Good day, ladies and gentlemen, thank you for standing by. Welcome to the SAIC Fiscal Year 2013 Third Quarter Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, December 5, 2012. I would now like to turn the conference over to Mr. Paul Levi, SAIC's Senior VP of Investor Relations. Please go ahead, sir.

Thank you, Camille, and good afternoon. I would like to welcome you to our third quarter fiscal year 2013 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. During this call, we will make forward-looking statements to assist you in understanding the company and our expectations about its future financial 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 now like to turn the call over to John Jumper, our Chairman and CEO.

Thank you, Paul, and good afternoon, everyone. During the call today, we'll start with a look at our quarterly performance, discuss the market conditions, update you on a recent acquisition and discuss the recently announced leadership teams of our 2 companies that will emerge from the planned separation we announced last quarter. Following that, our COO, Stu Shea, will update you on separation planning, provide details about our performance and will conclude with business development results. Stu will be followed by our CFO, Mark Sopp, who will go into details on the financial results, and then we'll open the lines to your questions. Our dedicated team of 40,000 employees delivered solid results in the third quarter even in the face of strong market headwinds and while addressing significant changes within the company. As shown in today's press release, our revenue growth, accompanied by strong bookings, demonstrate that SAIC is performing for our customers and delivering for our shareholders. In the quarter, we grew revenue by a positive 3%, fueled by the addition of maxIT with internal growth relatively flat. We are also pleased to see some momentum in the market by recording future business at a book-to-bill ratio of 1.7. While headwinds in the industry remain strong, we're proud of our performance and we continue to take actions to shape our future. As we continue to accelerate toward the fiscal cliff, from our perspective, the fog is getting thicker. In several sessions with high-ranking officials in the executive branch, we in the industry have had ample opportunity to make our opinions known. I must say that our senior defense officials do understand the industry's concern and have applied ample energy to encourage a legislative compromise we know must prevail in the end. While those of us who are engaged in…

Thanks, John. As you can see from John's introduction, we have a number of important topics to cover today, not the least of which is to highlight our continuing solid performance in the face of difficult market conditions and continued uncertainty in our primary markets. As I mentioned in the last earnings call, this is a testament to the strong disciplined planning that we've done over the past 2 years to prepare for these tougher times. We have worked methodically to tighten our strategic focus, increase our investments and differentiated capabilities, increase our R&D and B&P investments, deploy our capital for a number of key acquisitions and deliver to our shareholders a track record of performance. One of the topics on the forefront of investors' and employees' minds is the status of our plan to split SAIC into 2 publicly traded companies. Some have asked why we named the separation process Gemini. Well, in Greek and Roman mythology, the sons of Zeus were twin brothers, Castor and Pollux. In Latin, these twins were also known as the Gemini. The sign of the Gemini is often associated with the exchange of ideas, communication and trade between 2 different personalities, essentially the yin and yang of twins. We have approached this separation as if SAIC was being separated into twins, 2 unique, dynamic, strong and capable companies trading ideas, working in collaboration and partnership, yet recognizing that the duality of the different business models within SAIC needed to be separated. There was no primary and secondary, retain or divest, or right or wrong. But instead, 2 equals, twins from the same parent, SAIC. As has been noted in our various press releases, one of those twins will be focused on both federal and commercial solutions in the national security, engineering and health…

Thanks very much, Stu. As John said, revenues in the quarter came in pretty much as expected with 3% total growth fueled by maxIT and internal revenues essentially flat. The Defense Solutions segment or business produced modest growth that leveled off from recent quarters as we signaled would occur in our last call. Some of the larger programs are approaching their full run rate, like Tires and Vanguard, while others such as joint logistics integration, JLI, and defense global solutions, DGS, has started a decline mode due to changes in those programs. Material buys from the Navy were also down likely from budget constraints. Ongoing long government procurement cycles and the adverse effects of the continuing resolution made capturing new growth vehicles challenging for the inevitable number of contract rotations and completions. We see modest contraction in the fourth quarter as a result in this area. However, we have built, as Stu said, an impressive backlog of outstanding proposals, and we expect to see our overall pipeline in this area further expand in the quarters ahead with the types of new opportunities that Stu mentioned earlier, that are going to be unleashed by our planned separation. The intelligence and cyber business, internal growth was about a push in the quarter, where we saw continued growth in airborne and geospatial programs offset by a large material buy in the third quarter of last year. As Stu covered, bookings were particularly strong here in the third quarter, providing a platform for growth in future quarters. The ISR business will be the other area of major focus for new business expansion as we start to pursue areas previously restricted due to OCI. In health, engineering and civil solutions area, we saw internal contraction of about 4% in the third quarter. While commercial health…

Thanks, Mark. This has been a longer than usual call, so we could cover the many key areas in the proper depth. We thank you for your patience. I appreciate your attendance, and now we can proceed directly to the Q&A portion of the call.

[Operator Instructions] Our first question is from the line of Bill Loomis with Stifel, Nicolaus. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Let's see, I guess, Mark, just since you just commented on guidance, if you could talk a little more about it just to run through. So the $0.28 and then the $0.07, so we should think of it as it's kind of being relative to your prior guidance of $0.21 net benefit difference?

I mentioned some other factors that I didn't precisely quantify like the more cautious outlook on product revenues and also explicitly about $0.01 of reduction related to the reclassification of the OT&E business into discontinued operations. So those are 2 additional pieces you'd need to consider to reconcile into the new guidance. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then that the 3, I guess the $15 million that you had in the third quarter, which wasn't -- was that in your prior guidance as well or no?

Which $15 million, Bill? William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: The $15 million you had in the third quarter for planned separation and corporate relocation.

That piece was in our previous guidance. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Oh that was in the guidance, okay. And okay. And so just looking at the fourth quarter EPS range, I mean, can you -- just to make sure we're all on the same page, I know it's subtracting the 9 months from the full year but there's a lot of puts and takes. Can you just reiterate just fourth quarter alone what the adjusted for the benefit EPS range would be?

We're not in practice of doing that. I think I provided all of the pieces for you to take your previous estimate and the elements that we see changing from our previous guidance. So I think I prefer for you to make those based on the pieces that I gave you. William R. Loomis - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And then just any -- on the product sales, you said that slipped. It sounds like you think they just slipped into the April quarter or -- because you didn't say they went away.

Yes, that's correct. We are concerned with the timing of getting orders in and product out the door by Jan 31, but if that is not meant to convey a permanent view toward those activities. We are still very confident that they will eventually occur and benefit the corporation.

Our next question is from the line of George Price of BB&T Capital Markets. George A. Price - BB&T Capital Markets, Research Division: Just the implied revenue guidance for the fourth quarter is fairly wide at $2.4 billion to $2.9 billion. Can you maybe give us a little color as to what the puts and takes in that are?

Sure. As we have practiced before, George, if our forecast is within the existing guidance stated, we do not change it; we leave it the same. So that is the reason for it staying the same, if you will. But clearly, we have a narrower forecast. If you look at the historical downtick we've seen from Q3 to Q4, which is largely reflecting a fewer number of working days, we do expect to see that historical reduction this year. And in addition to that, we do have some specific items that are coming down year-over-year like BCTM, like JLI and a few others. And so we expect that, that downtick will be a little bit more magnified this year than in the past. And while we have a lot of outstanding awards that may offset that, as you know, these things are developing very slow right now so we can't count on that. So I would just factor in more than the historical amount based on the dialogue we've had on what the run rates were looking like for BCTM and JLI and the other contracts we've talked about over the course of this year. Does that help? George A. Price - BB&T Capital Markets, Research Division: It does, yes. And then on the -- if I could just ask something on the segments. You mentioned health, energy, civilian down 4% due to weakness in federal health as well as federal civilian or I think maybe you called it flattish. Sorry if I don't recall exactly. But I was wondering if you just -- in those areas that you are seeing weakness there, if you could be a little bit more specific on where you saw the weakness in terms of programs, in terms of agencies or contracts?

I think it's fair to say we've seen weakness in all of the Fed civ agencies for the large part over the course of this year, not just this quarter. And we also saw a pause in some of the federal health business that we think is more of a temporary nature. We're more bullish on that outlook, as I said earlier, for next fiscal year based on recent activity we've had. We've had -- some of those delays, some of those are losses we've had for various reasons. And so the civil sector, the health are the drivers for the contraction we've seen in that sector. And that was offset favorably by the strength in the commercial health business and pretty good strength in our security products business this third quarter.

Our next question is from the line of Jason Kupferberg with Jefferies & Company. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Just wanted to ask a question on the indirect cost savings on the downsize. I think you characterized that as $100 million going forward. How much of that is going to drop to the bottom line versus being reinvested?

Jason, we will work through our fiscal '14 planning to determine the answer to that question and provide color on that in our March call. So we did the important part first and how we will allocate to reinvestment toward growth initiatives and the trade-off between that and profit enhancement is something that we need a little more time to develop. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay, fair enough. And I apologize if I missed this. But Stu, when you were going through all the OCIs and the opportunities there, I know in the past you guys had talked about roughly $1 billion in ultimate revenue synergy across the 2 new companies. Is that still an accurate number? And can you just remind us over what time frame you would expect to realize that, and what sort of implied win rate is required to get to that figure?

The synergies between blue and white? Jason Kupferberg - Jefferies & Company, Inc., Research Division: Yes.

Actually, we have more synergies through the separation of blue and white. I mean, we have of launch... Jason Kupferberg - Jefferies & Company, Inc., Research Division: Well, that's right. Yes, sorry, that's what I meant. I mean, just about the...

There's about $37 billion over the -- over -- per year in new opportunities on the blue side, about $4.5 billion to $5 billion in new opportunities on the white side that are addressable to us. We're looking at a much smaller amount in there. Jason Kupferberg - Jefferies & Company, Inc., Research Division: But in terms of -- so -- but if you convert that into actual revenue synergy over time, is $1 billion still the right number? Because I think that's the number that's been mentioned in the past.

Yes. Yes, it's a good number.

Use a historical win rate.

It's a good number. Historically -- and, historically, on a win rate, we also have a pretty solid win rate that's been pretty predictable on our competitive business and our re-competes. And so as we look at that, we think of it as maybe just a reduction because it's a new expansion area for us, so we wouldn't count on the same win rate. So we'll spend a little bit more B&P, we'll have a little bit lower win rate, but we still see about the same synergy as $1 billion. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And then just a follow-up question on the timing of the split. I know you're continuing to say second half of fiscal '14. Obviously, that's a fairly wide range. Sounds like you guys have accomplished a ton already in the 3 months or so since you announced this. I mean, should we be thinking that Q3 versus Q4 of next fiscal year is more likely or...

Yes, we should be thinking second half of the fiscal year. And the reason there's such a broad opening there is because we've completed a good part of the design, now comes the difficult part of the implementation. So we actually have to now build these 2 companies. And then once we do all the regulatory filings, not much is up to us at that point. We still have to wait for all the appropriate approvals and then seek final board approval. And that process is something that we can't control. So we have embedded in our schedule, obviously, enough of a slop in time for us to have some contingencies on the design, the implementation, the regulatory filings and then the comeback kind of on the end of next year time frame. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Would that be sooner?

Well, we would love it to be sooner because being sooner we get to really attack some of these opportunities that are restricted from OCI. Taking longer is still in the hands of the U.S. government.

Our next question is from the line of Cai Von Rumohr with Cowen and Company.

So I think on your second quarter call, I believe you talked about looking for book to bill of 1.1 for the year. Is that still what you're looking for?

Yes.

Okay. And then, Mark, you said on the second quarter call, you were looking for $25 million of separation cost in the second half. You had $15 million here in this quarter. So that would have left $10 million that would have been in your prior guidance. So you're now saying another $20 million in the fourth quarter. Is that correct?

Correct.

Okay. Okay, very good. And then so cash flow, could you share with us what the proceeds were from the sale of the T&E business?

First of all, let me go back to the prior statement. With respect -- I do want to make this clear. The Gemini Project expenses are third-party expenses. We incur lawyers, bankers, accountants, consultants, et cetera. But it does not include that severance amount, so that is additive. The severance is additive [indiscernible]. Just want to clarify that for the rest of the audience.

No, no, no, I know the severance -- okay. Right, the severance is additive, but you had said $25 million. You did $15 million, so there was $10 million more to go. And now you're saying there's going to be $20 million in the fourth quarter, excluding [indiscernible], okay.

Confirmed. And with respect to the sale of the business, we are not allowed by contract to disclose those proceeds.

Okay. But certainly, you did have proceeds and so you should have reasonable cash flow in the fourth quarter. You're already over your $500 million kind of cash you like to have around. What are you thinking about doing with this cash? Are you looking at M&A? Are you looking at share repurchase? What do you intend on doing with it?

The story's the same as we've consistently said, Cai. We are looking at all opportunities depending on which are most attractive to us. We have a bias for growth, so M&A is something we look very hard at first. But as you've seen, we've been very selective there. And when we don't have M&A properties that fit our stringent criteria, we have bought back stock, we have initiated a dividend, we'll continue to look at all of those 3 areas going forward.

Okay. I think on your last call, you mentioned that you were looking in the solutions business to kind of expand globally and kind of more focused on engineering. Is that still a priority? Or maybe you could kind of review for us what will the M&A priorities be for the solutions business?

Well, Cai, this is John Jumper. I think we're looking across the board to take advantage of opportunities as they arise. And as you know, a lot of times, we don't have control over when these opportunities become available. So we don't have a particular bias. I think you've seen us very active in the -- on the health side, but we're just continuing to look for those opportunities that are going to fit in the strategy and contribute to shareholder value.

Our next question is from the line of Edward Caso with Wells Fargo.

It's actually Rick Eskelsen on for Ed. Just had a question on VirnetX. You in the past had gotten some settlements on that, and we saw that they had recently announced a favorable court settlement in the beginning of November. Wonder if you could comment on expectations maybe for a gain from VirnetX again.

Thanks, Rick. We're really pleased with that development. And as we have disclosed, our rights toward any cash settlement proceeds is essentially 25% after deducting legal fees and other minor issues. But it's substantial, so we're pleased with those developments. We have no precise estimated timing of any such proceeds coming to us. We don't know if Apple will appeal or move down some other paths, so we patiently await. And we, of course, have not factored in any of those proceeds to many of our financial projections.

If it goes longer than expected and it passes over the separation date, which -- would there be a split between the 2 businesses or would it go with one versus the other?

Ed [ph], this is Stu. We don't know yet at this point. We still are in determination of that part of the separation of all legal entities, legal claims, intellectual property, those kinds of things.

Our next question is from the line of Joe Nadol with JPMorgan. Christopher Sands - JP Morgan Chase & Co, Research Division: It's actually Chris Sands on for Joe tonight. A quick question on the margin in health, engineering. Civil, it was up this quarter relative to where it was in the first half. I think, Mark, you said it benefited from product sales and some stability on contracts. Can you just talk about maybe what the trajectory for that is? You had subsequently mentioned that product sales, some of them have been delayed a bit.

Correct, although more of the delays, I would say, are on the ISR side of the house. But I would consider that this segment, as now constructed, to have normative margins in the mid-8% to 9% range. We clearly did above that in the third quarter and it's largely attributable to the strongest quarter of the year in security product shipments for our VACIS and our Reveal product lines. And that will obviously have some volatility quarter-to-quarter. That segment is somewhat diluted today because of the acquisitions we've made in the commercial health area. Stu mentioned in his remarks that we are double digit profit margins before amortization. But net of amortization, it's slightly dilutive. So that's bringing it down a little bit right now. In the nearer term, that will remain the case. But because of how strong it's performing and how well it's growing, we are hopeful that will help contribute toward margin expansion in future years. Christopher Sands - JP Morgan Chase & Co, Research Division: Right. The double digit just pertain to the Vitalize and maxIT pieces though, correct?

That is correct.

Our next question is from the line of Tim McHugh with William Blair & Company.

This is Matt Hill in for Tim McHugh tonight. I had a question about the health care consulting market. Now that we've moved on past the election and accountable care is going to be here to stay, are you hearing any different comments from some of your clients about proceeding with projects that may be they are waiting for a little bit more clarity on? And then just what sort of expectations now that we have that uncertainty out of the way?

Yes, Matt, this is Stu. We're seeing no change at all in expectations.

Yes, I think it's a little too early to gauge a reaction right now.

There are no further questions at this time. I would now like to turn the call back over to Mr. Levi for closing remarks.

Thank you, Camille. On behalf of SAIC team, we want to thank everyone on the call for their participation and their interest in the company. We'll talk to you next quarter. Thank you.

Ladies and gentlemen, this concludes the SAIC Fiscal Year 2013 Third Quarter Conference Call. You may now disconnect. Thank you for using ACT Conferencing.