Good day everyone and welcome to the Computer Sciences Corporation Fiscal Year 2007 Second Quarter Conference Call. Today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Bill Lackey, Director of Investor Relations. Please go ahead sir.

Thank you operator. Good afternoon everyone. Welcome to CSC's second quarter fiscal 2007 Earnings Call. Our quarterly results were issued earlier this afternoon, and I hope you have had time to review the press release. Van Honeycutt, CSC's Chairman and Chief Executive Officer, will begin with some opening remarks; then Mike Keane, Chief Financial Officer, will review the quarters financial. Mike Laphen, President and Chief Operating Officer, will be joining Van and Mike for the question-and-answer session. As always, this call is being webcast live at CSC.com, and we welcome those joining us via that process. Any information we cover that does not directly and exclusively relate to historical facts constitutes forward-looking statements under federal securities laws. For a written description of the factors that could cause actual results to vary from these statements, please refer to the section entitled risk factors in CSC's Form 10-K for the fiscal year ended March 31, 2006. On today's call we will reference certain non-GAAP financial measures. Reconciliations to these non-GAAP financial measures are provided in the tables attached to the earnings press release, and will be posted on the investor relations section of CSC's website. The non-GAAP financial measures referred to during this call are not meant to be considered in isolation or as a substitute for results prepared in accordance with GAAP. We assume no obligation to update the information presented on this call. And importantly, as previously announced, the company's Board of Directors has established a special committee of Directors to conduct an independent investigation into CSC's option grant practices in response to investigations by the SEC and the U.S. Attorney's office in the Eastern District of New York. The company and the special committee are cooperating with the SEC and the U.S. Attorney on these matters. The company will delay filing its quarterly report on Form 10-Q for the second quarter until it has completed its internal review and has determined the tax and accounting impacts. The preliminary results which CSC reported today and will discuss on this call are subject to adjustment when those impacts have been determined. The company does not intend -- does not expect to provide any update on the status of the internal investigation until it has been completed and we will not address these matters on the call today. I am now happy to turn the call over to Van.

Thank you, Bill. Our quarterly results were on plan and with our restructuring efforts continue to position us well for the future. We had solid quarterly U.S. federal government revenue growth in this important and growing market. Our operations in Australia and Asia delivered double-digit revenue growth, aided in large part by growth in existing accounts. Revenue for the quarter was in line with guidance and our announced business awards for the second quarter were quite strong and represent the largest quarterly total in the company's history at $8.8 billion. We are pleased with the award from the UK National Health Service, valued at 3.7 billion over the next nine years. This win plays to one of our major strengths, which is successfully managing long-term, highly-complex and critically-important programs. Our U.S. federal pipeline continues to grow and is at about 35% over last year's comparable period. We are encouraged by the quality and quantity of both the federal and commercial pipeline, and they position us well as we enter the second half of the year. We continue to make good progress on the restructuring program involving workforce reduction, and are on schedule. I will briefly review our guidance for the year and third quarter, as Mike Keane will provide additional details during his remarks. For the year, earnings per share guidance remains in the range of 3.71 to 3.81, with revenue anticipated to be up approximately 2-3%, excluding acquisitions. For the third quarter, ended December 29, we anticipate revenue in the range of 3.6 to 3.7 billion, and EPS to be in the low to mid $0.80 range. Mike Keane will now address our financial performance for the quarter.

Thanks, Van, and thanks, everyone, for joining us today. Financial highlights for the second quarter include revenues of 3.6 billion, up 1% as reported, and essentially flat in constant currency against the second quarter last year and in line with our guidance. Earnings per share of $0.70 from continuing operations before special items in line with guidance and down $0.01 against the prior year due to a $0.04 charge from stock option expense from FAS 123R. In addition, spending on legal and other expenses relative to our stock option-granting practices inquiry and lawsuits had a $0.01 adverse impact on the quarter. Cash inflow for the quarter of 140 million, before restructuring funding, represents 181 million improvement over the second quarter of last year and is currently ahead of our internal plan. Our trailing 12 months return on investment of 9% before special items is in line with our expectations. Before moving forward, let me make a few basis of presentation remarks. First, except as indicated otherwise, all results presented pertain to continuing operations. There were some discontinued operations impact last year but not during the second quarter. Second, quarterly results comparisons include the $0.04 earnings per share FAS 123R stock options expense previously mentioned. Third, quarterly and year-to-date result comparisons exclude the impact of special items, consisting primarily of the restructuring charge for the second quarter of fiscal 2007 and the Nortel contract asset impairment for the second quarter of fiscal year 2006. Finally, quarterly results comparisons includes the impact of our stock repurchase, which provided a $0.01 benefit to earnings per share during the second quarter. I'd like to discuss some headline news first. Our signings for the quarter were very strong, including the $3.7 billion incremental NHS agreement reached on September 28, 2006. Our team plans to work…

Thank you, Mike. Operator, we're ready for calls. Once again, the drill being two-part questions are preferably not to be asked. And, we will do our best to answer your questions one at a time, and hopefully we'll get to everybody who is in the queue. Alright, operator; we're ready for the first question.

(Operator Instructions). And, we'll begin with Adam Frisch with UBS.

Hello, okay sorry, did not know that. I just wanted to ask you a quick question on the composition of the bookings. Of the $8.8 billion, 3.7 is from NHS, 2 is from a large government deal, and that gets you to about 3, excluding the mega-deals, was there anything else that was kind of chunky in there?

There is a large Air Force program, an Air Force logistics program, ECSS. That was awarded under an IDIQ contract. And, I think the incremental upside over what we had previously announced on that particular contract was about $250 million. But the total value of that program is $650 million.

Was that 650 included in the total 8.8, or just the 250?

Just the 250.

Okay, you spoke last quarter about rebuilding your sales pipeline, now that the strategic review is complete and your future was more settled than it was maybe nine months ago. So what's happening with your sales pipeline, and do you think that bookings breakout of the 2 to 3 billion range, they've been in for the last few quarters, in the next few quarters?

Well, yes. I am Mike Laphen. We're very pleased with our acceptance back into the major outsourcing market. We have a very good pipeline right now, up significantly over a year ago. We are also including in that pipeline now midsize deals, which we have more recently put an extra focus on, and we'll be announcing an award in that segment probably next week. So we're pretty pleased with where we are right now. We're getting to the down selects. We've been well received back into the market. I don't want to forecast what the booking numbers will be, but we're at 11 billion right now. We certainly expect to exceed our $12 billion target -- actually from last year, and hope we are well on the way back to our previous highs in the order of 14 to 16 billion.

Okay and then two quick housekeeping. The increased bookings, obviously year-to-date are reflected in your '07 guidance. But looking into '08, should we expect margins and free cash flow to tick down a little bit because of the increased bookings?

No, I wouldn't expect that at all.

And then finally, your plans for use of cash and your balance sheet capacity -- are you on kind of a growth initiative here, or do you look to reduce debt further even though it's at low levels, or more buybacks? If you could just kind of help us prioritize there.

I think you have to work backwards from our target capitalization structure. Our target capitalization structure is about 25% to 30% debt to capital. We believe that at the end of the share repurchase program combined with internal generation of cash, we'll have plenty of room on the balance sheet to fund our growth. That growth can come either from organic growth, can come from outsourcing, large outsourcing contracts, or acquisitions. So there's -- I think that we'll do what's necessary to stay within that range and we would prefer that it be through a combination of growing the business.

Okay thank you.

Next question please operator.

We will go next to George Price with Stifel Nicolaus.

Hi thanks very much for taking my question. Just if I could explore a little bit more detail, maybe the full-year guidance weighting to the low-end. Can you maybe talk a little bit more about -- what I'd like to know is really how conservative are the assumptions? You talked about potential slippage or milestones, working with some of the Work Councils, etcetera. How conservative -- when you say the low-end, how conservative are you being? What are you assuming there? And I guess, what incrementally would you identify as risks even to the low-end?

Well I'm trying to give you an idea that we feel that if you had to put a probability factor in the 3.71 to 3.81 range that we think it's a higher probability to be at the lower end of the range. And it's because there's a multiplicity of factors occurring, and any one of those not occurring could cause you to be at the lower end of that range. So, we're just trying to give you better insight in terms of our assumptions in the forecast.

Okay fair enough. And one other question, just in terms of maybe M&A plans. Where would you focus the most? I mean what would you think is the most likely target area for deploying cash for acquisitions? Would it be offshore for example, given, say, what Capgemini just did with Kanbay? Thanks.

Well we are currently looking at a number of acquisitions. We would not exclude any. As you know, we're quite pleased with our federal business. And indeed, we could -- we would be quite interested in expanding through acquisition, in our federal business, especially if it came with a large amount of security clearances with the people. We also have some interest to expand and improve our European business. And as we look at the whole BPO landscape, or Intellectual Property landscape, we also have interest there as well. So, it's broad-based, and quite frankly opportunistically-driven.

If I could ask you one more thing, on the consulting side in North America. You mentioned one utility client, I guess, where there was a -- did you say they're required, there was M&A involved?

That's correct.

Okay and then weakness on the Oracle side. I guess things have been pretty good in general on the North American side. Is there anything more macro-oriented you could attribute? The other weakness in terms of Oracle to or just understand that would be great? Thanks.

There was -- this is Mike Laphen. There was some weakness in the Oracle market for a limited period of time. It impacted us somewhat. That has turned around. And the utilizations for that practice are back up to where they historically had been. So again, as we look forward, we're optimistic about the North American consulting.

Thank you.

Next question please operator?

We will go next to Julio Quinteros, Goldman Sachs.

Hey guys Real quickly on the free cash -- the revised free cash flow numbers, could you just talk about kind of the puts it takes from where we were at the beginning of the year or year two, to the revised number of 400 to 500, because when I wrote down I just want to make sure that's the right number, for free cash flow…

Right, the two major impacts are in the category of interest expense and working capital. And it's a number, as you know, that's very volatile, it could be very lumpy. And it's going to depend on what business is driving that number in a particular quarter. The interest expense is fairly easy to figure out. We've taken on about $600 million of debt, and so that's going to yield close to about $40 million in incremental interest expense for the year. So, that's one impact. And we had not factored that into our initial beginning-of-the-year guidance, on cash flow. Of course, the offset of that is we're getting accretion in terms of the stock buyback. The second item is basically the working capital element. And if the mix of business changes, as we see it currently changing, it could have in the short-term a usage of cash, as we exit the fourth quarter. But of course, that being working capital-related, should return to us fairly soon, within early part of 2008. So, those are the two major factors.

Okay great. Then just for clarification on the fourth quarter assumptions for NHS. Can you just walk right above through those again? There was a couple of moving parts; I just want to make sure I understand all of them.

Okay first is that our expectation is to finalize the signing of our agreement by early January.

Okay.

And also be able to smoothly transition from the Accenture work into our camp, including taking on up to about 300 of their employees. The second part is then if we were timely on that, being able to begin the deployments under the incremental business, as well as, continue the deployments under our initial NHS contract. So, there's number of milestones that we expect to reach in the fourth quarter. And my commentary there was the fact that, even a one-week slip in terms of achieving a milestone could have an impact on the way both revenue and profit is recognized.

Okay and you guys are running forward with the old ISO system, or are you moving with the new sort of -- the new-generation ISO system?

Well -- Mike Laphen. We're doing both. We continue to use the legacy environment and then there's an interim solution that will be fielded subsequent to that. And then the -- what's known as the Lorenzo--

Lorenzo right--

Yeah that's June '08, I believe, is the expected delivery date on that.

Okay great thanks guys.

Next question please operator.

We will go to Bryan Keane with Prudential.

Yeah hi good evening I guess, Mike, when do we see -- some of the restructuring benefits to hit the P&L? And when do we get up to that full 150 ramp up and then I think it's 300 ramp up? What's the timing on that?

Yeah well we're already starting to see some of the benefits as expected. But it's still the early part. You'll see that we had indicated that the total savings this year, impact would be about 150 million pre-tax. We probably have seen somewhere just under 40 million of that in the first half and we should see the rest of it in the second half. And also as we indicated before, we thought 2008, would be a closer proxy to the run rate savings, even though we won't capture a full-year savings. And we expected that to be about a $300 million pre-tax savings.

I would just add at the operating level, exclusive of the stock option impact, we'll be up 100 basis points on the margins, this fiscal year over last fiscal year. And, now that's a combination of some impact of the restructuring, improved performance, and so forth. But -- and some of that gets mingled together. But I think we're seeing good solid improvement in the margins.

And that 100 basis point improvement is in fiscal year '07. I assume it's got to be almost as good if not better in fiscal year '08?

We expect continued improvement in '08.

Okay and then just finally, CSC has been successful, I think, with the UK NHS contract overall, and Accenture has struggled and we get a lot of questions asking the differences, so maybe you could just give us a few lines on why you guys have been successful and why you think you can take over Accenture's business and be successful.

I think it's a couple things. One is our technical approach was different, and our -- and the capabilities that we could bring to bear on the solution were a different set than what Accenture could bring; that is, being a full-service provider, we were able to house the necessary items in our own data centers, whereas Accenture subcontracted that out. I think their contractual arrangement was much more complex than ours from a subcontract standpoint. The fielding approach was absolutely different. We went forward with the hospitals, getting -- making good ground quickly and have done 50%, I believe, now of the hospitals. And, Accenture started at, I believe, at the doctor level, doctor office level. So, really different approaches and different solutions.

And, you plan to do the same, I guess, approach that's been successful when you take over Accenture. One of the things is you're not going to taking over in the mean billion losses position.

No.

Okay, thanks.

The next question please, operator.

We will go to Ashwin Shirvaikar with Citigroup.

Hi, the question is going back to the 3.71 to 3.81 range. How realistic is it to maintain that range in sort of implying upwards trend of about 15 in the fourth quarter. So the question becomes, are there sort of very back-end-loaded restructuring benefits and onetime milestone benefits from NHS, what's going on there?

I think you pretty well captured it there. As we indicated, there's a number of items that have to fall in line. We try to identify that for you. We agree that it is back-end-loaded, but that's kind of the nature of the ramping of the restructuring savings as well. And, it's also in terms of, as we had indicated at the beginning of the year that the results were skewed towards the second half of the year.

And then if I could ask you to comment on the industry dynamics. We are supposed to be in a services recovery at most legacy companies like CSC, EDS, Unisys can barely get to mid-single digits for growth. Is this still an attractive industry for you guys, from your viewpoint?

Well, yes. Obviously we think it is. I think that we're seeing our federal business somewhat in a growth spurt. It's going to do quite well for us. We see -- we've already said that we've seen a resurgence in some of the outsourcing business. I think, we'll have some interesting announcements for you in the next 30 days or so. We have also started addressing, which heretofore we've somewhat stayed away from, the so-called mid mid-tier market. I also believe that a lot of work that we've done on certain aspects of the BPO will start bearing some fruit now. And so, I think that it's an excellent market for us to be in.

I think, we also have to identify that we, which we've mentioned a couple times, we lost a couple major -- a couple major contracts, had terminations last year. And, we're starting to move away from the unfavorable comparisons of excluding that from prior-year, year-to-year growth results.

Next question.

We will go to David Grossman with Thomas Weisel.

Thank you. Mike, just going back to the free cash flow question, could you maybe be a little more specific about how the mix has changed vis-à-vis your expectations going into the year? And I guess, secondly, we're kind of projecting flattish free cash flow year-over-year now for '07 versus '06. How should we think about free cash flow then in fiscal '08, given the reversal of the working capital and the cost-cutting initiatives? How should we think about the acceleration 12 months out?

David, the mix is difficult to explain, other than to say that we have a variety of different type of revenue sources, some which have a fairly quick paying in terms of the billing cycle. And then, there's others where it just takes a little longer because there's some transition costs involved, and the recovery of those tend to be more milestone-type payments as opposed to your normal 30 days billing and collection. So, all I'm trying to say is that, obviously, there's a mix of work that's going to take -- takes a little longer to come back. And, also as some of that revenue accelerates towards the end of the year, and some of that profitability accelerates toward the end of the year, just giving our overall DSOs of about -- we expect around 90 days at the end of the year -- that just pushes some of that collection into the next quarter. So, that's really the best way I can explain that dynamic. In terms of looking out to the future, we see the free cash flow dynamics improving. And at this stage, based on a preliminary outlook, we would expect 2008 to be better than 2007. As we said, 2007 is a transition year for us.

Should we think about the base growing in '08? Should we think about the old guidance as the base, or are you thinking of the base in terms of the new guidance?

I would say that the base -- we still have the 500 number on that range. So, you could use that as your base.

Okay and then I guess, in terms of the share buyback, could you help us understand what the dynamic is after you completed the big piece in, I guess, mid-July, are you now free to go into the market under the authorization to be buying back now, and if you have been buying, can you give us an idea if you've been buying shares back? And if so, how many in the current quarter?

Okay, well as of the beginning of July, we purchased $1 billion worth of stock. That brought in about $14.7 million shares and it's under an accelerated share repurchase program contract we have with Goldman Sachs. That contract could extend anywhere from 6 to 12 months and from that July period, as they complete their repurchase to basically fill their short position, if you will. There would be a true-up that occurs at the end of that, based on some volume weighted average pricing, and some pricing that we have that tied to their dynamic. And at the end of that period, we have submitted a buying program to basically successfully fall inline with that. But we are currently precluded from going in the market and buying additional shares.

Okay do you have any estimate of when that will be completed?

Well it will be -- I don’t -- I think that if you had to take the midpoint between six and 12 months that we would be completed with Phase I of the program, just about at the end of our fiscal year.

So, all the incremental buyback would come in fiscal '08?

That's correct. And we had originally projected that would occur evenly throughout that, the next four quarters.

Okay. And then just one last question. Maybe this is for Mike Laphen. Can you give us an idea of what kind of milestones you have set up for iSoft, and just an idea of maybe -- I know it's been a very short period of time, but could you give us a sense of since that new deal was announced, what's been done, kind of how they're tracking, and what kind of controls have been put in place to ensure that the development continues and continues at pace with your expectations?

Yeah well it's rather detailed milestones, frankly, that we track very thoroughly. They have -- to date they have met all the milestones. We have the right to step in, if we so choose, if a milestone is missed. We have infused 70 staff with the iSoft people; some in Chennai in India, some in the UK. So, we're very involved and very aware of what the situation is. And we'll continue to monitor it very closely, and we'll take the appropriate steps if and when necessary.

But when is the first major milestone?

We've already had a major milestone.

Okay.

And they've successfully made it. There's milestones -- almost I'm going to say monthly, but probably bimonthly. So, they're very frequent.

Okay very good thank you.

Next question please operator.

We'll go next to Rod Bourgeois with Bernstein.

Hey guys the 40 million of interest expense that's hitting your free cash flow guidance, for the year. How was that a recent surprise causing you to take your free cash flow guidance down at this stage of the year?

Well I said from the beginning of the year. And someone could say that maybe last quarter, we could have factored that in. But basically, at that time we were -- just the 40 million itself, would have left us within the range that we talked about before.

Right, you mentioned the REAs are -- there's cash that's in interest-bearing accounts at this point. Is there any interest being earned on that at this stage?

No. There's no cash being earned. But basically as the process works, once you submit the claim, the clock starts in terms of what -- if you have successful completion, you not only receive your recovery, but you also receive interest on it from the time you submitted the claim.

Got it, so that just accrues there. Okay.

By the way, it doesn't accrue in our financials.

Sure.

But it accrues economically.

Sure that makes sense. The prepaid balance sheet item is now at 1.4 billion. Can you give us some visibility into what's being causing the growth in that account? Are there specific contracts that you can point to where the prepaid growth is coming from? And a second part to that; is this prepaid account and the increase in it related to some of the contracts involved in the REAs?

Well if you look at some of the -- any large outsourcing contracts, you're going to have deferred amounts build up from time to time. And of course, one of the large ones is NHS, where we're under milestone-type payments. So, until such time that you're allowed to bill as you reach a milestone, you'll have certain costs that basically move into work-in-process, if you will, which is our deferred costs. And there's other federal programs that from time to time, have those same dynamics. There is a small amount of costs that have increased relative to the programs that are under claim, but those are still, as we believe, fully collectible.

Right so would you say that the majority of the increase in prepaid is coming from your existing -- the NHS contract you had prior to the Accenture wins?

I'd say a good part of it. I don't know if it's the majority.

Okay now is your previous NHS contract, is that currently cash flow-positive?

Well over what period, I guess, would be the question.

Well, would you expect it to be positive for the first half of the year that you've just reported?

No. I think it's slightly negative in the first half of the year. But that's -- and that's basically due to the timing of the milestones in collections.

Okay great. And then can you give us any thoughts on the timing of these REAs and when you might recapture that? Is that this year or is that next year in a contribution to the cash flow in '08?

We have not -- we have not included it in our guidance for this year. So, if we were to collect it this year that would be upside. It would be reasonable to think that we have an opportunity to collect it in fiscal year 2008. But we'll have -- we review progress on that daily.

Okay, great. Thank you guys.

Operator, we have time for two more questions please.

All right we will go next to Greg Smith with Merrill Lynch.

Yeah, hi. Good afternoon. With the NHS contract and the big swing factors, depending on milestones, is that also going to be an issue for 3Q, or is it just really a 4Q issue at this point?

More of a 4Q issue, but also it's an issue -- it's going to be an issue throughout the entire contract.

Okay. That makes sense. And then you guys said, you identified through your restructuring efforts some incremental cost savings. Can you give a little more detail on what those were, and is there any way to quantify kind of an annual run rate and when that may actually go into effect?

I'm sorry; could you repeat that?

In the discussion you mentioned that you have identified some additional cost-saving opportunities above and beyond what you were targeting previously. Want to get some more color on that and any quantification?

Well I can't give you quantification or else I would have given you quantification, because we're currently doing the analysis. But what it involves, just to give you a little more color on that, is we've -- as we've reduced employee headcounts. Our folks have done a really good job of finding opportunities in certain geographic regions to be able to identify opportunities to consolidate remaining employees into one piece of real estate, so offices as may be, or even certain data centers. And as a result of that, we now see that we have an opportunity to move people and to consolidate them into, let's say, from three facilities into one facility, and therefore, we would have an opportunity now to offload -- either sell property, or we have an opportunity to sublease space, turn out the lights, save on utilities, save on lease costs, and -- or even possibly reduce our capital invested in real estate. So, we are examining all those at this point in time. And that actually means that the restructuring program has been very successful.

That's very helpful. And as you guys talk about BPO and think about the growth opportunities you see in BPO, what specific areas are you targeting at this point?

We're more favorably disposed to the vertical BPO markets, in particular financial services, as well as healthcare. We believe the horizontal ones -- horizontal BPO plays are more likely to be driven to a commodity play very quickly. And in fact, I think some of that is already happening. So we believe there needs to be some intellectual property wrapped around the BPO to have it as a good economic proposition for a long-term value.

Okay thank you.

One last question please, operator.

And we have Tien-Tsin Huang with J.P. Morgan.

Okay, can you quantify the growth force in North American consulting and systems integration, excluding the loss of the utility client, and maybe comment on pricing and bookings as it relates to consulting and SI?

I don't know what the -- I think, the impact -- you know, we'll have to get back to you. I don't have it off the top of my head.

Net pricing and I guess, the bookings?

I'm sorry, the pricing in the what?

Pricing in bookings in the consulting and systems integration business.

Yes, the pricing is about constant, about flat. And the bookings, as I said, are improving. And, the pipeline is the best we've had in the last 12 months.

I just wanted to make sure I confirmed that correctly. And, then on BPO, can you just give us a quick update on HR, BPO, and how the Aon relationship is going?

That has ended, so we're not pursuing that any longer with Aon, and have elected not to go forward with that.

Is HR still an area of focus, or are we now just looking at financial services and healthcare as the primary focus there?

Financial services and healthcare are the primary focus.

Thanks for the reminder.

Thank you, operator. I guess that will do it. We'll see you for our third-quarter call.

Thanks a lot, everybody.

Thank you very much.

And ladies and gentleman that does conclude today's call. Thank you for your participation. You may now disconnect.