Good day, everyone, and welcome to the CSC Third Quarter Fiscal Year 2013 Earnings Conference Call. Today's call is being recorded. And for opening remarks and introductions, I'd like to turn the conference over to Steve Virostek. Please go ahead, Steve.

Thank you, operator. Good morning, everyone. I'm pleased you've joined us for CSC's Third Quarter 2013 Earnings Call and Webcast. On the call with me today are Mike Lawrie, our Chief Executive Officer; and Paul Saleh, 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. On Slide 2, you'll see that some matters, which we discuss today, will be forward-looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties, which could cause actual results to differ materially from those expressed on this call. A discussion of risks and uncertainties is included in our Form 10-K, Form 10-Q and other SEC filings. On Slide 3, we acknowledge that CSC's presentation includes certain non-GAAP financial measures, which we believe provide useful information to investors. In accordance with SEC rules, we've provided a reconciliation of these metrics to the respective and most directly comparable GAAP metrics. The reconciliations can be found in today's earnings release and also in an appendix to our web slides. Both documents are available at the Investor Relations section of csc.com. I'd like to remind our listeners that CSC assumes no obligation to update the information presented on the conference call, except, of course, as required by law. Listeners should also be aware that CSC's third quarter results reflect the divestiture of our credit services business and certain businesses in Italy. The net impact of these transactions is reflected in EPS from discontinued operations. Moving to Slide 4, I'm pleased to hand the call back to Mike Lawrie.

Okay. Steve, thank you. Hello to everyone on the call today. Thank you for joining us and your continued interest in CSC. As sort of been my practice, I've got some key messages I'd like to leave you with today. I'll develop those 4 messages a little bit, then turn this over to Paul. And then, as usual, we'll have an opportunity to respond to some of your questions. So the 4 key messages are: one, our turnaround is on track, and we have made reasonable progress in the third quarter and through the third quarter. Second key message here is that our operational performance in the third quarter was primarily driven by our cost takeout work. And as a result of our growing confidence in that cost takeout work, this really allows us to raise our EPS target range for the balance of our fiscal year. The third message is that we are rebalancing our asset portfolio with divestitures of noncore businesses. And then fourth, we are following through on our cash flow priorities by returning cash to our shareholders and reinvesting in the business for growth down the road. So let me just develop each of those key messages a little bit here. As I said, the turnaround is on track. We're making progress towards our new operating model, which, as you recall, is defined by distinct offerings, select industry markets and major geographies. We continue to align our people and assign the appropriate spans of control for our organization as a part of our cost takeout efforts. We've done this work in a very systematic and measured way so that we do not adversely affect our client work, and we expect to complete this complete realignment by the end of our fiscal 2013. We've also made some…

Yes, thank you, Mike, and good morning, everyone. I'll review the financial results for the quarter, and I'll update you on our cost takeout program. And I will go also over the revised targets for the year. Third quarter revenues was $3.78 billion, an increase of 2.8% in constant currency. Operating margin was 7.1% in the quarter, reflecting improved performance on focused accounts and continued benefits from our cost takeout activities. And our margins expanded across all 3 lines of business. EPS from continuing operations was $0.77 in the quarter, and that compared with a loss in the prior year. On a year-to-date basis, EPS from continuing operations is $1.67. EPS from discontinued operations of $2.50 include the results and gain on the credit services business, as well as certain businesses in Italy which were divested, as you know, in the quarter. Now let me review a few highlights for the quarter. We reported a tax rate of 20.6% from continuing operations in the third quarter. On a year-to-date basis, the tax rate was 27.9%. We're benefiting from a favorable mix of global income, the use of valuation allowances in certain countries and the result of better tax planning activities, including those pertaining to some of our asset sales. Now for the full year, we now expect our effective tax rate to be approximately 28%, but you should know that we're still working on tax planning initiatives that may help optimize our tax position further. Now in the quarter, we recorded a $26 million restructuring charge, which bring our year-to-date total to $111 million. As Mike mentioned, we're transitioning to the new operating model, and we've made substantial progress in broadening the spans of control for managers. We're also reducing layers of management between our executives and our clients, and…

[Operator Instructions] We will take the first question today from Julio Quinteros with Goldman Sachs.

On the comments around fiscal '14, the $3.30 consensus, how should we frame the free cash flow expectations for fiscal '14 around that $3.30 EPS?

I think this -- I mean, there's still some more work to be done, but I would say it would be probably more in the $400 million to $500 million of free cash flow at this time.

And we'll now take the next question from Moshe Katri with Cowen and Company.

Paul, can you -- kind of going back to some of the nonrecurring items for the quarter, can you kind of list some of these, including the charges and the settlement benefit?

Yes, we had -- we mentioned at NPS, we had a settlement of $22 million, which was a benefit of about $0.10. We had the restructuring of $0.26, which was about a $0.12 impact on the quarter, and interest expense was also about $19 million. That was for the early termination of debt, and that was about a $0.09 impact.

Understood. And then...

And then also the tax rate, as mentioned, it was $0.11 impact benefit in the quarter. Now keep in mind, again, all of these numbers exclude credit services, so we are just literally with the new guidance, offsetting the absence of credit services in our numbers.

Yes, yes, understood. And then any details on where we are in terms of kind of looking and so the problem contracts that you mentioned, I think, there in the last update, you indicated that you've -- maybe 5 of the 40 looked a bit better were restructured. Is the number still 35 or still -- are we bringing it lower?

Yes, we're still managing against the list of 32 to 35. That hasn't changed. I'd say probably somewhere in the neighborhood of 8 to 10 of those are in materially better shape than we were when we started. We've seen pretty significant improvement across the board on our operating performance. What we're doing is we've put a new contracting process in place, a new management system around how we manage the transition and the execution of those contracts. So this is just the way we're now running the business. So I don't -- I'm beginning to not think about it as a focused set of accounts but more just the way we run the business going forward.

And then 2 final questions. You said some -- you gave us some preliminary comments on free cash flows for next year. Any thoughts on EBIT margins, and then maybe an update on NHS in terms of contributions or impact for the quarter?

Yes, I don't think we're changing right now any -- providing any guidance necessarily on the margins. But I would say NHS, with the new service accounting, is going to continue to be -- represent lower revenue and lower profitability than we would have originally anticipated. But ultimately, we are building basically a pipeline of revenue that we will be able to amortize once we go into the hosting period. We have over $150 million of revenue right now that is basically tied up on the balance sheet as part of this service accounting.

Yes. And I was over last week with NHS, and we're making some very good progress. We've delivered some more modules. We've received some payments associated with those. We have won a couple of large trusts that have been publicly announced. So overall, we're pleased with the performance around the delivery of the software, the acceptance of the software. And we've moved into a world now where we're out and we're competing and trying to drive the solutions into these trusts. So initially, we're pretty pleased. And as Paul said, we are beginning to build a bow wave here of revenue and profitability, which will be prorated over the course of the contract.

And we'll now go to Bryan Keane with Deutsche Bank.

Just looking at the cost takeout, it looks like you took out about $120 million in costs in the third quarter. And if you're going to be above $600 million, I guess that looks like the run rate is going to get a little faster for cost takeout to over $200 million in the fourth quarter. So is there any big costs that come out or any reason why the cost takeout kind of jumps up here more than the normalized run rate we've seen in the last 3 quarters?

Yes, the big reason is that we've done a lot of this restructuring around the spans and layers so a lot of those people associated with those have now left the business, and a lot of that took place in the third quarter. So that is driving some of the incremental cost savings as we go into the fourth quarter.

Yes, the other thing, Bryan, that you have to be sensitive to is the fact that the cost takeout is on a year-over-year basis. And if you look at our cost in the fourth quarter of last year, the cost went up more rapidly in the fourth quarter. We're holding to the gains that we are making right now, and we're adding -- as Mike mentioned, we're taking additional steps to improve our run rates going into the fourth quarter and into the next year. But the comparison becomes a little bit easier as we look on a year-over-year basis fourth quarter to this fourth quarter.

And Paul, does your confidence grow to reach the high end of the $1 billion to $1.2 billion of cost takeout?

I believe, right now, we are running towards the higher end of that $1 billion to $1.2 billion.

Okay. And then just asking on free cash flow, year-to-date free cash flow was $457 million. So I guess, what's now the target for the full year. And whatever that is, it looks like it would be likely to be down on a year-over-year basis, given your preliminary thoughts on $400 million to $500 million for fiscal year '14. So I just want to make sure I understand why.

A couple of things. There are so many moving parts of this year. I would say, first of all, the $455 million for this year, I would say, you could -- our projection right now would be that our anticipation is that our target would be around $600 million from continuing operation. Now that does not include the contribution -- the pension contribution to -- that we just recently made, the $400 million. When I look at the year-over-year basis, don't forget that in this year's number, we also have the NHS proceeds, which was over $100 million that also are in our numbers. So again, we have a lot of puts and takes. As we get closer to report our year-end results, we will be updating you on all of these...

Yes, I think it's a little preliminary to get too locked in to a 2014 free cash flow number yet until we finish the budget cycle, which we're now in the middle of. So I think when we get a little more clarity on that, we can then share that with you.

Okay, last question for me. Just on NPS, I know you guys have talked about down at least mid-single digits. Just wondering to know if that still holds true as an outlook, given some of the delays? Or is that a moving target, that number?

I'd say right now, based on anything we're seeing, I think that range is pretty much holding. The bigger -- I mean, I feel -- we've got a lot of -- as Paul said, we've got a lot of proposals that we've submitted. So I mean, this isn't pipelines. I mean, these are actually proposals that we have seen submitted. I just want to see what happens here with sequestration, what happens with the budget in March. As you know, we've sort of hit a deadline here in March and see how that begins to normalize as we exit March go into April. But right now, we don't see anything that would alter the sort of targets with mid-single-digit decline that we have talked about. We are taking more cost and expense actions there to manage that business much more tightly in profitability than we have in the past.

And we'll take the next question from Rod Bourgeois with Bernstein. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: All right. Great. Hey, guys, since you expressed comfort with the $3.30 in fiscal '14 EPS, can I ask if your outlook for fiscal '14 is right around $3.30 or is it a number that could be materially higher than $3.30, recognizing that the stock at this point is seemingly pricing in an EPS trajectory that's greater than $3.30?

I think it's what we said. I think it's right around $3.30. We still have some real unknowns. And Rod, we just talked about what's going on in the federal government. We'll have a much better picture of that when we get into our fiscal first quarter. I really like to see how that plays out. We still have a lot of unevenness in Europe, most notably Germany, but also France and the U.K. So I think that is our best look at what we see for 2014 right now. And as we start the new fiscal year and we begin to get some performance under our belts, then I think that's time to think about anything different. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: And that $3.30 trajectory for fiscal '14, is that achievable if there's a revenue decline again in fiscal '14? Do you have the margin improvement?

Yes, yes, yes. I have factored in -- so we've said we think NPS will decline mid-single digits. So we have that factored into the 2014 outlook. Rod Bourgeois - Sanford C. Bernstein & Co., LLC., Research Division: All right. It sounds like your 2014 revenue outlook is similar to your fiscal '13 revenue growth outlook.

Yes, I think that's well said. I mean, we are beginning to lay some investments in so that we can begin to get some growth. We're seeing some encouraging early signs here around pipeline and contract signings, as I think I noted in our cloud business, in our cyber business, in our applications business. So we're beginning to make some investments. We feel pretty comfortable with that, so we're putting more salespeople in place. We're putting some of the sales tools and processes in place. We're beginning to look at some geographies that we think there's some good growth opportunities, most notably Asia and parts of Latin America and even the United States, where we were really under-penetrated in terms of sales capability. So what we're hoping here, Rod, is as we continue to drive this cost takeout and we get to that $1.1 billion, $1.2 billion range, then we're going to begin to switch gears and move much more towards how can we drive growth, particularly in the commercial side of our business. But then we'll have operating leverage built into this model. So every incremental dollar of revenue that comes in, we can drive more profitability. That's the thought as we get into the second half of 2014 and as we exit fiscal 2014.

Next question is from David Grossman with Stifel, Nicolaus. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: Actually, Mike, can you just maybe expand on your last comment? And specifically, can you tell us a little bit about what you've done perhaps to enhance that go-to-market strategy in the sales and marketing organization?

Yes, I can. Thank you, it's a good question. As I've said many times, you can't save your way to prosperity. I mean, we -- by virtue of the progress we're making on cost takeouts, I mean, one could logically conclude there was some room for efficiency in CSC, and we're capturing that efficiency. But that's only part of the story. That's sort of the get fit part of this. The next part of this is you've got to begin to win more in the marketplace, which means you need to begin to adjust your go-to-market model. So we are adjusting that. How are we adjusting that? We've dedicated an organization to the Global 1,000 clients. It is our industry organization. And this is important because these industries do require slightly different solutions or certainly solutions that are tailored to that specific industry. Global health care is a great example. We just put Andrea and is the head of that global business. We want to take what we've done in NHS and now leverage that across other geographies, most notably parts of Western Europe, Australia and parts of Asia. So that's a good example of where we now want to add more sales people but they get added by this industry focus, which is dedicated to the Global 1,000. And our regions are focused on a very large number of regional accounts and local accounts. And again, there, we're also adding sales capability. And now that we've got our offerings organization lined up around applications and around consulting and around infrastructure offerings and around our new cyber and cloud offerings, we also are adding sales capability to those offerings. So we're covering the market differently; meaning by industry and then regional and local, and then we're also beefing up the…

Yes. But first, I'd like to get them in for me. So just to be quite candid, yes, there is a whole set of metrics, pipeline velocities. What's happening to our application pipeline? Is it growing? What is our average cost? What is -- what are we doing with cloud? I am sharing some of these things around cloud and cyber because we are getting some metrics there. But how are we doing against our competitors? Where are we winning? Where are we losing? Why are we losing? Why are we winning? So yes, we are developing a whole new set of metrics that you would expect out of any sales organization. And when those become a little clearer, when I have some confidence in them, then yes, I think we should put some metrics out there that you guys can evaluate the progress that we're making. David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: All right. We'll look forward to that. And then just quickly, Paul, for you, just 2 quick ones. Number one, do you still expect to get the bulk of the share repurchase done by the end of your fiscal year? And then just on the tax rate, I mean, I think you hinted that you're doing a lot of things to try to bring that down. Is 28% a good number to use for next year or should we expect that to tick up a little bit?

Yes, I would say for -- let me start with the latter one. On the tax side, I would just really use a 32 -- around a 32 type of percent. That's what we gave you as a guidance before. We're doing a whole lot of things this year that relates to the -- to try to offset some of the tax liabilities associated with the sale of assets. And we have, again, more work to do that's really going to be benefiting us this year. We'll continue our drive -- continue to drive for lower tax -- effective tax rate. And the... David M. Grossman - Stifel, Nicolaus & Co., Inc., Research Division: The second one was the share repurchase.

The share repurchase, we're going to have to -- we have indicated a focus on trying to return as much of that cash this year, and we're going to...

Yes, I mean, we've put up a program in place, as you know, to purchase shares through this blackout period. So we -- that was taken out of our hands. You know how that works, and we all have an opportunity to reevaluate that, I think, towards the end -- in February, once we've got through this earnings announcement. And we'll take a look at that and decide how we want to proceed with that. So we have -- we've put a program placed towards the end of December, and that's been pretty much on autopilot now for the last 7 weeks, 7 or 8 weeks.

The next question comes from Edward Caso with Wells Fargo.

Thanks for the disclosure on Slide 19 restating the different groups. First question is, does that reflect the Paxus and will the numbers change meaningfully when taxes comes out?

Yes, Paxus has not come out. It will come out in the fourth quarter, and we'll provide you with the appropriate information at that point.

Can you offer -- can you break down for the Q1 and Q2 EPS numbers on a restated basis?

EPS was $0.16 from continuing operations in the first quarter and $0.75 in the second quarter.

And will they change meaningfully with Paxus?

Paxus was much more a revenue -- and overall, I want to say, it was about $320 million or so. Again, we'll have the exact number when we report the fourth quarter. It's much more revenue, very low margin business. So it will not significantly change the numbers that we gave you.

We'll now go to Arvind Ramnani with BNP Paribas.

I just had a couple of questions. You certainly have made some pretty good progress on your focus accounts. Can you provide some specific examples of details of how the restructuring, how these accounts are really working? And also, are there any accounts where the discussions are not going as well as you hope they would be going?

Yes, there are certainly some places where the conversations are not going as well as we'd like them to go. No question about that, none. In terms of examples of some of the things that we have done, a lot of this is just discipline, really understanding what the costs are. In some cases, we've been able to move some of the workload that we were doing onshore. We've been able to move that offshore to some of our lower-cost centers, a good example of that. Other times, we've gone through and we've taken a look at some of the scope changes or other work that we've done, and we have gone back and we have billed for that. That's what I call revenue leakage. So we found revenue leakage. We have found discipline. We have found cost issues. But by and large, I really have to net it out. It's just good old-fashioned management attention, management attention, knowing where you are every day, every week, what progress do you need to make, what's the next list of things that you need to get done. That's what we're doing with much greater vigor and discipline, and that has been the bulk of the improvement that we have seen so far this year.

Great, great. So can you provide some color on -- I mean, clearly, you made good progress. But are you getting to a stage where sort of the easy stuff of the -- and none of it is really easy, but the relatively easier stuff of contract management has been taken care of? And now are you getting to stage where it's going to be a little bit more difficult? Or you feel like the next few quarters also should be relatively manageable and you know exactly how to continue taking the cost savings out?

I look at it as a continuous improvement process. So I think this has yielded to discipline probably a little better than I would have anticipated, in all candor, so I think we've gotten a little bit better results as a result of that discipline. But as I look out next year, I mean, for example, we have price takedowns in many of these contracts. That requires us to get more efficient. It requires us to think about where do we perform some of these tasks. How do we perform them? How do we manage our enterprise management systems? How do we monitor these systems? How do we provide a quicker response and quicker fixes? And more importantly, how do we expand our footprint in many of these accounts? So how do we get add-on business as opposed to just living within the contract that has been signed? So I think it will become more difficult as we go forward, but it's a continuous improvement process, and it's the way you run this business long term. So this becomes less of a program and more of, hey, this is the way you run the business.

Okay. Operator, I think we have time maybe for one more.

That question will come from Tien-Tsin Huang with JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Just on the book to bill. Obviously, in the commercial side, it was actually very good, NPS lagging for reasons you stated. So I guess my question is what kind of minimum book to bill are you looking for in NPS before it starts to concern you on the revenue production? Just trying to think about how we can map the metrics to what you're seeing in NPS?

Yes, I mean, I'd like to see a book to bill of 1. I think realistically, from a revenue standpoint, as we've said, we've factored in sort of a mid-teens kind of -- I'm sorry, mid-single digit 4%, 5% decline in revenue. And I think we can probably get that with sort of a 0.8 to 0.9 kind of a book to bill. But again, I think for a healthy outlook and, certainly, if you wanted to get to a point where you were growing the NPS business, you're going to need to get to roughly a book to bill of 1. And then underneath that, I'd like to see a remix. One of the positives that's occurring here with the federal government is they're very much looking for new ideas as to how to improve efficiencies. So things like cloud, for example, and some of the work we're doing around cyber and delivering storages to service, these are all very important opportunities for CSC to take and change the way IT services are delivered within NPS. So I don't look at this as, gee, the sky is falling. I view this as a sea change. There's no question that the federal government is going to be run differently than it has for some period of time, 3 to 4 [ph]. But that's also an opportunity. It's an opportunity for CSC to deliver new services that helps the federal government become more efficient. But no matter how you slice it, you're going to need to approach a 1.0 book to bill. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay. Because it seems, Mike, maybe you could tolerate a little bit of time here, sub -- below one...

We can. I mean, we have -- I want to see what happens with some of these submitted proposals. I mean, over the next quarter or 2, if we are awarded some of these proposals that we've submitted and if we win some of the protests that have been launched against us, all of a sudden, that book to bill begins to look a little healthier than it candidly does right now. So we're not panicked about it but we are watching it. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay. So it sounds like we'll know in the next couple of quarters. That's good.

I think -- well said. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: And then on the cost takeout, it sounds like it's more than just happening faster, it's actually a little bit better than what you've thought. Is that fair? And I'm curious, this span of layers, is that more of on the NPS side? Just trying to again map the expenses to what you see.

No, no. It's across the board. I mean, we were going from roughly 13 layers of management to 8 layers of management. There's a fair amount of savings associated with that. But by and large, the biggest savings is going from a holding company mentality to an operating company mentality, and we have found a fair amount of duplication as a result of that holding company orientation. And that holding company orientation leads to less discipline than I'd like to see around things like contract management and so on and so forth, duplication, particularly in some of the staff organizations, finance, HR, et cetera, et cetera. So that duplication, we have been able to take out, and that's been the big driver of the efficiency is going from a holding company to -- and more of an operating company mentality and orientation. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: No, it's great how quickly you guys have done that. Last one and I'll jump off, and you can end the call. Just the cloud and big data, it sounds like, obviously, still excited about that. Any way to size that or update us on what percent of revenues that represents?

No, I think nothing's changed. When had sort of -- when we got together in September, we had looked at those as $1 billion businesses over the next several years. And I don't see anything that would alter that view over the next several years. Okay, guys, well, thank you very much. Operator, thank you. And again, thank you for dialing in and your interest in CSC today.

Thank you very much. That does conclude our conference for today. I'd like to thank everyone for your participation, and you may now disconnect.