Good day everyone and welcome to the Computer SciencesCorporation fiscal year 2008 preliminary first and second earnings call. Today'scall is being recorded. For opening remarks and introductions, I would like toturn the conference over to Mr. Bill Lackey, Director of Investor Relations.Please go ahead, sir.

Thank you, operator, and good afternoon everyone. Welcome toCSC's earnings conference call and today we'll be discussing our preliminaryfirst and second quarter results for fiscal 2008, which were released earlierthis afternoon. Mike Laphen, Chairman and Chief Executive Officer, will openwith some remarks, and then Mike Keane, Chief Financial Officer, will reviewthe two quarter's and first six months financials. As usual, this call is being webcast live at CSC.com, and wealso welcome those joining us via that process. Any information we cover that is not directly andexclusively related to historical facts constitutes forward-looking statementsunder Federal Securities laws. For a written description of these factors thatcould cause actual results to vary from those statements. Please refer to thesection titled Risk Factors of CSC's Form 10-Q for the year ended March 30, 2007. Also on today's call, we will reference certain non-GAAPfinancial measures. Reconciliation of these non-GAAP financial measures areprovided in the tables attached to the earnings press release and will beposted on the Investor Relations section of CSC.com. The non-GAAP financialmeasures referred to during this conference call are not meant to be consideredin isolation or as a substitute for results prepared in accordance with GAAP. Finally, we assume no obligation to update the informationpresented on this conference call. And it's now my pleasure to turn the callover to Mike Laphen.

Thank you, Bill, and good afternoon, everyone. It's mypleasure to have this opportunity to update you on CSC's current businessposition and our strategic direction. As I highlighted during our last earningscall, we are focused on ramping up our growth as well as improving ourprofitability and ROIC. Project Accelerate, comprised of five initiatives designedto accomplish these goals over the next several years, is being implemented andwe've made good progress to date. To briefly review the five initiatives are:one, enhancing our industry specific offerings through the delivery of thedifferentiated business solutions. Two: aggressively growing and leveraging ourNDA capabilities. Three: expanding our global footprint. Four: repositioningour commercial outsourcing segment including a special emphasis or midsize deals.And five: focusing on high growth segments within the North American publicsector market. The goal of these initiatives is to achieve a more balancedportfolio of services with both current and prospective clients as well as todeliver longer term revenue growth, operating margins and ROIC of at least 10%. Core business profitability reflects a favorable trend. Forthe trailing 12 months our global commercial internal operating income margin was9.1%, reflecting an improvement of 130 basis points over the prior comparableperiod. Our North American public sector margin has remained stable in theupper 7% range with the exception of the second quarter non-cash charge thatMike Keane will elaborate on. Respective margin improvement will be the result of ourcontinuing focus on cost reductions and a change in business mix. We alsocontinue to make progress towards our goal of achieving 10% or greater ROIC.Our emphasis on reducing capital asset intensity and improving working capitalcontinues to be a high priority. Overall, revenue for the six months grew nearly 10% withpositive growth in all six of our industry verticals. These increases were leadby financial services and healthcare with double-digit gains along with solidgrowth from our North…

Okay. Thanks, Mike, and thanks, everybody, for joining ustoday. Let me start providing a general outline. First, we'll cover a number ofitems of interest since our last earnings call. These include the restatementof the prior year financials, creation of other income line for foreigncurrency translation and non-operating gains and losses within thosestatements, the adoption of FASB interpretation number 48 or otherwise known asFIN 48, our share repurchase status, special items charges and the settlementof the serious contract disputes. After discussing these items, we'll move to our normaldiscussion of income statement balance sheet and cash flow items. So let's moveon to the first item, the restatement of prior year financials. The restatement stems from a discovery of certain accountingerrors relating to the company's accounting for income taxes and for the effectof foreign currency exchange rate movements on certain intra-company balances.The corrections in accounting for income taxes resulted in a cumulative chargefrom fiscal years 1995 through the end of fiscal 2007 of $303 million. Of this $303 million, more than half relates to accruals forinterest and penalties. Other significant adjustments relate to errors and taxbasis depreciation and certain transaction between the company's U.S.and foreign entities. Interest and penalties are a function of both the incorrectcompetition of taxes payable from the errors as well as earlier utilization ofnet operating losses as a result of higher taxable income in prior fiscalyears. Corrections in accounting for currency exchange ratemovements resulted in the recognition of cumulative after tax gains of $193million between fiscal year 1995 through fiscal year 2007. In the past, the company entered into certain transactionsbetween the parent and its subsidiaries, company's policy was to treat thesetransactions with the foreign entities as long-term net investments. According to an exception provision of FASB 52, in otherwords, the GAAP accounting, the foreign currency gains and losses…

Thank you, Mike. Before we get into Q&A portion, sincewe have covered quite a bit of information we really appreciate your questionsbeing limited to one if you need to get back at the queue. Please reenter so,we can ensure that we get to everybody's question. Operator, we are ready now to take questions.

(Operator Instructions) We will take our first question fromMoshe Katri with Cowen & Co. Moshe Katri - Cowen& Co: Hey, thanks. Thanks for all the clarifications here. Can yougive us an update in terms of: where do you think you are in Project AccelerateROE basically halfway through? And then also may be you can remind us: whatsort of EBIT margin targets are you looking for by the time the projectbasically is completed? Thanks.

Moshe, this is Mike. It's envisioned to be about a threeyear program, we began at April 1st, so we are about nine months into it. So wewill continue to roll it out. We haven't talked in terms of EBIT margins, butwe have talked in terms of operating margin and our target there is to be inexcess of 10%. Moshe Katri - Cowen& Co: So: at this point you think you are basically about a third,you are done with about a third and there is about two-thirds to go?

Yeah, we are just shy of a third Moshe. Moshe Katri - Cowen& Co: Thanks.

I am sorry, next question please operator.

Thank you. So we will go next to Adam Frisch with UBS.

Thank guys, glad to have you back.

It’s good to be back.

All the data, kind of sort of, get what [I would] ask for,right. I wanted to ask about free cash flow and restructuring and: how manymore quarters of restructuring charges do you expect if you kind of qualify orquantify that? And then: what do you expect for free cash flow for the fullyear excluding items?

Hi Adam. First of on the restructuring, we expect thecharges to stop after the end of the fourth quarter. At the end of this year wewill be essentially done, because these are small amounts that fall into thefirst quarter but we really don't expect it up next year, but we don’t expectit this time. In terms of free cash flow you have to combine the two years. So,basically: if you take our net incomes for both years and calculated at times80% to 90%, that will give you the free cash flow over the two years combined.That’s what we expect to be in that range.

Okay. And then

And that excludes restructuring.

Got it, okay. And then just a quick follow-up on Covansys:how much is that adding per quarter and for fiscal '08 in general -- in totalrather?

Well it added about, it was 3% of our growth in terms of thesecond quarter.

It's about $40 million or so from that ballpark there?

No, that’s low; it’s about $130 million.

Yeah about a $130 million, okay. You see the one there. Okay,thank you.

Next question please operator.

We'll go next to George Price with Stifel Nicolaus.

Thanks very much. I am sorry, maybe you got to it and Imissed it, but Mike: what was in the first half of the year? And: if you canbreak it up by quarters: What was the restructuring impact to cash flow?Because that's all -- that's not been removed from the 676, correct?

That’s correct.

And: did you mention it? If you did, I apologize, but: couldyou repeat it?

No, I didn’t mention it, but the cash expenditures againstthe accruals in the first half of the year were about $87 million.

Okay. And: can you give us any sense of your estimation forthe rest of the year?

I think that, basically, its round about the same rate. Forthe second half year might be a little bit higher.

Okay. And: if I could just ask you just then also to commentmay be on the broader discretionary commercial environment? May be U.S. versus Europe?I know that’s a topic I think a lot of people are interested in and thanks verymuch.

The European environment, I am pleased to say, has picked upfor us quite nicely both in France and related Belgium and in our, what we callour central market, which as many of you don't know who follows. We'vestruggled to get there but that has bounced back nicely. So I would say, of course, Europe, with the exception of Italy;we still struggled a bit there. We're seeing good performance there. NorthAmerican is -- on the project side, the pipeline has picked up significantly.Most recently, our geographic consulting practices are actually doing aboutmid-single digit now in terms of growth. So it was a bit slow the last quarteror so, but what we're -- in North America I amspeaking now. But it feels better as we're looking forward.

Great! Thank you.

Next question, please, operator.

And we'll go next to David Grossman with Thomas WeiselPartners.

Thanks. Mike: could you help us maybe on the tax rate alittle bit? In terms of, understanding: how much of that is a GAAP versus acash tax rate, going forward as we, kind of, look at it?

The GAAP rate would be higher than the cash rate outflow.And the main reason for that is a couple of items. One is that in order for anitem to be recorded as a benefit it has to reach in more stringent requirementunder FIN 48. So, therefore, we have more positions that are reserved against,and, therefore, that raises your accrual rates. Another reason is that on these positions, reservepositions, you make the assumption as if you're going to lose your position andyou accrue the related tax, interest and penalties on that at the same time.And you also assume that if all that occurs that any net operating losscoverage that you’ve had before goes away, so these have a compounded effect.As a result of that it's driving the accrual rate higher.

Can you give us an order of magnitude on the 40% for theyear?

In terms of: relative to cash payments?

Yeah. Exactly.

Well, its going to be a little lumpy, so basically, we mayhave a single payment but if I -- that just as a catch up adjustment on someareas we identified which is already fixed into our free cash flows from that.And, but, if I remove that basically we are running a rate that's more cashrate that’s going to run closer to the statutory of about 35%.

Alright. And you give a lot of information on the REAs thatare out there, when you could perhaps, it’s, quite frankly, I kind of lost youabout midstream: can you perhaps just give us, the thumbnail summary on…?

Okay.

You had $900 million they have contested, so…

Okay I’ll give you the Readers Digest version.

Yeah.

Basically the government, there has two set of programshere, and on both sets of programs the government has denied our claims, thiswas not a surprise to us, its kind of their first sale though. And, in one ofthe cases, they actually counter claim, but we don't believe it has much meritor basis. So, that means: we now move on to a litigation phase of the claimsand we believe that our position is very strong, very supportive. But what itreally does is give us less visibility in terms of timing and completion. Atthe same time we previously had approximately $1 billion estimate in turns, wepreviously had approximately $1 billion estimate in terms of claim coveragethat we submitted. We've basically scrubbed that and now reduced that down to$900 million number, still accruing interest, which we are not booking. Andthat’s covering our balance sheet, related balance assets of $825 million.

So: what's the next milestone?

This is Mike. Well with respect to the larger program, alarge [mod], we expect it to be the first hearing in front of an assigned judgethat takes place in the January-February timeframe of '08. At that point thejudge has the option to suggest that we and the army move towards alternativedisputes resolution process, as its name would indicate an alternative methodto full litigation. That will be at the judge’s discretion, so if it goes downthat way it could get resolved faster than you would expect it to get resolvedunder a full litigation. The second program, we don’t think we will be at that stageand probably until this summer of '08.

Okay, I got it. Great, thanks very much.

Next question please operator.

We'll go next to Rod Bourgeois with Bernstein. Please goahead.

Hey guys, just wanted to clarify the free cash flowtrajectory. If I understood it correctly: in the first half of the year, yourfree cash flow was negative $676 million and: is that accurate?

That is correct.

Okay and the restructuring component of that was $87million?

That does not include the $80 million -- $87 million.

Okay, got it and so, in order toget to a cash flow positive for the year, are you expecting another Marchquarter where you have a sort of huge cash in flow, for…

We have got a big hockey stick inthe second half of the year.

Right.

As we've had traditionally,unfortunately for the last three years or so.

Alright. And so, given the bigramp that's required, and I know this is an annual “sort of” event for us, butlast year’s big event in Q4 was NHS and the milestones related to that deal.Can you characterize the big milestones needed in order to get to your free cashflow target for fiscal '08? Because it’s another one of those big ramp years.

I think its spread evenly, spreadmore evenly. Now, there are some milestone payments, but not as exaggerated asthey were in the prior year and hopefully not on the last day of the fiscalyear as we had last year. So, it's just a matter of many programs spread acrossboth geography and across business units showing basically the positive cashflow in the second half of the year.

Right. And: does it require DSO'sto come down to more normalized levels?

Yes.

Okay, got it. And then are youseeing the level of restructuring benefits flow through that you would haveexpected at this point in the turn around. I mean: it's tough to tell with thefinancials, but with the negative cash flow, it leaves a question as to whetherthe restructuring savings are really coming through, but it's tough given someof the noise and the numbers to really figure that out. Are you feeling likeits flowing through at the pace you would have expected at this point?

Yes, as we had indicated earlier.We thought the positive impact would be about $300 million pretax for this yearand we’re actually running slightly ahead of that rate in the first half of theyear.

Alright. But: I guess theearnings benefited differently than the, sort of, free cash flow benefit thatyou are seeing from the restructuring?

Well, the free cash flow as we've always indicated is goingto be extremely lumpy and volatile from quarter-to-quarter. So I don't thinkyou can measure in that regard.

Okay. Thanks, guys.

Next question please, operator.

And we'll go next to Abhi Gami with Banc of America.

Thanks. Back to the REA question: You mentioned that youhave the high probability of recovering claim. Is that based on priorsituations that are similar to this kind? Can you give some examples? Or: whatgives you that expectation that's probably look like those?

No. Historically, we actually haven't gotten into a lot ofclaims. We know the facts and circumstances that got us into this position andreflecting on those, as well as having outside council review them thoroughlyand go through extensive reviews of the numbers including this, what I'll call,true-up that we just went through. We feel we're well entitled to those fundsand we'll fight aggressively for them.

But: was the $100 million true-up? Was that more of aspecific element within one of the REAs that you determine may not be probablyreflected? What was that, kind of, a discounting of probability?

No, I think it was a general, if you will, scrubbing of theestimate. And, as I indicated, in certain parts of the claim we had estimatednumbers and as you bring forward and actually fill those with actual numbers,you get better clarity as to what the amount is. So that's an essence what wasoccurring.

And then just to clarify, you mentioned that earlier you areaccruing interest on that, but you haven't actually received any cash againstthe…

Well, when I say accruing, it's economic accrual. We're notrecording any interest accruals on the claim. But we are -- the clock isrunning and we are benefiting from an interest accrual now on the $900 million.

Yeah, under federal procurement rules, under any kind of claimsituation like this, if the claim is found to be valid we are entitled toaccrued interest from the date that we filed claim.

That's all, thank you.

Next question please Operator.

We'll go next to Eric Boyer with Wachovia.

Hi, thanks. You are talking working capital improvements inbringing down DSOs: where can you get them struck really? And: over what timeperiod?

I think it's a constant effort. Generally, given ourbusiness cycle we tend to see that occur in the second half of the year andalso you would expect that sometimes that occurs because there are incentivesinvolved for that to happen. But it just so happens that there is a number ofour contracts and number of our business flows that tend to have heavier cashusage in the first part of the year. And then there is a turnaround in thesecond half of the year. We actually are trying to get that to be more modified andreduce the volatility, but that's not going to occur this year. So, over time,we are pushing for better efficiency in our DSOs, better cash collections. Andmore importantly away from the working capital, changing our mix of business tobe less capital intensive where it is capital intensive, attempting tostructure the deal that we recover that capital in a shorter time period, interms of receipts from our customers.

Is there a number that you are targeting as far as DSO?

Well, we would like to see the DSO in the low 90s. Nowremember that number in itself is a higher number for us but it also includessome stagnant amounts that are related to these claims. So there is a largenumber of receivables there that are not turning and when they do you are goingto see that number come down precipitously. But as long as its there in termsof external measurement, we are targeting to get that number down below 90'sand we like to go below that.

And finally: are you still expecting high-single digitrevenue growth for you public sector? And: any thoughts on the governmentbudget process? It’s looking like it’s over now?

Yes, we are still expecting high-single digits for ourFederal business. We are very gratified that the omnibus bill was signed thisweek. That will help us significantly on the civilian side of the spectrum.They have been carrying the most pressure, not that there has been pressureacross the board. So: yeah, we think that will be quite helpful going forward.

Thank you.

Next question please, operator.

We'll go next to Greg Smith with Merrill Lynch.

Yeah, hi guys. Can you just talk a little more about theCovansys integration? Sort of: what steps you've taken? And: what still needsto come on that front?

Well we have integrated both our legacy CSC India resources as well as the Covansysresources within India.So that is integrated as one unit. We are doing all the back office activitiesthat are associated with that. That’s expected to be completed as we roll intothe new fiscal year, April 1st. So, that's operating as single organization.And then we have the go-to-market activity that goes along with that led by RajVattikuti, who came over from Covansys. So, Raj has both the India direct go-to-market focus whereas, as wellas, all of our offshore resources in India. So, he is both ago-to-market organization and at the same time supports the broader CSC on asupport basis.

Okay. And: have you seen retention tick up at all among thelegacy Covansys employees?

Yes, we've seen a drop in turn over and I don’t want tocharacterize it as huge, but we’ve, yes we've seen a drop there. So, we'repleased with that as well.

Okay. Thank you.

Next question please, operator.

We will go next in Tien-Tsin Huang with J.P. Morgan.

Hi, I just had a follow-up on the REA, it’s just to try andbetter understand: why the government is pushing back on the claims? They werejust alleging that they were over charged on our projects and improperlybilled? I am just trying to better appreciate that.

Yes, I don’t want to get into, given these are going intolitigation. I really don’t want to go into too much discussion around all that,not because we're not trying to be transparent. It is going to litigation. Iwill say that, I think an important perspective here is, we are continuing toperform on both of these programs with both of these customers and I believeand I think you could validate that, we will proceed to be excellent performerson both of those program. So: yes, we have a contractual dispute. We do not, byany means, have a performance dispute. We're performing, as I said, I believe:with excellence. And we're continuing to get new contract work and new contractextensions from both these customers.

Okay. Great! That's good to know. Then if I could asksomething about free cash flow, just: is it reasonable for us to think that youcan approach breakeven in free cash flow year-to-date in December? I askbecause, obviously, we're pretty close to the end of December here. So somekind of picture there would be helpful.

Well, I don't think we'd expect it by the end of our thirdquarter because fourth quarter tends to be a very significant contribution toour free cash flow.

Okay. Just, as usual, more heavily weighted towardsforecast?

That's correct.

All right. Thank you.

Operator, I think we have time for one more question please.

Our next question will come from Pat Burton with Citi.

Hi. Thanks. My question just relates to the balance sheet.Mike, just briefly, go over the rise in prepaid expense from the March toSeptember period. And then, also, on the liability side the drop in the accrued-- other accrued expenses as well as the deferred revenue.

Okay. The prepaid is actually a natural phenomenon we haveover here. We have a lot of prepaids that occur in the first quarter. And also,within that line item, we tend to have work-in-process included as well and so,one of the large drivers of our work-in-process accounts is the NHS contract.So that's what you're seeing a little bit there. Also NHS contract tends to affect deferred revenue wherewe’ve received and from an accounting perspective received advance payments.And we're working against those in recognizing revenue. The reduction inaccrued expenses relates to a comment I made earlier, where we had purchased asignificant amount of capital expenditures program related towards the end ofthe fourth quarter and those ended up getting paid for within the first fiscalquarter this year.

Okay. So, on the deferred revenue running down: should weread into that then you are hitting more of your milestones?

Now, we are on track, we are meeting our estimates tocompletion and recognizing revenue ratably. So, yes, we are meeting ourmilestones.

Okay.

(multiple speakers)

Thank you. And congratulations on digging out and get mecurrent.

Thank you.

Thank you, operator. Mike?

Yeah, this is Mike Laphen, I just want to say it's great tobe back dialoging with all of you. Thanks for joining us today, I apologize forthe short notice that we had, but I hope you can appreciate the situation wewere in, in terms of trying to get to this point. So thank you for that and Iwant to extend everybody wish for very, very happy holidays and very healthyand successful New Year. Thank you very much.