Operator: Good afternoon ladies and gentlemen, thank you for standing by. Welcome to the SAIC's Fourth Quarter Fiscal Year 2013 Earnings Conference Call. During today's presentation all participants will be in a listen-only mode. Following the presentation the conference will be open for questions. This conference call is being recorded today Tuesday March 26, 2013.
And at this time I would like to turn the conference over to Mr. Paul Levi, SAIC Senior VP of Investor Relations. Please go ahead sir.
Paul Levi - SVP, IR: Thank you, Vince, and good afternoon. I would like to welcome you to our fourth quarter fiscal year 2013 earnings conference call. Joining me today are John Jumper our Chairman and CEO, Stuart Shea our COO, Mark Sopp, our CFO and other members of our leadership team.
During this call, we will make forward-looking statements to assist you in understanding the company and our expectations about its future financial and operating performance. These statements are subject to a number of risks that could cause actual events to differ materially, and I refer you to our SEC filings for a discussion of these risks.
In addition, the statements represent our views as of today. We anticipate that subsequent events and developments will cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so.
I would like our audience to please note that our management will speak of our Q4 and year-to-date results as compared to adjusted prior year periods. The adjustments that are on the CityTime charges incurred last fiscal year. A reconciliation of these adjustments is provided in our earnings release issued today.
I would now like to turn the call over to John Jumper, our Chairman and CEO.
John P. Jumper - President and CEO: Thank you, Paul and good afternoon everyone. During the call today I'll be discussing four key items. I'll start with our quarterly performance followed by a discussion of our journey to achieve greater cost efficiencies and third I'll talk about market conditions and finally our capital allocation decisions and plans.
After my comments Stuart Shea will update you on the progress of our planned separation, our actions to expand our pipeline of opportunities and review new business development results. Mark Sopp will then follow with details on the financial results, guidance for FY '14 and then we'll answer your questions.
First, our Q4 performance. During the quarter our revenue growth trended down and our full year ended with just modest gross, but within our expectations. Our margins were lower than our normal run rates and were largely impacted by non-recurring costs, including those required to achieve the planned separation and a few legal and program adjustments. Stuart will provide the details in a few moments and discuss our continuing actions to improve margins. Many of the actions needed to provide sustainable margin improvement have been or are being implemented and further action is being taken early this fiscal year will deliver benefits to both companies after separation.
The second item is cost-efficiency. Today, through Project Gemini, we're focused on ensuring the cost structures of two companies being created are appropriate for the market they will serve. Since our IPO in 2006, various efforts to control cost allowed us to improve margins and invest more in technology and business development. However, the markets have become more competitive and stressed, requiring us to raise the bar on cost efficiency considerably more.
As we prepare for our planned separation, our goal is much higher with plans to reduce our indirect cost by at least $350 million annually, in order to maintain competitiveness and profitability. For example, we've undertaken a careful review of our facility footprint and have identified ways to reduce our facilities by over 30%, saving about $70 million per year. We'll implement these reductions in the coming months. Our intent is to achieve top quartile competitiveness in our industry to address the market uncertainty we now face.
Let me move to my third key point and update you on the current conditions we're facing in our government market and a brief look at our commercial business market. Of course we have now transitioned from the threat of sequestration to the realities of sequestration in our government markets. Sequestration combined with the drawdown in overseas operations provides significant headwinds for FY '14. Mark will provide additional color in his remarks on our guidance that we believe we have realistically addressed the range of impacts embedded in sequestration. We have and will continue to work closely with our customers in these difficult financial circumstances to ensure critical operations are supported as effectively as possible with decisions that respect our obligation to shareholder value. Whatever the impact of sequestration, the structuring and cost efficiencies embedded in project Gemini are essential to long-term competitiveness and financial success of the two companies.
Turning to our commercial business, which is growing nicely, we continue to be the largest third-party electronic healthcare record implementation provider in the U.S. and this market continues to grow. Although sequestration and the physical cliff created some short-term uncertainty in our federal health clients, we expect this overall segment of our business to grow significantly over the next few years and beyond. In addition, large clinical system implementation opportunities in Canada will provide additional growth opportunities for the Company.
Let me conclude with my fourth and final key message, capital allocation. In addition to continuing substantial regular dividend that we started one year ago, I'm pleased to announce that our Board of Directors has approved a special dividend payment of $1 per share to our shareholders this June. The action demonstrates our commitment to return capital when appropriate to our shareholders and help lock in their returns on investment. This action combined with the capital structures planned for the two separated companies still allows both companies to have the flexibility needed to achieve future value creation and shareholder returns.
Since my joining SAIC as the CEO a year ago, we've accomplished a number of critical actions to position ourselves to execute well in these dynamic markets into the future. We have a strong and dedicated leadership team of 40,000 highly talented employees who will make the next stage of our journey a success. For that I'm very thankful.
I'll turn it over now to Stu.
K. Stuart Shea - COO: Thanks John. Good afternoon everyone. I want to cover three topical areas during my comments. First I will give you a current status on our primary strategic action of separation Project Gemini. I will skip the topic of sequestration other than to say that we feel that we are well positioned to persevere through this period of uncertainty in the market. Second, I'll talk a little bit our quarterly business development performance and finally I'll close by amplifying on John's dialogue about our continual journey to improve operational efficiencies and share with you our goals for overhead in G&A reductions as part of the Gemini program.
So, let's start with Project Gemini. I'm pleased to report that we have met several critical milestones is quarter all on schedule and on cost, subject to regulatory approvals, we're still scheduled to complete the separation later this fiscal year. First, we completed a comprehensive three month process to name the two companies, despite our strong 44 year heritage as a science and technology R&D Company, the marketplace more strongly identified SAIC as a leading provider of technical services and enterprise IT.
As such, we decided to leverage that strong brand identification and assigned a name SAIC to the whiteco services company, with that precision behind us within our technical process to name the blueco solutions company. Picking a name was an exhausting process one laden with lots of passion and different viewpoints coupled with the logistical review of domain name availability potential for trademark infringement and linguistic sensitivities, we choose Leidos. We believe Leidos is a very strong name, but recognize it a name alone does not make a company instead a company makes a name. But we have an important head star. We are building upon 44 years of excellence cultivated since the creation of SAI by Dr. Bob Beyster and we will ensure that Leidos is synonymous with solving the most complex problems our world faces today through its entrepreneurial science and engineering based culture. On March 7th we also announced that we reached a significant milestone in our separation plan, and initial Form 10 Registration Statement was filed with the SEC. As you know that Form 10 provides comprehensive information about the financial performance, history, and governance of future SAIC's technical and engineering and enterprise IT business. We expect to update that initial submission several times over the coming months and provide more details on the financials, future capital structure and the Board of Directors.
When we initially announced the planned separation of the company last August. We provided a preliminary estimate of our FY '13 revenues for each company. Now that we have completed the allocation of all existing contracts and completed FY '13 we're updating the revenue breakdown between the two companies. The new SAIC Company would have FY '13 revenues of about $4.7 billion and Leidos would have revenues of approximately $6.5 billion.
Moving onto my second topic is Q4 performance. Specifically, our business development results. Our Q4 net bookings totaled $2 billion in the fourth quarter and produced a net book-to-bill ratio of 0.7. This was clearly down from our expectations earlier in the year, but it does reflect the overall market stagnation and award decisions associated with the earlier threats of sequestration.
We ended the quarter with $17.9 billion in total backlog $5.4 billion of which is funded compared with Q4 year ago. Despite the threat of sequestration. We experienced no change in total backlog for the full fiscal year our net bookings totaled $11.1 billion and produced year-end book-to-bill ratio of 1.0 our focus on winning larger opportunities continues to yield positive results. During Q4 we won 8 opportunities valued at more than $100 million each bringing our full year total to 42, a record high for SAIC. These larger programs have been a key area business development focus for the past three years and will continue to be going forward for both companies. As you know, many of our contracts are classified efforts that support the intelligence community, so you will often see announcements of these contract wins in the open literature. Q4 was no different. SAIC was awarded over $1 billion in classified programs, including a major new program that combined the efforts previously performed by many of our competitors. Although specific nature of these contracts are classified, I can't tell you that they all encompass mission-critical solutions and services that help to counter global threats and strengthen our national security.
We also continue to earn outstanding win rates. In FY '13, our overall total dollar win rate on all opportunities was 61%. Our consistently high win rates are the result of the solid track record of strong program performance and execution as well as targeted investments in technology, research and development, capture efforts and proposal development.
Finally, our business development engine continues. The value of our submitted proposals awaiting decision continues to be strong. We currently have over $24 billion in submitted bids awaiting reward. That includes over $13 billion in IDIQ bids and just under $11 billion in definite delivery bids.
My third topic, let me talk a little bit about our journey to reduce our cost and aggressively position current SAIC and the two future companies for better cost competitiveness and improved financial performance. Last quarter I discussed that we're utilizing a process to not merely split SAIC, but rather to purposely design both companies from the ground-up to be competitive day one to serve the unique needs of their markets. Although not a cost cutting exercise, in and of itself, Project Gemini has allowed us to look critically at the needs for all overhead and G&A costs in meeting those company designs. In the aggregate, our current plan is to achieve at a minimum $350 million in annual run rate cost savings through the separation. We provide some color on the composition of this $350 million target.
First, as John mentioned facilities, we've identified about $70 million in run rate facility cost savings. We are working to reduce our existing facility footprint by approximately 30% and seek better utilization of existing facilities. The cost to accelerate lease terminations of our existing facilities to realize much of the savings is expected to cost about $70 million. We're also expanding the opportunity for our employees to use flex work opportunities through employee hoteling and increased telecommuting.
The second area of savings is procurement. We are accelerating an ongoing reengineering of our entire corporate-wide procurement function by leveraging our supplier base and improved operational efficiency. As a result, we expect to save approximately $30 million in run rate cost.
The third area savings is not overhead structure. By far, the largest part of our planned savings is coming from organizational simplification, indirect labor reductions and other discretionary cost reductions. About $220 million of the planned savings will come from these cost efficiency actions. Since the announcement of Gemini in August 2012, we have reduced our indirect staff by almost 800 people.
As we move closer to separation, we will continue to reduce our indirect labor costs as well as seek greater efficiencies in our direct labor force as new organizational structures, automated processes and cultural changes take effect. As you can see, we're being both methodical and aggressive in these cost savings and we are already seeing benefits of the separation today in terms of improved cost competitiveness and greater efficiency. As you would expect in a separation transaction such as ours, these cost savings will be partially offset by incremental costs associated with establishing two corporate infrastructures, which we estimate will not exceed $50 million. Additionally, incremental investments will be required to pursue and win opportunities associated with the new addressable market pipeline created by OCI elimination in the separation.
However, you should expect that a significant portion of these savings will flow to margin improvement and earnings. About $150 million of the $350 million amount will be realized in FY '14 and the remainder of the full $350 million will be realized in FY '15 on a run rate basis. As we progress over the coming months we have specific actions underway to fully realize the remainder of these cost savings and position both Leidos and future SAIC for the competitive markets we anticipate.
Now I'll turn the call over to Mark.
Mark W. Sopp - EVP and CFO: Great, thanks Stu. I'll cover the financial highlights for Q4 and also for full fiscal '13 and then address forward guidance for fiscal '14, which started back on February 1st. On the top line, total revenues were down 4% for Q4, but grew 2% for the full fiscal year. Corresponding internal revenue was down 6% in the fourth quarter but was also up, in this case, 1% for the full year. The mid-year acquisition of maxIT accounted for 1% of full year growth.
As expected, the most significant drivers for contraction in the fourth quarter were the declines in two large programs; the MRAP, Joint Logistics integration program, JLI; and the Defense Global Solutions program as otherwise known as GIG-BE and/or GSM. Both of those being in the defense solutions segment. In addition to the drag on Q4, these two programs do post significant headwind in fiscal '14. Now we have incorporated into our guidance more of which I will cover later on.
In terms of contributors to internal growth for the year which was again positive 1%. Three programs in a defense solutions segment, Vanguard, (Heirs) and AMCOM Express with the most notable drivers. Also the Intelligence and Cybersecurity segment produced 3% internal growth for the full-year driven by a variety of ISR and cyber security programs. And finally, commercial health was consistently among the best internal growth rates in the Company in fact the best over the course of the full-year.
The major offsets in growth have been reductions in our FEDSIM and fed health business area and overall softness in the defense market which clearly reflects reduced government spending trends.
In terms of profitability, fourth quarter operating margin was 5.3%. This is normally low for us and was impacted by several items many of which were expected but all were expected. First, Project Gemini where separation cost ran $23 million in the fourth quarter, largely comprised of fees paid to third-parties related to the milestones that Stu mentioned earlier. And also employee severance cost related to the cost reduction actions. This diluted operating margin by 70 basis points in the quarter.
Secondly, we also took a $14 million charge for provisions on legal matters and an $11 million charge related to impairments of purchased intangibles associated with previous acquisitions. These two items accounted for 90 basis points of margin erosion in the quarter. Third we had program write downs in the defense solutions group or segment in the health and engineering and solution segments that diluted operating margins by 20 basis points.
Both the incurred costs related to our corporate headquarter move which diluted Q4 margins by an additional 10 basis points. With all those items together costs and charges as aforementioned, eroded operating margins by almost 190 basis points for the fourth quarter.
With respect to future quarters we expect Project Gemini, the headquarter move and severance expenses to continue through the second quarter of our new fiscal year '14 and as you'll see in a moment are fully included in our fiscal '14 guidance.
Operating margins for the full year, finished at 6.6% separation cost and the headquarter move diluted full year margins by 40 basis points, legal provisions and impairments diluted margins by 30 basis points. While the separation and move costs will continue for the next couple of quarters as John said, and Steve also said restoring attractive margins is the top priority for us and we expect to do so when investments to position the two companies for separation have been completed.
Given the magnitude of cost reductions that Stu discussed which will be time phased in during fiscal '14 and the completion of cost to finish the separation and to right size our cost structure, will target considerable lift in margins for both Leidos and new SAIC in fiscal '15 and beyond. More on that as we get closer to the separation itself in the coming rest of fiscal '14.
Moving on to earnings per share from continuing operations, fourth quarter was $0.54, in line with our expectations. As we mentioned in our last call in December, EPS uplift was realized from a favorable agreement reached with the IRS in the fourth quarter. For the full fiscal '13 EPS totaled $1.54 benefiting $0.28 from the IRS agreement and adversely impacted by the special costs and charges that I just discussed.
Operating cash flow finished particularly strong at over $200 million for the fourth quarter with the full year coming in at $345 million. The $345 million as a reminder is net of the CityTime settlement paid earlier in fiscal '13 which tax affected was $385 million for the year. Cash flow excluding CityTime was therefore $730 million.
We estimate full year cash flow is benefited about $100 million from the midyear government policy change to accelerate payments to government contractors. The policy change was recently rescinded in February in fact, and should negatively impact our fiscal '14 cash flow by the same amount. More on this in a bit.
Reflecting back on full fiscal '13, despite significant outflows stemming from CityTime, $550 million of long-term debt reduction we made in the middle of the year and roughly $500 million on the acquisition of maxIT, the completed fiscal '13 with the cash balance of over $700 million which paves the way for the special dividend John mentioned upfront that will pay our shareholders in June.
That sums up my remarks with fiscal '13 results, now I'll hit fiscal '14 forward guidance.
While the separation is expected to occur during fiscal '14. For apples and apples purposes we are providing guidance based on SAIC operating the full fiscal year as one Company. Our revenue expectation for fiscal 14 on this basis is $10 billion to $10.7 billion. Now that we have the defense budget for government fiscal '13, our guidance reflects our estimate of the effect of the $42.5 billion defense spending reductions under this budget, which ends on September 30.
For the government fiscal year '14 which starts October 1, we assume defense spending is flat from the government's fiscal '13 level, which is consistent with the Budget Control Act. In other words our guidance reflects our expectations under full sequestration.
Our revenue guidance range is wider than normal. It reflects our view of the range of possible outcomes given there is still lack of clarity on how the spending reductions will be carried out, also how much offset there will be from outlays carried over from prior years, which programs will be prioritized to avoid cuts, and finally what the government fiscal '14 defense budget actually shapes up to be.
In addition to the anticipated effects from the government spending reductions, as I said earlier, the completion of the MRAP JLI and DGS programs have a large year-over-year impact. These two programs alone are projected to produce a $650 million revenue reduction from full-year fiscal '13 to full-year fiscal '14.
New recent wins are expected to produce an offset to those reductions but only partially. The profitability, as mentioned we are planning significant expenses in the carrying out of the separation transaction and to better position the cost structure of the two businesses moving forward.
Highlighting the major elements, our EPS guidance for fiscal '14 reflects the following items; $55 million in separation costs, which include banker fees, lawyer fees, accounting fees, consulting fees and also severance to carry out the cost-reduction actions Stu mentioned; $65 million in costs to exit facilities which primarily relates to removing excess capacity associated with indirect workforce reductions, increase density, and teleworking initiatives that Steve earlier mentioned; and finally, $20 million of cost to complete the headquarter move. Together these items aggregate to $140 million of costs, which will adversely impact margins and EPS primarily in the first half of fiscal '14. We'll expect to see the benefits of those reductions in the second half.
Net of these items we expect to see operating margins in the mid-7% range for the full year, below this of course in the first half when we incur most of those nonrecurring expenses, and above it in the second half. We expect to see (audio gap) debt levels as the planned offering related to new SAIC in conjunction with the separation will only occur immediately prior to the spinoff transaction, at which time we expect to provide separate guidance policies at that time.
As for operating cash flow for fiscal '14, we expect at least $450 million for the year, which again reflects the reversal of the $100 million benefit we saw in fiscal '13 from the accelerated payment program from the U.S. government. Capital expenditures are expected to be consistent with historical experience, less than 1% of revenues.
Finally a remark on the special dividend that we announced today. The dividend is a testament to the financial strength of the Company and our commitment in providing returns to our shareholders. The special dividend that show in over other options due to the certain return it provides in other wise uncertain times in the government marketplace. More clarity on government fiscal '14 government spending and beyond may make other options more attractive.
That finishes up my remarks. I will turn it back over to John for final thoughts.
John P. Jumper - President and CEO: Thank you, Stu and Mark. For the past month and for the next few weeks, we are all visiting more than 30 SAIC sites to meet with our employees and to talk with them about the future of SAIC and Leidos.
Our employees are bearing a significant burden during the separation, but they are demonstrating the courage to commit to these changes and the excitement of forming two companies, configure to compete on day one of the separation and with real opportunities for growth. Many of them are listening today and I thank them.
Now turning back over to Paul for question-and-answer session.
Paul Levi - SVP, IR: Thank you. Vince will now take the first question.
Operator: Joe Nadol, JPMorgan.
Christopher Sands - JPMorgan: This is actually Chris Sands on for Joe.. Mark I was wondering if you could help us out with revenue guidance by segment particularly in health, energy and civil mentioned is expected to be a growth engine over the next several years, but obviously it lagged particularly last year. When did that start to pick up and what are the big moving pieces there.
Mark W. Sopp - EVP and CFO: Chris we decided not to issue guidance for our segments at this time that's something we may do later. So I'm going to refrain from doing that, but I will say and as you probably expect our commercial health business is expected to continue to be a growth engine for the company. I think the fed, civ area I think you mentioned that in your question will continue to be stressed and I think our intelligence and cyber business will continue to be a relative strength across the business, particularly in the government space. That about all the color I think we should provide in terms of segments at this time when we are preparing for the separation and get into a separate roadshows for the two parties closer to the transaction itself, I think you'll expect to see more color there.
Christopher Sands - JPMorgan: Can you provide any color on the M&A pipeline and the environment there just given all the uncertainty and obviously we are very focused on the spin. So has that changed your behavior in that aspect at all.
John P. Jumper - President and CEO: This is John and I think, as we said before each quarter the Board considers all the opportunities and as M&A opportunities are in fact opportunistic you got to take them when they come. So we're still sticking with our strategy that M&A is of what we're looking for in our growth areas and we'll stick with that, but those opportunities just have to be at the right place in the right time
Christopher Sands - JPMorgan: In terms of volume of opportunities, are you seeing more or less now than you were say 12 to 18 months ago?
John P. Jumper - President and CEO: Probably just because of the environment.
Christopher Sands - JPMorgan: Then, Mark, one last one. Is there any share repurchases factored into the guidance?
Mark W. Sopp - EVP and CFO: There is not Chris. We have a pretty small amount of creep, it's about 5 million shares, so it's not really moving the needle, but we have factored in and assume by that for fiscal '14.
Operator: Cai von Rumohr, Cowen and Company
Cai von Rumohr - Cowen and Company: Am I correct, this $140 million of expenses costs are included in your guidance?
Mark W. Sopp - EVP and CFO: Yes, Cai, that's correct.
Cai von Rumohr - Cowen and Company: Which basically is saying you expect to have 8.5% to 9% margins sort of is the rough math on a go-forward basis in fiscal '15, is that correct?
Mark W. Sopp - EVP and CFO: Well, we might have some issues in the tax rates and other matters Cai, because it's not that high. I mentioned in my remarks that absent those items, we expect to be in the mid 7% range.
Cai von Rumohr - Cowen and Company: Which means absent those items, I mean, because basically if those items are in there and you hit your number, you are in the 7% range with those items. So that's the confusion I think that's there?
Mark W. Sopp - EVP and CFO: We can perhaps work with you on the side, but we are quite convinced the 140, assuming that's incurred of course and net of those will – well, pro forma for those if you add them back, if you will, will produce mid-7 range. There are some dynamics in the allowability of the 140s, so the sum of that piece is allowable other parts are not and so there is some recovery on part of the 140 that could be part of the dynamics there.
Cai von Rumohr - Cowen and Company: So, what sort of a tax rate, you said expense but just what sort of a tax rate are we looking at for the year?
Mark W. Sopp - EVP and CFO: Our normative tax rate is 36%. We have a slightly lower rate projected for '14 due to the planned discrete item we have in settling in prior year items, but that's just about 2 percentage points. So, if you're really looking at longer-term think 36%, short-term we got about a 2% pickup in fiscal '14.
Cai von Rumohr - Cowen and Company: My last one, if you could tell us the commercial healthcare, the maxIT, the Vitalize, what sort of growth did that commercial business have in the fourth quarter, and what are you assuming for fiscal '14?
Mark W. Sopp - EVP and CFO: We were well into the double digits for all quarters of fiscal '13. It was little stronger in the third quarter. There is a little bit of was little to slow down from some of the – I think confusion around some of the meaningful use regulations, but we are actually seeing restoration of momentum there already. So, we view that as temporary.
Operator: Jason Kupferberg, Jefferies & Company.
Amit Singh - Jefferies & Company: This is actually (Amit Singh) for Jason Kupferberg. Just going back to the margins again, what kind of margin are you expecting to generate in the two different companies, in the solution and services company? How much difference do you expect the margins and that to be between the two companies?
Mark W. Sopp - EVP and CFO: We'll provide more color on that as time progresses. As we previously discussed, there is a spread. It's greater than 1%. It's in the 1% to 2% range and we will line up more precision to that as we complete the designs of the two companies and the forward expectations and revenue volumes of the two closer to the separation, but that's a ballpark range of the spread in the current business construct.
Amit Singh - Jefferies & Company: And can you provide any sort of free cash flow projections, I mean do you still expect long-term sort of it to be above 90% of net income?
John P. Jumper - President and CEO: Yes, we expect no have change in the cash flow conversion, if you will, of our profitability, no material change in our capital expenditure profile and capital intensity, so the historical experience you've seen for SAIC you can expect to apply to Leidos and new SAIC.
Operator: Robert Spingarn, Credit Suisse.
Robert Spingarn - Credit Suisse: Mark, if I could just clarify a couple of things. First, on the margin going back the last couple of questions, the guidance that you provided for '14 assumes the cost structure – it's given as a single company guidance but it assumes the cost structure including the two corporate cost structures of the post transaction companies. Is that correct?
Mark W. Sopp - EVP and CFO: I was distracted with some side work here. Do you mind repeating that Rob. I apologize.
Robert Spingarn - Credit Suisse: So when you talk about your guidance and you talk about your margins, you're talking about having two distinctly separate corporate overheads for the period of the time that you will have them in '14, etc. In other words, this guidance doesn't decline once you transact and we see two separate companies?
Mark W. Sopp - EVP and CFO: I think this answers your question. We are actually incurring some of the dissynergies today to prepare for the separation and we have fully incorporated those into our fiscal '14 guidance. During the course of the year we'll conduct, as Stu mentioned, more cost reductions, and we expect the aggregate of those dissynergies to be – not to exceed $50 million for the two companies. And far exceeding that are the cost reductions that we mentioned.
Robert Spingarn - Credit Suisse: So you've accounted for the increased costs. You're going to have some increased in certain costs when you have two separate entities and that's reflected here?
Mark W. Sopp - EVP and CFO: Yes sir, absolutely.
Robert Spingarn - Credit Suisse: Okay, so sticking with that, I think you've said that ex costs you'd be in the mid-7s in '14. What are the margins as expected in '14 with those costs?
Mark W. Sopp - EVP and CFO: The GAAP margin is expected to be in the mid-6% range inclusive of the costs.
Robert Spingarn - Credit Suisse: Okay. At about 100 basis points of costs if we exclude…
Mark W. Sopp - EVP and CFO: Yes.
Robert Spingarn - Credit Suisse: Okay, now briefly switching to what I think you already talked about but I want to clarify, you have embedded full sequestration here in your revenue decline from the mid-11s down to somewhere in the low 10s?
Mark W. Sopp - EVP and CFO: That right. For what we know of full sequestration we have made every attempt to cover the best scenario and worse scenario as I described in my remarks.
Robert Spingarn - Credit Suisse: Okay, so that's already reflected here. And what are the swing factors between $10 billion and ($10.07 billion).
John P. Jumper - President and CEO: I think, I mentioned that first and foremost the number of wins we have, during the course of the year starting now. Second, I think as I mentioned the wave of outlays from prior government fiscal appropriations should factor in and should dampen the effect of the $42.5 billion defense reductions by some degree, hard to tell which programs precisely and so forth. A big factor is what the assumption is for government fiscal '14 so the last four months of our fiscal year will be governed by government fiscal '14. We've assumed a flat rate from '13 to '14 on the government side, which is the line we see in the Budget Control Act. Where that shakes out we'll see. But we thought that was a reasonable assumption, and in addition to that, as you know, $10 billion was added to the O&M accounts pretty late in the game and we're pretty big O&M player and so we hope to have our fair share of benefits from those. So how those things stack up I think will dictate where we fall in the range.
Robert Spingarn - Credit Suisse: Then just lastly, you had some right downs in the quarter you talked about I think it was about $25 million in the quarter, some asset impairments et cetera. When you think about the normal course of this type of activity what is reflected in the '14 guidance let's say relative to '13 in terms of asset write-downs et cetera?
John P. Jumper - President and CEO: We are expecting no more impairments. We're expecting no more major litigation related provisions and we expect a balance, a historical balance of program write-ups and write-downs, we happen to have an imbalance of write-downs in our fourth quarter fiscal '13. We did not plan or expect to repeat that.
Operator: Edward Caso, Wells Fargo.
Edward Caso - Wells Fargo: I guess my question, first question is on pricing. If you could talk a little bit about what you are seeing in the market particularly around your need to have takeaways. So how much of your forward guidance is a function of takeaways and what are you seeing as incumbents protect those positions?
K. Stuart Shea - COO: This is Stu. I think we're seeing some silliness in the market in terms of people getting desperate on the pricing and a lot of that results around low price tactically acceptable and as we've said many times I'd love for somebody to come out and describe what technically acceptable means. We're actually not seeing what I would consider to be across the board impact on pricing. We're seeing obviously tightening of it, we're seeing people being much more aggressive because it's about defending their existing business. But often when we go after a takeaway, we take away something that we believe that we could win because we have a better answer, a better solution, a better product. We're not lowballing the prices and trying just sweep in underneath, folks that’s not our style. We are looking it at winning it because we are going to be the best answer and solution for what the customer needs.
Edward Caso - Wells Fargo: Can you address at all the expectation for a financial leverage for the new SAIC at this time?
Mark W. Sopp - EVP and CFO: I'll cover that one Ed. So, we are still sticking to the framework that we discussed all the way back to August. We still expect to have the range that we provided in August which was $500 million to $700 million that is our direction right now for leveraging of new SAIC prior to the separation. And because that will happen just prior the separation, and only when that is deemed eminent, we did not put the cost related to that in our guidance at this time, but that is the path we are on and that allows us to achieve balance between the two companies in terms of our capital structure and our leverage as we laid out back in August.
Edward Caso - Wells Fargo: So you obviously provided a special dividend here sort of getting you down to $500 million to $600 million comfort range, you've historically had, does this dividend provide an opportunity for another special dividend or you are working to sort of reduce the net debt level of Leidos?
Mark W. Sopp - EVP and CFO: We're just seeking to deploy excess capital for the benefit of our shareholders in light of our view that that was the best use of the funds at this time, given what's in front of us. And so, we would like to keep and will remain to keep all other options available to us as opportunities present themselves as General Jumper said in the case of M&A or under the right conditions buybacks and so forth. But as you've seen over our history, we have tried to achieve a balanced deployment as conditions change and that was expressed here with our special dividend right now.
Edward Caso - Wells Fargo: Last question, timing of the 10-K and the updated F10.
Mark W. Sopp - EVP and CFO: Tomorrow morning for the 10-K and in terms of the modification or next round of modifications to the Form 10, we expect that to be in mid-April.
Operator: Thank you. Ladies and gentlemen, that does conclude our question-and-answer session. At this time, I'd like to turn the conference back over to management for any closing remarks.
Paul Levi - SVP, IR: Thank you, Vince. On behalf of SAIC team I want to thank everyone on the call today for their participation and interest in the Company. Have a good evening.
Operator: Thank you, sir. Ladies and gentleman that does conclude our conference for today. Thank you very much for your participation and for using ACT TeleConference. You may now disconnect.