Stuart Davis - Sr. VP, IR Ken C. Dahlberg - Chairman of the Board and CEO Mark W. Sopp - EVP and CFO

James F. Kissane - Bear Stearns & Co. Inc. Jason A. Kupferberg - UBS Securities, LLC Laura Lederman - William Blair & Company, LLC William R. Loomis - Stifel, Nicolaus & Company, Inc. Ferat Ongoren - Citigroup Global Markets, Inc Joseph B. Nadol III - JP Morgan Cai von Rumohr - Cowen &Company Greg Wowkun - Banc of America Securities Julie E. Santoriello - Morgan Stanley & Co. Inc. James E. Friedman - Susquehanna Financial Group, LLLP

Good afternoon. My name is Vicky Tria and I will be your conference operator today. At this time, I would like to welcome everyone to the SAIC Second Quarter Fiscal Year 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session for our analysts' group. At this time, I would like to introduce our speaker for today's call, Stuart Davis, Senior Vice President for Investor Relations. Thank you. Mr. Davis, you may begin your conference.

Thank you Vicky Tria and welcome everyone to our second quarter FY08 earnings conference call. Here today are Ken Dahlberg, our Chairman and CEO; and Mark Sopp, our CFO. During this conference call, we will make forward-looking statements to assist you in understanding the company and our expectations about its future financial and operating performance. These statements are subject to a number of risks that could cause actual events to differ materially, and I refer you to our SEC filings for a discussion of these risks. In addition, the statements made during this earnings call represent our views as of today. We anticipate that subsequent events and developments will cause our views to change. We may elect to update the forward-looking statements at some point in the future, but we specifically disclaim any obligation to do so. Ken?

Thank you, Stuart. Good afternoon everyone. The second quarter was a strong one for our company. Revenue, operating margin, earnings per share, and cash flow were well ahead of plan. And we are on track to meet our FY 2008 guidance laid out last December. We are successfully navigating the course that we charted on the IPO. Accelerating organic growth, improving operating margin, and deploying capital on accretive acquisitions and share repurchases when it makes good financial sense. Now I'll address the major developments in our market and our company. On our last conference call, we indicated that the government would likely start the new fiscal year with the continuing resolution in place. And nothing has happened since to change our view. Iraq is even more contentious and we continue to create discord and... and we will continue to create discord and unpredictability. In mid-September testimony of General Petraeus and the administration as well as other independent reports will reenergize the debate and impact the funding cycle. We again think the most likely scenario is an Omnibus continuing resolution covering most if not all the appropriation bills. Because government fiscal year 2007 spending is fairly robust, a two to three months continuing resolution should not present much of a problem to our business. The key issue will continue to be the timing and level of the wartime supplemental funding. We see it is likely that we will begin the government fiscal year with supplemental funding in place, but for only part of the year, perhaps as part of the continuing resolution. As such, we may experience some tightening of funds, as DoD managers hold back on core programs similar to what we have seen over the last several years. The particulars of the appropriation strategy will become a lot clearer…

Thank you, Ken. On the financial front, we indeed had a strong second quarter with significant improvements in internal revenue growth and in operating margins. Our team is executing our fiscal '08 business plan with good discipline and success. That dedicated efforts by our employees across the company, a partial list of accomplishments this quarter includes winning all key re-competes and several important new contracts, increasing our internal research and development spend for the second consecutive quarter, focusing on longer term technology differentiators in advanced weapons, homeland security, and information technology applications, delivering results from our margin improvement initiative including execution of cost control, strong program performance, and improved indirect rate management leading to higher profitability on a number of costs plus contracts from the recovery of prior year cost overruns, something the company hasn't done very effectively in the past. Strong execution of strategic transactions including excellent progress towards resolving our Greek contract, favorable developments on the Telecom South Africa legal dispute, the successful AMSEC reorganization transaction and preparing for the close of the Benham acquisition, which occurred just after the quarter end. And finally achieving a record low days sales outstanding metric of 64 days at the end of the quarter. I'll start with more detail on the quarter's results and then I'll talk about our outlook for the rest of the year at the end. Before I do that, as our earnings release describes, our second quarter numbers exclude the results from the portion of AMSEC that went to Northrop Grummanin the reorganization that we announced in June. That portion is accounted for in discontinued operations and prior period results have been restated accordingly in our earnings release and in our second quarter 10-Q, which will be filed either today or tomorrow. In terms of the top…

Thank you, Mark. Finally, before turning to your questions, I want to address the company's major misstep in the quarter, a security failure in the handling of the customer data, which placed the personal information of uniformed service members, family members, and others at risk of potential compromise. You will note it appears that no personal information was actually compromised. I view this incident as completely unacceptable and a clear failure to live up to the high level performance that our customers have expected to and demand from us. However, I am proud of the way the company stepped up to take the responsibility for the error and to mitigate the damages for the service members and their families. We've taken appropriate personnel actions and I want to make sure that it is clear to all of our customers, our shareholders, and our employees that non-compliance with company policies of this behavior will not be tolerated at SAIC. With that, Vicky Tria, we are ready to take questions. Question And Answer

[Operator Instructions]. Your first question comes from James Kissane with Bear Stearns. James F. Kissane - Bear Stearns & Co. Inc. : Thanks. Mark, it seems like there were few one-time items in the quarter both positive and negative. Can you just kind of rattle those off and maybe give us the net impact in the quarter?

Sure, Jim. The reported operated margin was 7.8%. The biggest pickup if you will, which I wouldn't necessary call a non-recurring item, is the pickup from cost overruns by better managing indirect rates. That was about $12 million. We also of course offset that by what Ken was just talking about the security incident that was $8 million going the other way. We did have significant shipment activity in our cargo inspection deliveries, and we also have a bullish view on that going forward. But if you take a look at those things, you could get to a normalized operating income of about 7.4% versus the 7.8% we reported. James F. Kissane - Bear Stearns & Co. Inc. : Thanks. And I thought you mentioned something about the Greek contract as well.

The Greek contract, we recognized revenues but no profit. That actually diluted margins by a little bit... about $20 million of revenue again with an equal number of cost of revenues. James F. Kissane - Bear Stearns & Co. Inc. : Okay. And then the revenue, the net revenue impact on the AMSEC restructure in the quarter. Because it looked like your revenues are very strong, when you take into account that part of AMSEC was gone.

Yes. It's at $50 million, $60 million per quarter from the AMSEC piece that we no longer have. James F. Kissane - Bear Stearns & Co. Inc. : Okay. And Ken, can you give us some more color on the rationale for the creation of the new Chief Operating Officer position?

Well, the rationale, we have been out looking for a Chief Operating Officer for the last year and a half. Jim, a company of this size I think we really need someone that's focused on a daily basis on driving efficiencies, improving margins, improving top line growth. And the Board and I have been on an active search for the last year and half as I've mentioned to find one. We feel really comfortable with Larry... we've given him ever increasing responsibility in the years that he's been with the company and when we step back a few months ago, we said that this is the guy for the job. And so I'm pleased that he is joining us in this position and look forward to him really working in a full time basis and driving overhead costs down and improving margin and building top line growth. James F. Kissane - Bear Stearns & Co. Inc. : So the progress towards your long-term margin targets kind of tracking your expectations?

Yes. James F. Kissane - Bear Stearns & Co. Inc. : Great, thank you.

Your next question comes from Jason Kupferberg with UBS.

Good afternoon guys. I am just looking at the second half of the year. First Mark, just wanted to clarify the comment you made near the end around the 20 basis points to 30 basis points of year-over-year improvement. Was that for fiscal second half '08 versus fiscal second half '07 or full fiscal year '08 versus fiscal year '07?

It's full fiscal '08 versus full fiscal '07.

Okay. Okay. That's helpful. And so if we look at the back half of the year, I mean the upper end of your EPS guidance range, I guess would imply a quarterly EPS run rate of about $0.23 a quarter, which is a little lower than what you just printed and based on the items you just went through, I guess there is a little bit of one-time-ish kind of stuff. You also had a lower tax rate. Is it a combination of some of that non-recurring stuff that makes the EPS run rate maybe tick down a little bit or is there just some conservatism baked in there as well?

You're on the right track, Jason. We expect the tax rate to creep up again in Q3 and Q4. We expect the share count to creep up as it normally would assuming no repurchases, which is our constant assumption as we look forward. Benham will have a drag on earnings as we bring that in, and we also don't have the non-recurring items, if you will, in the quarter but also... we are hedging a little bit on funding risk in the fourth quarter with the uncertainties that exist with the President's [ph] budget and the supplemental in particular.

Okay. That's understandable. And just on the employee retention front, kind of a two-part question. First, if you can give us a voluntary turnover number for the quarter and also just talk bigger picture around employee retention strategies. Obviously, all the lockups will expire as of the one year anniversary of the IPO next month. Do you guys have any concerns there or are you making any adjustments to employee retention approach to try to make sure that that doesn't become an issue going forward?

Well, we always keep our eyes focused on retaining employees. And as we've mentioned on prior calls, we really have focused a lot on this. We established a task force almost nine months ago that came up with some good ideas, which we've implemented. It's basically common sense touching the folks more, interacting with them, communicating with them. We've recently reenergized the redeployment of people as they come off of existing programs. And that has been very, very successful. We've been able to redeploy literally hundreds of folks. Our voluntary turnover rate is actually doing quite well. It's in the low 14%, which is not bad for a company in our space, especially in the hot markets in Washington. We just recently completed a Gallup survey, which is again focused on what are the concerns and issues of our employees and we aim to develop action plans around those results and again heavy emphasis on retaining our employees.

And just one last one, are lower DSOs sustainable, Mark, in your view?

If possible, Jason. We had a couple of good things and some of that I would say is a little bit of catch-up of some lingering issues that the team really focused on and cleaned up at the end of the second quarter. So we expect to be sub-70, but I wouldn't necessarily count on 64. So I think a safe range to assume for us is 65 to 69 thereabouts.

Okay. Thanks, guys.

The next question comes from the Laura Lederman. Laura Lederman - William Blair & Company, LLC: Yes. Thank you. Nice to see such a solid quarter. Can you talk a little bit more about when you said the supplemental passes on time which you consider on time and also saw it kind of CR and civil [ph] that will be in full for the full year and any timing of the CR and the DoD budget, so just a little bit more granular detail on your expectations for timing?

Laura, you really broke up a bit. I think you were asking the timing of the supplemental? Laura Lederman - William Blair & Company, LLC: Yes. When you say on time what do you mean and also...

We mean in the October timeframe that the supplemental would be passed. And my comments were I think with the upcoming administration change, it's probably unlikely that it would be a supplemental for the entire fiscal year. Your bet is as good as ours. We think it might last a few months until Iraq debate gets resolved and so on. As far as I thought you were asking about the continuing resolution? Laura Lederman - William Blair & Company, LLC: Yes, on the civil side and also any expectations for any at all of the DoD?

Well I think we said we expect the CR on all of the appropriation bills. It's just a jump ball right now in Congress and... Laura Lederman - William Blair & Company, LLC: For the full year? In other words, what's your current expectation on how long those will last?

I don't know. You want to start a poll. Laura Lederman - William Blair & Company, LLC: Yes we should... we should start a little betting pond now.

I wouldn't venture to guess. Laura Lederman - William Blair & Company, LLC: Okay. And a little small question which is the churn, you mentioned was 14% on voluntary. What about the involuntary, what's that been running at? So you can get a total churn number.

Yes. The involuntary is like 4% to 5%. Laura Lederman - William Blair & Company, LLC: Okay. One final question, which is if you look at the breach that happened, any feedback on that from the government, any commentary from the user organization. Just pitch us any thoughts on that... I thought you handled it beautifully by putting out your release and everything you did. A lot of companies would have just hidden it, but just any feedback you have gotten on it?

Well, certainly the customer was disappointed as we were. Having said that, they appreciated how quickly we reacted and stepped up to it. And one and all the insurances that we were doing all that we could to protect any and all sensitive data on all the contracts, and that's why we are doing a very, very thoughtful review of all our contracts involving sensitive data. So, far we... as we said, we don't see any ID test as a result of this particular potential effect but you don't know. So we're cautiously optimistic, but again it was a failure on company policy and one that I regret that the employees did not hear to it. I take full responsibility for it. Laura Lederman - William Blair & Company, LLC: Thank you.

Your next question comes from Bill Loomis with Stifel, Nicolaus. William R. Loomis - Stifel, Nicolaus & Company, Inc. : Hi, thank you, good quarter. Mark, when you talked about the $12 million from the lower end direct cost or cost recoveries, and then separately the improved fees, how much of that are we going to see again in the third quarter, in the fourth quarter? Or were those... or should we think of those as one time in nature or is that recurring that they're going to stay in the operating margin as a positive impact?

That's a tough question to answer. We still have some work to do on recovering some of the overruns from the prior year. We could have a couple more million dollars leak in over the rest of the year, and profitability will also depend significantly on how we manage rates for the rest of the year. And if we have underruns... we always provide for reserves on those for cost reimbursable underruns and we pay back the government as we've always done and that adversely affects profitability. On the other hand, if we have overruns then we have to consider if it's recoverable and go pursue it as we did in the second quarter. So it's really hard to predict that. Second part of your question again, Bill, was? William R. Loomis - Stifel, Nicolaus & Company, Inc. : The improved fees... I'm not sure if there is award fees that your are mentioning or some other type of fees on programs?

They weren't that significant in the quarter. We actually had some ups and some downs, but by and large we had net adjustments up of a couple $2 million-$3 million in the quarter on all of our contracts collectively. We do get fees on all of them and that was the effect, so it wasn't huge. Sometimes we have a couple of million go the other way and hard to predict, but we feel confident that we are executing better program to program as a result of the training and the improved disciplines we put in place.

I think Bill we are just starting to see the benefits of our rollout of our margin improvement initiatives and these will entail it [ph] within our rates. And when we do have rate creep, we are going to go back to the government on cost contracts to see if we can recover, which heretofore the company never did. So I applaud Mark and his team for doing that. William R. Loomis - Stifel, Nicolaus & Company, Inc. : And then a final question on the single-award IDIQs taking out the Kenpo award and looking at the others that you've won this year. I know you don't include them in backlog. But is there anyway you can kind of throw a number out there or if you did include it in backlog and had a reasonable value, not necessarily the ceiling value but a reasonable value, what those might total?

Bill, we don't want to disclose a number that we don't put as part of our formal disclosure. So we are not going to do a pro forma book-to-bill but there are hundreds of million of revenues besides POLCHEM on various contracts that we expect to earn that we've won this year. And again, it just makes the existing book-to-bill and bookings numbers not as indicative on future revenue potential than it used to be given the waiting of business going to the IDIQ and for us particularly the single-award IDIQ area. William R. Loomis - Stifel, Nicolaus & Company, Inc. : Okay.

Help me, isn't our revenue almost 50% IDIQ there?

Our revenue from IDIQ has exceeded 50% --

50%. William R. Loomis - Stifel, Nicolaus & Company, Inc. : Very significant.

Very significant, right. William R. Loomis - Stifel, Nicolaus & Company, Inc. : Okay, thank you.

Your next question comes from Ferat Ongoren.

Hi, good afternoon. Mark, a quick one for you to begin with. The guidance do we still assume 420 million shares?

I'm sorry, I couldn't understand it.

We couldn't hear you.

The guidance does it still assume 420 million shares?

I am sorry. I didn't...

We couldn't hear you.

The guidance does it still assume 420 million shares?

Well, you might have noticed, we didn't put guidance number in the earnings release and the reason for that is, when we did the IPO with the option activity in changing conditions, we thought it was advisable to put that out there to help investors understand. Now we've reported a few quarters, we don't think that's necessary going forward. So we started off with the assumption of 430 and within that an assumption that we would not make repurchases. And we have since made about 9 million of repurchases and so looking at our going forward scenario, again not assuming further repurchases from here, 420 is more indicative of where we are... and again absent some significant activity going forward, that's where we tend to stay and we'll creep up a little bit with our equity comp programs.

And you will see that in the Q as we release it.

Okay. So I mean if I look at the share count I mean that's giving you know $0.02 to $0.03 if you remain there on where we are or maybe slightly higher and this quarter was pretty good. I mean why won't you at least increase the bottom of the guidance somewhat higher?

I mentioned with an earlier call I think from Jim or Jason that there are some profitability headwinds in the second half of the year, share count, tax rate, risk in funding Benham, etcetera, so we certainly consider that and...

And we are being cautious with the supplemental in the CR uncertainties.

And is it fair to assume that you're primarily confident about Q4? Not so much about Q3 given --

It would be the one that would be most affected by the funding concerns, certainly.

And if you kind of look at Q3 historically in the past three years, Q3 was 4% better than Q2 sequentially, I mean this year we have some gives and takes with these acquisitions and AMSEC. Should we at least assume kind of a flattish third quarter, looking at the data you're looking at now?

You are breaking up but I think it's safe to say our momentum is good for the third quarter, the funding environment is good, the contract wins are good, and the main concern of course even though things are going well for us is the funding environment tied to the fourth quarter.

Okay. And Ken, could you comment on the pricing environment?

Our win rates have been really, really high as pricing sensitivity, I think continues in those things that are more commodities, the kind of business that we are in, which is more the high end noble work continues to... we continue to do discriminate ourselves with some of our technology offerings and capability. So, I am not saying it's easy, but that's why we are continuing to drive overhead expenses down to keep our wrap rates competitive. But so far we are doing well.

Okay, thank you very much. Good numbers.

Your next question comes from Joe Nadol with JP Morgan.

Thanks. Good afternoon. First question is I just want to clarify one more thing on the sales guidance, the organic growth, 5% to 6%. Does that include a continuing resolution or does that include a budget per se?

It assumes that we will have a supplemental in place or at least not adversarial funding conditions in the fourth quarter, but they also assume that we will be in the CR for the rest of our fiscal year essentially.

Okay. Okay. And then on the margin, you gave a normalized that was below... it just... it seems like the better cost containment that you showed in the... or the better recovery I guess, lack of non-recovery showed in the quarter. That should be the kind of thing that's sustainable. That's what's you have been working towards. So the first stage, I just want to see a couple of quarters of that before you get all the more enthusiastic about bumping up the margin guidance?

We are enthusiastic about our progress, I'll say that, but when it comes down to guidance, we do tend to be cautious. I would say that. And again, while there is lead upside to the 7.4 I said, if things go well for us, there is the effective Benham, which will bring us down a little bit and the other things we mentioned with respect to funding, but --

We think we are at right though--

On the book-to-bill and your IDIQ point that you are not getting much... you are getting less and less in the way of future... of bookings for future revenues. You still get the task orders in the quarter, so that would contribute to the bookings in your book-to-bill. So at what point do you expect that to get back above one?

Well, you are absolutely right that over the long haul, we need to be at least at one or above to grow the business, and it's hard to predict when that will occur. The number of IDIQs are choppy and they can really move the needle a lot in the book-to-bill ratio. So we don't predict when but we just know we have a healthy pipeline and good process to continue hopefully our growth going forward and accelerate it further.

Okay. We have experienced by the way quite a few wins that had then been protested, which caused us not to get the revenue that we predicted as soon for example POLCHEM and there is numerous others that had now converted. So a lot it has also been just a delay because of the protests that have occurred.

Okay. And put a final one on that note, Ken. Could you maybe walk through for the back half of the fiscal year what you see as maybe the top three or four targets from a bookings standpoint that are competitive?

Well, we just have a lot in our pipeline so there is not one or two that are of anymore consequence than the other. I'm just pleased that we're really stepping up now in bidding $100 million or greater opportunities. We could probably give you more color on that at our Analyst Day in October.

Okay. Okay, we'll look for that. Thank you.

Your next question comes from Cai von Rumohr with Cowen & Company. Cai von Rumohr - Cowen &Company: Yes, good quarter guys.

Thank you Cai. Cai von Rumohr - Cowen &Company: Direct labor, what percent of it... what percent was it of the revenue mix in the second quarter and what are we looking for in the second half?

It was about 60% in the second quarter, Cai. In the second half, we really have no reason to believe that we are materially different. Cai von Rumohr - Cowen &Company: 60%. So that's really lower. I thought we were looking for about 65%, is that not correct or is that

We -- Cai von Rumohr - Cowen &Company: That's essentially where it has been running 65. I thought you were looking for 63, so that's essentially lower than expected.

No. We've won a lot of systems integration contracts that involve lots of materials and subs and those are ramped up well. The cargo inspection is pretty much all materials and we love that. And so that's notching us up as well, so it's not... in our view adversely affecting us. We certainly aim to internalize as much as we can and our labor numbers have been improving and with headcount additions.

Our collaboration initiative is just starting to take off where we would do more internal work as opposed to subbing to others Cai. And I think the number is actually like 61%. So we are moving it up, we are not as dramatically as you had forecasted. Cai von Rumohr - Cowen &Company: Okay. Now it does look like it notch up very slightly. And then SG&A was up $10 million from the first quarter, what drove it up and should it be relatively flat in the second half? Because I know you had some kind of weird out a little the movement that were a little unexpected in the second half of last year?

The... it was most of that, half of that increase was B&P, the other half was mostly some of our initiatives like Del Tech, I would say, and there were no other surprises. IRAD was essentially flat, it was up a little bit from the first quarter. And in terms of those trends I think that B&P and IRAD will stay near the same level as a second quarter and G&A will probably flatten, but I don't want to be too precise on that. Some of those parts are hard to predict. Cai von Rumohr - Cowen &Company: And so essentially we are talking 139 plus or minus a little bit in the second half, I mean in the third and fourth quarter essentially that's what it seems to be saying. Is that what... am I reading that correctly? You know where it was in the second quarter? Maybe up a little bit but nothing.

Yes, you should expect it to go up a little but nothing dramatic. Cai von Rumohr - Cowen &Company: Okay. And then, if I look at your contract I mean, you just had this enormous surge in August I mean we had Lion, and ICE, [indiscernible], CAS, EPA, NASA, Unite Class MRO, I mean really just looking at the numbers, in front of the numbers, some of the numbers associated with them are the mostly IDIQs, they were really fairly substantial. Have you had any tasking on any of those?

Well the answer is yes. We have had some tasking. Most of the time it does take a little while to get the engine going Cai but you are absolutely right, we believe we are well positioned with winning those large especially single-IDIQ awards. Now the momentum has to get moving for the company. Cai von Rumohr - Cowen &Company: I recall on the last quarter, I mean you'd mentioned POLCHEM at that point, you won it, but it was still under protest, and it seems like it was resolved relatively quickly in contrast to kind of F3 and all the other large ones that people had. So, what should the run rate on POLCHEM? I believe you said at one point it was 10th July $200 million annualized run rate about a year from now. What kind of annualized run rate could it be at in the fourth quarter?

I think we said it is about a $1.5 billion estimate over a 10-year period. So, you do the math, it's more like about a $150 million or so run rate for ramps up. Cai von Rumohr - Cowen &Company: Okay. So, when should it hit that rate? I mean is it at a fairly steep graph? Because you have presumably started in this quarter--

Well the next couple of quarters we are estimating 10 to 11 million a quarter and it will start picking up in our next fiscal year. So probably by the end of our FY09 we will be at a run rate of 150 or... yes that okay. After... I am sorry, at the end of FY09 we are going to be at a run rate of $150 million. Cai von Rumohr - Cowen &Company: Got it and the last one, you mentioned that your guidance did not assume any more share buyback but in fact, you did buy back shares, you said that, that's something that you do plan to do. How should we think about what it's going to actually be like, if you do another acquisition you may not buy as much but I mean you have done it so consistently I would have to assume you are going to continue to do it. Is that an unfair assumption?

I don't think we said we expect to continue Cai, we meet every quarter with... well amongst the management team and the Board and we look at the entire landscape and make decisions then and carry those decisions going forward. And quite honestly we had not developed a strategy for the rest of the year as we have some meetings ahead. Cai von Rumohr - Cowen &Company: Fine. But I mean if I just look at your cash flow was better than expected, you buy... you have been buying at an average of 4 to 5 million shares everyday in the fourth straight quarter in a row when you bought at that pace. So I assume unless you have more acquisitions given you have more cash, it's not unreasonable to think you might actually buy it, something like that.

Well it's not unreasonable, also depends on stock price. Cai von Rumohr - Cowen &Company: Got it, okay, thank you very much.

Your next question is comes from Greg Wowkun with Banc of America Securities.

Good afternoon. In fiscal 1Q '08 you saw a spike in attrition rates in your commercial businesses that you partially serviced from India. How are your attrition rates in India in fiscal Q2 and how much success have you had in rehiring staff in that region?

We don't have the answer to that. It was higher, it's been normalized now. We are doing okay but we did have a blip that our management jumped on and that frankly was part of the reason why we took such a significant write-down on our Scottish Power contract because we were going to transition quite a bit of work to India and we didn't have enough workers. That has been rectified.

As a follow-up, are there any plans to use these employees to do some back office work potentially for SAIC? And is that part of your plan to increase margins by 20 basis points or 30 basis points annually?

We are seriously looking at that. In fact we are doing some of our support work in India. Today, it's not tremendously significant but we are leveraging that capability to some extent, but it is not the key component to our 20 basis point to 30 basis point margin improvement program. You could say it's part of our overall initiative to improve profits where we are looking at a number of places but it's not assumed as a key component in that specific goal.

Great, thank you.

Your next question comes from Julie Santoriello with Morgan Stanley. Julie E. Santoriello - Morgan Stanley & Co. Inc. : Hi, thanks. Good afternoon. Just a follow-up question on the supplemental and issues around that budget approval process and what is in your guidance. I understand the importance of timing and something being signed in October, what about just the importance of the dollars that actually are signed. I don't know how the debate might unfold but is it possible that there is a smaller amount of dollars over a smaller amount of time that could be either positive or negative for you?

Yes. Julie E. Santoriello - Morgan Stanley & Co. Inc. : Is there a range you could give us or in terms of anything that's been stated publicly that we can look towards?

I really couldn't Julie but again remember on... for us in the supplemental, the funding of the war while the big primes it's about recapitalization and the like in MRAP. For us it's down range... intelligence, perhaps a little bit more of our security products in theater. So it's not a huge number for us but one that we still count on. I am sorry. I can't give you anymore color than that. Julie E. Santoriello - Morgan Stanley & Co. Inc. : Okay. And just from a... kind of a big picture standpoint, lots going on in the political environment and lots of talk about strategy ahead with the presidential elections? If we do see a true pullout some time next year, how do you see that impacting SAIC? Are they positive in terms of more funds being unlocked to go to IT initiatives or are they negative in terms of certain programs perhaps getting cancelled or --?

You probably won't believe this, but it's probably the opposite. I worry most if more troops pulled out, there may be more contractors required in theater to do some of the intel work, so I don't see it is a big, big impact on our company. Julie E. Santoriello - Morgan Stanley & Co. Inc. : Okay, thank you.

You're welcome.

[Operator Instructions]. The next question comes from James Friedman with Susquehanna.

Hi, thank you. I apologize for the background noise but I just had one question with regard to VACIS cargo inspection. Could you give us some estimate of what that may constitute now in terms of a percentage of revenue? Is it basis points? Is it hundreds of basis points? Because I was kind of surprised that although it's an exciting initiative, it could have such a significant impact on the gross margins Mark as you had described?

Revenue wise, it represents hundreds or millions of dollars of our top line but it is a highly profitable part of our business. I'm not going to tell you the details but it does have an impact on the rest of the business that's running at 8% to 12%. So when we have a lot of sales in that area, we do get a nice pop in our margins.

Operator, do we have another question.

We have no further questions in the queue.

Okay. I appreciate you all taking the time to join the call. Before signing off, I did want to mention... Ken did allude to it that we are hosting our first institutional investor conference coming up at McClain Facility this October 8 to 9. Space is limited for this event but we do still have a few slots available. If you are interested in attending, please shoot me an e-mail at stuart. davis@saic.com. And I want to again thank you all for participating for today's call.

This concludes today's presentation. You may disconnect at this time.