maximum Number(or ApproximateDollar Value) ofShares (or Units)that May Yet BePurchased Underthe Plans orPrograms (2)
November 1, 2011 – November 30, 2011		8	$	11.88		—		3,825,495
November 1, 2012 – November 30, 2012		9,549	$	11.05		—		40,000,000
December 1, 2011 – December 31, 2011		22,313	$	12.19		—		3,825,495
December 1, 2012 – December 31, 2012		34,325	$	11.52		—		40,000,000
January 1, 2012 – January 31, 2012		880	$	12.29		—		3,825,495
January 1, 2013 – January 31, 2013		4,156	$	11.99		—		40,000,000
Total		2348,~~201~~030	$	1211.1947		—

⁽¹⁾	Includes shares of SAIC common stock purchased as follows:

November

December

January

Upon surrender by stockholders of previously owned shares to satisfy statutory tax withholding obligations related to vesting of stock awards

89,549

2234,~~313~~325

~~880~~4,156

(2) ~~The~~We ~~2010~~may ~~Repurchase~~repurchase ~~Program~~up ~~was~~to ~~publicly~~40 ~~announced~~million inshares ~~December~~of ~~2010~~SAIC ~~and~~common ~~was~~stock ~~terminated~~under ~~and~~the ~~replaced~~2012 ~~with~~Stock aRepurchase ~~new~~Program, ~~plan~~which was publicly announced in March 2012.

24 SAIC, Inc. Annual Report 27

PART II

Item 6. Selected Financial Data

The selected financial data set forth below is derived from our consolidated financial statements for each of the fiscal years in the five year period ended January 31, ~~2012~~2013. As SAIC is a holding company and it consolidates Science Applications for financial statement purposes, the following financial data relates to both companies, except where otherwise indicated. Science Application’s revenues and expenses comprise 100% of SAIC’s revenues and operating expenses. In addition, Science Applications comprises approximately the entire balance of SAIC’s assets, liabilities and operating cash flows, except for aan interest-bearing note ~~receivable~~between ~~from~~ Science Applications toand SAIC ~~on which Science Applications pays interest~~.

This information should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II and our consolidated financial statements and the combined notes thereto contained within this Annual Report on Form 10-K.

	Year Ended January 31
	2012(1)			2011			2010		2009		2008
	2013			2012(1)			2011		2010		2009
	(in millions, except per share data)
Consolidated Statement of Income Data:
SAIC:
Revenues	$	1011,~~587~~173		$	10,~~921~~497		$	10,~~580~~798	$	910,~~768~~445	$	89,~~592~~635
Operating income		~~311~~734			~~947~~299			~~836~~929		~~747~~816		~~638~~731
Income (loss) from continuing operations		(8523	)		~~558~~(15	)		~~479~~547		~~428~~467		~~367~~418
Income from discontinued operations		672			6174			1772		1829		4928
Net income		59525			~~619~~59			~~496~~619		~~446~~496		~~416~~446
Earnings per share:
Basic:
Income (loss) from continuing operations	$	(1.0254	)	$	1(.4804	)	$	1.2046	$	1.0517	$	1.8903
Income from discontinued operations		~~.20~~—			.1722			.0519		.0508		.1107
	$	1.1854		$	1.6518		$	1.2565	$	1.1025	$	1.0010
Diluted:
Income (loss) from continuing operations	$	(1.0254	)	$	1(.4804	)	$	1.1945	$	1.0316	$	1.8601
Income from discontinued operations		~~.20~~—			.1622			.0419		.0507		.1207
	$	1.1854		$	1.6418		$	1.2364	$	1.0823	$	1.9808
Cash dividend per common share	$	.48			—			—		—		—
Science Applications:
Revenues	$	1011,~~587~~173		$	10,~~921~~497		$	10,~~580~~798	$	910,~~768~~455	$	89,~~592~~635
Operating income		~~311~~734			~~947~~299			~~836~~929		~~747~~816		~~638~~731
Income (loss) from continuing operations		~~(11~~524	)		~~550~~(18	)		~~465~~539		~~401~~453		~~322~~391
Income from discontinued operations		672			6174			1772		1829		4928
Net income		56526			~~611~~56			~~482~~611		~~419~~482		~~371~~419
	January 31
	2012			2011			2010		2009		2008
	2013			2012			2011		2010		2009
	(in millions)
Consolidated Balance Sheet Data:
Total assets	$	65,~~667~~875		$	6,~~223~~667		$	56,~~295~~223	$	5,~~048~~295	$	45,~~983~~048
Notes payable and long-term debt, including current portion		1,~~852~~298			1,852			1,~~106~~852		1,~~116~~106		1,~~228~~116
Other long-term liabilities		~~162~~168			~~135~~162			~~195~~135		~~180~~195		~~145~~180

⁽¹⁾	Fiscal 2012 results include a $540 million loss provision recorded in connection with resolution of the CityTime matter described in Note 17 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

28 SAIC, Inc. Annual Report 25

PART II

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following combined discussion and analysis of SAIC’s and Science Applications’ financial condition and results of operations and quantitative and qualitative disclosures about market risk should be read in conjunction with our consolidated financial statements and related combined notes. As SAIC is a holding company and consolidates Science Applications for financial statement purposes, disclosures that relate to activities of Science Applications also apply to SAIC, unless otherwise noted. Science Applications’ revenues and expenses comprise 100% of SAIC’s revenues and operating expenses. In addition, Science Applications comprises approximately the entire balance of SAIC’s assets, liabilities and operating cash flows. Therefore, the following qualitative discussion is applicable to both SAIC and Science Applications, unless otherwise noted.

The following discussion contains forward-looking statements, including statements regarding our intent, belief, or current expectations with respect to, among other things, trends affecting our financial condition or results of operations, backlog, our industry, government budgets and spending and the impact of competition. Such statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. See “Risk Factors—Forward-Looking Statement Risks” in Part I of this Annual Report on Form 10-K. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Risk Factors.” Due to such uncertainties and risks, you are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We do not undertake any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments.

We use the terms “Company”, “we”, “us” and “our” to refer to SAIC, Science Applications and its consolidated subsidiaries. Unless otherwise noted, references to years are for fiscal years ended January 31. For example, we refer to the fiscal year ended January 31, ~~2012~~2013 as “fiscal ~~2012~~2013.” All information for the periods presented in this section has been recast to give effect to the change in reportable segments and for discontinued operations.

Overview

Our business is focused on using deep domain knowledge to solve issues of vital importance to the nation and the world in the areas of national security, energy and the environment, ~~health~~critical infrastructure and ~~cybersecurity~~health. We are focusing our investments in our strategic growth areas including: intelligence, surveillance and reconnaissance; cybersecurity; logistics, readiness and sustainment; energy and environment; and health information technology. Our significant long-term management initiatives include:

•

achieving internal, or non-acquisition related, annual revenue growth through internal collaboration and better leveraging of key differentiators across our company and the deployment of resources and investments into higher growth markets;

•

improving our operating income margin through strong contract execution and growth in higher-margin business areas and continued improvement in our information technology (IT) systems infrastructure and related business processes for greater effectiveness and efficiency across all business functions;

•

disciplined deployment of our cash resources and use of our capital structure to enhance growth and stockholder value through internal growth initiatives, strategic acquisitions, stock repurchases, dividends and other uses as conditions warrant; and

•

investing in our people, including enhanced training and career development programs, with a focus on retention and recruiting.

Key financial events, including progress against management’s initiatives, during fiscal ~~2012~~2013 include:

• Revenues for fiscal ~~2012~~2013 ~~decreased~~increased $~~334~~676 million, ~~or 3%,~~ over the prior year. ~~with~~Fiscal ~~internal~~2012 ~~revenue~~revenues ~~contraction~~were ~~(as~~negatively ~~defined~~impacted inby ~~“Non-GAAP~~$410 ~~Financial~~million ~~Measures”)~~related to the portion of ~~4%.~~the ~~The~~CityTime ~~internal~~loss ~~revenue~~provision ~~contraction~~recorded ~~was~~against ~~driven~~revenues ~~primarily~~(see byNote 17 of the ~~portion~~combined ofnotes to the ~~CityTime~~consolidated ~~loss~~financial ~~provision~~statements). ~~recorded~~The ~~against~~remainder ~~revenues~~of ~~for~~the ~~fiscal~~year-over-year ~~2012~~revenue ~~($410~~increase ~~million)~~was due to increased activity in our Defense Solutions and Intelligence and Cybersecurity Solutions segments, as well as recent acquisitions of businesses by our Health, Energy and Civil Solutions segment, ~~described~~partially offset by a decrease in ~~Note~~revenue 17in ofother ~~the~~portions ~~combined~~of ~~notes~~our toHealth, ~~the~~Energy ~~consolidated~~and ~~financial~~Civil ~~statements~~Solutions segment.

~~• Operating income decreased $636 million to $311 million (2~~SAIC, Inc.9% asAnnual aReport 29 ~~percentage of revenues) for fiscal 2012 from $947 million (8.7% as a percentage of revenues) for fiscal 2011 primarily reflecting the CityTime loss provision recorded for~~

26 SAIC, Inc. Annual Report

PART II

~~fiscal~~• ~~2012~~Operating (income increased $~~540~~435 million) ~~described~~to in$734 ~~Note~~million 17(6.6% as a percentage of ~~the~~revenues) ~~combined~~for ~~notes~~fiscal to2013 ~~the~~from ~~consolidated~~$299 ~~financial~~million ~~statements,~~(2.8% ~~the~~as ~~impairment~~a percentage of ~~certain~~revenues) ~~intangible~~for ~~assets~~fiscal ~~associated~~2012. ~~with~~The aincrease ~~previous~~in ~~business~~operating ~~acquisition~~income is primarily due to the loss provision ($19540 million) ~~and~~recorded ~~increased~~in ~~investment~~fiscal 2012 in ~~internal~~connection ~~research~~with ~~and~~the ~~development~~CityTime ~~activities~~matter partially offset by separation transaction expenses ($38 million) incurred in fiscal 2013.

• Income (loss) from continuing operations for fiscal ~~2012~~2013 ~~decreased~~increased $~~566~~538 million as compared to fiscal ~~2011~~2012 primarily due to ~~decreased~~the increase in operating income, ofas ~~$636~~well ~~million~~as ~~and~~a ~~increased~~decrease in interest expense ofand ~~$35~~a ~~million~~significantly ~~resulting~~lower ~~from~~effective ~~the~~tax ~~December~~rate ~~2010~~as ~~debt~~a ~~issuance~~result ~~partially~~of ~~offset by~~ a ~~decrease~~change in the ~~provision~~estimated ~~for~~tax ~~income~~deductible ~~taxes~~amount of ~~$99~~the ~~million~~CityTime loss provision.

• Diluted earnings ~~(loss)~~ per share from continuing operations for fiscal ~~2012~~2013 ~~decreased~~increased $1.5058 per share to $(01.~~02)~~54 per share as compared to fiscal ~~2011~~2012 primarily due to athe ~~$566~~increase ~~million decrease~~ in income (loss) from continuing operations.

• Cash and cash equivalents ~~increased~~decreased $~~225~~856 million during fiscal ~~2012~~2013, ~~reflecting~~primarily ~~$772~~due ~~million~~to ~~generated~~cash ~~from~~used ~~operations~~to ~~and~~settle ~~net~~notes ~~proceeds~~payable at maturity of $~~167~~550 million, ~~received~~acquire ~~from~~a ~~the~~business ~~sale~~for of$483 ~~components~~million, net of ~~our~~cash ~~business~~acquired, and ~~$78~~pay ~~million~~dividends ~~from the sale~~ of ~~real~~$165 ~~estate~~million, partially offset by cash ~~used~~generated tofrom ~~acquire~~operations ~~two~~of ~~businesses totaling~~ $~~218~~345 million ~~and cash used for stock repurchases totaling $471 million~~.

• Net bookings (as defined in “Key ~~Financial~~Performance ~~Metrics~~Measures—Bookings and Backlog”) were approximately $11.81 billion for fiscal ~~2012~~2013, as compared to $1211.67 billion in the prior year. Total backlog was $1817.09 billion at January 31, ~~2012,~~2013 anand ~~increase of approximately $883 million from January 31, 2011~~2012.

Subsequent to the end of fiscal 2013, ~~2012~~in addition to the declaration of a regular quarterly cash dividend of $0.12 per share of SAIC common stock payable on April 30, 2013, our board of directors ~~approved~~declared ~~the~~a ~~initiation~~special cash dividend of a$1.00 ~~quarterly~~per ~~dividend~~share of SAIC common stock payable on June 28, 2013.

Planned Separation Transaction

The proposed separation is intended to take the form of a tax-free spin-off of the technical, engineering and enterprise information technology services business. The technical, engineering, and information technology services business had revenues of $4.7 billion for fiscal 2012. The separation transaction is expected to occur in the latter half of calendar year 2013, subject to final approval of the board of directors and certain other customary conditions. The separation transaction does not require a vote of the stockholders of SAIC.

In connection with the proposed separation transaction and in order to align our cost structure for greater competitiveness, we expect to take actions to reduce our real estate footprint by vacating facilities that are not necessary for our future requirements. We expect these actions will result in an aggregate of approximately $70 million in lease termination and facility consolidation costs over fiscal 2014 and fiscal 2015, which is expected to generate annualized cost savings of approximately $70 million. We also expect to incur additional separation transaction expenses of approximately $40 million in fiscal 2014, as well as approximately $10 million of incremental severance costs related to organizational streamlining.

Management is continuing to develop detailed plans on capital structure, management, governance and other significant matters. In addition, the completion of the separation transaction will be subject to certain customary conditions, including implementation of intercompany agreements, filing of required documents with the U.S. Securities and Exchange Commission and receipt of an opinion from tax counsel and a ruling from the Internal Revenue Service (IRS) as to the tax-free nature of the transaction. Although we expect that the separation of our businesses will be consummated, there can be no assurance that a separation will ultimately occur. Upon completion of the separation transaction, the operating results of the separated business will be included in discontinued operations. See “Risk Factors” in Part 1 of this Annual Report for on Form 10-K, which includes certain risk factors relating to the proposed separation transaction.

Business Environment and Trends

In fiscal ~~2012~~ 2013, we generated ~~over~~approximately 9087% of our total revenues from contracts with the U.S. Government, either as a prime contractor or a subcontractor to other contractors engaged in work for the U.S. Government. Revenues under contracts with the DoD, including subcontracts under which the DoD is the ultimate purchaser, represented approximately 7570% of our total revenues in fiscal ~~2012~~2013. Accordingly, our business performance is ~~subject~~affected toby ~~changes in~~ the overall level of U.S. Government spending, especially national security, including defense, homeland security, and intelligence spending, and the alignment of our service and product offerings and capabilities with current and future budget priorities of the U.S. Government. As an example, we expect to see a reduction in revenue of approximately $250 million from fiscal 2013 to fiscal 2014 on our contract to provide logistics services for tactical mine resistant ambush protected vehicles largely as a result of the drawdown of forces in the Middle East.

~~While we believe that national security~~30 SAIC, ~~including defense, homeland security, and intelligence spending will continue to be a priority, the U.S. Government~~ ~~deficit and budget situation has created increasing pressure to examine and reduce spending in these areas~~Inc. InAnnual ~~August~~Report 2011, President Obama signed into law the Budget Control Act of 2011, which increased the U.S. Government’s debt ceiling and enacted 10-year discretionary spending caps which are expected to generate over $1 trillion in savings for the U.S. Government. According to the Office of Management and Budget, these savings include $487 billion in DoD baseline spending reductions over the next 10 years. The Budget Control Act also established a joint bipartisan committee of Congress responsible to recommend at least $1.2 trillion in additional savings by November 23, 2011. The joint committee did not meet the November 23, 2011 deadline for proposing recommended legislation. Due to that failure, unless Congress passes and the President signs legislation amending the Budget Control Act, additional automatic spending cuts (referred to as sequestration) totaling $1.2 trillion over 10 years will be triggered. These spending cuts are expected to further reduce DoD and homeland security spending by approximately $500 billion and other federal agency spending by approximately $700 billion over that timeframe, beginning in the government fiscal year ending September 30, 2013 (GFY13). We are evaluating the potential impacts of this legislation on our business, and while the ultimate effect on our business is uncertain, the amount and nature of these federal budget spending reductions could adversely impact our future revenues and growth prospects in those markets.

In January 2012, the DoD issued strategic guidance on the U.S. defense priorities for the next ten years, which identified the primary missions of the U.S. armed forces and the capabilities expected to be critical to future success, including intelligence, surveillance and reconnaissance and cybersecurity. Although the impact of implementation of the strategic guidance on the DoD budget and our business is uncertain, we believe that we are well positioned to support many of these critical capabilities.

In February 2012, the Office of Management and Budget released the President’s GFY13 budget request. The budget request included a variety of tax proposals aimed at boosting the economy while collecting more revenue from high-income taxpayers, and as expected, it also included discretionary spending reductions stipulated by the Budget Control Act of 2011. Ultimately, we believe we will likely see delayed federal appropriation bills for GFY13, with continuing resolutions required to fund government into early GFY13 (late calendar year 2012), as well as the continued threat of possible additional spending cuts through sequestration.

Competition for contracts with the U.S. Government continues to be intense. The U.S. Government has increasingly used contracting processes that give it the ability to select multiple winners or pre-qualify certain contractors to provide various services or products at established general terms and conditions. Such processes include purchasing services and solutions

SAIC, Inc. Annual Report 27

PART II

While we believe that national security, including defense, homeland security, and intelligence spending will ~~using~~continue ~~indefinite~~to be a priority, the U.S. Government budget deficit and the national debt has created increasing pressure to examine and reduce spending across all federal agencies. Baseline spending for the DoD for the next 10 years has been reduced and there may be further reductions. The Budget Control Act of 2011 increased the U.S. Government’s debt ceiling and enacted 10-~~delivery/indefinite-quantity~~year discretionary spending caps expected to generate over $1 trillion in savings for the U.S. Government. According to the Office of Management and Budget, these savings include $487 billion in DoD baseline spending reductions over the next 10 years. In addition, the Budget Control Act of 2011 provides for additional automatic spending cuts (~~IDIQ~~referred to as sequestration) ~~and~~totaling $1.2 trillion over nine years, which are being implemented beginning in the current U.S. ~~General~~Government ~~Services~~fiscal ~~Administration~~year ending September 30, 2013 (~~GSA~~GFY13). ~~contract~~Although ~~vehicles.~~the ~~This~~Office ~~trend~~of Management and Budget has ~~served~~recently provided guidance to ~~increase~~agencies ~~competition~~on ~~for~~implementing sequestration cuts, there remains much uncertainty about how exactly sequestration cuts will be implemented and the impact it will have on contractors supporting the U.S. Government ~~contracts~~. The continuing ~~For~~threat ~~more~~of ~~information~~spending oncuts ~~these~~and ~~risks~~associated government guidance and ~~uncertainties,~~planning ~~see~~activities ~~“Risk~~are ~~Factors”~~causing delays in ~~Part~~government Icontracting actions. We continue to evaluate the potential impact of ~~this~~budget ~~Annual~~cuts ~~Report~~and sequestration on ~~Form~~our ~~10-K~~business, and while the ultimate effect on our business is uncertain, the amount and nature of these federal budget spending reductions could adversely impact our operations, future revenues and growth prospects in those markets.

The U.S. Government has funding measures in place through September 30, 2013. These funding measures include individual spending bills for certain government agencies, including DoD and DHS, and implement $85 billion of sequestration cuts for GFY13. Agencies and departments not covered by these individual spending bills will continue to operate under a continuing resolution with standard restrictions, including no new program starts and no program increases beyond current service levels, which could adversely impact our future revenues and growth prospects.

Trends in the U.S. Government contracting process, including a shift towards multiple-awards contracts (in which certain contractors are preapproved using indefinite-delivery/indefinite-quantity (IDIQ) and U.S. General Services Administration (GSA) contract vehicles) and awarding contracts on a low price, technically acceptable basis, have increased competition for U.S. Government contracts and increased pricing pressure. For example, during fiscal 2013, we were not awarded the successor contract to the DISN Global Solutions (DGS) program with the Defense Information Systems Agency. In fiscal 2013, we recognized approximately $425 million in revenue on this program. Revenues from the DGS program are expected to be approximately $40 million over the first half of fiscal 2014 as the activity transitions to the successor contractor. We expect that a majority of the business that we seek in the foreseeable future will be awarded through a competitive bidding process. For more information on these risks and uncertainties, see “Risk Factors” in Part I of this Annual Report on Form 10-K.

Reportable Segments

Our business is aligned into four reportable segments: Defense Solutions; Health, Energy and Civil Solutions; Intelligence and Cybersecurity Solutions; and Corporate and Other. Except with respect to “Results of Operations—Discontinued Operations” and “—Net Income,” and “—Diluted EPS,” all amounts in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are presented for our continuing operations. For additional information regarding our reportable segments, see “Business” in Part I and Note 15 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

Key ~~Financial~~Performance ~~Metrics~~Measures

~~Bookings~~The ~~and~~primary ~~Backlog.~~financial Weperformance ~~received~~measures ~~net~~we ~~bookings~~use ~~worth~~to anmanage ~~estimated $11.8 billion and $12.6 billion~~our ~~during~~business ~~fiscal 2012~~ and ~~2011,~~monitor ~~respectively.~~results ~~Net~~of ~~bookings~~operations ~~represent~~are ~~the estimated amount of~~ revenue, tooperating beincome ~~earned~~and incash ~~the~~flows ~~future~~ from ~~funded and unfunded contract awards that were received during the year, net of any adjustments to previously awarded backlog amounts~~operations. We ~~calculate~~also ~~net~~believe that bookings asand ~~the year’s ending~~ backlog ~~plus~~are ~~the~~useful ~~year’s~~measures ~~revenues~~for ~~(excluding~~management ~~the~~and ~~portion~~investors ofto ~~the~~evaluate ~~CityTime~~our ~~loss~~potential ~~provision~~future ~~of $410 million recorded against~~ revenues. ~~during~~In addition, ~~fiscal~~we ~~2012~~consider ~~because~~measures such ~~loss~~as ~~did~~contract ~~not impact~~types ~~net~~and ~~bookings)~~revenue ~~less~~mix ~~the~~to ~~prior~~be ~~year’s~~useful ~~ending~~measures ~~backlog~~to management and ~~less~~investors ~~the~~evaluating ~~backlog~~our ~~obtained~~operating inincome ~~acquisitions~~and ~~during~~margin ~~the year~~performance.

Bookings and Backlog. We had net bookings worth an estimated $11.1 billion and $11.7 billion during fiscal 2013 and fiscal 2012, respectively. Net bookings represent the estimated amount of revenue to be earned in the future from funded and unfunded contract awards that were received during the year, net of any adjustments to previously awarded backlog amounts. We calculate net bookings as the year’s ending backlog plus the year’s revenues (excluding the portion of the CityTime loss provision of $410 million recorded against revenues during fiscal 2012 because such loss did not impact net bookings) less the prior year’s ending backlog and less the backlog obtained in acquisitions during the year.

Backlog represents the estimated amount of future revenues to be recognized under negotiated contracts as work is performed. We segregate our backlog into two categories as follows:

• Funded Backlog. Funded backlog for contracts with government agencies primarily represents contracts for which funding is appropriated less revenues previously recognized on these contracts, and does not include the unfunded portion of contracts where funding is incrementally appropriated or authorized on a quarterly or annual basis by the U.S. Government and other customers, even though the contract may call for performance over a number of years. Funded backlog for contracts with non-government agencies represents the estimated value on contracts, which may cover multiple future years, under which we are obligated to perform, less revenues previously recognized on these contracts.

SAIC, Inc. Annual Report 31

PART II

backlog for contracts with non-government agencies represents the estimated value on contracts, which may cover multiple future years, under which we are obligated to perform, less revenues previously recognized on these contracts.

•

Negotiated Unfunded Backlog. Negotiated unfunded backlog represents estimated amounts of revenue to be earned in the future from (1) negotiated contracts for which funding has not been appropriated or otherwise authorized and (2) unexercised priced contract options. Negotiated unfunded backlog does not include any estimate of future potential task orders expected to be awarded under IDIQ, GSA Schedule, or other master agreement contract vehicles.

The estimated value of our total backlog as of the end of the last two fiscal years was as follows:

	January 31
	2012		2011
	2013		2012
	(in millions)
Defense Solutions:
Funded backlog	$	21,~~143~~972	$	2,~~272~~143
Negotiated unfunded backlog		4,~~961~~400		54,~~400~~961
Total Defense Solutions backlog	$	76,~~104~~372	$	7,~~672~~104
Health, Energy and Civil Solutions:
Funded backlog	$	21,~~077~~740	$	12,~~780~~057
Negotiated unfunded backlog		32,~~336~~654		23,~~131~~238
Total Health, Energy and Civil Solutions backlog	$	54,~~413~~394	$	35,~~911~~295
Intelligence and Cybersecurity Solutions:
Funded backlog	$	1,~~317~~649	$	1,~~330~~317
Negotiated unfunded backlog		45,~~169~~461		4,~~207~~169
Total Intelligence and Cybersecurity Solutions backlog	$	57,~~486~~110	$	5,~~537~~486
Total:
Funded backlog	$	5,~~537~~361	$	5,~~382~~517
Negotiated unfunded backlog		12,~~466~~515		1112,~~738~~368
Total backlog	$	1817,~~003~~876	$	17,~~120~~885

~~Total~~Bookings and backlog ~~fluctuates~~fluctuate from period to period depending on our success rate in winning contracts and the timing of contract awards, renewals, modifications and cancellations. ~~While~~Contract ~~backlog increased during fiscal 2012, contract~~ awards continue to be negatively impacted by ongoing industry-wide delays in procurement decisions, which have resulted in an increase in the value of our submitted proposals awaiting decision. Contract awards may also be negatively impacted by budget cuts, including sequestration, by the U.S. Government as discussed in “Business Environment and Trends” in this Annual Report on Form 10-K.

~~28 SAIC~~We expect to recognize a substantial portion of our funded backlog as revenues within the next 12 months. However, the U.S. Government may cancel any contract at ~~Inc~~any time through a termination for the convenience of the U.S. ~~Annual~~Government. ~~Report~~In addition, certain contracts with commercial customers include provisions that allow the customer to cancel at any time. Most of our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed.

Contract Types. Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenue, see “Business—Contract Types” in Part I of this Annual Report on Form 10-K. The following table summarizes revenues by contract type as a percentage of total revenues for the last three fiscal years:


	Year Ended January 31
	2013			2012			2011
Cost-reimbursement		42	%		46	%		47	%
Time and materials (T&M) and fixed-price-level-of-effort (FP-LOE)		29			27			29
Firm-fixed-price (FFP)		29			27			24
Total		100	%		100	%		100	%

The reduction in the percentage of revenues generated from cost reimbursement contracts since fiscal 2011 is primarily attributable to the conclusion of certain contracts, including the U.S. Army Brigade Combat Team Modernization contract, and reduced activity on certain U.S. federal civilian agency contracts. The percentage of revenues from T&M and FP-LOE contracts for fiscal 2012 was impacted downward by 4% due to the portion of the CityTime loss provision of $410 million recorded against revenues. The increase in the percentage of revenues generated from FFP contracts since fiscal 2011 was

32 SAIC, Inc. Annual Report

PART II

We primarily ~~expect~~due to ~~recognize~~increased arevenues ~~substantial~~from ~~portion~~increased ofdeliveries ~~our~~under ~~funded~~certain ~~backlog~~logistics, asreadiness ~~revenues~~and ~~within~~sustainment ~~the next 12 months. However~~contracts, ~~the~~increased ~~U.S.~~design ~~Government~~and ~~may~~construction ~~cancel~~services ~~any~~and ~~contract~~increased atactivity ~~any~~on ~~time.~~a program Into ~~addition,~~operate ~~certain~~and ~~contracts~~maintain ~~with~~the ~~commercial~~enterprise ~~customers~~network ~~include~~IT ~~provisions~~infrastructure ~~that~~for ~~allow~~ the ~~customer to cancel at any time~~U.S. ~~Most~~Department of ~~our contracts have cancellation terms that would permit us to recover all or a portion of our incurred costs and fees for work performed~~State.

Contract Types. Our earnings and profitability may vary materially depending on changes in the proportionate amount of revenues derived from each type of contract. For a discussion of the types of contracts under which we generate revenue, see “Business—Contract Types” in Part I of this Annual Report on Form 10-K. The following table summarizes revenues by contract type as a percentage of total revenues for the last three fiscal years:

	Year Ended January 31
	2012			2011			2010
Cost-reimbursement		46	%		47	%		49	%
Time and materials (T&M) and fixed-price-level-of-effort (FP-LOE)		27			29			29
Firm-fixed-price (FFP)		27			24			22
Total		100	%		100	%		100	%

The percentage for T&M and FP-LOE for fiscal 2012 includes the portion of the CityTime loss provision of $410 million recorded against revenues. The increase in the percentage of revenues generated from FFP contracts for fiscal 2012 and 2011 as compared to 2010 was primarily due to increased deliveries of logistics, readiness and sustainment products and proprietary products in addition to a $56 million royalty payment received in fiscal 2011, which is included in the FFP category.

Revenue Mix. We generate revenues under our contracts from (1) the efforts of our technical staff, which we refer to as labor-related revenues, and (2) the materials provided on a contract and efforts of our subcontractors, which we refer to as M&S revenues. M&S revenues are generated primarily from large, multi-year systems integration contracts and contracts in our logistics, readiness and sustainment business area, as well as through sales of our proprietary products, such as our border, port and mobile security products and our checked baggage explosive detection systems. While our proprietary products are more profitable, these products represent a small percentage of our M&S revenues and the majority of our M&S revenues generally have lower margins than our labor-related revenues. The following table presents changes in labor-related revenues and M&S revenues for the last three fiscal years:

	Year Ended January 31
	2012			Percentchange			2011			Percentchange			2010
	2013			Percentchange			2012			Percentchange			2011
	(dollars in millions)
Labor-related revenues	$	6,~~164~~008			—(2	)%	$	6,~~154~~099			2—	%	$	6,~~051~~125
As a percentage of revenues		5854	%					5658	%					57	%
M&S revenues		45,~~423~~165			(617	)		4,~~767~~398			5(6	)		4,~~529~~673
As a percentage of revenues		4246	%					4442	%					43	%

~~Labor-related revenues for the last three fiscal years have remained consistent.~~ In fiscal 2012, M&S revenues declined primarily due to the portion of the CityTime loss provision recorded against revenues ~~during the year ended January 31, 2012~~ ($410 million), ~~described~~or ~~in Note 17 of the combined notes to the consolidated financial statements~~4%). In recent years, there have been increases in relative proportion of M&S revenues as compared to labor-related revenues primarily due to increased activity as a prime contractor on large programs involving significant subcontracted efforts and increased volume of material deliveries under certain programs primarily with DoD customers. ~~In fiscal 2011, M&S revenues were favorably impacted by a $56 million royalty payment received during the second quarter of fiscal 2011.~~

Geographic Location. Substantially all of our revenues and tangible long-lived assets are generated by or owned by entities located in the United States.

SAIC, Inc. Annual Report 29

PART II

Results of Operations

The following table summarizes our results of operations for the last three fiscal years:

	Year Ended January 31
	2012			Percentchange			2011			Percentchange			2010
	2013			Percentchange			2012			Percentchange			2011
	(dollars in millions)
Revenues	$	1011,~~587~~173			(36	)%	$	10,~~921~~497			(3	)%	$	10,~~580~~798
Cost of revenues		9,~~606~~809			13			9,~~476~~530			42			9,~~151~~374
Selling, general and administrative expenses:
General and administrative (G&A)		~~428~~370			45(14	)		~~296~~428			~~(26~~45	)		~~401~~296
Bid and proposal (B&P)		~~149~~158			17			~~147~~148			3			~~143~~144
Internal research and development (IR&D)		9364			69(30	)		5592			1267			4955
Operating income		311			(67	)		947			13			836
Separation transaction expenses		38			100			—			—			—
As a percentage of revenues		2.9	%					8.7	%					7.9	%
Operating income		734			145			299			(68	)		929
Non-operating expense, net		(104	)					(75	)					(68	)
As a percentage of revenues		6.6	%					2.8	%					8.6	%
Income from continuing operations before income taxes		207			(76	)		872			14			768
Non-operating expense, net		(76	)					(104	)					(75	)
Provision for income taxes		(215	)		(32	)		(314	)		9			(289	)
Income from continuing operations before income taxes		658			237			195			(77	)		854
Income (loss) from continuing operations		(8	)		(101	)		558			16			479
Provision for income taxes		(135	)		(36	)		(210	)		(32	)		(307	)
Income from discontinued operations, net of tax		67						61						17
Income (loss) from continuing operations		523			—			(15	)		—			547
Net income	$	59			(90	)	$	619			25		$	496
Income from discontinued operations, net of tax		2						74						72
Net income	$	525			790		$	59			(90	)	$	619

We classify indirect costs incurred within or allocated to our U.S. Government customers as overhead (included in cost of revenues) ~~and~~ and G&A expenses in the same manner as such costs are defined in our disclosure statements under U.S. Government Cost Accounting Standards. Effective in fiscal 2012, one of our subsidiaries adopted our more prevalent disclosure statement ~~resulting~~ resulting in $25 million in costs previously classified as G&A in fiscal 2011 being classified as cost of revenues in ~~fiscal~~subsequent ~~2012 on a prospective basis. Effective in~~ fiscal ~~2011,~~years ~~we updated our disclosure statements with the Defense Contract Management Agency, resulting in certain costs being classified differently as either overhead or G&A expenses~~ on a prospective basis. ~~These changes caused a net increase in reported cost of revenues and a net decrease in reported G&A expenses in subsequent fiscal years as compared to prior fiscal years.~~ Total operating costs were not affected by ~~these~~this ~~changes~~change.

Reportable Segment Results. Effective February 1, 2012, certain operations were transferred between the Company’s reportable segments. Prior year amounts have been recasted for consistency with the current year’s presentation.

~~The~~SAIC, Inc. ~~following~~Annual ~~table~~Report 33 ~~summarizes changes in Defense Solutions revenues and operating income for the last three fiscal years:~~

	Year Ended January 31
Defense Solutions	2012			Percentchange			2011			Percentchange			2010
	(dollars in millions)
Revenues	$	4,191			(10	)%	$	4,657			3	%	$	4,518
Operating income (loss)		(171	)		(145	)		380			7			355
Operating income (loss) margin		(4.0	)%					8.2	%					7.9	%

Defense Solutions revenues decreased by $466 million, or 10% in fiscal 2012 as compared to fiscal 2011. This includes the entire CityTime loss provision recorded against revenues in fiscal 2012 ($410 million or 9% decrease in revenues) as described in Note 17 of the combined notes to the consolidated financial statements. In addition to the CityTime loss provision, internal revenue contraction of 1% was attributable to reduced activity on the U.S. Army Brigade Combat Team Modernization contract as a result of the program’s termination during the third quarter of fiscal 2012 ($112 million), reductions in various analytic studies and policy analysis operations ($92 million), decreased revenues attributable to completion of the CityTime workforce management systems development and implementation contract during the second quarter of fiscal 2012 ($84 million), and various smaller declines on a number of programs throughout the segment. These declines were partially offset by increased activity on a systems and software maintenance/upgrade program for the U.S. Army ($118 million), the ramp up of a program to operate and maintain the enterprise network IT infrastructure for the U.S. Department of State ($80 million) and increased activity in our systems integration and logistics programs for tactical and mine resistant ambush protected vehicles ($88 million).

Defense Solutions revenues increased $139 million, or 3%, including internal revenue growth of 3%, in fiscal 2011 as compared to fiscal 2010. Fiscal 2011 internal revenue growth was driven by increased activity on our systems integration and logistics programs for tactical and mine resistant ambush protected vehicles ($175 million), a systems and software

30 SAIC, Inc. Annual Report

PART II

~~maintenance~~The ~~and~~following ~~upgrades~~table ~~program~~summarizes ~~with~~changes ~~the~~in ~~U.S.~~Defense ~~Army~~Solutions ~~($78~~revenues ~~million),~~ and aoperating ~~systems~~income ~~engineering~~(loss) ~~solutions program~~ for the ~~U.S. Navy ($65 million). These increases were partially offset by revenue~~last ~~declines~~three onfiscal ~~certain~~years: ~~programs including fewer deliveries of emergency responder equipment ($99 million), and a reduction in scope under the U.S. Army Brigade Combat Team Modernization program ($62 million).~~

Defense Solutions operating income decreased $551 million in fiscal 2012 as compared to fiscal 2011. This includes the entire CityTime loss provision ($540 million) described in Note 17 of the combined notes to the consolidated financial statements. Operating income declines were also due to the decline in revenues, lower contract fees resulting from completion of the CityTime workforce management systems development and implementation contract in the second quarter of fiscal 2012 ($25 million) and a reduction in estimated fees related to work on our U.S. Army Brigade Combat Team Modernization contract ($6 million) partially offset by the impact of more effective cost management ($17 million) and a gain on the sale of certain assets previously used in developing guidance and navigation control systems for precision munitions ($5 million).


	Year Ended January 31
Defense Solutions	2013			Percent change			2012			Percent change			2011
	(dollars in millions)
Revenues	$	4,718			13	%	$	4,191			(10	)%	$	4,657
Operating income (loss)		352			—			(171	)		—			380
Operating income (loss) margin		*7.5*	%					(4.0	)%					8.2	%

Defense Solutions ~~operating~~revenues ~~income~~ increased by $25527 million, or 13%, in fiscal ~~2011~~2013 as compared to fiscal ~~2010~~2012. ~~primarily~~Fiscal ~~due~~2012 revenues were negatively impacted by $410 million related to ~~increased~~the ~~cost~~portion ~~recovery~~of onthe ~~cost~~CityTime ~~reimbursement contracts~~loss ~~and~~provision ~~increased~~recorded ~~fees~~against revenues. The remaining $117 million revenue increase, none of which was acquisition related, was attributable to increased activity on a number ~~specific~~of ~~contract~~programs, ~~partially~~including ~~offset~~the byramp ~~increased~~up ~~bid~~of a program to operate and ~~proposal~~maintain ~~expenses~~the enterprise network IT infrastructure for the U.S. ~~The~~Department ~~level~~of State ($145 million), the ramp up of ~~bid~~a prime contract with the Defense Logistics Agency to provide supply chain management of military land and ~~proposal~~aircraft ~~activities~~tires ~~fluctuates~~($136 ~~depending~~million) and increased activity on a systems and software development program for the ~~timing~~U.S. Army ($114 million). These increases were partially offset by reduced activity on a number of ~~bidding~~programs, ~~opportunities~~including the U.S. Army Brigade Combat Team Modernization (BCTM) contract as a result of the program’s termination in fiscal 2012 ($154 million), a program to provide systems engineering and management support for the U.S. Navy ($54 million) and a systems integration and logistics program for tactical and mine resistant ambush protected vehicles ($28 million).

Defense Solutions revenues decreased by $466 million, or 10%, in fiscal 2012 as compared to fiscal 2011. This was primarily attributable to the portion of the CityTime loss provision recorded against revenues in fiscal 2012 ($410 million). Additional internal revenue contraction of $56 million for fiscal 2012 was attributable to reduced activity on the BCTM contract as a result of the program’s termination in fiscal 2012 ($112 million), reductions in various analytic studies and policy analysis operations ($92 million), decreased revenues attributable to completion of the CityTime workforce management systems development and implementation contract in fiscal 2012 ($84 million), and various smaller declines on a number of programs throughout the segment. These declines were partially offset by increased activity on a systems and software maintenance/upgrade program for the U.S. Army ($118 million), the ramp up of a program to operate and maintain the enterprise network IT infrastructure for the U.S. Department of State ($80 million) and increased activity on systems integration and logistics programs for tactical and mine resistant ambush protected vehicles ($88 million).

Defense Solutions operating income increased $523 million in fiscal 2013 as compared to fiscal 2012. This increase was primarily attributable to the negative impact to fiscal 2012 operating income of the loss recognized in connection with the CityTime matter ($540 million). This increase was partially offset by a reduction in net favorable changes in contract estimates ($9 million) and a gain included in fiscal 2012 operating income from the sale of certain assets previously used in developing guidance and navigation control systems for precision munitions ($5 million).

Defense Solutions operating income decreased $551 million in fiscal 2012 as compared to fiscal 2011. This includes the entire CityTime loss provision ($540 million). The operating income decline was also due to the decline in revenues, lower contract fees resulting from completion of the CityTime workforce management systems development and implementation contract in fiscal 2012 ($25 million) and a reduction in estimated fees related to work on our BCTM contract ($6 million) partially offset by the impact of more effective cost management ($17 million) and a gain on the sale of certain assets previously used in developing guidance and navigation control systems for precision munitions ($5 million).

The following table summarizes changes in Health, Energy and Civil Solutions revenues and operating income for the last three fiscal years:

	Year Ended January 31
Health, Energy and Civil Solutions	~~2012~~2013			Percentchange			~~2011~~2012			Percentchange			~~2010~~2011
	(dollars in millions)
Revenues	$	2,~~858~~788			2	%	$	2,~~792~~734			(24	)%	$	2,~~848~~630
Operating income		~~258~~222			—(10	)		~~258~~246			92			~~236~~242
Operating income margin		98.0	%					9.20	%					89.32	%

Health, Energy and Civil Solutions revenues increased $6654 million, or 2%, ~~including internal revenue contraction of 2%~~ for fiscal ~~2012~~ 2013 as compared to fiscal ~~2011~~2012. ~~Internal~~This ~~revenue~~increase was ~~contraction~~primarily ~~reflects~~driven aby ~~reduction~~revenues ~~in delivery of checked baggage explosive detection systems ($50 million)~~ from ~~a business~~ acquired ~~in August 2010 and reduced activity on certain U.S. federal civilian agency programs~~businesses, including ~~various~~the ~~programs~~August in2012 ~~support~~acquisition of ~~NASA~~maxIT ~~($66~~Healthcare ~~million)~~Holdings, Inc. and ~~certain programs with~~ the ~~DoD~~August ~~($41~~2011 ~~million).~~acquisition ~~These~~of ~~decreases~~Vitalize ~~were~~Consulting ~~partially~~Solutions, ~~offset by net increased volume on large design-build programs primarily focused on renewable energy power plant construction ($53 million)~~Inc., ~~increases~~both inof ~~healthcare~~which ITare ~~consulting services ($30 million) and expanded scope on new and existing programs with our DoD military health system customers ($12 million).~~ providers

~~Health~~34 SAIC, ~~Energy and Civil Solutions revenues decreased $56 million, or 2%, including internal revenue contraction of 6%, in fiscal 2011 as compared to fiscal 2010.~~ ~~The~~Inc. ~~internal~~Annual ~~revenue~~Report ~~contraction was primarily due to a decline in revenues under an IT services contract with NASA ($62 million).~~

Health, Energy and Civil Solutions operating income remained constant for fiscal 2012 as compared to fiscal 2011. Operating income was favorably impacted by increased revenue volume in design-build and healthcare IT programs and from increased deliveries of our higher margin non-intrusive cargo inspection systems, as well as from favorable program fee performance and efficiency actions to reduce indirect expenses across the segment. These increases were offset by increased investment in research and development activities ($19 million) primarily related to the development of new homeland security products offerings and smart grid technologies, the loss provision related to a data privacy litigation matter ($9 million) described in Note 17 of the combined notes to the consolidated financial statements and increased amortization expense ($8 million) related to acquisition activities in the current and prior years.

Health, Energy and Civil Solutions operating income increased $22 million in fiscal 2011 as compared to fiscal 2010 primarily due to strong program performance, particularly on certain fixed price contracts, increased cost recovery on cost reimbursement contracts and reduced infrastructure costs related to organizational streamlining and cost efficiency actions taken in fiscal 2011 and fiscal 2010, partially offset by increased amortization expense for intangible assets related to business acquisitions.

SAIC, Inc. Annual Report 31

PART II

of healthcare IT consulting services to commercial clients. Internal revenues contracted $123 million, or 4%, reflecting declines in various federal civilian programs ($139 million) and program completions with federal health information technology customers, particularly with DoD military health system customers ($86 million). These declines were partially offset by increases in healthcare IT consulting services with commercial clients ($88 million) and increased design-build activity related to various renewable energy power plant construction projects ($25 million).

Health, Energy and Civil Solutions revenues increased $104 million, or 4%, including internal revenue contraction of 1% for fiscal 2012 as compared to fiscal 2011. Internal revenue contraction reflects a reduction in delivery of checked baggage explosive detection systems ($50 million) from a business acquired in fiscal 2011 and reduced activity on certain U.S. federal civilian agency programs, including various programs in support of National Aeronautics and Space Administration ($66 million), and certain programs with the DoD ($41 million). These decreases were partially offset by net increased volume on large design-build programs primarily related to renewable energy power plant construction ($53 million), increases in healthcare IT consulting services with commercial customers ($30 million) and expanded scope on new and existing programs with our DoD military health system customers ($12 million).

Health, Energy and Civil Solutions operating income decreased $24 million for fiscal 2013 as compared to fiscal 2012. The decline in operating income was primarily due to a net unfavorable change in contract estimates ($9 million) primarily related to certain energy and construction projects compared to a net positive change in contract estimates ($9 million) in the prior year period, increased intangible asset amortization expense ($8 million), increased severance expense ($4 million), and the costs related to the exit and sublease of an underutilized production and office facility associated with a past acquisition ($3 million). This decrease was partially offset by the loss provision related to a data privacy litigation matter ($9 million) in the prior year period, which is discussed in Note 17 of the combined notes to the consolidated financial statements, and a reduction in research and development expense ($20 million) resulting from the advancement through the product development lifecycle of new non-intrusive inspection system offerings.

Health, Energy and Civil Solutions operating income remained relatively constant for fiscal 2012 as compared to fiscal 2011. Operating income was favorably impacted by increased revenue volume in design-build and healthcare IT programs and from increased deliveries of our higher margin non-intrusive cargo inspection systems, as well as from favorable program fee performance and efficiency actions to reduce indirect expenses across the segment. These increases were offset by increased investment in research and development activities ($19 million) primarily related to the development of new homeland security products offerings and smart grid technologies, the loss provision related to a data privacy litigation matter ($9 million) and increased amortization expense ($8 million) related to acquisition activities in the fiscal 2012 and prior years.

The following table summarizes changes in Intelligence and Cybersecurity Solutions revenues and operating income for the last three fiscal years:

	Year Ended January 31
Intelligence and Cybersecurity Solutions	~~2012~~2013			Percentchange			~~2011~~2012			Percentchange			~~2010~~2011
	(dollars in millions)
Revenues	$	3,~~540~~672			3	%	$	3,~~421~~574			63	%	$	3,~~216~~460
Operating income		~~275~~264			(5	)		~~288~~279			2(4	)		~~281~~292
Operating income margin		7.82	%					87.48	%					8.74	%

Intelligence and Cybersecurity Solutions revenues increased $~~119~~ 98 million, or 3%, ~~substantially~~ all of which was internal revenue growth, for fiscal ~~2012~~2013 as compared to fiscal ~~2011~~2012. Internal revenue growth was primarily attributable to increased activity on two airborne surveillance programs ($~~121~~ 108 million), ~~and~~a ~~existing~~geospatial intelligence ~~analysis~~program ~~contracts~~ ($26 41 million), ~~increased material~~a ~~deliveries~~new ~~and~~intelligence analysis ~~services~~solution ~~under~~program ~~existing processing, exploitation and dissemination contracts~~ ($55 25 million) and ana ~~increase~~new inintelligence ~~cybersecurity~~systems integration program ~~activity~~for the U.S. Army ($27 22 million). These increases were ~~partially~~ offset by reduced activity on a ~~decline~~processing, inexploitation ~~revenues~~and ~~due~~dissemination to program for the U.S. ~~conclusion~~Army of($60 million), a ~~forward~~decline ~~operating~~in ~~base~~sales ~~integrated~~of ~~security~~proprietary ~~equipment~~products ~~supply contract~~ ($22 34 million) and ~~revenue~~an ~~decreases~~intelligence ~~from~~analysis ~~reductions~~contract inthat ~~scope~~concluded onin ~~various~~the ~~other~~current ~~existing~~year ~~intelligence, surveillance and reconnaissance programs~~($26 million).

Intelligence and Cybersecurity Solutions revenues increased $~~205~~ 114 million, or 63%, ~~including~~substantially all of which was internal revenue growth ~~of 4%~~, infor fiscal ~~2011~~2012 as compared to fiscal ~~2010.~~ ~~Fiscal~~ 2011. ~~internal~~Internal revenue growth was primarily ~~driven~~attributable byto increased activity inon ~~our~~airborne ~~manned~~surveillance programs ($121 million), increased material deliveries and ~~unmanned~~services ~~airborne~~under ~~surveillance~~processing, ~~programs~~exploitation and dissemination contracts ($8155 million), increased activity on cybersecurity programs ($27 million) and increased activity on intelligence analysis ~~programs~~contracts ~~for~~($26 million). These increases were partially offset by a decline in revenues due to the ~~DoD~~conclusion of a forward operating base integrated security equipment supply contract ($69 22 million) and revenue decreases from reductions in scope on various other existing intelligence, surveillance and reconnaissance programs.

~~Intelligence and Cybersecurity Solutions operating income decreased $13 million for fiscal 2012 as compared to fiscal 2011. The decrease in operating income was~~SAIC, ~~primarily attributable to impairment charges on acquired intangible assets associated with the fiscal 2011 acquisition of Cloudshield Technologies~~ Inc. ~~($19~~Annual ~~million),~~Report 35 increased investment in research and development activities ($15 million) and higher bid and proposal expenses ($5 million) partially offset by increased recovery in our indirect rates and increased sales of higher-margin proprietary products ($11 million).

Intelligence and Cybersecurity Solutions operating income increased $7 million for fiscal 2011 as compared to fiscal 2010. The increase in operating income is primarily due to revenue growth partially offset by increased amortization expense for intangible assets and operating losses related to a business acquisition ($24 million).

The following table summarizes changes in Corporate and Other revenues and operating income (loss) for the last three fiscal years:

	Year Ended January 31
Corporate and Other	2012			2011		2010
	(dollars in millions)
Revenues	$	2		$	58	$	4
Operating income (loss)		(51	)		21		(36	)

Corporate and Other operating loss for fiscal 2012 increased by $72 million as compared to fiscal 2011, as the result of a $22 million charge related to the settlement of a litigation matter involving work performed at the National Center for Critical Information Processing and Storage, a $13 million reduction in internal rental income of our real estate management subsidiary in fiscal 2012 as compared to fiscal 2011 and increased legal expenses partially offset by gains on the sale of real estate of $28 million. In addition, Corporate and Other revenues and operating income for fiscal 2011 includes a $56 million royalty payment received in connection with the resolution of a patent infringement matter.

Corporate and Other operating income for fiscal 2011 as compared to fiscal 2010 was favorably impacted by the receipt of the royalty payment in connection with the resolution of a patent infringement matter ($56 million), a decline in stock option expense ($4 million) as a result of a decrease in the number of stock options issued in recent years and $3 million received for reimbursement of legal-related costs in connection with the resolution of a patent infringement matter in fiscal 2011.

Interest Expense. Interest expense increased $35 million for fiscal 2012 as compared to fiscal 2011 and $3 million for fiscal 2011 as compared to fiscal 2010, primarily due to the issuance of $750 million of senior unsecured notes in December 2010.

Interest expense for Science Applications increased $25 million for fiscal 2012 as compared to fiscal 2011, reflecting a $35 million increase in interest on third-party debt partially offset by a $10 million decrease in interest on its note payable to

32 SAIC, Inc. Annual Report

PART II

~~SAIC.~~Intelligence ~~Interest~~and ~~expense~~Cybersecurity ~~for~~Solutions ~~Science~~operating ~~Applications~~income decreased $4 15 million infor fiscal ~~2011~~2013 as compared to fiscal ~~2010~~2012. ~~reflecting~~The adecrease $7in ~~million~~operating ~~decrease~~income was primarily attributable to a relative increase in ~~interest~~the onproportion ~~its~~of ~~note~~M&S ~~payable~~revenues, towhich ~~SAIC~~generally ~~partially offset~~have bylower aprofit $3margins ~~million~~than ~~increase~~labor-related inrevenues, ~~interest~~due to increased activity as a prime contractor on ~~third-party~~large ~~debt~~system integration programs. ~~Interest~~Fiscal ~~expense~~2013 ~~related~~operating toincome ~~Science~~was ~~Application’s~~negatively ~~note~~impacted ~~payable~~by toreduced ~~SAIC~~sales ~~may~~of ~~fluctuate~~our ~~significantly~~higher-margin ~~from~~proprietary ~~year~~products to($12 million). ~~year~~These ~~based~~decreases onwere ~~changes~~partially inoffset ~~the~~by ~~underlying~~lower ~~note~~intangible ~~balance~~asset impairment charges ($6 million), lower intangible asset amortization expense ($5 million), and ~~interest rates~~an ~~throughout~~increase ~~the~~in ~~fiscal~~net ~~year~~favorable change in contract estimates ($6 million).

Intelligence and Cybersecurity Solutions operating income decreased $13 million for fiscal 2012 as compared to fiscal 2011. The decrease in operating income was primarily attributable to impairment charges on acquired intangible assets associated with the fiscal 2011 acquisition of Cloudshield Technologies Inc. ($19 million), increased investment in research and development activities ($15 million) and higher bid and proposal expenses ($5 million) partially offset by increased recovery in our indirect rates and increased sales of higher-margin proprietary products ($11 million).

The following table summarizes changes in Corporate and Other revenues and operating income (loss) for the last three fiscal years:


	Year Ended January 31
Corporate and Other	2013			2012			2011
	(dollars in millions)
Revenues	$	—		$	2		$	58
Operating income (loss)		(104	)		(55	)		15

Corporate and Other operating loss represents corporate costs that are unallowable under U.S. Government Cost Accounting Standards and the net effect of various items that are not directly related to the operating performance of the reportable segments. Corporate and Other operating loss for fiscal 2013 increased by $49 million as compared to fiscal 2012, primarily due to the non-severance portion of costs associated with the planned separation transaction ($26 million) and the relocation and severance charges for the transition of certain corporate functions to our McLean, Virginia headquarters and other locations ($18 million).

Corporate and Other operating loss for fiscal 2012 increased by $70 million as compared to fiscal 2011, as the result of a $22 million charge related to the settlement of a litigation matter involving work performed at the National Center for Critical Information Processing and Storage, a $13 million reduction in internal rental income of our real estate management subsidiary in fiscal 2012 as compared to fiscal 2011 and increased legal expenses partially offset by gains on the sale of real estate of $28 million. In addition, Corporate and Other revenues and operating income for fiscal 2011 includes a $56 million royalty payment received in connection with the resolution of a patent infringement matter.

Non-Operating Expense. Non-operating expense for fiscal 2013 decreased $28 million as compared to fiscal 2012. This decrease was primarily attributable to a decrease in interest expense of $21 million primarily due to the payment of $550 million in July 2012 to settle our 6.25% notes at maturity.

Non-operating expense for fiscal 2012 increased $29 million as compared to fiscal 2011. This increase was primarily attributable to an increase in interest expense of $35 million primarily due to the issuance of $750 million of senior unsecured notes in December 2010.

As more fully described in “Quantitative and Qualitative Disclosures About Market Risk” contained within this Annual Report on Form 10-K, we are currently exposed to interest rate risks and foreign currency risks that are inherent in the financial instruments and contracts arising from transactions entered into in the normal course of business. From time to time, we use derivative instruments to manage these risks.

Provision for Income Taxes. Our provision for income taxes as a percentage of income from continuing operations before income taxes was ~~103~~20.95%, 36 107.07% and 3735.69% in fiscal ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, respectively. ~~Although~~ ~~our~~The ~~provision~~lower ~~for~~effective income ~~taxes~~tax ~~from~~rate ~~continuing operations decreased to $215 million~~ for fiscal ~~2012~~2013 as compared to fiscal ~~2011~~2012 was primarily due to ~~lower~~a ~~earnings~~$96 inmillion ~~fiscal~~reduction ~~year~~in ~~2012,~~ the provision for income ~~taxes~~tax as a ~~percentage~~result of ~~income~~our entering ~~from~~into ~~continuing~~an ~~operations~~issue ~~was~~resolution ~~negatively~~agreement ~~impacted~~with bythe IRS with respect to the ~~estimated~~tax ~~non-~~deductible portion of the CityTime ~~loss~~payment. ~~provision~~The in fiscal ~~2012.~~2013 ~~The~~effective ~~lower~~tax ~~effective~~rate ~~income~~also ~~tax~~benefitted ~~rates~~from ~~for~~the ~~fiscal~~tax ~~2011~~deductibility as($9 million ~~compared~~of tobenefit) ~~fiscal~~of ~~2010~~quarterly ~~was~~dividends paid ~~primarily~~on ~~due~~shares toheld by the ~~reversal~~ ofSAIC $7Retirement ~~million~~Plan in(an ~~accruals~~employee ~~for~~stock ~~unrecognized~~ownership ~~tax~~plan) ~~benefits~~and asthe areinstatement ~~result~~with ofretroactive ~~the~~effect ~~settlement~~to December 31, 2011 of the federal research and ~~state~~development tax ~~audits~~credit.

WeThe ~~file~~effective ~~income~~ tax ~~returns~~ inrate ~~the United States and various state and foreign jurisdictions and have effectively settled with the Internal Revenue Service (IRS)~~ for fiscal ~~years~~2012 ~~prior~~was tonegatively ~~and~~impacted ~~including~~by ~~fiscal 2008. We also settled fiscal 2011 as a result of our participation in~~ the ~~IRS~~estimated ~~Compliance~~non-deductible ~~Assurance~~portion ~~Process beginning in fiscal 2011, in which we and the IRS endeavor to agree on the treatment~~ of ~~all tax positions prior to~~ the ~~filing~~CityTime ofloss ~~the tax return, thereby greatly reducing the period of time between return submission and settlement with the IRS~~provision.

~~Diluted Earnings (Loss) per~~36 SAIC, ~~Share (EPS) from Continuing Operations~~Inc. ~~Diluted~~Annual ~~EPS~~Report from continuing operations decreased $1.50 per share to $(0.02) per share for fiscal 2012 as compared to fiscal 2011 primarily due to a $566 million decrease in income from continuing operations. Diluted EPS from continuing operations increased $.29 per share to $1.48 per share for fiscal 2011 as compared to fiscal 2010 primarily due to a $79 million increase in income from continuing operations and a decline in the diluted weighted average number of shares outstanding of 24 million shares, primarily due to stock repurchases.

Discontinued Operations. In June 2011, in order to better align our business portfolio with our strategy, we sold certain components of our business, which were historically included in our Health, Energy and Civil Solutions segment, primarily focused on providing information technology services to international oil and gas companies. Pursuant to the definitive sale agreement, we retained the assets and obligations of a defined benefit pension plan in the United Kingdom. In fiscal 2010, we also sold non-strategic components of our Intelligence and Cybersecurity Solutions segment. We have classified the operating results of these business components, including the pension activity through the date of sale, as discontinued operations for all periods presented.

The pre-sale operating results of the business components that we sold for the last three fiscal years were as follows:

	Year Ended January 31
	2012		2011		2010
Revenues	$	70	$	196	$	267
Costs and expenses:
Cost of revenues		55		156		192
Selling, general and administrative expenses		11		28		45
Operating income	$	4	$	12	$	30

In fiscal 2012, we received net proceeds of $167 million resulting in a gain on sale before income taxes of $111 million. In fiscal 2011, discontinued operations included pre-tax net gains of $77 million primarily related to the settlement of an arbitration proceeding brought against Telkom South Africa by our former subsidiary and resolution of other contingencies related to the sale of this former subsidiary. Income from discontinued operations also includes other activity that is immaterial and therefore not described above.

Net Income. Net income decreased $560 million, or 90%, for fiscal 2012 as compared to fiscal 2011. The decrease in net income for fiscal 2012 as compared to fiscal 2011 reflects a decrease in income from continuing operations of $566 million and an increase in income from discontinued operations of $6 million. Net income increased $123 million, or 25%, for fiscal 2011 as compared to fiscal 2010. The increase in net income for fiscal 2011 as compared to fiscal 2010 reflects an increase in income from continuing operations of $79 million and an increase in income from discontinued operations of $44 million.

SAIC, Inc. Annual Report 33

PART II

~~Net~~The ~~income~~lower ~~for~~effective ~~Science~~income ~~Applications~~tax ~~decreased~~rate ~~$555~~for ~~million in~~ fiscal ~~2012~~2011 ~~and~~compared ~~increased~~to ~~$129~~the ~~million~~statutory intax ~~fiscal 2011~~rates aswas ~~compared~~primarily due to the reversal ~~respective~~of ~~prior~~$7 million ~~year~~in ~~periods~~accruals for ~~the~~unrecognized ~~reasons~~tax ~~described~~benefits ~~above~~as ~~and~~a ~~declines~~result inof ~~interest~~the ~~expense~~settlement onof ~~the~~federal ~~note~~and ~~payable~~state totax ~~SAIC~~audits.

~~Diluted~~We ~~EPS.~~file ~~Diluted~~income ~~EPS~~tax returns ~~decreased~~in ~~$1.46~~the ~~per share,~~United orStates ~~89%,~~and ~~from~~various ~~$1.64~~state ~~per~~and ~~share~~foreign ~~for~~jurisdictions ~~fiscal~~and ~~2011~~have toeffectively ~~$.18~~settled ~~per~~with ~~share~~the IRS for fiscal ~~2012~~years ~~due~~prior to ~~decreases~~and inincluding ~~net~~fiscal ~~income~~2008. ~~partially~~We ~~offset~~also bysettled ~~declines~~fiscal in2011 ~~the~~and ~~diluted~~2012 ~~number~~as a result of ~~shares~~our ~~outstanding~~participation asin ~~discussed~~the ~~above.~~IRS Compliance ~~Diluted~~Assurance ~~EPS~~Process ~~increased~~(CAP) $beginning in fiscal 2011.41 ~~per~~As ~~share, or~~part ~~33%~~of CAP, ~~from~~we ~~$1.23~~endeavor ~~per~~to ~~share~~agree ~~for~~with ~~fiscal~~the ~~2010~~IRS toon ~~$1.64~~the ~~per~~treatment ~~share~~of ~~for~~all ~~fiscal~~tax ~~2011~~positions ~~due~~prior to ~~increases~~the infiling ~~net~~of ~~income~~the ~~and~~tax ~~declines~~return, inthereby ~~the~~greatly ~~diluted~~reducing ~~number~~the period of ~~shares~~time ~~outstanding~~between asreturn submission ~~discussed~~and ~~above~~settlement with the IRS.

Diluted Earnings (Loss) per Share (EPS) from Continuing Operations. Diluted EPS from continuing operations increased $1.58 per share to $1.54 per share for fiscal 2013 as compared to fiscal 2012 primarily due to a $538 million increase in income from continuing operations primarily attributable to the impact of the CityTime loss provision in fiscal 2012. Diluted EPS from continuing operations decreased $1.49 per share to $(0.04) per share for fiscal 2012 as compared to fiscal 2011 primarily due to a $562 million decrease in income from continuing operations primarily due to the CityTime loss provision ($540 million) recorded in fiscal 2012.

Discontinued Operations. In fiscal 2013, in order to better align our business portfolio with our strategy, we sold certain components of our business, which were historically included in the Health, Energy and Civil Solutions segment, primarily focused on providing operational test and evaluation services to U.S. Government customers. In fiscal 2012, we sold certain components of our business, which were historically included in our Health, Energy and Civil Solutions segment, primarily focused on providing information technology services to international oil and gas companies. Pursuant to the definitive sale agreement, we retained the assets and obligations of a defined benefit pension plan in the United Kingdom. We have classified the operating results of these business components, including the pension activity through the date of sale, as discontinued operations for all periods presented.

The pre-sale operating results of the business components that we sold over the last three fiscal years were as follows:


	Year Ended January 31
	2013		2012		2011
Revenues	$	56	$	160	$	319
Costs and expenses:
Cost of revenues		50		131		258
Selling, general and administrative expenses		3		13		31
Operating income	$	3	$	16	$	30

In fiscal 2013, we received net proceeds of $51 million from the sale of the business referenced above resulting in a gain on sale before income taxes of $17 million. In fiscal 2012, we received net proceeds of $167 million resulting in a gain on sale before income taxes of $111 million. In fiscal 2011, discontinued operations included pre-tax net gains of $77 million primarily related to the settlement of an arbitration proceeding brought against Telkom South Africa by our former subsidiary and resolution of other contingencies related to the sale of this former subsidiary. Income from discontinued operations also includes other activity that is immaterial and therefore not described above.

Liquidity and Capital Resources

We had $~~1.592~~736 ~~billion~~million in cash and cash equivalents at January 31, ~~2012~~2013, which were primarily comprised of cash held in investments in several large institutional money market funds that invest primarily in bills, notes and bonds issued by the U.S. Treasury, U.S. Government guaranteed repurchase agreements fully collateralized by U.S. Treasury obligations, U.S. Government guaranteed securities and investment-grade corporate securities that have original maturities of three months or less. We anticipate our principal sources of liquidity for the next 12 months and beyond will be our existing cash and cash equivalents and cash flows from operations. We may also borrow under our $750 million revolving credit facility. Our revolving credit facility is backed by a number of financial institutions, matures in fiscal 2017 and, by its terms, can be accessed on a same-day basis. We anticipate our principal uses of cash for the next 12 months and beyond will be for operating expenses, ~~capital~~expenses expenditures, acquisitions of businesses, stock repurchases, dividends and payment of current portions of notes payable and long-term debt, including our $550 million senior unsecured notes maturing in July 2012. A $500 million cash settlement payment related to the ~~CityTime~~planned ~~program~~separation ~~described~~transaction, ~~in Note~~capital 17expenditures, acquisitions of ~~the~~businesses, ~~combined~~stock ~~notes~~repurchases toand ~~consolidated financial statements was made in the first quarter of fiscal 2013~~dividends. We anticipate that our operating cash flows, existing cash and cash equivalents, which have no restrictions on withdrawal, and borrowing capacity under our revolving credit facility will be sufficient to meet our anticipated cash requirements for at least the next 12 months.

~~Historical~~SAIC, Inc. ~~Trends~~Annual Report 37

Cash and cash equivalents was $1.592 billion and $1.367 million at January 31, 2012 and 2011, respectively. The following table summarizes cash flow information for the last three fiscal years:

	Year Ended January 31
	2012			2011			2010
	(in millions)
Total cash flows provided by operations	$	772		$	725		$	588
Total cash flows used in investing activities		(203	)		(445	)		(306	)
Total cash flows provided by (used in) financing activities		(449	)		187			(398	)
Increase in cash and cash equivalents from discontinued operations		104			40			36
Effect of foreign currency exchange rate changes on cash and cash equivalents		1			(1	)		5
Total increase (decrease) in cash and cash equivalents	$	225		$	506		$	(75	)

Cash Provided by Operations. Cash flows from operations increased $47 million in fiscal 2012 as compared to fiscal 2011. Cash flows from operations were favorably impacted by a decline in cash paid for income taxes for continuing operations ($91 million) partially offset by other working capital requirements.

Cash flows from continuing operations increased $137 million in fiscal 2011 as compared to fiscal 2010. Cash flows from continuing operations were favorably impacted by improved cash management, including a reduction in the average time to collect receivables, and a $79 million increase in income from continuing operations. Cash flows from continuing operations were partially offset by an increase in cash paid for income taxes ($62 million) and the funding of performance bonds on our contract with the Greek government ($23 million).

Any differences in cash flows from operations for Science Applications as compared to SAIC are primarily attributable to changes in interest payments (which reduce cash flows from operations of Science Applications) made by Science Applications on its note to SAIC and changes in excess tax benefits related to stock-based compensation (which reduce cash flows from operations for SAIC).

Cash Used in Investing Activities. We used $203 million of cash in support of investing activities in fiscal 2012, including $218 million (net of cash acquired) to acquire two businesses and $65 million to purchase property, plant and equipment partially offset by $78 million of proceeds from the sale of real estate. We used $445 million of cash in support of investing activities of continuing operations in fiscal 2011, including $382 million (net of cash acquired) to acquire three businesses and $73 million to purchase property, plant and equipment. We used $306 million of cash in support of investing activities of continuing operations in fiscal 2010, including $256 million (net of cash acquired) to acquire six businesses and $58 million to purchase property, plant and equipment.

34 SAIC, Inc. Annual Report

PART II

~~Cash~~Historical ~~Provided~~Trends by (Used in) Financing Activities. We used $449 million of cash from financing activities in fiscal 2012, including $471 million to repurchase shares of SAIC stock partially offset by $27 million in proceeds from the sale of stock under our employee stock purchase plan (ESPP) and exercises of stock options. We generated $187 million of cash from financing activities of continuing operations in fiscal 2011, including $742 million of net proceeds from the issuance of debt, $38 million in proceeds from the sale of stock under our ESPP and exercises of stock options and $11 million in excess tax benefits associated with stock-based compensation partially offset by $601 million to repurchase shares of SAIC stock. We used $398 million of cash in support of financing activities of continuing operations in fiscal 2010, including $474 million to repurchase shares of SAIC stock and $18 million for payments on notes payable and long-term debt partially offset by $58 million in proceeds from the sale of stock under our ESPP and exercises of stock options and $36 million in excess tax benefits associated with stock-based compensation.

~~Science~~Cash ~~Applications~~and ~~used~~ cash inequivalents ~~financing~~was ~~activities of~~ $~~446~~736 million inand ~~fiscal 2012, including repayment on its note payable with SAIC of~~ $1.~~079~~6 billion ~~partially~~at ~~offset by proceeds on the note payable of $638 million. Science Applications generated cash from financing activities of $184 million in fiscal 2011~~January 31, ~~including~~2013 ~~proceeds on third-party debt of $742 million~~ and ~~proceeds~~2012, ~~from its note with SAIC of $1~~respectively.~~298~~ ~~billion~~The ~~offset~~following bytable ~~repayments~~summarizes ~~on the note with SAIC of $1.853 billion. Science Applications used~~ cash inflow ~~financing~~information ~~activities~~for ofthe ~~$420~~last ~~million~~three in fiscal ~~2010,~~years: ~~including repayments on its note with SAIC of $782 million partially offset by proceeds on the note of $380 million.~~

Cash Flows from Discontinued Operations. Cash flows from discontinued operations for fiscal 2012 included net proceeds of $167 million from the sale of certain components of our business. Cash flows from discontinued operations for fiscal 2011 included proceeds of $89 million from the settlement of an arbitration proceeding brought against Telkom South Africa by our former subsidiary, Telcordia Technologies, Inc., in addition to the cash flows generated from the operations of the components of our business sold, partially offset by payments of $54 million to Telcordia and taxing authorities in connection with the settlement.


	Year Ended January 31
	2013			2012			2011
	(in millions)
Total cash flows provided by operating activities of continuing operations	$	345		$	762		$	710
Total cash flows used in investing activities of continuing operations		(527	)		(203	)		(445	)
Total cash flows provided by (used in) financing activities of continuing operations		(722	)		(449	)		187
Increase in cash and cash equivalents from discontinued operations		48			114			55
Effect of foreign currency exchange rate changes on cash and cash equivalents		—			1			(1	)
Total increase (decrease) in cash and cash equivalents	$	(856	)	$	225		$	506

~~Stock~~Cash ~~Repurchase~~Provided ~~Program~~by Operating Activities of Continuing Operations. Cash flows from operating activities of continuing operations decreased $417 million in fiscal 2013 as compared to fiscal 2012. Fiscal 2013 cash flows from operating activities of continuing operations were negatively impacted by a $500 million cash settlement payment related to the CityTime matter, partially offset by a reduction in the average time to collect accounts receivable. The average time to collect accounts receivable in fiscal 2013 benefitted from the U.S. Government’s accelerated payment initiative that encouraged agencies to more timely pay contractors. As this initiative was discontinued in fiscal 2014, the Company’s cash flows from operating activities of continuing operations are expected to be negatively impacted as a result of an estimated increase in the average time to collect accounts receivable of three to six days.

InCash ~~December~~flows ~~2010,~~from ~~our~~operating ~~board~~activities of ~~directors~~continuing ~~authorized~~operations aincreased ~~stock~~$52 ~~repurchase program (the 2010 Repurchase Program) under which we could repurchase up to 40~~ million ~~shares~~in offiscal ~~SAIC common stock. As of January 31,~~ 2012, weas ~~repurchased~~compared anto ~~aggregate~~fiscal ~~of 36 million shares under the 2010 Repurchase Program~~2011. InCash ~~March~~flows ~~2012,~~from ~~our~~operating ~~board~~ activities of ~~directors~~continuing ~~terminated~~operations ~~the~~were ~~2010~~favorably ~~Repurchase~~impacted ~~Program~~by ~~and authorized~~ a ~~new~~decline ~~stock repurchase program under which we may repurchase up to 40 million shares of SAIC common stock. Stock repurchases may be made on the open market or~~ in ~~privately~~cash ~~negotiated~~paid ~~transactions~~for ~~with~~income ~~third~~taxes ~~parties. Whether repurchases are made and the timing and actual number~~ of ~~shares~~continuing ~~repurchased~~operations ~~depends~~($91 onmillion) apartially ~~variety~~offset ofby ~~factors~~other ~~including~~working ~~price, corporate~~ capital requirements~~, other market conditions and regulatory requirements~~.

~~Underfunded~~Cash ~~Pension~~Used ~~Obligation~~in Investing Activities of Continuing Operations. We used $527 million of cash in support of investing activities of continuing operations in fiscal 2013, including $483 million (net of cash acquired) to acquire maxIT Healthcare Holdings, Inc. and $48 million to purchase property, plant and equipment.

We ~~sponsor~~ aused ~~defined~~$203 ~~benefit~~million ~~pension~~of ~~plan~~cash in ~~the~~support ~~United~~of ~~Kingdom~~investing ~~for~~activities ~~plan~~of ~~participants~~continuing ~~that~~operations ~~primarily~~in ~~performed~~fiscal ~~services on a specific customer contract~~2012, ~~which~~including ~~has~~$218 ~~expired.~~million ~~While~~(net ~~benefits~~of ~~are~~cash noacquired) ~~longer~~to ~~accruing under the plan, we have continuing defined~~acquire ~~benefit~~two ~~pension~~businesses ~~obligations~~and ~~with~~$65 ~~respect~~million to ~~certain~~purchase ~~plan~~property, ~~participants.~~plant Inand ~~June~~equipment ~~2011,~~partially weoffset ~~sold~~by ~~the~~$85 ~~component~~million of ~~our~~proceeds ~~business~~from ~~that contained this pension and employed~~ the ~~pension plan participants. Pursuant to the definitive~~ sale ~~agreement,~~of wereal ~~retained the~~estate ~~assets~~ and ~~obligations~~other ~~of this defined benefit pension plan~~assets.

AsWe ofused ~~January 31, 2012, the pension plan had an underfunded projected benefit obligation of~~ $29445 million. Inof ~~February~~cash ~~and~~in ~~March~~support ~~2012,~~of ~~certain~~investing ~~plan~~activities ~~participants, who had previously transferred their employment to a successor contractor upon the expiration~~ of ~~the~~continuing ~~customer~~operations ~~contract,~~in ~~elected~~fiscal ~~to transfer~~2011, ~~and~~including ~~the company transferred,~~ $46382 million (net of ~~pension~~cash ~~plan~~acquired) ~~assets~~ to aacquire ~~successor~~three ~~contractor’s~~businesses ~~plan~~ and ~~settled~~ $6373 million ~~of related pension plan obligations. As a result of the transfer, we expect~~ to ~~record an immaterial settlement gain during the three months~~purchase ~~ending April 30~~property, ~~2012~~plant and equipment.

~~SAIC,~~Cash Provided by (Used in) Financing Activities of ~~Inc~~Continuing Operations. ~~Annual~~We ~~Report 35~~used $722 million of cash from financing activities of continuing operations in fiscal 2013, including $550 million to settle a note payable at maturity, $165 million to pay dividends on SAIC stock and $22 million to repurchase shares of SAIC stock, partially offset by $19 million in proceeds from the sale of stock under our employee stock purchase plan (ESPP).

We used $449 million of cash from financing activities of continuing operations in fiscal 2012, including $471 million to repurchase shares of SAIC stock partially offset by $27 million in proceeds from the sale of stock under our ESPP and exercises of stock options.

We generated $187 million of cash from financing activities of continuing operations in fiscal 2011, including $742 million of net proceeds from the issuance of debt, $38 million in proceeds from the sale of stock under our ESPP and exercises of stock options and $11 million in excess tax benefits associated with stock-based compensation partially offset by $601 million to repurchase shares of SAIC stock.

Cash Flows from Discontinued Operations. Cash flows from discontinued operations for fiscal 2013 included net proceeds of $51 million from the sale of certain components of our business. Cash flows from discontinued operations for fiscal 2012 included net proceeds of $167 million from the sale of certain components of our business. Cash flows from discontinued operations for fiscal 2011 included proceeds of $89 million from the settlement of an arbitration proceeding brought against Telkom South Africa by our former subsidiary, Telcordia Technologies, Inc., in addition to the cash flows generated from the operations of the components of our business sold, partially offset by payments of $54 million to Telcordia and taxing authorities in connection with the settlement.

38 SAIC, Inc. Annual Report

PART II

Science Applications’ Cash Flows. Any differences in cash flows from operating activities of continuing operations for Science Applications as compared to SAIC are primarily attributable to changes in interest payments (which reduce cash flows from operating activities of Science Applications) made by Science Applications on its note to SAIC and changes in excess tax benefits related to stock-based compensation (which reduce cash flows from operating activities for SAIC).

Science Applications used cash in financing activities of continuing operations of $722 million in fiscal 2013, including repayments on its note with SAIC of $411 million partially offset by proceeds from the note of $244 million. In addition, Science Applications used $550 million in cash to settle a third-party note payable at maturity (as described above in SAIC’s cash used in financing activities of continuing operations). Science Applications used cash in financing activities of $446 million in fiscal 2012, including repayments on its note payable with SAIC of $1.079 billion, partially offset by proceeds from the note payable of $638 million. Science Applications generated cash from financing activities of $184 million in fiscal 2011, including proceeds from the issuance of third-party debt of $742 million and proceeds from its note with SAIC of $1.298 billion, partially offset by repayments on the note with SAIC of $1.853 billion.

Stock Repurchase Program

In March 2012, our board of directors authorized a stock repurchase program under which we may repurchase up to 40 million shares of SAIC common stock. Stock repurchases may be made on the open market or in privately negotiated transactions with third parties. Whether repurchases are made and the timing and actual number of shares repurchased depends on a variety of factors including price, corporate capital requirements, other market conditions and regulatory requirements.

Outstanding Indebtedness

Notes Payable and Long-term Debt. Our outstanding notes payable and long-term debt consisted of the following:

							January 31
	Statedinterest rate			Effectiveinterest rate			~~2012~~2013		~~2011~~2012
	($ in millions)
SAIC senior unsecured notes:
$450 million notes issued in fiscal 2011, which mature in December 2020		4.45	%		4.53	%	$	449	$	~~448~~449
$300 million notes issued in fiscal 2011, which mature in December 2040		5.95	%		6.03	%		300		300
Science Applications senior unsecured notes:
$550 million notes issued in fiscal 2003, which mature in July 2012		6.25	%		6.50	%		550		550
$550 million notes issued in fiscal 2003, which matured in July 2012		6.25	%		6.50	%		—		550
$250 million notes issued in fiscal 2003, which mature in July 2032		7.13	%		7.43	%		248		248
$300 million notes issued in fiscal 2004, which mature in July 2033		5.50	%		5.78	%		~~296~~297		296
Other notes payable due on various dates through fiscal 2018		0%-2.5	%		Various			9		10
Other notes payable due on various dates through fiscal 2017		0%-2.5	%		Various			4		9
Total notes payable and long-term debt								1,~~852~~298		1,852
Less current portion								~~553~~2		3553
Total notes payable and long-term debt, net of current portion							$	1,~~299~~296	$	1,~~849~~299

~~These~~We ~~notes~~paid ~~contain~~$550 ~~financial~~million ~~covenants and customary restrictive covenants, including, among other things, restrictions on our ability~~ to ~~create~~settle ~~liens~~the ~~and enter into sale and leaseback transactions~~6.25% Wenotes ~~were~~at maturity in ~~compliance~~July ~~with all covenants as of January 31,~~ 2012. ~~For additional information on our notes payable and long-term debt, see Note 7 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.~~

~~Credit~~The ~~Facility.~~notes ~~SAIC~~payable ~~has~~outstanding aas revolving credit facility, which provides for up to $750 million in unsecured borrowing capacity at interest rates determined, at our option, based on either LIBOR plus a margin or a defined base rate through fiscal 2017. Science Applications has fully and unconditionally guaranteed any borrowings under SAIC’s revolving credit facility. As of January 31, ~~2012,~~2013 wecontain ~~had~~financial ~~$750~~covenants ~~million of available borrowing capacity~~ and ascustomary ofrestrictive ~~that date and January 31~~covenants, ~~2011~~including, ~~there~~among ~~were~~other nothings, ~~borrowings outstanding~~restrictions ~~under~~on our ~~revolving~~ability ~~credit~~to ~~facility.~~create ~~The~~liens ~~facility~~and ~~contains~~enter ~~financial~~into sale ~~covenants~~ and ~~customary~~leaseback ~~restrictive covenants~~transactions. AsWe ~~of January 31, 2012, we~~ were in compliance with all covenants ~~under~~as ~~the~~of ~~revolving~~January 31, ~~credit facility~~2013. ~~A failure to meet the financial covenants in the future would reduce and could eliminate our borrowing capacity under the revolving credit facility.~~ For additional information on our ~~credit~~notes ~~facility~~payable and long-term debt, see Note 67 of the combined notes to consolidated financial ~~statements~~ statements contained within this Annual Report on Form 10-K.

Credit Facility. SAIC has a revolving credit facility, which is fully and unconditionally guaranteed by Science Applications, providing for up to $750 million in unsecured borrowing capacity at interest rates determined, at SAIC’s option, based on either LIBOR plus a margin or a defined base rate. During fiscal 2013, we extended the maturity date of the credit facility for one additional year, to March 2016, as provided for in the terms of the credit facility. As of January 31, 2013 and 2012, there were no borrowings outstanding under the credit facility, and we had $750 million of available borrowing capacity. The credit facility contains financial covenants and customary restrictive covenants. As of January 31, 2013, we were in compliance with all covenants under the credit facility. A failure to meet the financial covenants in the future would reduce and could eliminate our borrowing capacity under the credit facility. For additional information on our credit facility, see Note 6 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

SAIC, Inc. Annual Report 39

PART II

Off-Balance Sheet Arrangements

We have outstanding performance guarantees and cross-indemnity agreements in connection with certain of our unconsolidated joint venture investments. We also have letters of credit outstanding principally related to guarantees on contracts with foreign government customers and surety bonds outstanding principally related to performance and payment bonds as described in Note 18 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K. These arrangements have not had, and management does not believe it is likely that they will in the future have, a material effect on our liquidity, capital resources, operations or financial condition. We have also entered into an agreement with a variable interest entity (VIE) in connection with a renewable energy project as described in Note 18 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

Contractual Obligations

The following table summarizes, as of January 31, ~~2012~~2013, our obligations to make future payments pursuant to certain contracts or arrangements and provides an estimate of the fiscal years in which these obligations are expected to be satisfied:

	Payments Due by Fiscal Year
	Total		~~2013~~2014		~~2014~~2015- ~~2015~~2016		~~2016~~2017- ~~2017~~2018		~~2018~~2019 andThereafter
	(in millions)
Contractual obligations:
Long-term debt (including current portion) (1)	$	32,~~289~~648	$	~~640~~72	$	146	$	~~146~~144	$	2,~~357~~286
Operating lease obligations (2)		~~596~~572		~~124~~121		~~204~~208		~~130~~133		~~138~~110
Capital lease obligations		64		32		21		1		—
Estimated purchase obligations (3)		~~117~~77		~~108~~61		613		2		1
Other long-term liabilities (4)		~~162~~143		2535		5129		3116		5563
Total contractual obligations	$	43,~~170~~444	$	~~900~~291	$	~~409~~397	$	~~310~~296	$	2,~~551~~460

~~36 SAIC~~(1) Includes total interest payments on our outstanding debt of $72 million in fiscal 2014, ~~Inc.~~ ~~Annual~~$144 ~~Report~~million in fiscal 2015-2016, $144 million in fiscal 2017-2018 and $986 million in fiscal 2019 and thereafter.

~~Table~~(2) ofExcludes ~~Contents~~$21 million related to an operating lease on a contract with the Greek government as we are not obligated to make the lease payments to the lessee if our customer defaults on payments to us.

~~PART~~(3) IIIncludes estimated obligations to transfer funds under legally enforceable agreements for fixed or minimum amounts or quantities of goods or services at fixed or minimum prices. Excludes purchase orders for services or products to be delivered pursuant to U.S. Government contracts under which we have full recourse under normal contract termination clauses.

(14) ~~Includes~~Other ~~total~~long-term ~~interest~~liabilities ~~payments~~were onallocated by fiscal year as follows: a liability for our ~~outstanding~~foreign ~~debt~~defined benefit pension plan is based upon the expected near-term contributions to the plan (for a discussion of ~~$90~~potential ~~million~~changes in ~~fiscal~~these ~~2013~~pension obligations, ~~$144~~see ~~million~~Note in9 ~~fiscal~~of ~~2014~~the combined notes to consolidated financial statements contained within this Annual Report on Form 10-~~2015,~~K); ~~$144~~liabilities ~~million~~under deferred compensation arrangements are based upon the average annual payments in prior years upon termination of employment by participants; liabilities for uncertain tax positions are based upon the fiscal ~~2016-2017~~year ~~and~~that ~~$1,057~~the ~~million~~statute inof limitations is currently expected to expire; a liability to reimburse a customer for cash advances on a contract that is periodically renewed is based upon the fiscal ~~2018~~year that the most recent contract renewal is ending; and ~~thereafter~~other liabilities are based on the fiscal year that the liabilities are expected to be realized.

(2) Excludes $30 million related to an operating lease on a contract with the Greek government as we are not obligated to make the lease payments to the lessee if our customer defaults on payments to us.

(3) Includes estimated obligations to transfer funds under legally enforceable agreements for fixed or minimum amounts or quantities of goods or services at fixed or minimum prices. Excludes purchase orders for services or products to be delivered pursuant to U.S. Government contracts in which we have full recourse under normal contract termination clauses.

(4) Other long-term liabilities were allocated by fiscal year as follows: a liability for our foreign defined benefit pension plan is based upon the expected near-term contributions to the plan (for a discussion of potential changes in these pension obligations, see Note 9 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K); liabilities under deferred compensation arrangements are based upon the average annual payments in prior years upon termination of employment by participants; liabilities for uncertain tax positions are based upon the fiscal year that the statute of limitations is currently expected to expire, a liability to reimburse a customer for cash advances on a contract that is periodically renewed is based upon the fiscal year that the most recent contract renewal is ending; and other liabilities are based on the fiscal year that the liabilities are expected to be realized.

Commitments and Contingencies

We are subject to a number of reviews, investigations, claims, lawsuits and other uncertainties related to our business. For a discussion of these items, see Notes 17 and 18 of the combined notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingencies at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis. Our estimates and assumptions have been prepared by management on the basis of the most current reasonably available information. The results of these estimates form the basis for making ~~judgments~~ judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates under different assumptions and conditions.

40 SAIC, Inc. Annual Report

PART II

We have several critical accounting policies that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments difficult, subjective and complex have to do with making estimates about the effect of matters that are inherently uncertain. Our critical accounting policies are described below.

Revenue Recognition. We generate our revenues from various types of contracts, which include firm-fixed-price, time-and-materials, fixed-price-level-of-effort, cost-plus-fixed-fee, cost-plus-award-fee and cost-plus-incentive-fee contracts.

~~Cost~~Firm-~~plus-~~fixed-~~fee~~price contracts—~~Revenue~~Revenues and isfees ~~recognized~~ on ~~cost-plus-fixed-fee~~these contracts ~~with~~that ~~the~~are ~~U.S.~~system ~~Government on~~integration ~~the~~or ~~basis~~engineering ofin ~~partial~~nature ~~performance~~are ~~equal~~primarily torecognized ~~costs~~using ~~incurred,~~the ~~plus an estimate~~ percentage-of-completion ~~applicable~~method ~~fees earned as we become contractually entitled to reimbursement~~ of ~~costs~~accounting ~~and~~utilizing the ~~applicable~~cost-to-cost ~~fees~~method.

Time-and-materials contracts—Revenue is recognized on time-and-materials contracts with the U.S. Government using the percentage-of-completion method of accounting utilizing an output measure of progress. Revenue is recognized on time-and-materials contracts with non-U.S. Government customers using a proportional performance method. Under both of these methods, revenue is recognized based on the hours provided in performance under the contract multiplied by the negotiated contract billing rates, plus the negotiated contract billing rate of any allowable material and subcontract costs and out-of-pocket expenses.

Fixed-price-level-of-effort contracts (FP-LOE)—These contracts are substantially similar to time-and-materials contracts except they require a specified level of effort over a stated period of time. Accordingly, we recognize revenue on FP-LOE contracts with the U.S. Government in a manner similar to time-and-materials contracts in which we measure progress toward completion based on the hours provided in performance under the contract multiplied by the negotiated contract billing rates, plus the negotiated contract billing rate of any allowable material costs and out-of-pocket expenses.

Cost-plus-fixed-fee contracts—Revenue is recognized on cost-plus-fixed-fee contracts with the U.S. Government on the basis of partial performance equal to costs incurred, plus an estimate of applicable fees earned as we become contractually entitled to reimbursement of costs and the applicable fees.

Cost-plus-award-fee/cost-plus-incentive fee contracts—Revenues and fees on these contracts with the U.S. Government are primarily recognized using the percentage-of-completion method of accounting, most often based on the cost-to-cost method. We include an estimate of the ultimate incentive or award fee to be received on the contract in the estimate of contract revenues for purposes of applying the percentage-of-completion method of accounting.

~~SAIC~~Revenues from services and maintenance contracts, notwithstanding contract type, are recognized over the term of the respective contracts as the services are performed and revenue is earned. Revenues from ~~Inc~~unit-priced contracts are recognized as transactions are processed based on objective measures of output. ~~Annual~~Revenues ~~Report 37~~from the sale of manufactured products are recorded upon passage of title and risk of loss to the customer, which is generally upon delivery, provided that all other requirements for revenue recognition have been met.

PART II

Firm-fixed-price contracts—Revenues and fees on these contracts that are system integration or engineering in nature are primarily recognized using the percentage-of-completion method of accounting utilizing the cost-to-cost method.

Revenues from services and maintenance contracts, notwithstanding the contract type, are recognized over the term of the respective contracts as the services are performed and revenue is earned. Revenues from unit-priced contracts are recognized as transactions are processed based on objective measures of output. Revenues from the sale of manufactured products are recorded upon passage of title and risk of loss to the customer, which is generally upon delivery, provided that all other requirements for revenue recognition have been met.

We also use the efforts-expended method of percentage-of-completion using measures such as labor dollars for measuring progress toward completion in situations in which this approach is more representative of the progress on the contract. For example, the efforts-expended method is utilized when there are significant amounts of materials or hardware procured for the contract that is not representative of progress on the contract. Additionally, we utilize the units-of-delivery method under percentage-of-completion on contracts where separate units of output are produced. Under the units-of-delivery method, revenue is generally recognized when the units are delivered to the customer, provided that all other requirements for revenue recognition have been met.

We also evaluate contracts for multiple elements, and when appropriate, separate the contracts into separate units of accounting for revenue recognition.

We provide for anticipated losses on ~~all types of~~ contracts by recording an expense during the period in which the losses are determined. Amounts billed and collected but not yet recognized as revenues under certain types of contracts are deferred. Contract costs incurred for U.S. Government contracts, including indirect costs, are subject to audit and adjustment through negotiations ~~with~~between us and government representatives. Revenues on U.S. Government contracts have been recorded in amounts that are expected to be realized upon final settlement.

Changes in estimates related to certain types of contracts accounted for using the percentage of completion method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can routinely occur over the contract performance period for a variety of reasons, including changes in contract scope, changes in contract cost estimates due to unanticipated cost growth or retirements of risk for amounts different than estimated, and changes in estimated incentive or award fees. Aggregate changes in contract estimates increased operating income by $38 million ($0.07 per diluted share) and $44 million ($0.08 per diluted share) for fiscal 2012 and fiscal 2011, respectively.

Our accounts receivable include unbilled receivables, which consist of costs and fees billable upon contract completion or the occurrence of a specified event, the majority of which is expected to be billed and collected within one year. Unbilled receivables are stated at estimated realizable value. Contract retentions are billed when we have negotiated final indirect rates with the U.S. Government and, once billed, are subject to audit and approval by government representatives. Consequently, the timing of collection of retention balances is outside our control. Based on our historical experience, the majority of retention balances are expected to be collected beyond one year. We have extended deferred payment terms with contractual maturities that may exceed one year to three commercial customers related to certain construction projects. As of January 31, 2012, we have outstanding receivables of $73 million with these customers with collection expected in fiscal 2013. When events or conditions indicate that amounts outstanding from customers may become uncollectible, an allowance is estimated and recorded.

Contract claims are unanticipated additional costs incurred but not provided for in the executed contract price that we seek to recover from the customer. Such costs are expensed as incurred. Additional revenue related to contract claims is recognized when the amounts are awarded by the customer.

SAIC, Inc. Annual Report 41

PART II

In certain situations, primarily where we are not the primary obligor on certain elements of a contract such as the provision of administrative oversight and/or management of government-owned facilities or logistical support services related to other vendors’ products, we recognize as revenues the net management fee associated with the services and exclude from our income statement the gross sales and costs associated with the facility or other vendors’ products.

Changes in Estimates on Contracts. Changes in estimates related to certain types of contracts accounted for using the percentage of completion method of accounting are recognized in the period in which such changes are made for the inception-to-date effect of the changes. Changes in these estimates can routinely occur over the contract performance period for a variety of reasons, including changes in contract scope, changes in contract cost estimates due to unanticipated cost growth or retirements of risk for amounts different than estimated, and changes in estimated incentive or award fees. Aggregate changes in contract estimates increased operating income by $18 million ($0.03 per diluted share), $37 million ($0.07 per diluted share) and $44 million ($0.08 per diluted share) for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.

Receivables. Our accounts receivable include unbilled receivables, which consist of costs and fees billable upon contract completion or the occurrence of a specified event, the majority of which is expected to be billed and collected within one year. Unbilled receivables are stated at estimated realizable value. Contract retentions are billed when we have negotiated final indirect rates with the U.S. Government and, once billed, are subject to audit and approval by government representatives. Consequently, the timing of collection of retention balances is outside our control. Based on our historical experience, the majority of retention balances are expected to be collected beyond one year and write-offs of retention balances have not been significant. We have extended deferred payment terms with original contractual maturities that may exceed one year to commercial customers related to certain construction projects. As of January 31, 2013, we had outstanding receivables from these customers with deferred payment terms of $104 million, which are expected to be collected in fiscal 2014 when the customers have obtained financing. When events or conditions indicate that amounts outstanding from customers may become uncollectible, an allowance is estimated and recorded.

Business Combinations and Goodwill and Intangible Assets Impairment. We have engaged and expect to continue to engage in business acquisition activity. The accounting for business combinations requires management to make judgments and estimates of the fair value of assets acquired, including the identification and valuation of intangible assets, as well as the liabilities and contingencies assumed. Such judgments and estimates directly impact the amount of goodwill recognized in connection with each acquisition.

Goodwill is assessed for impairment at least annually and whenever events or circumstances indicate that the carrying value may not be recoverable. We perform our annual goodwill impairment assessment as of the beginning of the fourth quarter. The goodwill impairment test is a two-step process performed at the reporting unit level. The first step consists of estimating the fair values of each of the reporting units based a market approach and an income approach. Fair value computed using these two methods is determined using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, comparable market data based on industry grouping, and the cost of capital. The estimated fair values are compared with the carrying values of the reporting units, which include the allocated goodwill. If the fair value is less than the carrying value of a reporting unit, which includes the allocated goodwill, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The implied fair value of goodwill is the residual fair value derived by deducting the fair value of a reporting unit’s identifiable assets and liabilities from its estimated fair value calculated in the first step. The impairment expense represents the excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill. The goodwill impairment test process requires management to make significant judgments and assumptions, including revenue, profit and cash flow forecasts, about the business units to which goodwill is assigned. Our goodwill impairment tests performed for fiscal 2013, 2012 and 2011 did not result in any impairment of goodwill since the fair value was in excess of the carrying value. The carrying value of goodwill as of January 31, 2013 was $2.2 billion. We face continued uncertainty in our business environment due to the substantial fiscal and economic challenges facing the U.S. Government, our primary customer. Adverse changes in fiscal and economic conditions, such as the implementation of budget cuts, sequestration, and issues related to the nation’s debt ceiling, could adversely impact our future revenues and profitability. These circumstances could result in an impairment of goodwill.

~~38 SAIC~~Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In fiscal 2013 and 2012, we recognized impairment ~~Inc~~losses on intangible assets of $13 million and $19 million, respectively. ~~Annual~~We ~~Report~~did not recognize any impairment losses on intangible assets in fiscal 2011. The carrying value of intangible assets as of January 31, 2013 was $190 million.

Income Taxes. We account for income taxes under the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. The provision for federal, state, foreign and local income taxes is calculated

42 SAIC, Inc. Annual Report

PART II

~~The goodwill impairment test is a two-step process performed at the reporting unit level. The first step consists of estimating the fair values of each of the reporting units based~~ on ~~a combination~~income ofbefore ~~two valuation methods, a market approach and an~~ income ~~approach.~~taxes Fair value computed using these two methods is determined using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, comparable market data based on ~~industry~~current ~~grouping,~~tax law and ~~the~~includes ~~cost of capital. The estimated fair values are compared with~~ the ~~carrying~~cumulative ~~values~~effect of ~~the~~any ~~reporting~~changes ~~units,~~in ~~which~~tax ~~include~~rates ~~the~~from ~~allocated~~those ~~goodwill.~~used ~~If the~~previously ~~fair~~in ~~value is less than the carrying value of a reporting unit, which includes the allocated goodwill, a second step is performed to compute the amount of the impairment by~~ determining andeferred ~~implied~~tax ~~fair~~assets ~~value of goodwill~~and liabilities. ~~The~~Such ~~implied~~provision ~~fair~~differs ~~value~~from ~~of goodwill is~~ the ~~residual~~amounts ~~fair~~currently ~~value~~payable ~~derived~~because bycertain ~~deducting~~items ~~the fair value~~ of aincome ~~reporting unit’s identifiable assets~~ and ~~liabilities~~expense ~~from~~are ~~its~~recognized ~~estimated fair value calculated~~ in ~~the~~different ~~first~~reporting ~~step.~~periods ~~The~~for ~~impairment~~financial ~~expense represents the excess of the carrying amount of the~~ reporting ~~unit’s~~purposes ~~goodwill~~than ~~over~~for ~~the~~income ~~implied~~tax ~~fair value of the reporting unit’s goodwill~~purposes. ~~The~~Recording ~~goodwill~~our ~~impairment~~provision for ~~test~~income ~~process~~taxes requires management to make significant judgments and ~~assumptions,~~estimates ~~including~~for ~~revenue, profit~~matters ~~and~~whose ~~cash~~ultimate ~~flow~~resolution ~~forecasts,~~may ~~about~~not ~~the~~become ~~business~~known ~~units~~until tothe ~~which~~final ~~goodwill~~resolution isof ~~assigned. Misjudgments in this forecasting process could result in management not taking~~ an ~~impairment~~examination ~~charge~~by ~~when~~the ~~one~~IRS ~~may~~or bestate ~~required~~agencies. ~~Our~~Additionally, ~~goodwill impairment tests~~recording ~~performed~~liabilities for ~~fiscal~~uncertain ~~2012,~~tax ~~2011~~positions ~~and~~involves ~~2010~~significant ~~did~~judgment ~~not result~~ in ~~any~~evaluating ~~impairment~~our oftax ~~goodwill~~positions ~~since~~and ~~the~~developing ~~fair~~our ~~value~~best ~~was~~estimate ~~in excess~~ of the ~~carrying~~taxes ~~value.~~ultimately ~~The~~expected ~~carrying~~to ~~value~~be ~~of goodwill as of January 31, 2012 was $1~~paid.~~826~~ ~~billion.~~

Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. In fiscal 2012 and 2010, we recognized impairment losses on intangible assets of $19 million and $6 million, respectively. We did not recognize any impairment losses on intangible assets in fiscal 2011. The carrying value of intangible assets as of January 31, 2012 was $176 million.

Income Taxes. We account for income taxes under the asset and liability method of accounting, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted. The provision for federal, state, foreign and local income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes. Recording our provision for income taxes requires management to make significant judgments and estimates for matters whose ultimate resolution may not become known until the final resolution of an examination by the IRS or state agencies. Additionally, recording liabilities for uncertain tax positions involves significant judgment in evaluating our tax positions and developing our best estimate of the taxes ultimately expected to be paid.

We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. If we were to determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize our deferred income tax assets in the future as currently recorded, we would make an adjustment to the valuation allowance which would decrease or increase the provision for income taxes.

We ~~have~~ also ~~recognized~~recognize liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. We have experienced years when liabilities for uncertain tax positions were settled for amounts different from recorded amounts as described in Note 11 of the combined notes to the consolidated financial statements contained within this Annual Report on Form 10-K.

Stock-Based Compensation. We account for stock-based compensation in accordance with the accounting standard for stock compensation. Under the fair value recognition provisions of this standard, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is generally the vesting period, net of an estimated forfeiture rate. The estimation of stock option fair value requires management to make complex estimates and judgments about, among other things, employee exercise behavior, forfeiture rates, and the volatility of SAIC common stock. These judgments directly affect the amount of compensation expense that will ultimately be recognized. The expected term for all awards granted is derived from our historical experience, except for awards granted to our outside directors, for which the expected term of awards granted is derived utilizing the “simplified” method presented in SEC Staff Accounting Bulletin Nos. 107 and 110, “Share-Based Payment”. Expected volatility is based on an average of the historical volatility of SAIC stock and the implied volatility from traded options on SAIC stock. We assumed weighted average volatilities of 23 24.45%, 2523.14% and 3025.61% for fiscal ~~2012~~2013, ~~2011~~2012 and ~~2010~~2011, respectively. If other assumptions are held constant, aan ~~ten~~increase ~~percentage~~or ~~point~~decrease ~~change~~by 10% in our fiscal ~~2012~~2013 volatility assumption would have ~~increased~~changed ~~or decreased~~ the grant-date fair value of our fiscal ~~2012~~2013 option awards by approximately 3050%.

SAIC, Inc. Annual Report 39

PART II

Non-GAAP Financial Measures

In this Annual Report on Form 10-K, we refer to internal revenue growth (contraction) percentage, which is a non-GAAP financial measure that we reconcile to the most directly comparable GAAP financial measure. We calculate our internal revenue growth (contraction) percentage by comparing our reported revenue for the current year to the revenue for the prior year adjusted to include the actual revenue of acquired businesses for the comparable prior year before acquisition. This calculation has the effect of adding revenue for the acquired businesses for the comparable prior year to our prior year reported revenue.

We use internal revenue growth (contraction) percentage as an indicator of how successful we are at growing our base business and how successful we are at growing the revenues of the businesses that we acquire. Our integration of acquired businesses allows our current management to leverage business development capabilities, drive internal resource collaboration, utilize access to markets and qualifications, and refine strategies to realize synergies, which benefits both acquired and existing businesses. As a result, the performance of the combined enterprise post-acquisition is an important measurement. In addition, as a means of rewarding the successful integration and growth of acquired businesses, and not acquisitions themselves, incentive compensation for our ~~executives~~senior ~~and~~management ~~the broader employee population~~ is based, in part, on achievement of revenue targets linked to internal revenue growth.

The limitation of this non-GAAP financial measure as compared to the most directly comparable GAAP financial measure is that internal revenue growth (contraction) percentage is one of two components of the total revenue growth (contraction) percentage, which is the most directly comparable GAAP financial measure. We address this limitation by presenting the total revenue growth (contraction) percentage next to or near disclosures of internal revenue growth (contraction) percentage. This financial measure is not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. The method that we use to calculate internal revenue growth percentage is not necessarily comparable to similarly titled financial measures presented by other companies. Internal revenue growth (contraction) percentages for fiscal 2012 and 2011 were calculated as follows:

	Year Ended January 31
	2012			2011
	(dollars in millions)
Defense Solutions:
Prior fiscal year’s revenues, as reported	$	4,657		$	4,518
Revenues of acquired businesses for the comparable prior year period		5			6
Prior fiscal year’s revenues, as adjusted	$	4,662		$	4,524
Current fiscal year’s revenues, as reported		4,191			4,657
Internal revenue growth (contraction)	$	(471	)	$	133
Internal revenue growth (contraction) percentage		(10	)%		3	%
Health, Energy and Civil Solutions:
Prior fiscal year’s revenues, as reported	$	2,792		$	2,848
Revenues of acquired businesses for the comparable prior year period		132			128
Prior fiscal year’s revenues, as adjusted	$	2,924		$	2,976
Current fiscal year’s revenues, as reported		2,858			2,792
Internal revenue contraction	$	(66	)	$	(184	)
Internal revenue contraction percentage		(2	)%		(6	)%
Intelligence and Cybersecurity Solutions:
Prior fiscal year’s revenues, as reported	$	3,421		$	3,216
Revenues of acquired businesses for the comparable prior year period		5			88
Prior fiscal year’s revenues, as adjusted	$	3,426		$	3,304
Current fiscal year’s revenues, as reported		3,540			3,421
Internal revenue growth	$	114		$	117
Internal revenue growth percentage		3	%		4	%
Total*:
Prior fiscal year’s revenues, as reported	$	10,921		$	10,580
Revenues of acquired businesses for the comparable prior year period		142			222
Prior fiscal year’s revenues, as adjusted	$	11,063		$	10,802
Current fiscal year’s revenues, as reported		10,587			10,921
Internal revenue growth (contraction)	$	(476	)	$	119
Internal revenue growth (contraction) percentage		(4	)%		1	%

SAIC, Inc. Annual Report 43

* Total revenues include amounts related to Corporate and Other and intersegment eliminations.

40 SAIC, Inc. Annual Report

PART II

GAAP. The method that we use to calculate internal revenue growth (contraction) percentage is not necessarily comparable to similarly titled financial measures presented by other companies. Internal revenue growth (contraction) percentages for fiscal 2013 and 2012 were calculated as follows:


	Year Ended January 31
	2013			2012
	(dollars in millions)
Defense Solutions:
Prior fiscal year’s revenues, as reported	$	4,191		$	4,657
Revenues of acquired businesses for the comparable prior year period		—			5
Prior fiscal year’s revenues, as adjusted	$	4,191		$	4,662
Current fiscal year’s revenues, as reported		4,718			4,191
Internal revenue growth (contraction)	$	527		$	(471	)
Internal revenue growth (contraction) percentage		13	%		(10	)%
Health, Energy and Civil Solutions:
Prior fiscal year’s revenues, as reported	$	2,734		$	2,630
Revenues of acquired businesses for the comparable prior year period		177			132
Prior fiscal year’s revenues, as adjusted	$	2,911		$	2,762
Current fiscal year’s revenues, as reported		2,788			2,734
Internal revenue contraction	$	(123	)	$	(28	)
Internal revenue contraction percentage		(4	)%		(1	)%
Intelligence and Cybersecurity Solutions:
Prior fiscal year’s revenues, as reported	$	3,574		$	3,460
Revenues of acquired businesses for the comparable prior year period		—			5
Prior fiscal year’s revenues, as adjusted	$	3,574		$	3,465
Current fiscal year’s revenues, as reported		3,672			3,574
Internal revenue growth	$	98		$	109
Internal revenue growth percentage		3	%		3	%
*Total:**
Prior fiscal year’s revenues, as reported	$	10,497		$	10,798
Revenues of acquired businesses for the comparable prior year period		177			142
Prior fiscal year’s revenues, as adjusted	$	10,674		$	10,940
Current fiscal year’s revenues, as reported		11,173			10,497
Internal revenue growth (contraction)	$	499		$	(443	)
Internal revenue growth (contraction) percentage		5	%		(4	)%

*	Total revenues include amounts related to Corporate and Other and intersegment eliminations.

Recently Adopted and Issued Accounting Pronouncements

For additional information regarding recently adopted and issued accounting pronouncements, see Note 1 of the combined notes to consolidated financial statements contained within this Annual Report on Form 10-K.

Effects of Inflation

Approximately 5040% of our revenues are derived from cost-reimbursement type contracts, which are generally completed within one year. Bids for longer-term FFP and T&M and FP-LOE contracts typically include sufficient provisions for labor and other cost escalations to cover anticipated cost increases over the period of performance. ~~Consequently~~As a result, our revenues and costs have generally both increased commensurate with inflation. Asand ~~a result,~~ net income as a percentage of total revenues has not been significantly ~~impacted by inflation~~affected.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks in the normal course of business. Our current market risk exposures are primarily related to interest rates and foreign currency fluctuations. The following information about our market sensitive financial instruments contains forward-looking statements.

Interest Rate Risk. Our exposure to market risk for changes in interest rates relates primarily to our cash equivalents and long-term debt obligations. We have established an investment policy to protect the safety, liquidity and after-tax yield of invested funds. This policy establishes guidelines regarding acceptability of instruments and maximum maturity dates and requires diversification in the investment portfolios by establishing maximum amounts that may be invested in designated instruments and issuers. We do not authorize the use of derivative instruments in our managed short-term investment portfolios. Our policy authorizes, with board of directors’ approval, the limited use of derivative instruments only to hedge specific interest rate risks.

~~The table below provides information about our financial instruments at January 31~~44 SAIC, ~~2012 that are sensitive to changes in interest rates. For debt obligations~~ ~~and short-term investments, the table presents principal cash flows in U~~Inc.S. ~~dollars~~Annual ~~and~~Report ~~related weighted average interest rates by expected maturity dates.~~

	2013			2014			2015			2016			2017			Thereafter			Total		Estimated FairValue as ofJanuary 31, 2012
	(dollars in millions)
Assets:
Cash and cash equivalents	$	1,592		$	—		$	—		$	—		$	—		$	—		$	1,592	$	1,592
Average interest rate		.1	%		—			—			—			—			—
Liabilities:
Short-term and long-term debt:
Variable interest rate	$	—		$	1		$	1		$	—		$	1		$	—		$	3	$	3
Weighted average interest rate		—	%		2.5	%		2.5	%		—			2.5	%		—
Fixed rate	$	553		$	1		$	1		$	1		$	1		$	1,300		$	1,857	$	2,008
Weighted average interest rate		6.2	%		4.0	%		3.3	%		2.9	%		3.1	%		5.6	%

AtPART ~~January 31,~~II 2012 and 2011, our cash and cash equivalents included investments in several large institutional money market funds that invest primarily in bills, notes and bonds issued by the U.S. Treasury, U.S. Government guaranteed repurchase agreements fully collateralized by U.S. Treasury obligations, U.S. Government guaranteed securities and investment-grade corporate securities that had original maturities of three months or less. A 10% unfavorable interest rate movement would not materially impact the value of the holdings and would have a negligible impact on interest income at current market interest rates.

invested funds. This policy establishes guidelines regarding acceptability of instruments and maximum maturity dates and requires diversification in the investment portfolios by establishing maximum amounts that may be invested in designated instruments and issuers. We do not authorize the use of derivative instruments in our managed short-term investment portfolios. Our policy authorizes, with board of directors’ approval, the limited use of derivative instruments only to hedge specific interest rate risks.

The table below provides information about our financial instruments at January 31, 2013 that are sensitive to changes in interest rates. For debt obligations and short-term investments, the table presents principal cash flows in U.S. dollars and related weighted average interest rates by expected maturity dates.


	2014			2015			2016			2017			2018			Thereafter			Total		Estimated Fair Value as of January 31, 2013
	(dollars in millions)
Assets:
Cash and cash equivalents	$	736		$	—		$	—		$	—		$	—		$	—		$	736	$	736
Average interest rate		—	%		—			—			—			—			—

Liabilities:
Short-term and long-term debt:
Variable interest rate	$	—		$	1		$	1		$	1		$	—		$	—		$	3	$	3
Weighted average interest rate		—	%		2.5	%		2.5	%		2.5	%		—	%		—

Fixed rate	$	2		$	1		$	—		$	—		$	—		$	1,300		$	1,303	$	1,387
Weighted average interest rate		3.8	%		3.2	%		—	%		—	%		—	%		5.6	%

At January 31, 2013 and 2012, our cash and cash equivalents included investments in several large institutional money market funds that invest primarily in bills, notes and bonds issued by the U.S. Treasury, U.S. Government guaranteed repurchase agreements fully collateralized by U.S. Treasury obligations, U.S. Government guaranteed securities and investment-grade corporate securities that had original maturities of three months or less. A 10% unfavorable interest rate movement would not materially impact the value of the holdings and would have a negligible impact on interest income at current market interest rates.

Foreign Currency Risk. Although the majority of our transactions are denominated in U.S. dollars, some of our transactions are denominated in foreign currencies. Our foreign currency exchange rate risk relates to receipts from customers, payments to suppliers and certain intercompany transactions denominated in currencies other than our (or one of our subsidiaries’) functional currency.

Item 8. Financial Statements and Supplementary Data

See our consolidated financial statements attached hereto and listed on the Index to Consolidated Financial Statements set forth on page F-1 of this Annual Report on Form 10-K.

SAIC, Inc. Annual Report 41

PART II

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer (our Chief Executive Officer) and principal financial officer (our Executive Vice President and Chief Financial Officer), has evaluated the effectiveness of SAIC’s and Science Applications’ disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934) as of January 31, ~~2012~~2013, and our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities Exchange Commission. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

~~During the quarter ended January 31~~SAIC, ~~2012, we remediated the material weakness in internal controls over financial reporting resulting~~ ~~from~~Inc. aAnnual ~~breakdown~~Report 45 of the operating effectiveness of certain of our internal controls in our control environment related to our CityTime program that was reported in our Form 10-Q for the three months ended October 31, 2011.

After our comprehensive review of the CityTime program, including a review of management performance, the Group President, Deputy Group President and Business Unit General Manager responsible for management and oversight of the CityTime program were removed from their positions and are no longer with the Company. We are not aware of any evidence that these individuals had any personal involvement in the fraud in the CityTime program.

In addition to taking the above-described employment actions with respect to the executives responsible for management and oversight on the CityTime program, we engaged an outside law firm to undertake a review of our key policies and practices and to recommend changes to strengthen our control environment. Based on these recommendations, we developed a process improvement and control enhancement plan, which includes management reinforcement of ethics and compliance throughout the organization, improved rigor of management oversight, and enhancement of the ethics case management and investigation process. We have completed the following actions as part of the process improvement and control enhancement plan:

• We executed an enterprise-wide communications plan that focused on the lessons that we have learned from CityTime, and reinforced ethics and compliance throughout the organization.

• We revised company policy, procedures and controls to charge personnel who conduct pre- and post-award reviews with the duty to evaluate fraud, corruption, and compliance risks. The program review process has been revised to include a requirement for fraud, corruption, and compliance discussions. Further, key program personnel (e.g., program managers, project controllers, subcontract technical managers, subcontract administrators, contracts managers, and quality assurance directors) received appropriate training on fraud and corruption risk factor detection.

• We established a corporate-level program review function charged with conducting in-depth reviews of programs that present potential or unique fraud, corruption, or other legal and ethical risks.

• We implemented a review of our significant programs (as identified by risk profile) by our internal audit function throughout the year as business unit audits are performed, and on an annual basis (which began in the third quarter of fiscal 2012).

• We implemented a cross functional, comprehensively integrated management committee combining members from SAIC’s Ethics Review Committee and Audit Review Committee designed to raise awareness of issues identified across the organization to ensure adequate review of risks and identification of areas for further inquiry, audit, and training.

• We implemented a new requirement (and revised our Standards of Business and Ethics Conduct policy to reflect this requirement) that business managers ensure that all violations or suspected violations related to our Code of Conduct or Standards of Business and Ethics Conduct policy have been reported to our Employee Ethics Council, or to a corporate hotline to ensure all concerns are properly identified, investigated, and appropriate follow up/disciplinary actions are taken. Business managers must certify quarterly that they are not aware of any violation or suspected violation involving our Code of Conduct or our Standards of Business and Ethics Conduct policy, including fraud, that has not been reported to the Employee Ethics Council or SAIC Hotline.

• We implemented a policy and monitoring controls to preclude our groups (rather than a business unit) from directly overseeing any Company program without the Chief Executive Officer’s approval.

42 SAIC, Inc. Annual Report

PART II

• We implemented a process and control to ensure that all employees who conduct investigations that implicate our Code of Conduct are independent of the relevant business unit or function, including a written certification of independence by the assigned investigator.

• We revised our Standards of Business and Ethics Conduct policy and Code of Conduct to expressly prohibit kickbacks, and any acts involving fraud or corruption. We are in process of updating our Ethics Awareness training program to incorporate these revisions.

We have also retained an independent compliance monitor to evaluate our ethics and compliance policies, processes, and functions; evaluate the implementation of the control evaluation and enhancement program; make recommendations to us on further control enhancements; and report to us and the Government regarding their findings.

During the quarter, we also implemented additional tools and mechanisms to enhance internal controls to prevent and detect unauthorized access to our information technology infrastructure and systems.

Changes in Internal Control Over Financial Reporting

~~Other~~There ~~than changes in our internal control over financial reporting relating to the remediation of the material weakness and information technology infrastructure and systems described above, there~~ have been no changes in our internal control over financial reporting that occurred in the quarterly period covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report On Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our management, with the participation of our principal executive officer and principal ~~financial~~ financial officer, has evaluated the effectiveness of SAIC’s and Science Application’s internal control over financial reporting as of January 31, ~~2012~~2013 based on the framework established in Internal Control—Integrated ~~Framework~~ Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Our management has assessed in its evaluation the effectiveness of our internal control over financial reporting as of January 31, ~~2012~~2013 and has concluded that our internal control over financial reporting as of that date was effective.

Deloitte & Touche LLP, an independent registered public accounting firm, audited our consolidated financial statements included in this Annual Report on Form 10-K and our internal control over financial reporting, and that firm’s reports on our internal control over financial reporting are set forth below.

46 SAIC, Inc. Annual Report 43

PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

SAIC, Inc.

McLean, Virginia

We have audited the internal control over financial reporting of SAIC, Inc. and subsidiaries (the “Company”) as of January 31, ~~2012~~2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, ~~2012~~2013, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 31, ~~2012,~~2013 of the Company and our report dated March 26, ~~2012~~2013, expressed an unqualified opinion on those financial statements ~~and included an explanatory paragraph regarding the Company’s election to change its method of recognizing pension expense~~.

/s/ DELOITTE & TOUCHE LLP

~~San Diego~~McLean, ~~California~~ Virginia

March 26, ~~2012~~2013

44 SAIC, Inc. Annual Report 47

PART II

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of

Science Applications International Corporation

McLean, Virginia

We have audited the internal control over financial reporting of Science Applications International Corporation and subsidiaries (the “Company”) as of January 31, ~~2012~~2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended January 31, ~~2012~~2013, of the Company and our report dated March 26, ~~2012~~2013, expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

~~San Diego~~McLean, ~~California~~Virginia

March 26, ~~2012~~2013

48 SAIC, Inc. Annual Report 45

PART II

Item 9B. Other Information

~~None.~~On March 22, 2013, the SAIC board of directors adopted amendments to SAIC’s bylaws to:

46 • change the first day of SAIC~~, Inc.~~’s ~~Annual~~fiscal ~~Report~~year from February 1 to the day after the Friday closest to January 31 in each year; and

•

provide that (i) only the board of directors may elect principal and other officers of SAIC, and (ii) officers other than principal officers may be removed by the chief executive officer (or someone to whom the chief executive officer has delegated this authority).

On March 22, 2013, the Science Applications board of directors adopted amendments to Science Applications’ bylaws to:

•

change the first day of Science Applications’ fiscal year from February 1 to the day after the Friday closest to January 31 in each year; and

•

provide that (i) only the board of directors may elect principal and other officers of Science Applications, and (ii) officers other than principal officers may be removed by the chief executive officer (or someone to whom the chief executive officer has delegated this authority).

Since the change in fiscal year for SAIC and Science Applications is from the last day of the month to a 52 – 53 week fiscal year commencing within seven days of the month end and the new fiscal year will commence with the end of the old fiscal year, the change is not deemed a change in fiscal year for the purposes of reporting subject to Rule 13a-10 or 15d-10 of the Securities Exchange Act of 1934. As a result SAIC and Science Applications will not be filing a separate transition report.

The above summary of the bylaw amendments is subject to and qualified in its entirety by reference to the text of SAIC’s and Science Applications’ restated bylaws, which are included as Exhibit 3.2 and Exhibit 3.4, respectively, to this Annual Report on Form 10-K.

The above information is being disclosed under this Item 9B in lieu of disclosure on Form 8-K, Item 5.03.

SAIC, Inc. Annual Report 49

PART III

Item 10. Directors, Executive Officers and Corporate Governance

For certain information required by Item 10 with respect to executive officers, see “Executive and Other Key Officers of the Registrant” at the end of Part I of this Annual Report on Form 10-K. For additional information required by Item 10 with respect to executive officers and directors, including audit committee and audit committee financial experts, procedures by which stockholders may recommend nominees to the board of directors, and compliance with Section 16(a) of the Securities Exchange Act of 1934, see the information set forth under the captions “Proposal 1–Election of Directors,” “Corporate Governance” and “Other Information” appearing in the ~~2012~~2013 Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

We have adopted a code of business ethics that applies to our principal executive officer and our senior financial officers. A copy of our Code of Ethics for Principal Executive Officer and Senior Financial Officers is available on the Investor Relations section of our website free of charge at www.saic.com by clicking on the links entitled “Investors” then “Corporate Governance” and then “Code of Conduct.” We intend to post on our website any material changes to or waivers from our code of business ethics. The information on our website is not incorporated by reference into and is not a part of this Annual Report on Form 10-K.

Item 11. Executive Compensation

For information required by Item 11 with respect to executive compensation and director compensation, see the information set forth under the captions “Compensation Discussion and Analysis,” “Executive Compensation” and “Corporate Governance” in the ~~2012~~2013 Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

For information required by Item 11 with respect to compensation committee interlocks and insider participation, see the information set forth under the caption “Corporate Governance” in the ~~2012~~2013 Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

For information required by Item 12 with respect to the security ownership of certain beneficial owners and management, see the information set forth under the caption “Other Information” in the ~~2012~~2013 Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

Information with respect to our equity compensation plans as of January 31, ~~2012~~2013 is set forth below:

Plan Category	(a) Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights			(b) Weighted-averageexercise price ofoutstandingoptions, warrantsand rights			(c) Number of securitiesremaining availablefor future issuanceunder equitycompensation plans (excludingsecurities reflectedin column (a))
Equity compensation plans approved by security holders (1)		2120,~~291~~899,~~212~~623	(2)	$	1716.9081	(3)		~~167~~56,~~384~~588,~~894~~650	(4)
Equity compensation plans not approved by security holders (5)		—			—			—	(5)
Total		2120,~~291~~899,~~212~~623		$	1716.9081	(3)		~~167~~56,~~384~~588,~~894~~650

⁽¹⁾	The following equity compensation plans approved by security holders are included in this plan category: the 2006 Equity Incentive Plan and the 2006 Employee Stock Purchase Plan.

(2) Represents ~~450~~1,~~233~~239,260 shares of SAIC common stock reserved for future issuance for the expected number of shares of stock to be issued for performance-based and other stock awards under the 2006 Equity Incentive Plan and 2019,~~840~~660,~~979~~363 shares of SAIC common stock reserved for future issuance upon the exercise of outstanding options awarded under the 2006 Equity Incentive Plan. Does not include shares to be issued pursuant to purchase rights under the 2006 Employee Stock Purchase Plan.

(3) Does not include shares to be issued for performance-based and other stock awards, which will not require any payment upon issuance of those shares.

(4) Represents 3338,~~374~~591,~~877~~353 shares of SAIC common stock under the 2006 Employee Stock Purchase Plan and ~~134~~17,~~010~~997,~~017~~297 shares of SAIC common stock under the 2006 Equity Incentive Plan. The maximum number of shares initially available for issuance under the 2006 Employee Stock Purchase Plan was 9 million. The 2006 Employee Stock Purchase Plan provides for an automatic increase to the share reserve on the first day of each fiscal year beginning on February 1, 2007 in an amount equal to the lesser of (i) 9 million shares, (ii) two percent of the number of shares of SAIC common stock outstanding on the last day of the immediately preceding fiscal year or (iii) a number determined by the compensation committee of the board of directors. The ~~maximum~~2006 ~~number~~Equity ofIncentive ~~shares~~Plan ~~initially~~was ~~available~~amended ~~for~~in ~~issuance~~June ~~under~~2012 ~~the~~to ~~2006~~provide ~~Equity~~that ~~Incentive~~the ~~Plan~~maximum ~~was~~number 75of ~~million.~~shares available for

50 SAIC, Inc. Annual Report 47

PART III

~~The~~issuance ~~2006~~thereunder ~~Equity~~is ~~Incentive~~50 ~~Plan provides for an automatic increase to the share reserve on the first day of each fiscal year beginning on February 1, 2007 in an amount equal to the lesser of (a) 30~~ million shares, (b) five percent of the number of shares of SAIC common stock outstanding on the last day of the immediately preceding fiscal year or (c) a number determined by the board of directors or compensation committee. Those shares (i) that are issued under the 2006 Equity Incentive Plan that are forfeited or repurchased at the original purchase price or less or that are issuable upon exercise of awards granted under the plan that expire or become unexercisable for any reason after their grant date without having been exercised in full, (ii) that are withheld from an option or stock award pursuant to a Company-approved net exercise provision, ~~(iii) that are retained upon exercise of a stock appreciation right~~ or (iviii) that are not delivered to or are award shares surrendered by a holder in consideration for applicable tax withholding will continue to be available for issuance under the plan.

⁽⁵⁾	The Stock Compensation Plan and the Management Stock Compensation Plan have not been approved by security holders and are included in this plan category. These plans do not provide for a maximum number of shares available for future issuance.

Some of the principal features of the Stock Compensation Plan and the Management Stock Compensation Plan, together referred to as the Stock Compensation Plans, are summarized below, which summary is qualified in its entirety by the full text of the Stock Compensation Plans. Stockholder approval of the Stock Compensation Plans was not required.

Summary of the Stock Compensation Plans

The Stock Compensation Plans have been adopted to provide a long-term incentive to key employees by making deferred awards of shares of SAIC stock. All officers and employees are eligible to receive awards under the Stock Compensation Plan. However, only a select group of management and highly compensated senior employees are eligible to receive awards under the Management Stock Compensation Plan. We intend to limit participants of the Management Stock Compensation Plan to individuals that would permit the plan to be treated as a “top hat” plan under applicable Internal Revenue Service and Department of Labor Regulations.

The awarding authority (as appointed by our board of directors) designates those key employees receiving awards and the number of share units to be awarded. Each share unit generally corresponds to one share of stock, but the employee receiving an award of share units will not have a direct ownership interest in the shares of stock represented by the share units. We have established a trust which enables us to transfer shares of SAIC stock into the trust for purposes of funding the Stock Compensation Plans’ obligations. The trust, which is maintained by Vanguard Fiduciary Trust Company as trustee under a trust agreement between the trustee and us, is a special type of trust known as a rabbi trust. In order to avoid current taxation of awards under the Stock Compensation Plans, the trust must permit our creditors to reach the assets of the trust in the event of our bankruptcy or insolvency.

The awarding authority will establish a vesting schedule of not more than seven years for each award. Awards will generally vest 100% at the end of the fourth year following the date of award. The death of a participant or a change in control of us will result in full vesting of an award. A participant will forfeit any unvested portions of the account if the participant’s employment terminates for any reason other than death. We receive the benefit of forfeited amounts to satisfy future awards under the Stock Compensation Plans.

Participants of the Stock Compensation Plan receive a lump sum distribution of their awards in shares of stock once they become vested while participants of the Management Stock Compensation Plan receive a distribution of their awards in shares of stock following termination or retirement. Participants will be taxed on the value of any amounts distributed from the Stock Compensation Plans at the time of the distribution.

The day-to-day administration of the Stock Compensation Plans is provided by the nonqualified plans committee appointed by our board of directors. We have the right to amend or terminate the Stock Compensation Plans at any time and for any reason.

Item 13. Certain Relationships and Related Transactions, and Director Independence

For information required by Item 13 with respect to certain relationships and related transactions and the independence of directors and nominees, see the information set forth under the caption “Corporate Governance” in the ~~2012~~2013 Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

Item 14. Principal Accounting Fees and Services

For information required by Item 14 with respect to principal accounting fees and services, see the information set forth under the caption “Audit Matters” in the ~~2012~~2013 Proxy Statement, which required information is incorporated by reference into this Annual Report on Form 10-K.

48 SAIC, Inc. Annual Report 51

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a) Documents filed as part of the report:

1. Financial Statements

Our consolidated financial statements are attached hereto and listed on the Index to Consolidated Financial Statements set forth on page F-1 of this Annual Report on Form 10-K.

2. Financial Statement Schedules

Financial statement schedules are omitted because they are not applicable or the required information is shown in our consolidated financial statements or the notes thereto.

3. Exhibits

ExhibitNumber		Description of Exhibit
2.1		Agreement and Plan of Merger, as amended and restated as of July 24, 2006, by and among Science Applications International Corporation, SAIC, Inc. and SAIC Merger Sub, Inc. Incorporated by reference to Exhibit 2.1 to SAIC, Inc.’s Post-Effective Amendment No. 3 to Form S-4 Registration Statement No. 333-128022, filed on July 25, 2006 with the SEC.
3.1		Restated Certificate of Incorporation of SAIC, Inc. Incorporated by reference to Exhibit 3.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on June 22, 2011 with the SEC.
3.2		Restated Bylaws of SAIC, Inc. ~~Incorporated by reference to Exhibit 3.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on January 31, 2012 with the SEC.~~
3.3		Restated Certificate of Incorporation of Science Applications International Corporation. Incorporated by reference to Exhibit 3.3 to Science Applications International Corporation’s Form S-4 Registration Statement No. 333-176896 filed on September 19, 2011 with the SEC.
3.4		Restated Bylaws of Science Applications International Corporation.
4.1		Indenture dated June 28, 2002 between Science Applications International Corporation and JPMorgan Chase Bank, as trustee. Incorporated by reference to Exhibit 4.2 to Science Applications International Corporation’s Current Report on Form 8-K as filed on July 3, 2002 with the SEC. (SEC File No. 000-12771)
4.2		First Supplemental Indenture, dated October 13, 2006, by and among Science Applications International Corporation, SAIC, Inc. and The Bank of New York Trust Company, N.A., as successor trustee to JPMorgan Chase Bank, N.A. Incorporated by reference to Exhibit 4.2 to SAIC, Inc.’s Current Report on Form 8-K as filed on October 17, 2006 with the SEC. (SEC File No. 001-33072)
4.3		Indenture dated as of December 20, 2010, among SAIC, Inc., Science Applications International Corporation and The Bank of New York Mellon Trust Company, N.A. as Trustee. Incorporated by reference to Exhibit 4.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on December 22, 2010 with the SEC.
10.1		Assignment and Assumption Agreement, dated October 16, 2006, between SAIC, Inc. and Science Applications International Corporation. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on October 17, 2006 with the SEC. (SEC File No. 001-33072)
10.1*		SAIC, Inc.’s 2006 Equity Incentive Plan (as amended and restated June 15, 2012). Incorporated by reference to Exhibit 10.1 to our Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2012 as filed on August 31, 2012 with the SEC.
10.2*		~~SAIC,~~Science ~~Inc.~~Applications International Corporation’s ~~2006~~Stock ~~Equity~~Compensation ~~Incentive~~ Plan, (as amended ~~May~~and 30restated effective January 1, ~~2008)~~2005, as further amended. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended ~~April~~October 3031, ~~2008~~2009 as filed on ~~June~~December 49, ~~2008~~2009 with the SEC.
10.3*		Amendment No. Two to Science Applications International Corporation’s Stock Compensation Plan~~, as amended and restated effective January 1, 2005, as further amended~~. Incorporated by reference to Exhibit 10.1 to ~~SAIC,~~our ~~Inc.’s~~ Quarterly Report on Form 10-Q for the quarterly period ended ~~October~~April 3130, ~~2009~~2012 as filed on ~~December~~June 91, ~~2009~~2012 with the SEC.
10.4*		Science Applications International Corporation’s Management Stock Compensation Plan, as amended and restated effective January 1, 2005, as further amended. Incorporated by reference to Exhibit 10.2 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.5*		Amendment No. Two to Science Applications International Corporation’s ~~Keystaff~~Management ~~Deferral~~Stock ~~Plan,~~Compensation ~~as amended and restated effective January 1, 2005, as further amended~~Plan. Incorporated by reference to Exhibit 10.32 to ~~SAIC,~~our ~~Inc.’s~~ Quarterly Report on Form 10-Q for the quarterly period ended ~~October~~April 3130, ~~2009~~2012 as filed on ~~December~~June 91, ~~2009~~2012 with the SEC.
10.6*		Science Applications International Corporation’s Keystaff Deferral Plan, as amended and restated effective January 1, 2005, as further amended. Incorporated by reference to Exhibit 10.3 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.

52 SAIC, Inc. Annual Report 49

PART IV

ExhibitNumber		Description of Exhibit
10.6*		Science Applications International Corporation’s Key Executive Stock Deferral Plan, as amended and restated effective January 1, 2005, as further amended. Incorporated by reference to Exhibit 10.4 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.7*		Amendment No. Two to Science Applications International Corporation’s Keystaff Deferral Plan. Incorporated by reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.7*		SAIC, Inc.’s 2006 Employee Stock Purchase Plan, as amended and restated effective July 1, 2010. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2010 as filed on September 3, 2010 with the SEC.
10.8*		Science Applications International Corporation’s Key Executive Stock Deferral Plan, as amended and restated effective January 1, 2005, as further amended. Incorporated by reference to Exhibit 10.4 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.8*		Science Applications International Corporation’s 401(k) Excess Deferral Plan (Effective as of January 1, 2011). Incorporated by reference to Exhibit 10.9 to SAIC, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as filed on March 25, 2011 with the SEC.
10.9*		Amendment No. Four to Science Applications International Corporation’s Key Executive Stock Deferral Plan. Incorporated by reference to Exhibit 10.4 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.9*		Form of Stock Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.5 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.10*		SAIC, Inc.’s 2006 Employee Stock Purchase Plan, as amended and restated effective July 1, 2010. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2010 as filed on September 3, 2010 with the SEC.
10.10*		Form of Nonstatutory Stock Option Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.6 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.11*		Amendment No. Two to SAIC Inc.’s 2006 Employee Stock Purchase Plan. Incorporated by reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.11*		Form of Nonstatutory Stock Option Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan (covering options granted after February 18, 2011). Incorporated by reference to Exhibit 10.12 to SAIC, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as filed on March 25, 2011 with the SEC.
10.12*		Science Applications International Corporation’s 401(k) Excess Deferral Plan (effective as of January 1, 2011). Incorporated by reference to Exhibit 10.9 to SAIC, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as filed on March 25, 2011 with the SEC.
10.12*		Form of Stock Award Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.7 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.13*		Form of Stock Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.5 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.13*		Form of Nonstatutory Stock Option Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.8 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.14*		Form of Stock Award Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.7 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.14*		Form of Nonstatutory Stock Option Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan (covering options granted after February 18, 2011). Incorporated by reference to Exhibit 10.15 to SAIC, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as filed on March 25, 2011 with the SEC.
10.15*		Form of Nonstatutory Stock Option Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.6 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.15*		Form of Performance Share Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.2 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011 as filed on June 3, 2011 with the SEC.
10.16*		Form of Nonstatutory Stock Option Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan (covering options granted after February 18, 2011). Incorporated by reference to Exhibit 10.12 to SAIC, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as filed on March 25, 2011 with the SEC.
10.16*		Form of Recoupment Policy and Non-Solicitation Acknowledgment and Agreement. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010 as filed on June 4, 2010 with the SEC.
10.17*		Form of Nonstatutory Stock Option Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.8 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2009 as filed on December 9, 2009 with the SEC.
10.17		Amended and Restated Four Year Credit Agreement, dated March 11, 2011, among SAIC, Inc., as borrower, Science Applications International Corporation, as guarantor, Citibank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, Morgan Stanley Bank, N.A., The Bank of Nova Scotia and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on March 15, 2011 with the SEC.
10.18*		Form of Nonstatutory Stock Option Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan (covering options granted after February 18, 2011). Incorporated by reference to Exhibit 10.15 to SAIC, Inc.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 as filed on March 25, 2011 with the SEC.
10.18*		Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2007 as filed on June 7, 2007 with the SEC.
10.19*		Form of Performance Share Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.2 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2011 as filed on June 3, 2011 with the SEC.
10.19*		Form of Severance Protection Agreement.
10.20*		Form of Amendment to Performance Share Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan (for Performance Share Award Agreements entered into prior to March 22, 2012). Incorporated by reference to Exhibit 10.10 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.20*		Employment Letter Agreement between Science Applications International Corporation and Mark Sopp, dated as of November 17, 2005. Incorporated by reference to Exhibit 10.1 to Science Applications International Corporation’s Current Report on Form 8-K as filed on November 28, 2005 with the SEC. (SEC File No. 001-33072)
10.21*		Form of Performance Share Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan (covering performance share awards after March 22, 2012). Incorporated by reference to Exhibit 10.9 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.21*		Stock Offer Letter dated November 14, 2005 to Mark Sopp from Science Applications International Corporation. Incorporated by reference to Exhibit 10.2 to Science Applications International Corporation’s Current Report on Form 8-K as filed on November 28, 2005 with the SEC.
10.22*		Form of Restricted Unit Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.

50 SAIC, Inc. Annual Report 53

PART IV

ExhibitNumber		Description of Exhibit
10.22*		Employment Letter Agreement dated June 19, 2009, between Walter P. Havenstein and Science Applications International Corporation. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on June 23, 2009 with the SEC.
10.23*		Form of Restricted Unit Award Agreement (Non-Employee Directors) of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.7 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.23*		Stock Offer Letter dated June 19, 2009, to Walter P. Havenstein from Science Applications International Corporation. Incorporated by reference to Exhibit 10.2 to SAIC, Inc.’s Current Report on Form 8-K as filed on June 23, 2009 with the SEC.
10.24*		Form of Restricted Unit Award Agreement (Management) of SAIC, Inc.’s 2006 Equity Incentive Plan. Incorporated by reference to Exhibit 10.8 to our Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2012 as filed on June 1, 2012 with the SEC.
10.24*		Letter Agreement, dated February 23, 2012, among SAIC, Inc., Science Applications International Corporation and Walter P. Havenstein. Incorporated by reference to Exhibit 99.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on February 24, 2012 with the SEC.
10.25*		Form of Restricted Unit Award Agreement of SAIC, Inc.’s 2006 Equity Incentive Plan (Four-Year Cliff Vesting).
10.25*		Employment Letter Agreement dated February 29, 2012, to John P. Jumper. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Current Report on Form 8-K/A as filed on March 2, 2012 with the SEC.
10.26*		Form of Recoupment Policy and Non-Solicitation Acknowledgment and Agreement. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2010 as filed on June 4, 2010 with the SEC.
10.26*		Stock Offer Letter dated February 29, 2012 to John P. Jumper. Incorporated by reference to Exhibit 10.2 to SAIC, Inc.’s Current Report on Form 8-K/A as filed on March 2, 2012 with the SEC.
10.27		Amended and Restated Four Year Credit Agreement, dated March 11, 2011, among SAIC, Inc., as borrower, Science Applications International Corporation, as guarantor, Citibank, N.A., as administrative agent, Bank of America, N.A., as syndication agent, Morgan Stanley Bank, N.A., The Bank of Nova Scotia and Wells Fargo Bank, National Association, as co-documentation agents, and the other lenders party thereto. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Current Report on Form 8-K as filed on March 15, 2011 with the SEC.
10.27		Deferred Prosecution Agreement between Science Applications and the U.S. Attorney’s Office for the Southern District of New York effective March 14, 2012. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 14, 2012 with the SEC.
10.28*		Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Quarterly Report on Form 10-Q for the quarterly period ended April 30, 2007 as filed on June 7, 2007 with the SEC (SEC File No. 001-33072).
10.29*		Form of Severance Protection Agreement. Incorporated by reference to Exhibit 10.19 to our Annual Report on Form 10-K for the fiscal year ended January 31, 2012 as filed on March 27, 2012 with the SEC.
10.30*		Employment Letter Agreement between Science Applications International Corporation and Mark Sopp, dated as of November 17, 2005. Incorporated by reference to Exhibit 10.1 to Science Applications International Corporation’s Current Report on Form 8-K as filed on November 28, 2005 with the SEC. (SEC File No. 001-12771)
10.31*		Stock Offer Letter dated November 14, 2005 to Mark Sopp from Science Applications International Corporation. Incorporated by reference to Exhibit 10.2 to Science Applications International Corporation’s Current Report on Form 8-K as filed on November 28, 2005 with the SEC. (SEC File No. 001-12771)
10.32*		Employment Letter Agreement dated February 29, 2012, to John P. Jumper. Incorporated by reference to Exhibit 10.1 to SAIC, Inc.’s Current Report on Form 8-K/A as filed on March 2, 2012 with the SEC.
10.33*		Stock Offer Letter dated February 29, 2012 to John P. Jumper. Incorporated by reference to Exhibit 10.2 to SAIC, Inc.’s Current Report on Form 8-K/A as filed on March 2, 2012 with the SEC.
10.34		Deferred Prosecution Agreement between Science Applications and the U.S. Attorney’s Office for the Southern District of New York effective March 14, 2012. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on March 14, 2012 with the SEC.
10.35		Administrative Agreement between Science Applications International Corporation and the United States Army on behalf of the U.S. Government, dated August 21, 2012. Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed on August 21, 2012 with the SEC.
21		Subsidiaries of Registrants.
23.1		Consent of Independent Registered Public Accounting Firm, Deloitte & Touche LLP.
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1		Patent License and Assignment Agreement dated as of August 12, 2005 between Science Applications International Corporation and VirnetX, Inc. Incorporated by reference to Exhibit 99.1 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.
99.2 †		Amendment No. 1 dated as of November 2, 2006 to Patent License and Assignment Agreement between Science Applications International Corporation and VirnetX, Inc. Incorporated by reference to Exhibit 99.2 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.
99.3		Amendment No. 2 dated as of March 12, 2008 to Patent License and Assignment Agreement between Science Applications International Corporation and VirnetX, Inc. Incorporated by reference to Exhibit 99.3 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.
99.4 †		Professional Services Contract effective September 7, 1999 between Science Applications International Corporation and In-Q-Tel, Inc. (f/k/a In-Q-It, Inc.). Incorporated by reference to Exhibit 99.4 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.
101		Interactive Data File.

54 SAIC, Inc. Annual Report

PART IV


Exhibit Number		Description of Exhibit

99.2^†		Amendment No. 1 dated as of November 2, 2006 to Patent License and Assignment Agreement between Science Applications International Corporation and VirnetX, Inc. Incorporated by reference to Exhibit 99.2 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.

99.3		Amendment No. 2 dated as of March 12, 2008 to Patent License and Assignment Agreement between Science Applications International Corporation and VirnetX, Inc. Incorporated by reference to Exhibit 99.3 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.

99.4^†		Professional Services Contract effective September 7, 1999 between Science Applications International Corporation and In-Q-Tel, Inc. (f/k/a In-Q-It, Inc.). Incorporated by reference to Exhibit 99.4 to SAIC, Inc.’s Annual Report on Form 10-K as filed on April 1, 2010 with the SEC.

101		Interactive Data File.

*	Executive Compensation Plans and Arrangements

†	Confidential treatment has been granted with respect to certain portions of these exhibits.

SAIC, Inc. Annual Report 5155

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


SAIC, Inc.

By		/s/ Mark W. Sopp
		Mark W. Sopp *Executive Vice President and Chief Financial Officer*

Dated: March 2726, ~~2012~~2013


Science Applications International Corporation

By		/s/ Mark W. Sopp
		Mark W. Sopp *Executive Vice President and Chief Financial Officer*

Dated: March 2726, ~~2012~~2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of each of SAIC, Inc. and Science Applications International Corporation, in the capacities and on the dates indicated.

Signature	Title	Date
/s/ John P. Jumper John P. Jumper	Principal Executive Officer and ~~Director~~Chair of the Board	March 2726, ~~2012~~2013
/s/ Mark W. Sopp Mark W. Sopp	Principal Financial Officer	March 2726, ~~2012~~2013
/s/ John R. Hartley John R. Hartley	Principal Accounting Officer	March 2726, ~~2012~~2013
/s/ A. Thomas Young A. Thomas Young	Chair of the Board	March 27, 2012
/s/ France A. Córdova France A. Córdova	Director	March 26, 2013
/s/ France A. Córdova France A. Córdova	Director	March 27, 2012
/s/ Jere A. Drummond Jere A. Drummond	Director	March 26, 2013
/s/ Jere A. Drummond Jere A. Drummond	Director	March 27, 2012
/s/ Thomas F. Frist III Thomas F. Frist, III	Director	March 26, 2013
/s/ Thomas F. Frist III Thomas F. Frist, III	Director	March 27, 2012
/s/ John J. Hamre John J. Hamre	Director	March 26, 2013
/s/ John J. Hamre John J. Hamre	Director	March 27, 2012
/s/ Miriam E. John Miriam E. John	Director	March 26, 2013
/s/ Miriam E. John Miriam E. John	Director	March 27, 2012
/s/ Anita K. Jones Anita K. Jones	Director	March 26, 2013
/s/ Anita K. Jones Anita K. Jones	Director	March 27, 2012
/s/ Harry M. J. Kraemer, Jr. Harry M. J. Kraemer, Jr.	Director	March 26, 2013
/s/ Harry M. J. Kraemer, Jr. Harry M. J. Kraemer, Jr.	Director	March 27, 2012
/s/ Lawrence C. Nussdorf Lawrence C. Nussdorf	Director	March 26, 2013
/s/ Lawrence C. Nussdorf Lawrence C. Nussdorf	Director	March 27, 2012
/s/ Edward J. Sanderson, Jr. Edward J. Sanderson, Jr.	Director	March 26, 2013
/s/ A. Thomas Young A. Thomas Young	Director	March 26, 2013

5256 SAIC, Inc. Annual Report

SIGNATURES

Signature	Title	Date
/s/ Edward J. Sanderson, Jr. Edward J. Sanderson, Jr.	Director	March 27, 2012
/s/ Louis A. Simpson Louis A. Simpson	Director	March 27, 2012

SAIC, Inc. Annual Report 53

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
CONSOLIDATED FINANCIAL STATEMENTS
SAIC, Inc.
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Income for each of the three years in the period ended January 31, 2012		F-3
Consolidated Statements of Income for each of the three years in the period ended January 31, 2013		F-3
Consolidated Statements of Comprehensive Income for each of the three years in the period ended January 31, 2012		F-4
Consolidated Statements of Comprehensive Income for each of the three years in the period ended January 31, 2013		F-4
Consolidated Balance Sheets as of January 31, 2012 and 2011		F-5
Consolidated Balance Sheets as of January 31, 2013 and 2012		F-5
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended January 31, 2012		F-6
Consolidated Statements of Stockholders’ Equity for each of the three years in the period ended January 31, 2013		F-6
Consolidated Statements of Cash Flows for each of the three years in the period ended January 31, 2012		F-7
Consolidated Statements of Cash Flows for each of the three years in the period ended January 31, 2013		F-7
Science Applications International Corporation
Report of Independent Registered Public Accounting Firm		F-8
Consolidated Statements of Income for each of the three years in the period ended January 31, 2012		F-9
Consolidated Statements of Income for each of the three years in the period ended January 31, 2013		F-9
Consolidated Statements of Comprehensive Income for each of the three years in the period ended January 31, 2012		F-10
Consolidated Statements of Comprehensive Income for each of the three years in the period ended January 31, 2013		F-10
Consolidated Balance Sheets as of January 31, 2012 and 2011		F-11
Consolidated Balance Sheets as of January 31, 2013 and 2012		F-11
Consolidated Statements of Stockholder’s Equity for each of the three years in the period ended January 31, 2012		F-12
Consolidated Statements of Stockholder’s Equity for each of the three years in the period ended January 31, 2013		F-12
Consolidated Statements of Cash Flows for each of the three years in the period ended January 31, 2012		F-13
Consolidated Statements of Cash Flows for each of the three years in the period ended January 31, 2013		F-13
SAIC, Inc. and Science Applications International Corporation
Combined Notes to Consolidated Financial Statements		F-14

Financial statement schedules are omitted because they are not applicable or the required information is presented in the consolidated financial statements or the notes thereto.

SAIC, Inc. Annual Report F-1

SAIC, INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

SAIC, Inc.

McLean, Virginia

We have audited the accompanying consolidated balance sheets of SAIC, Inc. and subsidiaries (the “Company”) as of January 31, ~~2012~~2013 and ~~2011~~2012, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended January 31, ~~2012~~2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of SAIC, Inc. and subsidiaries as of January 31, ~~2012~~2013 and ~~2011~~2012, and the results of their operations and their cash flows for each of the three years in the period ended January 31, ~~2012~~2013, in conformity with accounting principles generally accepted in the United States of America.

~~As discussed~~We have also audited, in ~~Note~~accordance with 1the tostandards of the ~~consolidated~~Public ~~financial~~Company ~~statements~~Accounting Oversight Board (United States), onthe ~~February~~Company’s internal control over financial reporting as of January 131, ~~2011~~2013, based on the ~~Company~~criteria ~~has~~established ~~elected~~in toInternal ~~change~~Control—Integrated Framework ~~its~~issued ~~method~~by the Committee of ~~recognizing~~Sponsoring ~~pension~~Organizations ~~expense~~of the Treadway Commission and our report dated March 26, 2013, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 31, 2012, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26, 2012, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

~~San Diego~~McLean, ~~California~~Virginia

March 26, ~~2012~~2013

F-2 SAIC, Inc. Annual Report

SAIC, INC.

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions, except per share amounts)
Revenues	$	1011,~~587~~173		$	10,~~921~~497		$	10,~~580~~798
Costs and expenses:
Cost of revenues		9,~~606~~809			9,~~476~~530			9,~~151~~374
Selling, general and administrative expenses		~~670~~592			~~498~~668			~~593~~495
Operating income		311			947			836
Separation transaction expenses		38			—			—
Operating income		734			299			929
Non-operating income (expense):
Interest income		59			25			2
Interest expense		(~~114~~93	)		(79114	)		(7679	)
Other income, net		58			25			62
Income from continuing operations before income taxes		~~207~~658			~~872~~195			~~768~~854
Provision for income taxes		(~~215~~135	)		(~~314~~210	)		(~~289~~307	)
Income (loss) from continuing operations		(8523	)		~~558~~(15	)		~~479~~547
Discontinued operations (Note 16):
Income from discontinued operations before income taxes		~~117~~17			89129			24107
Provision for income taxes		(5015	)		(2855	)		(735	)
Income from discontinued operations		672			6174			1772
Net income	$	59525		$	~~619~~59		$	~~496~~619
Earnings per share (Note 2):
Basic:
Income (loss) from continuing operations	$	(1.0254	)	$	1(.4804	)	$	1.2046
Income from discontinued operations		~~.20~~—			.1722			.0519
	$	1.1854		$	1.6518		$	1.2565
Diluted:
Income (loss) from continuing operations	$	(1.0254	)	$	1(.4804	)	$	1.1945
Income from discontinued operations		~~.20~~—			.1622			.0419
	$	1.1854		$	1.6418		$	1.2364
Cash dividend per common share	$	.48		$	—		$	—

See accompanying combined notes to consolidated financial statements.

SAIC, Inc. Annual Report F-3

SAIC, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions)
Net income	$	59525		$	~~619~~59		$	~~496~~619
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		8(1	)		—8			12—
Deferred taxes		(41	)		—(4	)		(3—	)
Foreign currency translation adjustments, net of tax		4—			—4			9—
Reclassification of realized loss on settled derivative instruments to net income		1—			1			—1
Deferred taxes		(1—	)		—(1	)		—
Reclassification of realized loss on settled derivative instruments to net income, net of tax		—			1—			—1
Pension liability adjustments		~~(13~~14	)		12(13	)		(312	)
Deferred taxes		(5	)		(35	)		1(3	)
Pension liability adjustments, net of tax		(89	)		9(8	)		(29	)
Total other comprehensive income (loss), net of tax		(49	)		10(4	)		710
Comprehensive income	$	55534		$	~~629~~55		$	~~503~~629

See accompanying combined notes to consolidated financial statements.

F-4 SAIC, Inc. Annual Report

SAIC, INC.

CONSOLIDATED BALANCE SHEETS

	January 31
	2012			2011
	2013			2012
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	~~1,592~~736		$	1,~~367~~592
Receivables, net		21,~~174~~889			2,~~069~~164
Inventory, prepaid expenses and other current assets		~~439~~454			~~382~~439
Assets of discontinued operations		—			4936
Total current assets		43,~~205~~079			34,~~867~~231
Property, plant and equipment, net		~~348~~318			~~359~~348
Intangible assets, net		~~176~~190			~~211~~176
Goodwill		12,~~826~~195			1,~~664~~800
Deferred income taxes		3714			5137
Other assets		7579			7175
	$	65,~~667~~875		$	6,~~223~~667
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,~~964~~249		$	1,~~205~~961
Accrued payroll and employee benefits		~~508~~542			~~511~~504
Notes payable and long-term debt, current portion		~~553~~2			3553
Liabilities of discontinued operations		—			297
Total current liabilities		31,~~025~~793			13,~~748~~025
Notes payable and long-term debt, net of current portion		1,~~299~~296			1,~~849~~299
Other long-term liabilities		~~162~~168			~~135~~162
Commitments and contingencies (Notes 13, 17 and 18)
Stockholders’ equity:
Preferred stock, $.0001 par value, 10 million shares authorized at January 31, 2012 and 2011, no shares issued and outstanding at January 31, 2012 and 2011		—			—
Preferred stock, $.0001 par value, 10 million shares authorized and no shares issued and outstanding at January 31, 2013 and 2012		—			—
Common stock, $.0001 par value, 2 billion shares authorized, 341 million and 362 million shares issued and outstanding at January 31, 2012 and 2011, respectively		—			—
Common stock, $.0001 par value, 2 billion shares authorized, 342 million and 341 million shares issued and outstanding at January 31, 2013 and 2012, respectively		—			—
Additional paid-in capital		2,~~028~~110			2,~~090~~028
Retained earnings		~~164~~510			~~408~~164
Accumulated other comprehensive loss		(112	)		(711	)
Total stockholders’ equity		2,~~181~~618			2,~~491~~181
	$	65,~~667~~875		$	6,~~223~~667

See accompanying combined notes to consolidated financial statements.

SAIC, Inc. Annual Report F-5

SAIC, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Shares						Additionalpaid-incapital			Retainedearnings			Accumulatedothercomprehensiveloss			Total
	Common stock			Preferred stock
	(in millions)
Balance at January 31, 2009		210			196		$	1,950		$	157		$	(24	)	$	2,083
Balance at January 31, 2010		388			—		$	2,096		$	212		$	(17	)	$	2,291
Net income		—			—			—			496			—			496
Other comprehensive income, net of tax		—			—			—			—			7			7
Issuances of stock		3			13			177			—			—			177
Repurchases of stock		(28	)		(6	)		(173	)		(441	)		—			(614	)
Conversion of preferred stock to common stock		203			(203	)		—			—			—			—
Adjustments for income tax benefits from stock-based compensation		—			—			36			—			—			36
Stock-based compensation		—			—			106			—			—			106
Balance at January 31, 2010		388			—			2,096			212			(17	)		2,291
Net income		—			—			—			619			—			619
Other comprehensive income, net of tax		—			—			—			—			10			10
Issuances of stock		9			—			83			—			—			83
Repurchases of stock		(35	)		—			(202	)		(423	)		—			(625	)
Adjustments for income tax benefits from stock-based compensation		—			—			11			—			—			11
Stock-based compensation		—			—			102			—			—			102
Balance at January 31, 2011		362			—			2,090			408			(7	)		2,491
Net income		—			—			—			59			—			59
Other comprehensive loss, net of tax		—			—			—			—			(4	)		(4	)
Other comprehensive income, net of tax		—			—			—			—			(4	)		(4	)
Issuances of stock		8			—			44			—			—			44
Repurchases of stock		(29	)		—			(175	)		(303	)		—			(478	)
Adjustments for income tax benefits from stock-based compensation		—			—			(16	)		—			—			(16	)
Stock-based compensation		—			—			85			—			—			85
Balance at January 31, 2012		341			—		$	2,028		$	164		$	(11	)	$	2,181
Net income		—			—			—			525			—			525
Other comprehensive income, net of tax		—			—			—			—			9			9
Issuances of stock		2			—			24			—			—			24
Repurchases of stock		(1	)		—			(10	)		(12	)		—			(22	)
Cash dividend of $0.48 per common share		—			—			—			(167	)		—			(167	)
Adjustments for income tax benefits from stock-based compensation		—			—			(16	)		—			—			(16	)
Stock-based compensation		—			—			84			—			—			84
Balance at January 31, 2013		342			—		$	2,110		$	510		$	(2	)	$	2,618

See accompanying combined notes to consolidated financial statements.

F-6 SAIC, Inc. Annual Report

SAIC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions)
Cash flows from continuing operations:
Cash flows from operating activities of continuing operations:
Net income	$	59525		$	~~619~~59		$	~~496~~619
Income from discontinued operations		(672	)		(6174	)		(1772	)
Adjustments to reconcile net income to net cash provided by continuing operations:
Depreciation and amortization		~~114~~113			~~110~~114			90110
Stock-based compensation		84			~~100~~83			~~103~~99
Excess tax benefits from stock-based compensation		—			~~(11~~—	)		(3611	)
Impairment losses		1913			419			74
Net gain on sales and disposals of assets		(316	)		(531	)		(85	)
Other items		(14	)		(1	)		1
Increase (decrease) in cash and cash equivalents, excluding effects of acquisitions and divestitures, resulting from changes in:
Increase (decrease) in cash and cash equivalents, net of effects of acquisitions and divestitures, resulting from changes in:
Receivables		~~(48~~325	)		(1351	)		(~~110~~18	)
Inventory, prepaid expenses and other current assets		(9364	)		(2993	)		54(29	)
Deferred income taxes		(972	)		(9	)		~~(19~~9	)
Other assets		(225	)		(222	)		(2	)
Accounts payable and accrued liabilities		~~757~~(744	)		~~(17~~757	)		(2416	)
Accrued payroll and employee benefits		—36			231			1624
Income taxes payable		5—			65			216
Other long-term liabilities		5(6	)		(95	)		12(9	)
Total cash flows provided by operating activities of continuing operations		~~772~~345			~~725~~762			~~588~~710
Cash flows from investing activities of continuing operations:
Expenditures for property, plant and equipment		(6548	)		(7365	)		(5873	)
Acquisitions of businesses, net of cash acquired of $5, $10 and $8 in fiscal 2012, 2011 and 2010, respectively		(218	)		(382	)		(256	)
Acquisitions of businesses, net of cash acquired of $9, $5 and $10 in fiscal 2013, 2012 and 2011, respectively		(483	)		(218	)		(382	)
Net payments for purchase price adjustments related to prior year acquisitions		(4	)		—			(2	)
Net proceeds (payments) for purchase price adjustments related to prior year acquisitions		1			(4	)		—
Proceeds from sale of assets		853			1085			1210
Other		(1—	)		—(1	)		(2—	)
Total cash flows used in investing activities of continuing operations		(~~203~~527	)		(~~445~~203	)		(~~306~~445	)
Cash flows from financing activities of continuing operations:
Issuance of long-term debt, net of offering costs		—			~~742~~—			—742
Payments on notes payable and long-term debt		(3554	)		(3	)		(183	)
Sales of stock and exercises of stock options		2719			3827			5838
Repurchases of stock		(471	)		(601	)		(474	)
Dividends payments		(165	)		—			—
Excess tax benefits from stock-based compensation		—			11			36
Repurchases of stock		(22	)		(471	)		(601	)
Other		(2	)		—			—
Excess tax benefits from stock-based compensation		—			—			11
Total cash flows provided by (used in) financing activities of continuing operations		(449	)		187			(398	)
Other		—			(2	)		—
Increase (decrease) in cash and cash equivalents from continuing operations		120			467			(116	)
Total cash flows (used in) provided by financing activities of continuing operations		(722	)		(449	)		187
(Decrease) increase in cash and cash equivalents from continuing operations		(904	)		110			452
Cash flows from discontinued operations:
Cash provided by (used in) operating activities of discontinued operations		(62	)		(11	)		35
Cash (used in) provided by operating activities of discontinued operations		(2	)		(52	)		4
Cash provided by investing activities of discontinued operations		~~166~~50			51166			151
Increase in cash and cash equivalents from discontinued operations		~~104~~48			40114			3655
Effect of foreign currency exchange rate changes on cash and cash equivalents		1—			(1	)		5(1	)
Total increase (decrease) in cash and cash equivalents		225			506			(75	)
Total (decrease) increase in cash and cash equivalents		(856	)		225			506
Cash and cash equivalents at beginning of year		1,~~367~~592			~~861~~1,367			~~936~~861
Cash and cash equivalents at end of year	$	~~1,592~~736		$	1,~~367~~592		$	~~861~~1,367

See accompanying combined notes to consolidated financial statements.

SAIC, Inc. Annual Report F-7

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholder of

Science Applications International Corporation

McLean, Virginia

We have audited the accompanying consolidated balance sheets of Science Applications International Corporation and subsidiaries (the “Company”) as of January 31, ~~2012~~2013 and ~~2011~~2012, and the related consolidated statements of income, comprehensive income, stockholder’s equity, and cash flows for each of the three years in the period ended January 31, ~~2012~~2013. These financial statements ~~are~~ are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Science Applications International Corporation and subsidiaries as of January 31, ~~2012~~ 2013 and ~~2011~~2012, and the results of their operations and their cash flows for each of the three years in the period ended January 31, ~~2012~~2013, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of January 31, ~~2012~~2013, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26, ~~2012~~2013, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

~~San Diego~~McLean, ~~California~~Virginia

March 26, ~~2012~~2013

F-8 SAIC, Inc. Annual Report

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions, except per share amounts)
Revenues	$	1011,~~587~~173		$	10,~~921~~497		$	10,~~580~~798
Costs and expenses:
Cost of revenues		9,~~606~~809			9,~~476~~530			9,~~151~~374
Selling, general and administrative expenses		~~670~~592			~~498~~668			~~593~~495
Operating income		311			947			836
Separation transaction expenses		38			—			—
Operating income		734			299			929
Non-operating income (expense):
Interest income		510			25			2
Interest expense		(~~119~~93	)		(94119	)		(9894	)
Other income, net		58			25			62
Income from continuing operations before income taxes		~~202~~659			~~857~~190			~~746~~839
Provision for income taxes		(~~213~~135	)		(~~307~~208	)		(~~281~~300	)
Income (loss) from continuing operations		~~(11~~524	)		~~550~~(18	)		~~465~~539
Discontinued operations (Note 16):
Income from discontinued operations before income taxes		~~117~~17			89129			24107
Provision for income taxes		(5015	)		(2855	)		(735	)
Income from discontinued operations		672			6174			1772
Net income	$	56526		$	~~611~~56		$	~~482~~611

See accompanying combined notes to consolidated financial statements.

SAIC, Inc. Annual Report F-9

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions)
Net income	$	56526		$	~~611~~56		$	~~482~~611
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		8(1	)		—8			12—
Deferred taxes		(41	)		—(4	)		(3—	)
Foreign currency translation adjustments, net of tax		4—			—4			9—
Reclassification of realized loss on settled derivative instruments to net income		1—			1			—1
Deferred taxes		(1—	)		—(1	)		—
Reclassification of realized loss on settled derivative instruments to net income, net of tax		—			1—			—1
Pension liability adjustments		~~(13~~14	)		12(13	)		(312	)
Deferred taxes		(5	)		(35	)		1(3	)
Pension liability adjustments, net of tax		(89	)		9(8	)		(29	)
Total other comprehensive income (loss), net of tax		(49	)		10(4	)		710
Comprehensive income	$	52535		$	~~621~~52		$	~~489~~621

See accompanying combined notes to consolidated financial statements.

F-10 SAIC, Inc. Annual Report

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

	January 31
	2012			2011
	2013			2012
	(in millions)
ASSETS
Current assets:
Cash and cash equivalents	$	~~1,592~~736		$	1,~~367~~592
Receivables, net		21,~~174~~889			2,~~069~~164
Inventory, prepaid expenses and other current assets		~~439~~454			~~382~~439
Assets of discontinued operations		—			4936
Total current assets		43,~~205~~079			34,~~867~~231
Property, plant and equipment, net		~~348~~318			~~359~~348
Intangible assets, net		~~176~~190			~~211~~176
Goodwill		12,~~826~~195			1,~~664~~800
Deferred income taxes		3714			5137
Other assets		7579			7175
	$	65,~~667~~875		$	6,~~223~~667
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,~~964~~249		$	1,~~198~~961
Accrued payroll and employee benefits		~~508~~542			~~511~~504
Notes payable and long-term debt, current portion		~~553~~2			3553
Liabilities of discontinued operations		—			297
Total current liabilities		31,~~025~~793			13,~~741~~025
Notes payable and long-term debt, net of current portion		1,~~299~~296			1,~~849~~299
Note payable to SAIC, Inc.		~~120~~22			~~489~~120
Other long-term liabilities		~~162~~168			~~135~~162
Commitments and contingencies (Notes 13, 18 and 19)
Stockholder’s equity:
Common stock, $.01 par value, 10,000 shares authorized, 5,000 shares issued and outstanding at January 31, 2012 and 2011		—			—
Common stock, $.01 par value, 10,000 shares authorized, 5,000 shares issued and outstanding at January 31, 2013 and 2012		—			—
Additional paid-in capital		233			233
Retained earnings		12,~~839~~365			1,~~783~~839
Accumulated other comprehensive loss		(112	)		(711	)
Total stockholder’s equity		2,~~061~~596			2,~~009~~061
	$	65,~~667~~875		$	6,~~223~~667

See accompanying combined notes to consolidated financial statements.

SAIC, Inc. Annual Report F-11

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

	Shares of common stock		Additionalpaid-incapital		Retainedearnings		Accumulatedothercomprehensiveloss			Total
	(in millions, except for share amounts)
Balance at January 31, 2009		5,000	$	233	$	690	$	(24	)	$	899
Balance at January 31, 2010		5,000	$	233	$	1,172	$	(17	)	$	1,388
Net income		—		—		482		—			482
Other comprehensive income, net of tax		—		—		—		7			7
Balance at January 31, 2010		5,000		233		1,172		(17	)		1,388
Net income		—		—		611		—			611
Other comprehensive income, net of tax		—		—		—		10			10
Balance at January 31, 2011		5,000		233		1,783		(7	)		2,009
Net income		—		—		56		—			56
Other comprehensive loss, net of tax		—		—		—		(4	)		(4	)
Other comprehensive income, net of tax		—		—		—		(4	)		(4	)
Balance at January 31, 2012		5,000	$	233	$	1,839	$	(11	)	$	2,061
Net income		—		—		526		—			526
Other comprehensive loss, net of tax		—		—		—		9			9
Balance at January 31, 2013		5,000	$	233	$	2,365	$	(2	)	$	2,596

See accompanying combined notes to consolidated financial statements.

F-12 SAIC, Inc. Annual Report

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions)
Cash flows from continuing operations:
Cash flows from operating activities of continuing operations:
Net income	$	56526		$	~~611~~56		$	~~482~~611
Income from discontinued operations		(672	)		(6174	)		(1772	)
Adjustments to reconcile net income to net cash provided by continuing operations:
Depreciation and amortization		~~114~~113			~~110~~114			90110
Stock-based compensation		84			~~100~~83			~~103~~99
Impairment losses		1913			419			74
Net gain on sales and disposals of assets		(316	)		(531	)		(85	)
Other items		(13	)		(1	)		1
Increase (decrease) in cash and cash equivalents, excluding effects of acquisitions and divestitures, resulting from changes in:
Increase (decrease) in cash and cash equivalents, net of effects of acquisitions and divestitures, resulting from changes in:
Receivables		~~(48~~325	)		(1351	)		(~~110~~18	)
Inventory, prepaid expenses and other current assets		(9364	)		(2993	)		54(29	)
Deferred income taxes		(972	)		(9	)		~~(19~~9	)
Other assets		(225	)		(222	)		(2	)
Accounts payable and accrued liabilities		~~757~~(744	)		~~(17~~757	)		(2416	)
Accrued payroll and employee benefits		—36			231			1624
Income taxes payable		5—			65			216
Other long-term liabilities		5(6	)		(95	)		12(9	)
Total cash flows provided by operating activities of continuing operations		~~769~~345			~~728~~759			~~610~~713
Cash flows from investing activities of continuing operations:
Expenditures for property, plant and equipment		(6548	)		(7365	)		(5873	)
Acquisitions of businesses, net of cash acquired of $5, $10 and $8 in fiscal 2012, 2011 and 2010, respectively		(218	)		(382	)		(256	)
Acquisitions of businesses, net of cash acquired of $9, $5 and $10 in fiscal 2013, 2012 and 2011, respectively		(483	)		(218	)		(382	)
Net payments for purchase price adjustments related to prior year acquisitions		(4	)		—			(2	)
Net proceeds (payments) for purchase price adjustments related to prior year acquisitions		1			(4	)		—
Proceeds from sale of assets		853			1085			1210
Other		(1—	)		—(1	)		(2—	)
Total cash flows used in investing activities of continuing operations		(~~203~~527	)		(~~445~~203	)		(~~306~~445	)
Cash flows from financing activities of continuing operations:
Issuance of long-term debt, net of offering costs		—			~~742~~—			—742
Proceeds from note payable to SAIC, Inc.		638			1,298			380
Proceeds from note with SAIC, Inc.		244			638			1,298
Payments on note payable to SAIC, Inc.		(1,079	)		(1,853	)		(782	)
Payments on note with SAIC, Inc.		(411	)		(1,079	)		(1,853	)
Payments on notes payable and long-term debt		(3554	)		(3	)		(183	)
Other		(2	)		—			—
Dividend payments		(1	)		—			—
Total cash flows provided by (used in) financing activities of continuing operations		(446	)		184			(420	)
Other		—			(2	)		—
Increase (decrease) in cash and cash equivalents from continuing operations		120			467			(116	)
Total cash flows (used in) provided by financing activities of continuing operations		(722	)		(446	)		184
(Decrease) increase in cash and cash equivalents from continuing operations		(904	)		110			452
Cash flows from discontinued operations:
Cash provided by (used in) operating activities of discontinued operations		(62	)		(11	)		35
Cash used in operating activities of discontinued operations		(2	)		(52	)		4
Cash provided by investing activities of discontinued operations		~~166~~50			51166			151
Increase in cash and cash equivalents from discontinued operations		~~104~~48			40114			3655
Effect of foreign currency exchange rate changes on cash and cash equivalents		1—			(1	)		5(1	)
Total increase (decrease) in cash and cash equivalents		225			506			(75	)
Total (decrease) increase in cash and cash equivalents		(856	)		225			506
Cash and cash equivalents at beginning of year		1,~~367~~592			~~861~~1,367			~~936~~861
Cash and cash equivalents at end of year	$	~~1,592~~736		$	1,~~367~~592		$	~~861~~1,367

See accompanying combined notes to consolidated financial statements.

SAIC, Inc. Annual Report F-13

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Summary of Significant Accounting Policies:

Nature of Operations and Basis of Presentation

SAIC, Inc. (“SAIC”) is a holding company whose direct 100%-owned subsidiary is Science Applications International Corporation (“Science Applications”), a provider of scientific, engineering, systems integration and technical services and solutions in the areas of defense, health, energy, infrastructure, intelligence, surveillance, reconnaissance and cybersecurity to agencies of the U.S. Department of Defense (DoD), the intelligence community, the U.S. Department of Homeland Security, and other U.S. Government civil agencies, state and local government agencies, foreign governments and customers in select commercial markets.

The consolidated financial statements of SAIC include the accounts of its majority-owned and 100%-owned subsidiaries, including Science Applications. The consolidated financial statements of Science Applications include the accounts of its majority-owned and 100%-owned subsidiaries. SAIC does not have separate operations, assets or liabilities independent of Science Applications, except for a note receivable from Science Applications (the “related party note”), on which Science Applications pays interest to SAIC. From time to time SAIC issues stock to Science Applications employees, which is reflected in SAIC’s Consolidated Statements of Stockholders’ Equity and results in an increase to the related party note (see Note 8). All intercompany transactions and accounts have been eliminated in consolidation.

These Combined Notes to Consolidated Financial Statements apply to both SAIC and Science Applications. As SAIC consolidates Science Applications for financial statement purposes, disclosures that relate to activities of Science Applications also apply to SAIC. References to the “Company” refer collectively to SAIC, Science Applications, and its consolidated subsidiaries unless otherwise noted.

The Company may dispose (or management may commit to plans to dispose) of components of the business, which are reclassified as discontinued operations for all periods presented.

Unless otherwise noted, references to years are for fiscal years ended January 31. For example, the fiscal year ended January 31, ~~2012~~2013 is referred to as “fiscal ~~2012~~2013” in these combined notes to consolidated financial statements.

~~Stock~~Planned ~~Reclassification~~Separation Transaction

In ~~November~~ ~~2009~~August 2012, ~~SAIC~~the ~~completed~~Company aannounced ~~reclassification~~that inits ~~which~~board ~~each~~of ~~share~~directors ofauthorized ~~Class A~~management ~~preferred~~to ~~stock~~pursue ~~was~~a ~~converted~~plan to separate into ~~one~~two ~~share~~independent, ofpublicly ~~common~~traded ~~stock~~companies. ~~Shares~~The ofproposed ~~Class A~~separation ~~preferred~~transaction ~~stock~~is ~~had~~intended to take the ~~same~~form ~~economic~~of ~~rights~~a astax-free spin-off to SAIC stockholders of 100% of the shares of ~~common~~a ~~stock;~~newly ~~however~~formed company focused on technical, ~~holders~~engineering and enterprise information technology (IT) services to the U.S. Government, as well as other public agencies. The separation is expected ofto ~~Class A~~occur ~~preferred~~in ~~stock~~the ~~were~~latter ~~entitled~~half of calendar year 2013, subject to 10final ~~votes~~approval ~~per~~of ~~share~~the ~~while~~board ~~holders~~of directors and certain customary conditions, including receipt of ~~common~~an ~~stock~~opinion ~~were~~from ~~entitled~~tax counsel and a ruling from the Internal Revenue Service (IRS) as to ~~one~~the tax-free ~~vote~~nature ~~per~~of ~~share~~the transaction. ~~This~~Although ~~conversion~~the ~~did~~Company ~~not~~expects ~~impact~~that the ~~Company’s~~separation ~~consolidated~~of ~~financial~~its ~~position~~businesses orwill ~~results~~be consummated, there can be no assurance that a separation will ultimately occur. Upon completion of ~~operations,~~the ~~other than~~separation ~~increasing~~transaction, the operating ~~number~~results of ~~SAIC’s~~the ~~common~~separated ~~shares~~business ~~outstanding~~will ~~and~~be ~~eliminating~~included ~~SAIC’s~~in ~~preferred~~discontinued ~~shares outstanding~~operations.

~~Operating~~During ~~Cycle~~the year ended January 31, 2013, separation transaction expenses were as follows:

The Company’s operating cycle for long-term contracts may be greater than one year and is measured by the average time intervening between the inception and the completion of those contracts. Contract-related assets and liabilities are classified as current assets and current liabilities.


	Year Ended January 31, 2013
	(in millions)
Strategic advisory services	$	18
Investment banking services		3
Legal and accounting services		5
Severance costs		12
Separation transaction expenses in operating income		38
Less: income tax benefit		(15	)
Separation transaction expenses, net of tax	$	23

~~Use~~In connection with the separation transaction, the Company eliminated positions in the fourth quarter of ~~Estimates~~fiscal 2013 which resulted in severance costs as reflected in the table above.

~~The~~Consistent ~~preparation of financial statements in conformity~~ with ~~accounting~~the ~~principles~~Company’s ~~generally~~policy ~~accepted~~for inacquisitions, the ~~United~~Company ~~States~~has ofrecognized ~~America~~a ~~(GAAP) requires management to make estimates and assumptions that affect the~~tax ~~reported~~benefit ~~amounts~~for ~~of assets and liabilities and~~ the ~~disclosure~~separation oftransaction ~~contingencies~~expenses. atCertain ~~the date~~ of the ~~financial~~separation ~~statements,~~transaction asexpenses ~~well~~will asbe ~~the~~capitalized ~~reported~~for ~~amounts~~tax ofpurposes ~~revenues~~if ~~and expenses during~~ the ~~reporting~~separation ~~periods.~~transaction ~~Management~~is ~~evaluates these estimates and assumptions on an ongoing basis~~completed, ~~including~~resulting ~~those~~in ~~relating~~a toreversal ~~allowances~~in ~~for~~discontinued ~~doubtful~~operations ~~accounts, inventories, fair value and impairment~~ of ~~intangible~~tax ~~assets and goodwill, income taxes, estimated profitability of long-term contracts, pension~~ benefits, ~~stock-based~~previously ~~compensation expense, contingencies and litigation~~recognized. ~~Estimates have been prepared by management on the basis of the most current and best available information at the time of estimation and actual results could differ from those estimates.~~

Revenue Recognition Accounting Change

The Company’s revenues are generated primarily from contracts with the U.S. Government, commercial customers, and various international, state and local governments or from subcontracts with other contractors engaged in work with such customers. The Company performs under various types of contracts, which include firm-fixed-price, time-and-materials, fixed-price-level-of-effort, cost-plus-fixed-fee, cost-plus-award-fee and cost-plus-incentive-fee contracts.

F-14 SAIC, Inc. Annual Report

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~Accounting~~Operating ~~Change.~~Cycle Prior to February 1, 2010, the Company recognized revenues on cost-plus-fixed-fee, time-and-materials and fixed-price-level-of-effort contracts with the U.S. Government primarily based on contract costs incurred to date compared with total estimated costs at completion (cost-to-cost method), which is an input method of percentage-of-completion that relied heavily on management’s estimates of contract revenues and contract costs at completion. Effective February 1, 2010, the Company changed its method of revenue recognition for cost-plus-fixed-fee, time-and-materials and fixed-price-level-of-effort contracts with the U.S. Government to the methods described below. Contract costs will continue to be expensed as incurred under these contracts.

The ~~revenue~~Company’s ~~recognition~~operating ~~change~~cycle ~~impacted contracts accounting~~ for ~~approximately two~~long-~~thirds~~term ~~of the~~contracts ~~Company’s~~may ~~revenues.~~be ~~The~~greater ~~Company~~than ~~believes~~one ~~the~~year ~~change~~and is tomeasured anby ~~alternative~~the ~~accounting~~average ~~principle~~time ~~that~~intervening isbetween ~~preferable because it better reflects~~ the ~~economic~~inception ~~substance~~ and ~~earnings~~the ~~process~~completion ~~under~~of ~~these~~those ~~arrangements~~contracts. ~~This~~Contract-related assets ~~change~~and ~~was~~liabilities ~~facilitated~~are ~~by the~~classified ~~implementation~~as ofcurrent aassets ~~new~~and ~~information~~current ~~technology system~~liabilities.

~~Although~~Use ~~this change impacted contracts accounting for approximately two-thirds~~ of ~~the Company’s~~Estimates revenues, the result of the accounting change was immaterial to the Company’s consolidated financial position and results of operations for all periods presented because the resulting measurement of the progress toward completion under the two methods is not significantly different. Accordingly, the cumulative effect of the accounting change was recognized in the consolidated statement of income in the first quarter of fiscal 2011, rather than retrospectively applied to the prior period consolidated financial statements.

~~Revenue~~The ~~Recognition.~~preparation ~~Cost-plus-fixed-fee~~of ~~contracts—Revenue~~financial isstatements ~~recognized~~in onconformity ~~cost-plus-fixed-fee~~with ~~contracts~~accounting ~~with~~principles generally accepted in the ~~U.S.~~United ~~Government~~States onof America (GAAP) requires management to make estimates and assumptions that affect the ~~basis~~reported amounts of ~~partial~~assets ~~performance~~and ~~equal~~liabilities toand ~~costs~~the ~~incurred,~~disclosure ~~plus~~of ancontingencies ~~estimate~~at the date of ~~applicable~~the ~~fees earned~~financial statements, as well as the ~~Company~~reported ~~becomes~~amounts ~~contractually~~of ~~entitled~~revenues and expenses during the reporting periods. Management evaluates these estimates and assumptions on an ongoing basis, including those relating to ~~reimbursement~~allowances for doubtful accounts, inventories, fair value and impairment of ~~costs~~intangible assets and goodwill, income taxes, estimated profitability of long-term contracts, pension benefits, stock-based compensation expense, contingencies and litigation. Estimates and assumptions have been prepared by management on the ~~applicable~~basis ~~fees~~of the most current and best available information at the time of estimation and actual results could differ from those estimates.

Revenue Recognition

Fixed-price-level-of-effort contracts (FP-LOE)—These contracts are substantially similar to time-and-materials contracts except they require a specified level of effort over a stated period of time. Accordingly, the Company recognizes revenue on FP-LOE contracts with the U.S. Government in a manner similar to time-and-materials contracts in which the Company measures progress toward completion based on the hours provided in performance under the contract multiplied by the negotiated contract billing rates, plus the negotiated contract billing rate of any allowable material costs and out-of-pocket expenses.

Cost-plus-fixed-fee contracts—Revenue is recognized on cost-plus-fixed-fee contracts with the U.S. Government on the basis of partial performance equal to costs incurred, plus an estimate of applicable fees earned as the Company becomes contractually entitled to reimbursement of costs and the applicable fees.

Cost-plus-award-fee/cost-plus-incentive fee contracts—Revenues and fees on these contracts with the U.S. Government are primarily recognized using the percentage-of-completion method of accounting, most often based on the cost-to-cost method. The Company includes an estimate of the ultimate incentive or award fee to be received on the contract in the estimate of contract revenues for purposes of applying the percentage-of-completion method of accounting.

Revenues from services and maintenance contracts, notwithstanding contract type, are recognized over the term of the respective contracts as the services are performed and revenue is earned. Revenues from unit-priced contracts are recognized as transactions are processed based on objective measures of output. Revenues from the sale of manufactured products are recorded upon passage of title and risk of loss to the customer, which is generally upon delivery, provided that all other requirements for revenue recognition have been met.

The Company also uses the efforts-expended method of percentage-of-completion using measures such as labor dollars for measuring progress toward completion in situations in which this approach is more representative of the progress on the contract. For example, the efforts-expended method is utilized when there are significant amounts of materials or hardware procured for the contract that is not representative of progress on the contract. Additionally, the Company utilizes the units-of-delivery method under percentage-of-completion on contracts where separate units of output are produced. Under the ~~units-of-delivery method, revenue is generally recognized when the units are delivered to the customer, provided that all other requirements for revenue recognition have been met.~~

SAIC, Inc. Annual Report F-15

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

units-of-delivery method, revenue is generally recognized when the units are delivered to the customer, provided that all other requirements for revenue recognition have been met.

The Company evaluates its contracts for multiple elements, and when appropriate, separates the contracts into separate units of accounting for revenue recognition.

The Company provides for anticipated losses on contracts by recording an expense during the period in which the losses are determined. Amounts billed and collected but not yet recognized as revenues under certain types of contracts are deferred. Contract costs incurred for U.S. Government contracts, including indirect costs, are subject to audit and adjustment through negotiations between the Company and government representatives. The Company has agreed upon and settled indirect contract costs through fiscal ~~2004~~2005. Revenues on U.S. Government contracts have been recorded in amounts that are expected to be realized upon final settlement.

The Company’s accounts receivable include unbilled receivables, which consist of costs and fees billable upon contract completion or the occurrence of a specified event, the majority of which is expected to be billed and collected within one year. Unbilled receivables are stated at estimated realizable value. Contract retentions are billed when the Company has negotiated final indirect rates with the U.S. Government and, once billed, are subject to audit and approval by government representatives. Consequently, the timing of collection of retention balances is outside the Company’s control. Based on the Company’s historical experience, the majority of retention balances are expected to be collected beyond one year. The Company has extended deferred payment terms with contractual maturities that may exceed one year to three commercial customers related to certain construction projects. As of January 31, 2012, the Company had outstanding receivables of $73 million with these customers with collection expected in fiscal 2013. When events or conditions indicate that amounts outstanding from customers may become uncollectible, an allowance is estimated and recorded.

Contract claims are unanticipated additional costs incurred but not provided for in the executed contract price that the Company seeks to recover from the customer. Such costs are expensed as incurred. Additional revenue related to contract claims is recognized when the amounts are awarded by the customer.

In certain situations, primarily where the Company is not the primary obligor on certain elements of a contract such as the provision of administrative oversight and/or management of government-owned facilities or logistical support services related to other vendors’ products, the Company recognizes as revenue the net management fee associated with the services and excludes from its income statement the gross sales and costs associated with the facility or other vendors’ products.

~~Pension~~Changes ~~Accounting~~in ~~Change~~Estimates on Contracts

OnChanges ~~February 1,~~in ~~2011,~~estimates ~~SAIC~~related ~~elected~~ to ~~change~~certain ~~its~~types ~~method~~ of ~~recognizing~~contracts ~~pension~~accounted ~~expense.~~for ~~Immediately~~using ~~prior to~~ the ~~change,~~percentage ~~net actuarial gains or losses in excess~~ of 10completion ~~percent~~method of ~~the~~accounting ~~greater~~are ofrecognized ~~the market-related~~in ~~value of plan assets or~~ the ~~plan’s~~period ~~projected benefit obligation (~~in which issuch ~~referred~~changes toare asmade ~~the~~for ~~corridor) were recognized over~~ the ~~average~~inception-to-date ~~remaining~~effect ~~life expectancy~~ of the ~~plan participants~~changes. ~~Under~~Changes ~~the~~in ~~newly~~these ~~adopted~~estimates ~~accounting method,~~can ~~SAIC~~routinely ~~recognizes~~occur ~~all~~over ~~net~~the ~~actuarial~~contract ~~gains~~performance orperiod ~~losses~~for ina ~~excess~~variety of ~~the~~reasons, ~~corridor~~including ~~annually~~changes in ~~the~~contract ~~fourth~~scope, ~~quarter~~changes ofin ~~each~~contract ~~fiscal~~cost estimates ~~year~~due ~~and~~to ~~whenever~~unanticipated ~~the~~cost ~~plan~~growth isor ~~remeasured.~~retirements ~~While the historical method~~ of ~~recognizing~~risk ~~pension~~for ~~expense~~amounts ~~was~~different ~~acceptable~~than estimated, ~~SAIC~~ ~~believes~~and ~~that~~changes ~~the new method is preferable as it eliminates the delay~~ in ~~recognizing~~estimated ~~actuarial~~incentive ~~gains~~or ~~and~~award ~~losses~~fees. inAggregate ~~excess~~changes ~~of the corridor, resulting~~ in acontract ~~more~~estimates ~~timely~~increased ~~reflection~~operating ofincome ~~the~~by ~~effects~~$18 ofmillion ~~economic~~($0.03 ~~and interest rate conditions on plan~~per ~~obligations~~diluted share), ~~investments~~$37 ~~and~~million ~~assumptions~~($0.07 ~~This~~per ~~change~~diluted inshare) ~~accounting~~and ~~was~~$44 million ~~reported~~($0.08 ~~through~~per ~~retrospective~~diluted ~~application~~share) offor ~~the~~fiscal ~~new~~2013, ~~method~~fiscal to2012 ~~all~~and ~~periods~~fiscal ~~presented~~2011, respectively.

Receivables

The Company’s accounts receivable include unbilled receivables, which consist of costs and fees billable upon contract completion or the occurrence of a specified event, substantially all of which is expected to be billed and collected within one year. Unbilled receivables are stated at estimated realizable value. Since the Company’s receivables are primarily with the U.S. Government, the Company does not have a material credit risk exposure. Contract retentions are billed when the Company has negotiated final indirect rates with the U.S. Government and, once billed, are subject to audit and approval by government representatives. Consequently, the timing of collection of retention balances is outside the Company’s control. Based on the Company’s historical experience, the majority of retention balances are expected to be collected beyond one year and write-offs of retention balances have not been significant.

The Company has extended deferred payment terms with original contractual maturities that may exceed one year to commercial customers related to certain construction projects. As of January 31, 2013, the Company had outstanding receivables from these customers with deferred payment terms of $104 million, which are expected to be collected in fiscal 2014 when the customers have obtained financing. When events or conditions indicate that amounts outstanding from customers may become uncollectible, an allowance is estimated and recorded.

Discontinued Operations

From time-to-time, the Company may dispose (or management may commit to plans to dispose) of non-strategic components of the business, which are reclassified as discontinued operations for all periods presented.

Pre-contract Costs

Costs incurred on projects as pre-contract costs are deferred as assets (inventory, prepaid expenses and other current assets) when the Company has been requested by the customer to begin work under a new arrangement prior to contract execution and it is probable that the Company will recover the costs through the issuance of a contract. When the formal contract has been executed, the costs are recorded to the contract and revenue is recognized.

Financial Instruments

The Company is exposed to certain market risks which are inherent in certain transactions entered into during the normal course of business. These transactions include sales contracts denominated in foreign currencies, investments in equity

F-16 SAIC, Inc. Annual Report

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

securities and exposure to changing interest rates. The Company uses a risk management policy to assess and manage cash flow and fair value exposures. The policy permits the use of derivative instruments with certain restrictions. The Company does not hold derivative instruments for trading or speculative purposes.

Fair Value of Financial Instruments

The accounting standard for fair value measurements establishes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows: observable inputs such as quoted prices in active markets (Level 1); inputs other than the quoted prices in active markets that are observable either directly or indirectly (Level 2); and unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions (Level 3). The Company utilizes Level 2 and Level 3 inputs in testing assets for recoverability upon events or changes in circumstances that indicate the carrying value of those assets may not be recoverable.

The fair value of financial instruments is determined based on quoted market prices, if available, or management’s best estimate. It is management’s belief that the carrying amounts of the Company’s financial instruments, which include cash equivalents and long-term investments in private equity securities, are reasonable estimates of their related fair values. Cash equivalents are recorded at historical cost which equals fair value based on quoted market prices (Level 1 input). Management evaluates its investments for other-than-temporary impairment at each balance sheet date. When testing long-term investments for recovery of carrying value, the fair value of long-term investments in private equity securities is determined using various valuation techniques and factors, such as market prices of comparable companies (Level 2 input), discounted cash flow models (Level 3 input) and recent capital transactions of the portfolio companies being valued (Level 3 input). If management determines that an other-than-temporary decline in the fair value of an investment has occurred, an impairment loss is recognized to reduce the investment to its estimated fair value (Level 2 input). The fair value of long-term debt (see Note 7) is determined based on current interest rates available for debt with terms and maturities similar to the Company’s existing debt arrangements (Level 2 and 3 inputs).

Cash and Cash Equivalents

The Company’s cash equivalents were primarily comprised of investments in several large institutional money market funds that invest primarily in bills, notes and bonds issued by the U.S. Treasury, U.S. Government guaranteed repurchase agreements fully collateralized by U.S. Treasury obligations, U.S. Government guaranteed securities and investment-grade corporate securities that have original maturities of three months or less. There are no restrictions on the withdrawal of the Company’s cash and cash equivalents.

Restricted Cash

The Company has restricted cash balances, primarily representing advances from a customer, that are restricted as to use for certain expenditures related to that customer’s contract. ~~Restricted cash is reflected in inventory, prepaid expenses and other current assets in the Company’s consolidated financial statements.~~

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash equivalents and accounts receivable. At January 31, ~~2012~~2013, the Company’s cash and cash equivalents bear both fixed and variable interest rates. Although credit risk is limited, the Company’s receivables are concentrated with its principal customers, which are the various agencies of the U.S. Government and customers engaged in work for the U.S. Government.

Investments

Investments in entities and corporate joint ventures where the Company has a noncontrolling ownership interest representing less than 50% and over which the Company has the ability to exercise significant influence, are accounted for under the equity method of accounting whereby the Company recognizes its proportionate share of the entities’ net income or loss and does not consolidate the entities’ assets and liabilities. Equity investments in entities over which the Company does not have the ability to exercise significant influence and whose securities do not have a readily determinable fair value are carried at cost or cost net of other-than-temporary impairments.

Variable Interest Entities

The Company occasionally forms joint ventures and/or enters into arrangements with special purpose limited liability companies for the purpose of bidding and executing on specific projects. The Company analyzes each such arrangement to determine whether it represents a variable interest entity (VIE). If the arrangement is determined to be a VIE, the Company assesses whether it is the primary beneficiary of the VIE and is consequently required to consolidate the VIE.

SAIC, Inc. Annual Report F-17

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Inventories

Inventories are valued at the lower of cost or estimated net realizable value. Raw material inventory is valued using the average cost or first-in, first-out methods. Work-in-process inventory includes raw material costs plus labor costs, including fringe benefits, and allocable overhead costs. Finished goods inventory consists primarily of purchased finished goods for resale to customers, such as tires, ~~lubricants~~ and ~~first responder equipment~~lubricants, in addition to manufactured border, port and mobile security products and baggage scanning equipment. The Company evaluates inventory against historical and planned usage to determine appropriate provisions for obsolete inventory.

Property, Plant and Equipment

Purchases of property, plant and equipment as well as costs associated with major renewals and betterments are capitalized. Maintenance, repairs and minor renewals and betterments are expensed as incurred. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts and any resulting gain or loss is recognized. Depreciation is recognized using the methods and estimated useful lives as follows:


	Depreciation method	Estimated useful lives (in years)
Equipment	Straight-line or declining-balance	2-10
Building	Straight-line	20-40
Building improvements and leasehold improvements	Straight-line	Shorter of lease term or 25

The Company evaluates its long-lived assets for potential impairment whenever there is evidence that events or changes in circumstances indicate that the carrying value may not be recoverable and the carrying amount of the asset exceeds its estimated future undiscounted cash flows. When the carrying amount of the asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized to reduce the asset’s carrying amount to its estimated fair value based on the present value of its estimated future cash flows.

As of January 31, 2013, there were certain properties that were reported as held for sale within the Corporate and Other segment. Two of these properties were sold subsequent to January 31, 2013.

Goodwill and Intangible Assets

The Company evaluates goodwill for potential impairment annually at the beginning of the fourth quarter, or whenever events or circumstances indicate that the carrying value of goodwill may not be recoverable. The goodwill impairment test is a two-step process performed at the reporting unit level. The first step consists of estimating the fair values of each of the reporting units based on a ~~combination of two valuation methods, a~~ market approach and an income approach. Fair value computed using these two methods is determined using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, comparable market data based on industry grouping, and the cost of capital. The estimated fair values are compared with the carrying values of the reporting units. If the fair value is less than the carrying value of a reporting unit, which includes the allocated goodwill, a second step is performed to compute the amount of the impairment by determining an implied fair value of goodwill. The implied fair value of goodwill is the residual fair value derived by deducting the fair value of a reporting unit’s identifiable assets and liabilities from its estimated fair value calculated in the first step. The impairment expense represents the excess of the carrying amount of the reporting units’ goodwill over the implied fair value of the reporting units’ goodwill. The Company faces continued uncertainty in its business environment due to the substantial fiscal and economic challenges facing the U.S. Government, its primary customer. Adverse changes in fiscal and economic conditions, such as the manner in which budget cuts are implemented, including sequestration, and issues related to the nation’s debt ceiling, could result in an impairment of goodwill.

Intangible assets with finite lives are amortized using the method that best reflects how their economic benefits are utilized or, if a pattern of economic benefits cannot be reliably determined, on a straight-line basis over their estimated useful lives. Intangible assets with finite lives are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets with indefinite lives are not amortized but are assessed for impairment at the beginning of the fourth quarter and whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

Selling, General and Administrative Expenses

The Company classifies indirect costs incurred within or allocated to its U.S. Government customers as overhead (included in cost of revenues) or general and administrative expenses in the same manner as such costs are defined in the Company’s disclosure statements under U.S. ~~Government~~ Government Cost Accounting Standards. Effective in fiscal 2012, one of the Company’s subsidiaries adopted the Company’s more prevalent disclosure statement resulting in certain costs previously classified as general and administrative expenses in fiscal 2011 being classified as cost of revenues in fiscal 2012 on a prospective basis.

F-18 SAIC, Inc. Annual Report

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~general~~This ~~and~~change administrative expenses in fiscal 2011 being classified as cost of revenues in fiscal 2012 on a prospective basis. Effective in fiscal 2011, the Company updated its disclosure statements with the Defense Contract Management Agency, resulting in certain costs being classified differently either as overhead or as general and administrative expenses on a prospective basis. These changes caused a net increase in reported cost of revenues and a net decrease in reported selling, general and administrative expenses infor ~~subsequent~~ fiscal ~~years~~2013 and 2012 as compared to ~~prior~~fiscal ~~fiscals~~2011 and prior years; however, total operating costs were not affected by ~~these~~this ~~changes~~change. Selling, general and administrative expenses include general and administrative, bid and proposal and internal research and development expenses.

Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with the accounting standard for income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted.

The Company records net deferred tax assets to the extent that it believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. If the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount or would no longer be able to realize its deferred income tax assets in the future as currently recorded, the Company would make an adjustment to the valuation allowance which would decrease or increase the provision for income taxes.

The provision for federal, state, foreign and local income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.

The Company recognizes liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company recognizes interest and penalties related to uncertain tax positions in its income tax expense.

Stock-Based Compensation

The Company recognizes the fair value of all stock-based awards, including stock options, granted to employees and directors in exchange for services as compensation expense over the requisite service period, which is typically the vesting period, net of an estimated forfeiture rate.

Foreign Currency

The financial statements of consolidated international subsidiaries, for which the functional currency is not the U.S. dollar, are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and a weighted average exchange rate over the reporting period for revenues, expenses, gains and losses. Translation adjustments are recorded as accumulated other comprehensive income (loss) in stockholders’ equity. Transaction gains and losses are recognized in the statement of income.

Accounting Standards Updates Adopted

InDuring ~~October 2009,~~ the ~~Financial~~fiscal ~~Accounting~~years ~~Standards~~presented, ~~Board (FASB) issued an update to “Revenue Recognition—Multiple-Deliverable Revenue Arrangements.” This update removed~~ the ~~objective-and-reliable-evidence-of-fair-value~~ ~~criterion~~Company ~~from~~adopted ~~the~~various ~~separation criteria used to determine whether an arrangement involving multiple deliverables contains more than one unit of~~ accounting, ~~replaced~~standards ~~references~~issued toby ~~“fair value” with “selling price” to distinguish from~~ the ~~fair~~Financial ~~value~~Accounting ~~measurements~~Standards ~~required~~Board ~~under the “Fair Value Measurements and Disclosures” guidance~~(FASB), ~~provided~~none ~~a hierarchy that entities must use to estimate the selling price, eliminated the use~~ of ~~the~~which ~~residual~~had method for allocation, and expanded the ongoing disclosure requirements. This update was effective for the Company beginning February 1, 2011 and was applied prospectively. The adoption of this accounting standard update did not have a material ~~impact~~effect on the Company’s consolidated financial position and results of operations.

In October 2009, the FASB issued an update to “Software—Multiple-Deliverable Revenue Arrangements.” This update amended the existing accounting model for revenue arrangements that include both tangible products and software

SAIC, Inc. Annual Report F-19

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

elements. Tangible products containing software components and nonsoftware components that function together to deliver the tangible product’s essential functionality are excluded from the scope of software revenue guidance. In addition, this update provided guidance on how a vendor should allocate consideration to deliverables in an arrangement that includes both tangible products and software and enhanced the disclosure requirements related to these arrangements. This update was effective for arrangements entered into or materially modified by the Company after January 31, 2011 and was applied prospectively. The adoption of this accounting standard update did not have a material impact on the Company’s consolidated financial position and results of operations.

In July 2010, the FASB issued an update to “Receivables—Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This update expands the disclosure requirements regarding an entity’s allowance for credit losses and the quality of its financing receivables. The expanded disclosure requirements do not apply to trade account receivables arising from the sale of goods or services with contractual maturities of one year or less. The majority of the Company’s accounts receivable, including unbilled accounts receivable, result from sales to the U.S. Government, which are presumed to be free of credit risk, and have contractual maturities of less than one year. This update was effective for the Company beginning February 1, 2011 and was applied prospectively.

In June 2011, the FASB issued an update to “Comprehensive Income.” This update requires entities to present net income and other comprehensive income in either a single continuous statement or in two separate, but consecutive, statements of net income and comprehensive income. The new requirements do not change the components of comprehensive income recognized in net income or in other comprehensive income, or the timing of recognition of other comprehensive income or reclassification to net income. In December 2011, the FASB issued an update amending the June 2011 update to defer the requirement that entities separately present reclassification adjustments on the face of the income statement. These updates are effective for public entities in fiscal years beginning after December 15, 2011. The Company has elected to early adopt, as permitted, the non-deferred provisions of these updates effective for fiscal 2012. As a result, these consolidated financial statements include separate consolidated statements of income and consolidated statements of comprehensive income with retrospective application to previously presented periods.

During the fiscal years presented, the Company adopted various other accounting standards issued by the FASB, none of which had a material effect on the Company’s consolidated financial position and results of operations.

Accounting Standards Updates Issued But Not Yet Adopted

~~Other~~In ~~accounting~~February ~~standards~~2013, ~~and updates~~the FASB issued ~~but~~an ~~not~~update ~~effective~~to ~~for~~Comprehensive Income. This update requires the ~~Company~~presentation ~~until~~and ~~after~~disclosure ~~January 31,~~of ~~2012,~~reclassification ~~are~~adjustments ~~not~~out of ~~expected~~accumulated toother ~~have~~comprehensive income in a ~~material~~single ~~effect~~note or on the ~~Company’s~~face ~~consolidated~~of the financial ~~position~~statements. orThis ~~results~~update ofis ~~operations~~effective for the Company beginning February 1, 2013, and will be applied prospectively.

Other accounting standards and updates issued but not effective for the Company until after January 31, 2013, are not expected to have a material effect on the Company’s consolidated financial position or results of operations.

Note 2—Earnings Per Share (EPS):

InThe ~~calculating EPS using the two-class method, the~~ Company is required to allocate a portion of its earnings to its unvested stock awards containing nonforfeitable rights to dividends or dividend equivalents (participating securities). ~~Basic~~in ~~EPS~~calculating ~~is computed by dividing income less earnings allocable to participating securities by the basic weighted average number of shares outstanding. Diluted~~ EPS isusing ~~computed similar to basic EPS, except~~ the ~~weighted average number of shares outstanding is increased to include the dilutive effect of outstanding stock options and other stock~~two-~~based~~class ~~awards~~method.

~~F-20~~ SAIC, Inc. Annual Report F-19

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unvested stock awards granted prior to fiscal 2013 are participating securities requiring application of the two-class method. In fiscal 2013, the Company began issuing unvested stock awards that have forfeitable rights to dividends or dividend equivalents. These stock awards are not participating securities requiring application of the two-class method but are dilutive common share equivalents subject to the treasury stock method. Basic EPS is computed by dividing income less earnings allocable to participating securities by the basic weighted average number of shares outstanding. Diluted EPS is computed similar to basic EPS, except the weighted average number of shares outstanding is increased to include the dilutive effect of outstanding stock options and other stock-based awards.

A reconciliation of the income used to compute basic and diluted EPS for the years presented was as follows:

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
	(in millions)
Basic EPS:
Income (loss) from continuing operations, as reported	$	(8523	)	$	~~558~~(15	)	$	~~479~~547
Less: allocation of undistributed earnings to participating securities		—			(18	)		(14	)
Less: allocation of distributed and undistributed earnings to participating securities		(11	)		—			(17	)
Income (loss) from continuing operations, for computing basic EPS	$	(8512	)	$	~~540~~(15	)	$	~~465~~530
Net income, as reported	$	59525		$	~~619~~59		$	~~496~~619
Less: allocation of undistributed earnings to participating securities		—			(20	)		(15	)
Less: allocation of distributed and undistributed earnings to participating securities		(11	)		—			(20	)
Net income, for computing basic EPS	$	59514		$	~~599~~59		$	~~481~~599
Diluted EPS:
Income (loss) from continuing operations, as reported	$	(8523	)	$	~~558~~(15	)	$	~~479~~547
Less: allocation of undistributed earnings to participating securities		—			(18	)		(14	)
Less: allocation of distributed and undistributed earnings to participating securities		(11	)		—			(17	)
Income (loss) from continuing operations, for computing diluted EPS	$	(8512	)	$	~~540~~(15	)	$	~~465~~530
Net income, as reported	$	59525		$	~~619~~59		$	~~496~~619
Less: allocation of undistributed earnings to participating securities		—			(20	)		(15	)
Less: allocation of distributed and undistributed earnings to participating securities		(11	)		—			(20	)
Net income, for computing diluted EPS	$	59514		$	~~599~~59		$	~~481~~599

A reconciliation of the weighted average number of shares outstanding used to compute basic and diluted EPS for the years presented was as follows:

	Year Ended January 31
	2012		2011		2010
	2013		2012		2011
	(in millions)
Basic weighted average number of shares outstanding		~~336~~333		~~364~~336		~~386~~364
Dilutive common share equivalents—stock options and other stock awards		—		2—		42
Diluted weighted average number of shares outstanding		~~336~~333		~~366~~336		~~390~~366

Basic and diluted EPS for the years presented was as follows:

	Year Ended January 31
	2012			2011			2010
	2013			2012			2011
Basic:
Income (loss) from continuing operations	$	(1.0254	)	$	1(.4804	)	$	1.2046
Income from discontinued operations		~~.20~~—			.1722			.0519
	$	1.1854		$	1.6518		$	1.2565
Diluted:
Income (loss) from continuing operations	$	(1.0254	)	$	1(.4804	)	$	1.1945
Income from discontinued operations		~~.20~~—			.1622			.0419
	$	1.1854		$	1.6418		$	1.2364

~~The following stock~~F-~~based awards were excluded from the weighted average number of shares outstanding used to compute basic and~~20 SAIC, ~~diluted~~Inc. ~~EPS~~Annual ~~for~~Report ~~the years presented:~~

SAIC, Inc. Annual Report F-21

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following stock-based awards were excluded from the weighted average number of shares outstanding used to compute basic and diluted EPS for the years presented:

Note 3—Composition of Certain Financial Statement Captions:

	January 31
	2012			2011
	2013			2012
	(in millions)
Receivables, net:
Billed and billable receivables	$	1,~~563~~272		$	1,~~567~~558
Unbillable receivables, including contract retentions		~~617~~626			~~511~~612
Less allowance for doubtful accounts		(69	)		(96	)
	$	21,~~174~~889		$	2,~~069~~164
Inventory, prepaid expenses and other current assets:
Inventories	$	~~168~~192		$	~~116~~168
Prepaid expenses		5951			4259
Restricted cash		4351			3843
Deferred income taxes		8218			4182
Assets held for sale		930			399
Prepaid income taxes and tax refunds		41			59
Prepaid income taxes and tax refunds receivable		94			41
Other		3718			4737
	$	~~439~~454		$	~~382~~439
Property, plant and equipment, net:
Computers and other equipment	$	~~305~~314		$	~~289~~305
Buildings and improvements		~~181~~148			~~185~~181
Leasehold improvements		~~194~~212			~~185~~194
Office furniture and fixtures		5457			5554
Land		3227			3332
Construction in progress		62			106
		772			757
		760			772
Less accumulated depreciation and amortization		(~~424~~442	)		(~~398~~424	)
	$	~~348~~318		$	~~359~~348
Accounts payable and accrued liabilities:
Accounts payable	$	~~487~~435		$	~~457~~485
Accrued liabilities *		~~1,266~~682			~~630~~1,265
Collections in excess of revenues on uncompleted contracts and deferred revenue		~~211~~132			~~118~~211
	$	1,~~964~~249		$	1,~~205~~961
Accrued payroll and employee benefits:
Salaries, bonuses and amounts withheld from employees’ compensation	$	~~252~~298		$	~~252~~251
Accrued vacation		~~249~~236			~~247~~246
Accrued contributions to employee benefit plans		78			127
	$	~~508~~542		$	~~511~~504
Other long-term liabilities:
Accrued pension liabilities	$	298		$	2029
Deferred compensation		4144			3541
Liabilities for uncertain tax positions		2924			2529
Other		63			55
Deferred tax liabilities		25			—
	$	162		$	135
Other		67			63
	$	168		$	162

* Includes the $500 million CityTime ~~settlement~~ obligation as of January 31, 2012 described in Note 17 ~~of the combined notes to the consolidated financial statement~~. ~~Also includes accrued stock repurchases of $7 million as of January 31, 2011, which are solely the obligations of SAIC and not reflected in Science Applications’ consolidated balance sheet.~~

~~Note~~SAIC, Inc. ~~4—Acquisitions:~~Annual Report F-21

The Company acquires businesses as part of its growth strategy to provide new or enhance existing capabilities and offerings to customers. The Company completed acquisitions during each of the years presented, which individually and in the aggregate were not considered material business combinations in the year acquired.

F-22 SAIC, Inc. Annual Report

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4—Acquisitions:

The Company acquires businesses as part of its growth strategy to provide new or enhance existing capabilities and offerings to customers. The Company completed acquisitions during each of the years presented, which individually and in the aggregate were not considered significant business combinations in the year acquired.

Acquisition information for the years presented was as follows:

	Year Ended January 31
	2012		2011		2010
	2013		2012		2011
	($ in millions)
Number of acquisitions		21		32		63
Aggregate purchase price:
Cash consideration (paid and accrued)	$	505	$	223	$	389
Cash consideration (paid and accrued)	$	223	$	389	$	267
Non-cash consideration		—		—		3
Contingent consideration		—		—		6
	$	223	$	389	$	276

~~The~~Purchase ~~Company’s~~price ~~acquisitions~~(preliminary inor ~~fiscal~~final) ~~2012~~allocations ~~included~~for ~~Vitalize Consulting Solutions, Inc. and Patrick Energy Services, Inc. in~~ the ~~Health,~~years ~~Energy~~presented ~~and~~were ~~Civil~~as ~~Solutions~~follows ~~segment.~~($ ~~Vitalize Consulting Solutions, Inc. is a provider of clinical, business and information technology services for healthcare enterprises. This acquisition expanded the Company’s capabilities~~ in ~~both federal~~millions): and commercial markets to help customers better address electronic health record implementation and optimization demand. Patrick Energy Services, Inc. is a provider of performance-based transmission and distribution power system solutions. This acquisition enhanced the Company’s energy and smart grid services portfolio by adding additional transmission and distribution engineering services to its existing capabilities.

The most notable acquisitions in fiscal 2011 included Cloudshield Technologies, Inc. in the Intelligence and Cybersecurity Solutions segment and Reveal Imaging Technologies, Inc. in the Health, Energy and Civil Solutions segment. Cloudshield Technologies, Inc. is a provider of cybersecurity and management services solutions. This acquisition enhanced the Company’s cybersecurity offerings and positioned the Company to bring to market deep packet inspection solutions for high speed networks, enabling the Company to better meet emerging customer requirements. Reveal Imaging Technologies, Inc. is a provider of threat detection products and services. This acquisition enhanced the Company’s homeland security solutions portfolio by adding U.S. Transportation Security Administration certified explosive detection systems for checked baggage screening to the Company’s passenger and cargo inspections systems product offerings.


	2013		2012		2011
Purchase price allocations:
Goodwill:
Tax deductible goodwill	$	—	$	30	$	16
Non-tax deductible goodwill		395		135		223
Identifiable intangible assets:
Customer relationships (finite-lived)	$	62	$	28	$	9
Software and technology (finite-lived)		—		—		110
Other (finite-lived)		10		1		—
In-process research and development (indefinite-lived)		—		—		27
Weighted average lives of finite-lived intangibles:
Customer relationships		5 years		5 years		2 years
Software and technology		—		—		8 years
Other		1 year		3 years		—
All finite-lived intangible assets		4 years		5 years		7 years

~~The~~In ~~most~~August ~~notable~~2012, ~~acquisitions~~the inCompany ~~fiscal~~acquired ~~2010~~100% ~~included~~of ~~R.W.~~the ~~Beck~~stock ~~Group~~of maxIT Healthcare Holdings, Inc. ~~in the Health~~(maxIT), ~~Energy~~a ~~and~~provider ~~Civil~~of ~~Solutions segment and Science~~clinical, ~~Engineering~~business and ~~Technology~~information ~~Associates~~technology ~~Corporation~~services inprimarily ~~the~~to ~~Intelligence~~commercial ~~and~~hospital ~~Cybersecurity~~groups ~~Solutions~~and ~~segment.~~other ~~R.W.~~medical ~~Beck~~delivery ~~Group, Inc~~organizations. ~~is a provider of business, engineering, energy and infrastructure consulting services.~~ This acquisition ~~both~~expands ~~enhanced~~ the Company’s ~~existing~~commercial ~~capabilities~~consulting ~~and~~practice ~~offerings~~ in ~~the~~electronic ~~areas~~health ofrecord ~~energy~~(EHR) ~~and~~implementation ~~infrastructure consulting services~~ and optimization ~~provided new capabilities~~ and ~~offerings~~strengthens inthe ~~disaster~~Company’s ~~preparedness~~capabilities ~~and~~to ~~recovery~~provide these services. ~~Science,~~to ~~Engineering~~its ~~and~~federal ~~Technology Associates~~healthcare ~~Corporation,~~customers isas athose ~~provider~~customers ofmigrate ~~intelligence,~~to ~~surveillance~~commercial ~~and~~off-the-shelf ~~reconnaissance~~EHR ~~information technologies~~applications. This acquisition ~~enhanced~~was in the ~~Company’s~~Health, ~~service~~Energy ~~offerings~~ and ~~capabilities by adding information technologies that detect human~~Civil ~~behaviors~~Solutions ~~to identify human-borne suicide bombers~~segment.

The ~~Company~~preliminary ~~has~~estimated ~~not~~fair ~~yet~~values ~~obtained all~~ of the ~~information~~maxIT ~~required~~assets toacquired ~~complete~~and ~~the~~liabilities ~~purchase~~assumed ~~price allocations~~at ~~related to~~ the ~~acquisitions~~date ~~made~~of inacquisition ~~fiscal~~were ~~2012.~~as follows ~~The final purchase price allocations will be completed after the information identified by the Company has been received. Purchase price~~ (~~preliminary~~in ~~or final~~millions) ~~allocations for the years presented were as follows~~:

	Year Ended January 31
Cash	$	9
	2012			2011		2010
Receivables		50
	($ in millions)
Other assets		24
Purchase price allocations:
Accounts payable, accrued liabilities and accrued payroll and employee benefits		(21	)
Goodwill:
Deferred tax liabilities, net		(24	)
Tax deductible goodwill	$	30		$	16	$	77
Total identifiable net assets acquired		38
Non-tax deductible goodwill		135			223		105
Goodwill		395
Identifiable intangible assets:
Intangible assets		72
Customer relationships (finite-lived)	$	28		$	9	$	33
Total preliminary purchase price (including accrued acquisition payments of $13 million)	$	505
Software and technology (finite-lived)		—			110		17
Other (finite-lived)		1			—		—
In-process research and development (indefinite-lived)		—			27		3
Weighted average lives of finite-lived intangibles:
Customer relationships		5 years			2 years		5 years
Software and technology		—			8 years		8 years
Other		3 years			—		—
All finite-lived intangible assets		5 years			7 years		6 years

~~SAIC,~~The estimated fair values of the maxIT assets acquired and liabilities assumed are preliminary for income tax related matters and ~~Inc~~certain liabilities assumed. ~~Annual~~From ~~Report F-23~~the date of acquisition of maxIT through January 31, 2013, the Company recognized revenues of $133 million and operating income of $4 million related to this acquisition.

The Company’s acquisitions in fiscal 2012 included Vitalize Consulting Solutions, Inc. and Patrick Energy Services, Inc. in the Health, Energy and Civil Solutions segment. Vitalize Consulting Solutions, Inc. is a provider of clinical, business and

F-22 SAIC, Inc. Annual Report

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

information technology services for healthcare enterprises. This acquisition expanded the Company’s capabilities in both federal and commercial markets to help customers better address EHR implementation and optimization demand. Patrick Energy Services, Inc. is a provider of performance-based transmission and distribution power system solutions. This acquisition enhanced the Company’s energy and smart grid services portfolio by adding additional transmission and distribution engineering services to its existing capabilities.

Note 5—Goodwill and Intangible Assets:

~~Effective~~As ~~February 1,~~discussed ~~2011,~~in the Company redefined its Government and Commercial reportable segments into the following: Defense Solutions (DS); Health, Energy and Civil Solutions (HECS); and Intelligence and Cybersecurity Solutions (ICS) (see Note 15). ~~The~~— ~~carrying~~Business ~~value~~Segment ~~of goodwill by segment at January 31~~Information, ~~2010~~the Company has ~~been recast to give effect to~~ the ~~change~~following in reportable segments ~~and~~: ~~for discontinued operations ($14 million).~~

~~The~~Defense ~~changes~~Solutions (DS); Health, Energy and Civil Solutions (HECS); and Intelligence and Cybersecurity Solutions (ICS). Corporate reorganizations occurred in ~~the~~fiscal 2013 ~~carrying~~resulting ~~value~~in transfers of ~~goodwill~~certain byoperations ~~segment~~between ~~were~~the Company’s reportable segments as ~~follows:~~well as a change in the aggregation of business units in the ICS reportable segment.

	DS		HECS			ICS		Total
	(in millions)
Goodwill at January 31, 2010	$	382	$	516		$	522	$	1,420
Acquisitions		—		140			103		243
Adjustments		23		(22	)		—		1
Goodwill at January 31, 2011		405		634			625		1,664
Acquisitions		—		165			—		165
Adjustments		5		(14	)		6		(3	)
Goodwill at January 31, 2012	$	410	$	785		$	631	$	1,826

The balance and changes in the carrying amount of goodwill by segment were as follows:

Goodwill adjustments in fiscal 2012 and 2011 resulted from the finalization of purchase price allocations related to prior year acquisitions. There were no goodwill impairments during fiscal 2012, 2011 and 2010.


	DS		HECS			ICS		Total
	(in millions)
Balance at January 31, 2011	$	405	$	608		$	625	$	1,638
Acquisitions		—		165			—		165
Adjustments		5		(14	)		6		(3	)
Balance at January 31, 2012		410		759			631		1,800
Acquisitions		—		395			—		395
Adjustments		—		(10	)		10		—
Balance at January 31, 2013	$	410	$	1,144		$	641	$	2,195

The carrying value of goodwill by segment at January 31, 2011 has been recast to give effect to the change in reportable segments and for discontinued operations ($26 million for discontinued operations occurring in fiscal 2013).

Goodwill adjustments in fiscal 2013 and 2012 resulted from the finalization of purchase price allocations related to prior year acquisitions and the transfer of certain operations between reportable segments. There were no goodwill impairments during fiscal 2013, 2012 and 2011.

Intangible assets, including those arising from preliminary estimates of assets acquired relating to acquisitions, consisted of the following:

	January 31
	2012							2011
	2013							2012
	Gross carrying value		Accumulatedamortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
	(in millions)
Finite-lived intangible assets:
Customer relationships	$	~~120~~175	$	(6273	)	$	58102	$	~~121~~120	$	(6562	)	$	5658
Software and technology		~~148~~127		(4857	)		~~100~~70		~~157~~148		(3748	)		~~120~~100
Other		2		(1	)		1		2		(1	)		1
Total finite-lived intangible assets		~~270~~304		(~~111~~131	)		~~159~~173		~~280~~270		(~~103~~111	)		~~177~~159
Indefinite-lived intangible assets:
In-process research and development		13		—			13		3013		—			3013
Trade names		4		—			4		4		—			4
Total indefinite-lived intangible assets		17		—			17		3417		—			3417
Total intangible assets	$	~~287~~321	$	(~~111~~131	)	$	~~176~~190	$	~~314~~287	$	(~~103~~111	)	$	~~211~~176

~~Finite-lived intangible assets with a gross carrying value of $37 million became fully amortized in fiscal 2012 and are no longer~~SAIC, ~~reflected~~Inc. inAnnual ~~the~~Report F-23 ~~gross carrying value after becoming fully amortized.~~

During fiscal 2012, the Company determined that certain intangible assets, consisting of software and technology and customer relationships, associated with the acquisition of Cloudshield Technologies, Inc. completed in fiscal 2011, were not recoverable due to lower projected revenue levels from those products and customers. As a result, the Intelligence and Cybersecurity segment recognized a $19 million impairment loss within selling, general and administrative expenses to reduce the carrying amount of these intangible assets to their estimated fair value. Fair value was estimated using the income approach based on management’s forecast of future cash flows to be derived from the assets’ use (Level 3 under the accounting standard for fair value measurement).

F-24 SAIC, Inc. Annual Report

SAIC, INC.

SCIENCE APPLICATIONS INTERNATIONAL CORPORATION

COMBINED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~The~~Finite-lived ~~estimated~~intangible ~~annual~~assets ~~amortization~~with a gross carrying value of $25 million and $37 million became fully amortized in fiscal 2013 and 2012, respectively, and are no longer reflected in the gross carrying value after becoming fully amortized. Amortization expense related to ~~finite-lived~~amortizable intangible assets aswas of$45 million, $45 million and $40 million for the fiscal years ended January 31, 2013, 2012 ~~was~~ asand ~~follows:~~2011, respectively.

Year Ending January 31
	(in millions)
2013	$	36
2014		31
2015		27
2016		22
2017		16
2018 and thereafter		27
	$	159

During fiscal 2013 and 2012, the Company determined that certain intangible assets consisting of software and technology and customer relationships, mainly associated with the acquisitions of Cloudshield Technologies, Inc. in fiscal 2011 and Science, Engineering and Technology Associates Corporation in fiscal 2010, were not recoverable due to lower projected revenue levels from the associated products and customers. As a result, the Intelligence and Cybersecurity Solutions reportable segment recognized impairment losses within selling, general and administrative expenses of $13 million and $19 million in fiscal 2013 and 2012, respectively, to reduce the carrying amount of these intangible assets to their estimated fair values. There were no impairments of intangible assets for fiscal 2011. Fair value was estimated using the income approach based on management’s forecast of future cash flows to be derived from the assets’ use (Level 3 under the accounting standard for fair value measurement).

The estimated annual amortization expense related to finite-lived intangible assets as of January 31, 2013 was as follows:


Year Ending January 31
	(in millions)
2014	$	44
2015		35
2016		32
2017		27
2018		18
2019 and thereafter		17
	$	173

Actual amortization expense in future periods could differ from these e

Year Ended January 31

(in millions)

Antidilutive stock options excluded

Performance-based stock awards excluded