Good day, everyone, and welcome to the CSC Fiscal Year 2012 Second Quarter Earnings Conference Call today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Bryan Brady, Vice President of Investor Relations. Please go ahead, sir.

Thank you, operator. Well, good morning, ladies and gentlemen, and welcome to CSC's earnings call for the second quarter of our fiscal year 2012. We issued our financial results earlier this morning, so hopefully, you've had a good opportunity to review them. With me today are Mike Laphen, our Chairman and Chief Executive Officer; and Mike Mancuso, our Chief Financial Officer. As usual, this call is being webcast at csc.com, and we've also posted slides to our website to accompany our discussion. So moving to Slide 2., You'll see our reminder that statements made during this call that are not historical facts may be considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to known and unknown risks and uncertainties which could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the company's filings with the SEC. The copies of these filings are available from the SEC and from our website and our Investor Relations department. On Slide 3. You'll see our acknowledgment that CSC's presentation includes certain non-GAAP financial measures. In accordance with SEC rules, a reconciliation of these metrics to GAAP metrics is included in the tables of the earnings release and in the appendix to our slides. And both documents are available for your review at the Investor Relations section of the CSC website. And finally, I'd like to remind our listeners that CSC assumes no obligation to update the information presented on this conference call except, of course, as required by law. If you'll kindly move to Slide #5, I'm pleased to turn the call over to Mike Laphen.

Thank you, Bryan. Good morning, ladies and gentlemen, and thank you for joining us today. In addition to covering our financial performance for the second quarter of our fiscal year 2012, I will provide some further insight into our new business bookings and an update of the status of our NHS program and comment on the goodwill impairment charge. Our strategic repositioning and the investments we had made to our sales and go-to-market capabilities over the last year are now delivering solid results. New business bookings this quarter were a strong $6.6 billion, resulting in a total of $8.9 billion for the first half of our fiscal year, a 13% increase over last year's first half. Win rates on competitive outcomes for all business segments are over 50%. And our pipeline of new business opportunities continued to expand, and we have a total value of over $9 billion in submitted proposals awaiting decisions. These results affirm the competitiveness of our current offerings in the marketplace and should provide confidence in the ongoing strength of CSC's market position. They are also evidence that we are in an excellent position to meet or exceed our full year bookings guidance of $17 billion. At the top line, revenues rose 1% as reported to $3.9 billion for the quarter. In the first half, total revenues rose 2%, with commercial revenues growing 5.5% as reported. Within commercial, strong revenue performance from BSS offset weaker MSS revenue performance. We expect BSS to be our commercial growth engine, and they've performed reportedly, delivering growth of 12.8% as reported and 5.1% in constant currency. In the U.S. Public Sector business, federal budget pressures impacted all competitors. We anticipate that the federal government will continue to operate under one or more continuing resolutions throughout this government fiscal year. Driven…

Thanks, Mike, and good morning. As you've no doubt concluded from our press release and its supporting attachment, this quarter's financial results have more than the usual amount of moving parts. Capturing a clear understanding of our performance and outlook may have been challenging, at least up to now. With the ensuing charts, I'll do my best to unconfuse the numbers such that you are a bit better able to assess our performance and, perhaps more importantly, formulate an investment thesis prospectively. I'll open with Chart 7. Clearly, the iSOFT acquisition, the claim settlement with the U.S. government and the goodwill impairment charge have significantly influenced our results and forecast. In my commentary, I will speak to the numbers with and without these impacts. So if you'll turn to Chart 8. You can see the breakdown of our bookings by segment with comparisons to last year. The take away from this chart is that we have recorded $8.9 billion of new business thus far and remain optimistic that we can meet or exceed the $17 billion FY '12 target we set for ourselves. Our success in the markets speaks volume as to the viability and desirability of our product offerings. Thus far, in this third quarter, our bookings are in excess of $1 billion, and as Mike Laphen indicated, we have a line of sight to several billion more based on our submitted proposals and/or qualified pipeline. If you would turn to Chart 9. You will find a breakdown of second quarter revenue by line of business. The revenue of $3.966 billion on a GAAP basis is net of a $42 million revenue reduction in our MPS business arising from the claim settlement. NPS revenue modestly decline from last year. MSS revenue in constant currency reflects roughly a 3% decline,…

Well, thank you, Mike. Ladies and gentlemen, we're now ready to move into the question-and-answer session. Operator, would you kindly introduce our first caller, please.

[Operator Instructions] Our first question comes from Nathan Rozof with Morgan Stanley.

The first question I wanted to pose to you guys was the divergence in bookings and then in the revenue guidance. So question being is that, since you guys exceeded the bookings forecast, congratulations for that, in doing $6.6 billion, what specifically has changed across a lower revenue outlook given a brighter bookings path?

This is Mike Laphen. I would say we're considering 2 things there. One is the continued weakness in the NPS marketplace and the uncertainties around future funding going forward there. So even though we have a contract vehicle, depending on what will happen with the future fundings, we've decided to be a bit conservative there. In addition, there is revenue associated with the NHS in the second half, and we've been somewhat conservative there as well. So I would say they are the 2 major factors that we've taken into consideration as we've reconciled, if you will, the new business profile with the revenue profile.

And then just expanding on the bookings performance going forward, you guys mentioned that you'd already achieved $1 billion in bookings quarter-to-date. I was wondering if you could help us understand the potential layout of how we get to the $17 billion number through the year. Are we going to have a similar progress as we saw in the first half where things end up being relatively back end loaded? Or how do you see the split between bookings over the next 2 quarters?

Well, we actually had about $1.3 billion right now, and I think in round numbers for the third quarter, you should think in terms of about $4 billion, $4 billion plus.

The next question comes from Darrin Peller with Barclays Capital.

Can you just, if you don't mind, provide a little more clarification on the MSS delivery issues. What exactly is this? And is there anything incremental versus what's been happening in the prior couple of quarters, maybe around accounting-related adjustments? Or are these just operational?

Well, there obviously have been some accounting-related adjustments, both as it relates to our Nordic region and, as Mike just recently indicated, in Australia. The other primary ones are there have been some EAC adjustments on projects that are being executed within MSS. That's the primary one. And then as I mentioned, we had some startup issues on one of our programs as well. But we've contractually resolved that on a go-forward basis. However, there will be some lingering negative impact of that through the remainder of the fiscal year. I would say that I think the way you should view our perspective on MSS is going into the second half here is we've elected to be cautious in our projections and the numbers that we're putting out their reflect our cautious feelings and conservative nature at this point in time.

Okay. One follow-up question around Europe. I think there was some discussion about Europe being a little softer, which is not surprising, but just out of curiosity, I mean where are you seeing -- is it Germany, you mentioned? Or just -- can you talk about what you're seeing in Europe overall? I think most of your business, a lot of your business obviously in the U.K. and probably less -- a little less exposed in some others, in the European area, can you just comment on the region?

Yes, I would say Germany is the one that has impacted us of late. We have strong businesses in financial services and government in Germany, and we are particularly seeing the impact on the financial services projects business within Germany. France, what we call the Western region, is -- has been holding up quite well. So it's pretty much specific to Central Europe, I'd say at this point in time, and kind of driven by the mix of our business in that region.

Our next question comes from David Grossman with Stifel, Nicolaus. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: So I appreciate the details that you provided on all the moving pieces, and there are a lot of them. So perhaps you could help us just walk through, of the things that are isolated in your slides that are unusual, how many of those continue into next year? And I'm not sure I understood all the details correctly, but it looks like you've got $0.55 for iSOFT in terms of dilution and integration costs, and $1.35 to $1.40 of incremental SG&A to deal with the accounting issues and all the investigations under way. So that gets you in round numbers to about $1.90 to $2. And then you have a tax benefit this year of roughly $200 million. That looks like that's about $1.30. Number one, are those numbers right? And can you help us think about -- are those the right numbers, and what it continues into next year?

David, this is Mike Mancuso. Your numbers are approximately correct. Certainly, you're correct on the iSOFT. So the first supposition around iSOFT is that -- and I think we said this back when we announced the acquisition. We expected dilution this year, and we expected to be -- it should accrete next year, but in a very low way, not anything astounding. So next year we'll benefit by the absence of the $0.55 dilution. We'll still have purchased intangibles obviously that have to be amortized, et cetera. But beyond next year, iSOFT should kick in very handsomely. The SG&A spending around the investigations, it's reasonable to expect, you should see a return next year to more normalized levels of G&A spending. Now around G&A spending, there will be some residual spending associated with the remediation activities that we intend to and are in the process of implementing around improved controls and so on and so forth kind of thing. But you should expect that the lion's share of the additional spending will mitigate itself next year, which gets you down now to the operational performance. As you can see from my Chart 17, we said in MSS we expected the second half of the year to be better than the first half, and the assumption there, of course, is that one-off write-offs and the like would not repeat. The underlying structural problems in the Nordics with the large underutilized workforce, et cetera, will take us some time to work our way out of. But said again, you should see an improvement next year overall in MSS. Now at this juncture, we're not going to stick our neck out and give you any guidance about next year in terms of solid numbers, et cetera. It's a little premature for that. But only to leave you with the impression that we expect next year to be better, and we'll be a position in a few months probably to share more of that with you. But again, that is founded on a lot of assumptions, of course, overall being that the NHS program continues, that government spending reductions are not as dramatic as the failure of the super committee to reach conclusion might suggest. And again, European economic will start to stabilize such that we can see improvement in Germany, et cetera. So with all those qualifiers, we're in violent agreement with your supposition. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Right. So but if I look at 17, Slide 17, Mike, it looks like you've got a consolidated operating margin normalized for this year at 7.7%. So I mean, is that a realistic starting point to think about next year? Or is that -- would that be misleading to use that number?

Off the top of my head right now, with all the qualifiers I gave you, I think it's a reasonable starting point. Now if you go back a couple of years, we were over 8% before some of the MSS problems surfaced and the investigation and so on. There's no reason to assume we can't get back there. And if we had more time and we could walk you through some of the fundamental foundational improvements we have made in the business, going back to the elimination of the pension liability and its cash drain and so on, improvements in the procurement side. So the foundation that supports the operational performance is much improved, but we are suffering from the operational performance and -- to a lesser degree, but nonetheless significant, the economic woes. Those 2 things set aside, this business can certainly outperform where it is today. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. Two -- just 2 other quick questions. First on the tax rate, obviously, a lot of benefits this year. Is -- like about a 30% number, is that still our view of what a more normalized rate should look like?

Yes, it is, and we'll probably see that kind of rate normalize for the second half of this year. David Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And I guess third, just on the goodwill write-down. Is that goodwill related to the broad spectrum of assets that you have on the balance sheet, including those related to outsourcing contracts? Or maybe you could help us understand what's in the base that was written down.

Well, obviously, the goodwill arose from acquisitions that go back in time as early as 2001, 2003, 2008. when the company restructured itself into the business segments in 2008, the goodwill from those acquisitions was moved around. I would tell you that the bulk of the write-off is with goodwill associated with the MSS business, whether it came in the door as part of the MSS business or not -- obviously, I wasn't here, so I can't comment in detail, but MSS took the largest share of the write-off because it had the largest piece of goodwill, and its projections through the goodwill analysis resulted in the largest write-off. I hope that's helpful to you.

The next question comes from Bryan Keane with Deutsche Bank.

Mike Mancuso, the Q3 guidance is around $0.62 and then Q4 is $1.40. And if you do the math, it looks like significant margin expansion year-over-year for Q4 in order to hit a $1.40 target. So maybe you can just say, is that correct, we should expect that kind of margin leverage year-over-year in Q4? And that was driving that vast improvement that quickly?

Two significant things come to mind, Bryan. One, of course, is the revenue profile from third to fourth quarter. The growth in revenue is significant. If you think back to our $16.5 billion guidance in revenue and the fact that we've got about $8 billion in the first half of the year, that suggests we have to do $8.5 billion in the second half of the year, I would tell you a significant piece of that $8.5 billion materializes in the fourth quarter, which is typical for us as we have that historical pattern. So it's revenue contribution, then it's a mix of revenue in the fourth quarter. As I said, there is a significant amount of NHS revenue and contribution that should occur in the fourth quarter as program continues. So that's a factor driving it. So think about it in 2 big lumps, it's revenue growth and the mix of contribution in the fourth quarter that are the key drivers.

Okay. And is the Australian business, the SEC investigation, any extra cost from that? Is that in the guidance?

I really don't want to comment on the investigation. What we know to date has been reflected in our actuals. In terms of what might be discovered going forward, I just won't comment. I will tell you, we haven't assumed anything in there, but that doesn't mean that it isn't it there. But we're not assuming it at the moment.

Okay. Last question for me, Mike Laphen, I guess in October, you announced your retirement, how quickly is the process moving along to find a new CEO? And then secondly, I was a little surprised the board isn't looking at strategic alternatives for the business. Maybe you could just comment on that given where the stock price has been.

Well, in terms of the succession process, as we announced at the time we announced my retirement, we have hired Heidrick & Struggles who will be our search firm. They are identifying candidates. Some interviews have taken place, so we'll move down that process and that will -- and when we find the right successor, we will move accordingly. So that's under way. The company has expressed desire to remain as an independent party, and we are continuing with that thought process and moving down that path.

Our next question comes from Stephen Simmons with Flippin, Bruce & Porter. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: I guess given your free cash flow guidance, if we take it all the way out through the year, your net -- I guess your net debt levels should be lower than when you ended the prior year even with the acquisition that you made. Would that be appropriate?

Possibly. Stephen, I haven't -- I don't have a projection, frankly, of puts and takes between now and the end of the year in front of me. But I'd say, yes, I don't expect debt levels to go up any higher than they are right now, notwithstanding some level of acquisition activity, which could always occur. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: The question is, I guess you're not buying in your stock for some bizarre reason. And I guess you said that counsel has suggested that you not do that while the SEC investigation is going on, but yet, you can continue to make acquisitions. Can you reconcile that thinking with me?

I didn't say we were making acquisitions. I said it could happen. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: But you won't step in and buy your stock?

Stephen, we've indicated why we are not active in the market. Beyond that, I'm not going to comment. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: And you don't see where there's a contradictory -- contradiction in that statement by going out and making acquisitions, and that you can't step in and...

I didn't say we were making acquisitions. And I'll repeat myself. I did not say we were making acquisitions. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: Well, you just completed an acquisition in the quarter...

Yes, we did. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: While you are under SEC investigation.

That's correct also. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: And so apparently, there are exceptions to that guidance that you're getting from counsel.

That's not correct. Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: Okay. Just a little more confusing signals from you guys. You mentioned the foundational improvements at MSS and that you wish that you had some time that you could spend to go through that. Is it too much to ask for you to set up an hour conference call and actually take people through that since you're not making yourself available, Mike, to shareholders of the company?

Your premise is incorrect in terms of my availability. We have made ourselves available freely to talk. Yes, it's possible to set up a conference call to discuss those issues. We are happy to. All you need to do is contact Bryan Brady and... Stephen Wilson Simmons - Flippin, Bruce & Porter, Inc.: I've contacted everybody in IR, and apparently, you cannot find time for me. So why don't I just ask you right now to put me on the calendar at some point. Can you do that?

Stephen, just leave that with me, will you? You and I have talked in the past, and there was a conflict in the calendar. But just leave that with me, and will move on, if you don't mind.

We'll take our next question from Keith Bachman from Bank of Montréal.

Sorry. I have a couple as well to. I just want to go back over the BSS operating margin guidance for the second half of the year. I thought you said there was some expectation predicated in that guidance of an improvement in Europe. But there was also some comments that you still have residual concerns about Europe. So I'm trying to reconcile these statements. What's embedded in your expectations for BSS margin improvements, please?

The expectations around Europe center on revenue volatility, for want of a better word, or predictability. Now as far as BSS revenues in the second half of the year, the NHS contract is reported into and in part of the BSS segment. There is significant NHS revenue in the second half of the year with a meaningful margin rate. So it's one of the drivers of the second half versus first half margin performance in the BSS segment.

I mean, it's a lot of volatility there. I'm not sure why you're keeping it in there given the inconsistent performance over the last year and leaving it for potential source of upside rather than embed it in the expectations.

I'm not sure I understand your question or comment.

Well, it sounds like -- maybe we could isolate just on NHS for a second. Is there any sense about what the risk is to the margins if, in fact, there's pushouts or further production deterioration to NHS in the back half of the year?

Certainly, we can estimate in any given set of scenarios volatility around NHS margin. As I said, the presumption is, in our numbers, that the NHS program continues within the framework of the MOU. Beyond that, we're not going to start playing what if games in the second half of the year.

Okay. Well, I'll move to my second question then. Is -- with -- Mike, your pending retirement and Heidrick & Struggles leading the charge there, is there also a notion about getting some leadership changes at the board level at the same time?

I'm not going to comment on the board composure or makeup. I don't think that's appropriate.

We'll take our next question from Joe Foresi with Janney Montgomery Scott.

So my first question here is just on the government business. I wondered if you could characterize visibility at this point versus where it was in prior history. And I wonder if you could speak to the fact that with all the austerity measures going out around the world on the government side, is it possible that this business could be in sort of a secular decline for a couple of years?

Well, I think what's a bit different than has been historically is the level of government deficit and the recognition of the need to deal with it, to the extent that we now have the super committee that has to -- or at least it's supposed to make some recommendations. So I think that clearly is different than where we have been as a nation historically, and I think that's being reflected in both our forecast and other's forecast. More broadly, around the world, I would say that we certainly have been impacted in the U.K. on the NHS contract in some form or fashion relative to the austerity programs that are -- that have been put in place in the U.K. So it's hard to draw a direct line from one to the other, but clearly, that there's -- we're going to look to save money, and I think that's -- at least in Western Europe and the Americas, I think that will be at some level of pressure. So we have not forecasted a significant growth in the public sector. As a matter of fact, I think just during this discussion, I projected low-single-digit reductions in the North American Public sector for -- at least for the foreseeable future until we get some clarity around the deficit resolution.

Okay. And then I think maybe a lot of the callers have sort of asked about this, so rather than have you run through all of them, maybe we could just talk about the top 3 initiatives that the firm has going on right now in order to sort of turn around the business and get the margins and the numbers headed in the right direction. Maybe you could just give us some color on that, and anything on the restructuring side that you're currently looking at. I think if you could highlight 3 for investors, I think that would help.

Well, certainly, we have made personnel changes, and as I noted in my commentary, we have insured, identified, implemented a Chief Operating Officer role within the MSS organization who will be laser-focused on improving our efficiency and effectiveness in MSS. In conjunction with that, there are a number of cost programs -- cost-reduction programs that he is working on directly. There are some organizational alignment changes that are being implemented as well. And then as we mentioned specifically to the Nordics, we inserted an external Tiger team in there, the key, very experienced resources to help them get their way back onto the proper path.

We'll take our next question from Arvind Ramnani with UBS.

If you can provide some kind of explanation of the rationale for lowering your operating margin and EPS?

I'm sorry, Arvind, we didn't hear you very clearly. Can you -- could you just say that again, please?

Yes. What are the rationale behind the -- can you provide additional details on your lower operating margins and EPS?

I thought, Arvind, we've talked about that throughout the call. I'm sorry if you've missed the thinking. Obviously, as Mike commented, the problems and issues we've been experiencing in the MSS segment and the erosion in MSS performance that we saw in the second quarter are relative to our prior expectations have introduced caution on our part to be more conservative in the second half of the year until we're certain that the fixes we have in place have been implemented. And again, there's the economic uncertainty in a macro sense around the world in our various geographies where we're doing business, as well as the federal government are all the factors that roll up into our more conservative guidance in the second half of the year.

We're just about out of time now, actually. Operator, I think we have time for one more question.

Our last question comes from Ashwin Shirvaikar with Citi.

My question is on the U.S. Public Sector with an election coming up and gridlock in Washington, how do you handicap in terms of the planning that down single-digits is a more appropriate number than down, say, 10% or 12%? If you could help us with the planning process there.

Well, that's what we're currently experiencing. So I think that's the starting point from where we're going. I think it's reasonable to expect that, that will continue at that level given what needs to be supported and given the continuing activity in the war efforts. As that war effort come down, there could be more reductions. However, our footprint overseas is far less extensive than many of our competitors so we would expect to see far less impact from the downsizing of the true footprint overseas. I would say the wildcard here is the super committee and what is decided or not decided this month. And I think we'll see where we go from there. I don't expect us to get out of this continuing resolution environment essentially until we get through the elections, which I could say will be different, but I don't think that's the case. So I think through fiscal year -- or through calendar year 2012, I think basically what you see is what you get. What we have is what we get.

And in terms of modeling, what percentage of the bookings this quarter were sort of net new revenues versus renewals?

Yes. It was extraordinarily high with new logo and expanded business. Greater than 75% was new logo and expanded business.

Okay. Thanks, Ashwin. Operator, I think we're ready to close down. Mr. Michael Laphen will make his final remarks.

Well, again, thank you, everyone, for joining us today. We appreciate your forbearance in the number of moving parts that we had this go around. Hopefully, we have brought some clarity to that, and we look forward to speaking with you next quarter. Thank you.

Thank you.

That concludes today's conference. Thank you for your participation.