Operator: Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the SAIC First Quarter Fiscal Year 2014 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. The conference is being recorded today, Monday, June 3, 2013.
At this time, I'd like to turn the conference over to Paul Levi, SAIC's Senior VP of Investor Relations. Please go ahead.
Paul Levi - SVP, IR: Thank you, Vince, and good afternoon. I would like to welcome you to our first quarter fiscal year 2014 earnings conference call. Joining me today are John Jumper, our Chairman and CEO, Stu Shea, our COO and Mark Sopp, our CFO and other members of our leadership team as well.
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 can 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 now like to turn the call over to John Jumper, our Chairman and CEO.
John P. Jumper - President and CEO: Thank you, Paul and welcome everyone. The first quarter of 2014 was relatively in line with our expectations with revenues of $2.71 billion for the quarter, down slightly to the prior year quarter. This represents an internal revenue decline of 4%, primarily due to the loss of the large DGS contract and ramp down on the war related OCI work on the JLI contract, which together reduced our revenues by more than $100 million.
The revenue performance also reflects the impact of sequestration, which is driving delayed decisions and imposing significant fear and caution throughout the contracting process. Operating income was lower than the prior year due mainly to $40 million of costs for the separation and preparation of two standalone companies, and our operating cash flow was negatively impacted by the earlier than expected discontinuance of an accelerated payment program by the government.
Having said that, our performance was mostly as we expected and our previous guidance anticipated many of the current challenges. Today, we are reaffirming the guidance that we outlined in our March call.
Looking forward, uncertainty over funding remains, but there is still little that our customers can tell us about what to expect and over what period of time. I, along with other CEOs in this space, have been engaged with the leadership of the Pentagon, who I must say, have gone out of their way to conduct frequent meetings with industry leadership. Along with others, I have emphasized the need to work the necessary fiscal discipline in a more reasonable way with debate and compromise rather than mindless across the board cuts. At SAIC, we are proactively responding and taking the necessary steps to manage the business in the current difficult environment.
Our $350 million cost reduction plan is progressing well, and we continue to adjust our infrastructure to ensure that we have the right sized business to address our revenue base. Our strong balance sheet has, and will effectively support, our ongoing development of the Company. We remain thoughtful about how we deploy our capital as evidenced by the special dividend that will be paid out on June 28. As always, we approach all of our capital deployment efforts with a view toward maximizing value for shareholders.
Our planned separation is progressing on schedule and will yield two cost-conscious high-performance companies that focus on driving value to our shareholders. We are still operating as one Company and focused on making our plan for the year. However, we are in a transition year and incurring significant costs to prepare for the companies to be successful following separation.
We are pleased to announce a new National Security Solution leader Lou Von Thaer who Stu will discuss in his section. Lou brings a career of experience and talent to that sector and we are delighted to welcome him. Also we have John Sweeney on the call with us today and he'll be heading up Leidos' investor relations efforts. The leadership team for both companies is substantially in place.
Now I will turn this over to our COO, Stu Shea, who will discuss the business performance.
K. Stuart Shea - COO: Thanks, John. Let me first comment on the appointment of Lou Von Thaer as our new President of the National Security sector. Lou has the benefit of coming into an organization that has been expertly led by Acting President John Thomas. Over the past six months, John has done an exceptional job shaping, streamlining and focusing that sector for the future. This includes the establishment of a much improved sharing of key enabling technologies such as Big Data Analytics and Cybersecurity across our full portfolio with specific focus on bringing these solutions to the health and engineering sector. This a key building block in the future success of Leidos.
In addition, John's energies at market positioning and core strategic focus areas of Maritime ISR and Cybersecurity lay the groundwork for Lou's day one efforts. Lou brings to legacy SAIC and future Leidos a strong background in both these key areas. As an example, Lou served as a co-Chair of the recent Defense Science Board Task Force on Resilient Military Systems and the Advanced Cyber Threat. Combining his firsthand knowledge of the cyber threat with our existing market leadership in the cyber community will be a powerful combination for our shareholders. I look forward to Lou's arrival later this week to begin that process.
Let me now bring you up to speed on our separation of SAIC. Some of you may have been tracking our progress this quarter through our initial and updated Form 10 submissions with the SEC. Based upon that dialog as well as with other regulatory organizations we believe there are no significant issues that would affect our planned separation. From a programmatic perspective, most of the difficult internal decisions have been made on cost efficiencies, capital allocation staffing facilities et cetera, and we are nearing completion of all the various internal agreements to separate into two companies. We're right now in the separation part of the program we call soft spin. Over the past quarter, we reorganized legacy SAIC into the future state of the two new companies, so the leadership teams could start working together prior to the formal hard spin date. This will lower operational risk of the separation without impairing current SAIC performance.
When we made the separation announcement last August, we said that we would complete the separation during the second half of the 2013 calendar year. I am pleased to report that the separation could happen as early as August. Assuming we remain on this schedule, we are planning for investor events and additional activities such as ringing the bell at the New York Stock Exchange to celebrate the launch of two new companies.
Before the planned separation, we intend to hold investor conferences for both Leidos and new SAIC where each management team will present details about their respective companies current operations and future plans. These conferences for institutional investors and analysts are planned to be held in New York on July 17, for Leidos and July 18 for future SAIC and more specifics will be announced soon. This is, of course, all subject to the final regulatory approvals as well as our own readiness reviews and Board approval that will be held over the coming weeks.
Moving now to real estate monetization, on May 3, we entered into an agreement for the sale and leaseback of our McLean, Virginia headquarters campus consisting of four office buildings of about 900,000 square feet and the sale of adjacent land 18 acres and all. The sale and leaseback of our headquarters facility is expected to be completed in July of 2013, with the sale of the adjacent land to be completed over a six-year period, as part of a multi-use development plan to be approved by Fairfax County. The transactions that will be completed under the sale agreement are the result of our long-term real estate monetization strategy put in motion by our Board of Directors several years ago.
Completing the sale of our headquarters facility is also another step that will help us to enable both Leidos and future SAIC to establish operational headquarters that are specific to their business needs. This is consistent with our approach to have successful, independent, and world-class firms in the future following our planned separation.
Moving now to our business development results. Net bookings totaled $1.3 billion in the first quarter and produced a book-to-bill ratio of 0.5. We ended the quarter with $16.5 billion in total backlog, $4.7 billion of which is funded. Compared with Q1 a year ago, this was a $700 million decrease in total backlog. As we expected, award decisions and the result in pace of bookings from our U.S. government customers slowed considerably in the quarter, reflecting the understandable reaction to the lack of sequestration guidance from government sources. This has been exacerbated by the inconsistency and how individual government agencies have been implementing that guidance. This is especially problematic and how these cuts are applied to every program, project and activity or PPA and the budget when there is significant variability in the size and mission criticality of these PPAs across various budget line items under the authorities for example the Department of Defense, Intelligence Community, State Department and Department of Homeland Security.
As John mentioned earlier, we are tightly integrated into the leadership discussions that are ongoing. From an operational perspective, we continue to expand our pipeline and demonstrate the relevancy of our offerings. So, despite a strong qualified pipeline of opportunities and a steady pace to submits we did experience the same softness as others in our industry did on the pace of award decisions. Despite the slowness in awards, by the end of the quarter, we had over $24 billion in outstanding bids. That includes $13 billion in IDIQ bids and about $11 billion in definite delivery bids. As we are not seeing any significant increase in the cancellation of known new starts or outright terminations of contracts, we are optimistic that contract issuance will pick up as we move through the rest of the year.
During the first quarter, we won three programs valued at more than $100 million each, including a significant modeling and simulation experimentation effort under the AMCOM EXPRESS IDIQ. So far during the second quarter, we've added two more $100 million programs, including a program with Orange County, California to provide IT managed services and solutions to agencies and departments within the County and a classified cyber intelligence program critical to our nation's security.
Frankly, our performance against this goal is less than what we expected a year ago, and we attribute the decline to fewer decisions being made on all programs due to sequestration and future budget uncertainty. At this time, we have over 110 opportunities over $100 million in our pipeline, of which, 43 have already been submitted and are awaiting award.
Over the years, as we have continued to expand our markets, we have experienced a very consistent win percentage on proposals. As we eliminate organizational conflict of interest, we will continue to expand our addressable market and fully anticipate our successful win rate will continue. We have continued to earn excellent win rates in Q1. Our overall total dollar win rate on opportunities was 58% with a 47% total dollar win rate on new business. When coupled with our very strong win rate on re-compete bids, we are in a solid position for our upcoming pipeline.
With that, let me now turn it over to Mark.
Mark W. Sopp - EVP and CFO: Great. Thank you, Stu. I first like to call your attention to the supplemental financial information package that we've added to our website this quarter. This package will provide the investment community most of the pertinent highlights of our performance for the quarter in one place. This is part of our ongoing effort to provide transparency and clarity into the business.
In addition, as Stu mentioned, we have reorganized the business to align to what will become new SAIC and Leidos. Specifically starting this quarter, the Technical Services and Information Technology reporting segment will comprise the future SAIC post separation, and the National Security Solutions and the Health and Engineering reporting segments will together comprise Leidos. The operating segments now give investors a clear view of the new SAIC and Leidos.
With respect to our Q1 performance, there are three main points I want to convey. First, the consolidated numbers are down year-over-year on the main financial metrics, but there were discrete adverse items and revenue margins and cash flows, which we believe are either temporary or recoverable and should be considered in the context of future performance.
Second, we are in a transition year as John said where we are incurring substantial cost now to build two great companies, which will be more competitive and will have greater addressable markets in the future years. And third, notwithstanding the magnitude of dealing with sequestration and our separation preparation activities, we are so far on plan for the year and are reaffirming our guidance.
Now let me cover some of the highlights, as well as our forward guidance. With respect to forward guidance, let me first remind you that our guidance as it originally assumes SAIC operates the full fiscal year '14 as one company, the one company, as you know it today. This guidance also includes significant costs to prepare for and execute separation transaction. So, that's the baseline of our guidance. On top line performance for the quarter, our government business contracted in Q1, but was partially offset by solid growth in our health and engineering business, which has significant commercial revenues that are not as directly affected by reductions in government spending. As our plan and guidance contemplated, revenue contraction was significantly attributed to the ramp down of the DGS and JLI programs in our government sectors. The DGS program was assigned to the future SAIC business and is therefore reflected in the Technical Services and IT segment, whereas the JLI program was assigned to Leidos and is in the National Security Solutions segment. Both companies will, therefore have to overcome contraction from these two programs over the next year.
The Tech Services and IT segment had revenue contraction in Q1 of about 5%, virtually all of which was attributable to the ramp down of the DGS program. The National Security Solutions segment had revenue contraction of 9%, about 6% of which was attributed to the JLI program, with the remainder mostly being scope reductions related to the Middle East drawdown and various budget reductions that we had planned. With respect to our increasingly important business outside of the government sector, our health and engineering business posted 9% growth, fueled this quarter by energy projects and security product revenues and ongoing growth in our electronic health records consulting business. While we did see delays and uncertainties in new awards and in funding levels, through the first quarter, we did not see any major unplanned impacts to existing programs associated with sequestration. What we do see is ongoing confidence that the mission-critical programs that we serve throughout the national security space must continue to operate and with our systems.
Given our experience in Q1, we are reaffirming our existing revenue guidance of $10 billion to $10.7 billion for the full year which reflects all the signals we are getting from our customers plus some room for unknowns that we may confront. With respect to timing, we expect a meaningful fall off in revenue pace from Q1 to Q2 resulting from two less productive days and seeing the full impact of the ramp-down of DGS and JLI.
We then expect sequential growth in Q3 from more productive days, ramp up from recent and anticipated wins and continuing growth in our commercial area. Operating margins for Q1 was 5.2% reflective of the transition year we are now in. Separation expenses diluted margins by roughly 120 basis points.
In addition, profitability was adversely impacted by about $7 million in cost to build the infrastructures for the two companies. We still expect to incur as announced last quarter $140 million of nonrecurring expenses related to the separation, facilities exit costs and the corporate move, no change to that. These expenses are expected to peak in Q2 as we near separation are therefore are expected to have a material impact to margins in Q2.
Assuming the separation occurs when planed, these costs should ramp down quickly in Q3. In the first quarter, we also had net program write downs, a couple of charges related to legal matters and government audits, few asset impairments and cost to integrate our two commercial electronic health records consulting businesses Vitalize and maxIT. Our plan contemplates that these go away after this quarter.
Earnings per share from continuing operations was $0.23 for Q1. This included a tax rate which was about 4 percentage points higher than what we project for the full year, due to discrete non-deductible items. Our estimated tax rate for the full fiscal '14 is 32%, which is about 1.5% higher than our original expectation, or about $0.03 EPS impact for the year. This is due to the non-deductible items in Q1 and some slippage of planned favorable items to next year.
The guidance for revenues remaining unchanged, and the expectation of significantly improved operating margins in the second half, we are maintaining our EPS guidance for the year $1.16 to $1.33 per share. Operating cash flow, as John mentioned, the first quarter was weaker than expected as the government ended an accelerated payment initiative, where this was originally planned to occur in Q3. This does not change our view for the full year and our guidance remains at least $450 million.
Finally let me just cover a few capital structure items. First, we amended our $750 million credit facility this quarter to address elements needed for the separation transaction. And while we were at it, we incorporated several other favorable terms and also extended the maturity to 2017.
Second, we successfully launched the capital raising activities for new SAIC, but we plan to establish a conservative capital structure to include a $500 million, five-year term loan and a $200 million five-year revolving credit facility. We expect to close those arrangements in June and plan to fund the term loan just prior to separation. Third as previously disclosed we will be paying a $1 per share special dividend on June 28th for shareholders on the record June 14th. All three of these actions underscore the cash flow and liquidity strengths of the Company, which will enable strategic flexibility and future capital deployments with a focus on creating value for our shareholders.
Now back to John for his final remarks.
John P. Jumper - President and CEO: Thanks, Mark. Let me sum up by saying that we remain confident in our plan. We understand and we're dealing with a combined turbulence of sequestration and the dynamics of separating our Company and we have 40,000 remarkable employees dedicated to the future success of these two great companies.
I will now turn it back over to Paul to take your questions.
Paul Levi - SVP, IR: Thanks, John. Operator we will take questions.
Operator: Robert Spingarn, Credit Suisse.
Ross Cowley - Credit Suisse: This is actually Ross Cowley in for Rob. I had two quick questions. On the first one specifically looking at health and engineering. You had nice growth of around 25% there and the margin came down. Now I know you said in the 8-K that some of this was because of intangible asset amortization expenses, but is it possible to breakout, how much of the pressure is related to spend and how much is related to things such as greater competition, et cetera?
Mark W. Sopp - EVP and CFO: This is Mark here. I did mention in my prepared remarks that the health businesses we did, make some steps to integrate the previous Vitalize acquisition as well as the recent maxIT acquisition, and so that was pretty meaningful in the quarter and, nonetheless the right thing to do. On the engineering side, we had strong performance overall, I would say and good energy or engineering products going out the door as well, and also including, give Joe a lot of credit, a healthy maintenance business as part of that which has been very profitable for us. So, a little bit of investment. Very bullish on the long-term prospects of both growth and prosperity in that area.
Ross Cowley - Credit Suisse: Just one more. Is it possible to quantify the mix of cost-plus versus fixed-price contracts in each of the two new businesses in Leidos and SAIC?
Mark W. Sopp - EVP and CFO: Give us a second to check that out. Yeah, why don't we come back to that question in a moment. We have it for the consolidated business of course in the sectors, but we'd like to redo it for Leidos and new SAIC per your question.
Operator: Bill Loomis, Stifel Nicolaus.
William Loomis - Stifel, Nicolaus & Company, Inc.: Just staying on the engineering and healthcare side, Mark, can you give us kind of what the breakout is between the engineering and healthcare, because if engineering was strong, organic 9%, I know the healthcare was growing like 20% or so, but it seems like might have slowed down in the quarter. Am I reading that right?
John P. Jumper - President and CEO: Both businesses were fairly equal in terms of growth rates this quarter, the commercial health was just south of 10% and engineering was similarly strong obviously. So that's how it shook out this particular quarter. I still think we're seeing some pause in the marketplace on the commercial health side as a result of the extension of the ICD-10 and meaningful use regulations that went from August 2013 to August 2014. Also the 2% haircut to Medicare reimbursements via sequestration might also be attributing to some of the pause. But nonetheless, the regulations are in place. We think the industry is compelled to invest in modernizing its IT and its EHR implementations accordingly. So, might be a short-term pause, but nonetheless very bullish on the outcome for this year and beyond.
William Loomis - Stifel, Nicolaus & Company, Inc.: Just in that on the National Security Solutions, can you tell us since you've put the MRAP business in that, which will be in Leidos, how much of that segment now would be either – would be both Army and then specifically OCO work. So we understand when it goes to Leidos what it would be – what it would be for that firm?
Mark W. Sopp - EVP and CFO: We'll have to work on that one, we don't have that on our finger tips. We have our Investor Days in July I think we'll provide plenty of color on the composition and revenue stratifications of the businesses, so I think it's best to hold off until then.
Operator: Jason Kupferberg, Jefferies & Company.
Jason Kupferberg - Jefferies & Company: So just on the book-to-bill, obviously not surprising to see sequestration taking its toll on everyone in the industry. But just give us a sense of what your latest expectations would be for full-year of fiscal '14 on book-to-bill based on what you are seeing in the pipeline here?
K. Stuart Shea - COO: Jason, this is Stu, and as you know book-to-bill varies considerably on the timing of new orders and it can fluctuate meaningfully quarter-by-quarter. As you mentioned, we are seeing the same thing everybody else is in terms of customer change in terms of their buying habits. Our goal is always to get towards 1 and above 1.0. It's a tough uphill battle this year right now. What we are seeing though is a little bit of a change in how customers are funding activities. They are funding shorter increments and smaller funding levels which of course will have a less of a predictive nature on how that converts to revenues in the future. So, we are taking a hard look at that, trying to really understand the nature, because we're seeing a pretty significant change in that funding style.
Jason Kupferberg - Jefferies & Company: Just thinking about the full-year EPS guidance, the reiteration there, can completely appreciate that in the second half, margins should be meaningfully better, because as you described, the transition expenses should bleed off pretty quickly, but based on where you're at right now, I mean, should we be thinking about the lower end being more likely?
Mark W. Sopp - EVP and CFO: Jason, I don’t want to comment on the point in the range where we will be, we are in the range, we're reaffirming that. I would point out that we see in quarters two through four a few things improving for us. We have made a number of cost reductions this quarter and last quarter. The full impact of those cost reductions will benefit the P&L in Q2 and beyond in the core of the business and in the overheads. We do expect better fee performance across the business on a number of dimensions and actually improved rate recovery from some of the cost we had in Q1 helping out, so we do expect margins to improve not only from the going away of the separation expenses, but fundamentally in the business throughout that will drive much of the performance you see and implicit in our guidance assumptions. And on the EPS side, I will also point out as I tried to in my remarks that the tax rate was 36% in the first quarter. It's going to be more toward 30% flat for the remaining three quarters and that will have quite a bit of benefit to the EPS in Q2 through Q4 as well.
Jason Kupferberg - Jefferies & Company: Just last from me, any change in your projected revenue or cost synergies from the split?
Mark W. Sopp - EVP and CFO: Not at all.
Operator: Cai von Rumohr, Cowen and Company.
Cai von Rumohr - Cowen and Company: So, given that we have a new line-up of businesses that you would now define. Could you give us some numbers in terms of how these three businesses sorted out in terms of revenues and operating profit in fiscal '13, since that's behind us?
Mark W. Sopp - EVP and CFO: Cai, we will be providing that not at this time, but either in conjunction with our Investor Conference that we mentioned in July, possibly after that, but we're going to shoot for July to provide those numbers, not only for the Q1 of last year, but of course Q1 – you are probably asking for Q2, Q3, and Q4 of last year and we'll…
Cai von Rumohr - Cowen and Company: Well, if you just give us the full year, because the problem is half book is quite a bit smaller than I would have guess. I don't know where other people were. But so, if we have a rough sense in terms of where the revenues were, we can have a rough sense of how last year modeled out. And basically with some intelligence, hopefully you can kind of look forward, but we don't have any idea of size of the three businesses or just a fairly vague idea, it's a lot more difficult.
Mark W. Sopp - EVP and CFO: Understand the difficulty. We've expended a lot of effort to do the carve-outs. We' expended a lot of effort to restructure the business, and we will be prepared to provide the full prior year numbers in the July timeframe possibly slipping to August. There's just a lot of stuff to do in preparation of the separation, and we just don't have those other quarters at this time Cai.
Cai von Rumohr - Cowen and Company: And then a second one, as you look at the – you mentioned, Mark, a lot of things in addition to those, the ones, the $9 million you called out, you mentioned other kind of adjustments, higher intangibles. Maybe you could walk us through the major other items that have not already been laid out in the quarter.
Mark W. Sopp - EVP and CFO: I trust you are, when you state other, you mean in addition to what we've posted on the website.
Cai von Rumohr - Cowen and Company: Correct, correct.
Mark W. Sopp - EVP and CFO: Well, I mentioned we did make some investments in our commercial health area.
Cai von Rumohr - Cowen and Company: And so, when you say investments, like how big, and..?
Mark W. Sopp - EVP and CFO: We haven't quantified them. There's a few millions of integration expenses to prepare our commercial business for the long term. We also have started incurring this synergy costs in the building of our two businesses that will be more than offset by cost reductions, that we have already made decisions on but won't really start paying off until Q2 through Q4. And we had some program write downs that were disclosed in the – will be disclosed in the Q and the earnings release that are not itemized in the supplemental materials. It's about a year-over-year $8 million swing that had a pretty meaningful impact on Q1 as well.
Cai von Rumohr - Cowen and Company: The last one, while your book-to-bill was light as every analysis was, your funding to sales actually held up a little bit better. Stu, could you hazard a guess in terms of where the funding to sales for the year might be?
K. Stuart Shea - COO: Let me think about that for a second, Cai. I think it's reasonable to expect, Cai, that our funded backlog will remain five months, maybe six months of forward revenue in the environment we see at each quarter end. We have previously been higher than that, six, seven, even eight sometimes, but in this environment, as was mentioned, it's coming out in smaller pieces. So we expect a lower number, but nonetheless indicative of the environment and at this point not changing our view with respect to the ultimate revenue outcome.
Operator: Joe Nadol, JPMorgan.
Joseph Nadol - JPMorgan: Mark, just to sort of make sure I'm on the same page. The $9 million of new items that you delineated on Slide 6, that's all in the corporate line or is the entire…?
Mark W. Sopp - EVP and CFO: No, that is not. The impairments are in the appropriate segments and everything else is in the corporate line.
Joseph Nadol - JPMorgan: So NSS is the $4 million and the other $3 million are in corporate?
Mark W. Sopp - EVP and CFO: That's correct.
Joseph Nadol - JPMorgan: Then just to make sure I understood what you said. You said $140 million refers to the $33 million of the separation transaction costs in the quarter, so that will be $140 million in total, $33 million was Q1 and the peak number is in Q2?
Mark W. Sopp - EVP and CFO: Correct.
Joseph Nadol - JPMorgan: Then on the segment margins, I mean it's – you've given a number of investments that – here there were a number of investments that you expect you delineated earlier that are one-offs. Just when you take a step back and you look at the margin profile for the Company, have things weakened over the last 12 months or is this just all noise? Just that it's very tough to get a great sense of that?
John P. Jumper - President and CEO: It is and we'll work on making that more apparent to you. But I would say that there is margin erosion from a pure percentage perspective related to the tightening pricing environment, and it's a meaningful number of basis points. I don't think it's a full percentage, but I think it's a meaningful number of basis points, Joe, for tighter bids as well as just the replacement of programs that previously were at attractive margins for us. BCTM worked itself out, JLI and DGS were pretty good programs from a profitability perspective, and they are either going away or replaced by other programs that don't quite have the margin profile. So the lion's share, are the investments and costs we are incurring to prepare for separation. The layout of this in terms of long-term plan is of course complete Gemini successfully and focus on driving organic growth on the core business but also tapping into the incremental addressable market, freedom from separation and much a less stressful OCI situation for us. We have got to continue to grow our commercial business and also improve our overall product profitability. So those are high-priority items. Of course execute the cost reductions that we have mentioned, which will benefit all three sectors. So (indiscernible) is a roadmap and we will provide more color on that in July.
Joseph Nadol - JPMorgan: Just one more on corporate, if I might. Not to blow on that too much. At $5 million of items in there net, plus the $33 million of separations that's $38 million, you are at $46 million of total expense, so $8 million besides those items. Is that – what's the run rate of that line item ex the items?
Mark W. Sopp - EVP and CFO: There is the stock option expense in there. There are the unallowable costs of the enterprise outside of the sectors. You could probably imagine what those are. So those are in there and we have our corporate move is in there, which will be for one more quarter. Those are the major elements there.
Joseph Nadol - JPMorgan: Then one more and I will move on. I will turn it over. Interesting your EPS guidance, are there any positive one-time items that you're contemplating or is it just them – is there anything else in there that we haven't really discussed that's going to enable you to get the range?
John P. Jumper - President and CEO: The answer is no. We don’t have buybacks. We don't have real estate gains. It's all pure operations improvement. The phase out of the separation expenses and the improvement in the tax rate that I mentioned earlier.
Operator: George Price, BB&T Capital Markets.
George Price - BB&T Capital Markets: A couple on the broader environment. First, I just wanted to be clear, have you seen any change, even over the past couple of months in terms of the pace of award decisions given sequestration. I mean some have talked about, actually on the other side of the (CR) and the appropriations where we got them, and the fact that we finally saw that the sequester date come and go, that activity had actually started to pick up a little bit I guess, the tone of how you characterize the environment struck me as maybe a little bit of a step back possibly, am I reading too much into that, have you seen any dramatic changes, I guess, over the last couple of months?
K. Stuart Shea - COO: George, this is Stu, I guess, the biggest thing we're seeing is a slowness in the award decisions. That's what I tried to – you conveyed in my part of the dialogue. We're just seeing a lot of indecision. We're not seeing any dramatic shift terms of program terminations, cancellations, reductions, but we are seeing an absolute slowness in the award decisions. One of the things we talked about last quarter was this idea of LPTA and the impact on the business, again, we're not seeing any dramatic across the board cuts on pricing and movement in a significant way into LPTA kind of awards, but we are seeing customers shifting their decision towards more low price. And of course, as we mentioned in the past being able to define technically acceptable is always a challenge, so there's always broad activities happening slowness in decisions more towards low-price, but nothing that stands out as significant in terms of dramatic shifts, what's really been happening in an evolutionary fashion over the last couple of quarters.
George Price - BB&T Capital Markets: Then one on the commercial market side, piggybacking onto earlier question. In terms of healthcare and energy, I was wondering what kind of growth you expect to see from those areas in fiscal '14 I think you mentioned there both year-over-year and the quarter were running at about 10%. Is that about what you expect going forward? Do the comps come down a little bit more? Anything you'd offer there would be great.
Mark W. Sopp - EVP and CFO: The organic growth that we have slated for the HE segment, Health and Engineering segment is in the low single digits for fiscal '14. Commercial health being well above that, but we've got environmental business in there and the products business that has nice profit characteristics, but not seeing the growth there this year.
Operator: Rick Eskelsen, Wells Fargo.
Richard Eskelsen - Wells Fargo: Just the first one is going back to the awards expectations. Do you think that there will be the normal seasonal flush in the government's fiscal fourth quarter? Is it possible that it could be even higher than normal, and do you get sense of the clients held back maybe more than they should have ahead of the sequestration?
K. Stuart Shea - COO: I think that's wishful thinking and we all have discussed it. I think you're going to see a clearly end of fiscal year flush probably not dissimilar from what you've seen in previous years, but there is a lot of pent-up dollars that are not being expended and you could see a dramatic change. We are not counting on it. We are counting on a very traditional year-end flush of funding.
Richard Eskelsen - Wells Fargo: Then just the next one is, you talked about some higher-margin programs running off with pricing getting tighter and maybe an evolutionary shift towards LPTA. Any sense for where we are in the pendulum swing of moving away from best value towards LPTA and when you might see that kind of mindset reverse in your government clients?
John P. Jumper - President and CEO: Let me – this is John. Let me start with that and Stu can chime in. We've been through these cycles before, and as Stu pointed out, there's really not a lot of formal LPTA. We talk a lot about LPTA, but there's not that many formally defined as LPTA. We're just seeing the behavior more reflect a price than you would expect. But these cycles have changed, because again it all comes down to what's technically acceptable. The more that you get some contractors that are having more difficulty performing, the more you see the pendulum swing back the other way. So, there is so much other uncertainty out there right now. It's hard to predict what that cycle might be, but we have seen this before.
K. Stuart Shea - COO: If you go back couple of years ago, if you think about the big ship from cost reimbursable contracts, the fixed-price contracts, it was the way to go because you could set a limit and move in that direction. We saw a big shift in some parts of our business. We are now in some parts of our business seeing just the opposite. We are going from big fixed-price programs that were very successful through cost reimbursable contracts, and of course, the margin on the cost reimbursable contracts, if you execute the fixed price version very well, are not as favorable on the cost reimbursable ones. So, that's one of the changes we're seeing as well.
Operator: Thank you. And at this time there are no further questions. I'd like to turn the conference back over to Mr. Levi for any closing remarks.
Paul Levi - SVP, IR: Thank you very much. I'd like to thank you all for your interest in SAIC and participating in the call today. Wish everybody a good evening. Thank you.
Operator: Thank you, sir. Ladies and gentlemen, if you'd like to listen to a replay of today's conference, please dial 1-800-406-7325 or 303-590-3030 using the access code of 4616067 followed by the pound key. This does conclude our conference for today. Thank you for your participation. You may now disconnect.