SAI Corporate Demerger:

Company splits into Leidos (LDOS) and New SAIC, Inc. (SAIC)

Shares of SAIC to be distributed on October 3rd, thus understating quarter end account values


October 1, 2013


–          SAI splits into LDOS and SAIC in a tax free reorganization

–          Shares of SAIC have not been distributed to shareholders yet, thus undervaluing accounts as of 9/30/2013

–          Shares of SAIC expected to be posted to accounts on 10/3/2013 according to Fidelity

–          Investors like the transaction as prices of both new stocks trending higher

Many client accounts, but not all, held a position in SAI, a company which provided various advanced technology services to the Federal government agencies.  The company has planned to split into two entities to better attractive business opportunities which made perfect economic sense.  The “de-merger” occurred over the weekend in the form of a stock dividend of new SAIC shares to be distributed to shareholders of SAI which accounted for about 75% of the value of the old SAI.  Fidelity indicated that the shares are to be received into client accounts on October 3rd.   You may notice shares of Leidos in your account already which is about 25% of the value of the old SAI position, thus undervaluing your portfolio at September 30th.

Fidelity is researching the issue as to how the SAIC shares will be accounted and if the September 30th portfolio values will be adjusted.  While Fidelity figures out the accounting for the transaction, both stocks have been trading significantly higher today.

In summary, we have a bit of accounting mess at quarter end, but the economic value of splitting the company into two parts has appealed to investors as both stocks are trading higher.

Andrew D.W. Hill, CFA

President & Co-founder

Andrew Hill Investment Advisors, Inc.

4081 Tamiami Trail North, Suite C-105

Naples, FL  34103

Direct Dial:  239-777-3188

Facsimile:   239-236-0484

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