Welcome to the SAIC second quarter fiscal 2009 earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Stuart Davis, Senior Vice President of Investor and Employee Owner Relations.

Here today are Kenneth Dahlberg, our Chairman and CEO and Mark Sopp, our CFO. Lawrence Prior, our COO, is on a well-deserved vacation and will be back with us for the December call. During this 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 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. With that I’ll turn the call over to Ken.

Our efforts to drive top-line organic growth and improved margins and cash flow resulted in another strong quarter of execution in our core business. Internal revenue growth for the quarter was, again, above our long-term financial goals. Contract performance was strong and cash collections increased handsomely. We also enjoyed another strong quarter on the business development front. Now halfway through the year, we are increasingly confident of achieving our financial goals for the fiscal year 2009 and we have begun to build a very solid base for fiscal year 2010. With respect to the government funding environment, the President signed a supplemental appropriations bill which fully funds the war-time expense for the current fiscal year and also provided bridge funding into the spring of 2009. Although the June passage was somewhat delayed, we say little, if any, evidence of our customer’s holding back funding. As evidenced by our strong revenue and bookings in the quarter, there are some indications that Congress will try to pass the government fiscal year 2009 Defense Appropriation Bill in September as a stand-along bill. Even if the defense bill is not passed, given the progress to date, it is likely that any continuing resolution would reference not last year’s levels, but the latest versions of the defense bills as marked in the House and Senate so that important programs can be funded immediately. The other appropriation bill that has a shot at passing is the Military Construction and VA Bill. For the rest of government, we will almost certainly begin the year with a continuing resolution and it is unlikely that any new, non-defense appropriation bills would be enacted before the March or April 2009 time frame. Whatever the scenario, our fiscal year financial outlook is intact. On top of many investors’ minds is the…

On balance, we had a solid quarter financially. We have continued our momentum in the market place, posting double-digit internal revenue growth for the second straight quarter and also securing bookings well over $3.0 billion to drive future revenue growth. We had some special charges in the quarter which diluted profitability but the strength in our underlying core operations gives us confidence that we can recover and still hit our operating margin improvement goal of 20 basis points to 30 basis points for the full year. As we set out to do, we generated over $200 million of operating cash flow in the quarter, reflecting strong cash earnings coupled with reduction and days sales outstanding to 66 days. We deployed roughly that same amount by completing one acquisition and through continued stock repurchases. As Ken mentioned, we are operating consistent with our overall business and financial plan and in light of the momentum and visibility we have looking forward over the next six months, we are reaffirming our financial guidance for the year. Before I discuss all the results and our forward outlook, I do want to spend a moment to address the restatement of financial results that we announced a few weeks ago. As a reminder, this corrected an error in the calculation of our gain on the sale of Telcordia in March of 2005, all of which was reported in discontinued operations. First we filed the appropriate restated financial statements last night with the SEC. We will file our second quarter 10-Q later today which will properly reflect the appropriate restated prior-period amounts. Second, let me spend a moment and just cover a few more points on the restatement itself as additional commentary. First, although we recently just discovered the error, the error that caused the restatement regarding…

In summary and from the statistics that Mark has shown, our business is strong. Our contract execution continues to be excellent. And that’s leading to good financial results and our ability to win new business and capture market share. If you want to learn more about what’s driving our performance, I urge you to join our management team at our upcoming institutional investor conference on October 14 and 15 in McLean, Virginia. We welcome attendees, both in person and via the Web, through a top-to-bottom review of the businesses with a focus on some of our key new business campaigns. Space is limited so if you’re interested in attending the event, please contact Stuart Davis. We’re ready to take questions.

(Operator Instructions) Your first question comes from Laura Lederman - William Blair. Laura Lederman - William Blair & Company: If you look at the $0.015 that the NRC led to, what is the total amount of charges? If you include the movement of people and all of the unusual items in the quarter, so we can have a sense of what the business profitability would have been without all the different charges in the period.

Laura, in my mind, we had, as I said, $6.0 million for NRC, which was unexpected. We also had non-recurring severance charges of $3.0 million in the quarter. B&P and IR&D move up and down. B&P was pretty high but I would not consider that non-recurring, of course, it’s somewhat cyclical so I would stick to the $9.0 million, comprised of the $6.0 million NRC and the $3.0 million of severance to adjust out if you chose to do so. Laura Lederman - William Blair & Company: You also talked a little bit about the churn plans, the voluntary turn over of 13% is great but I also had heard that you guys were looking to go down to 12%. Is that still sort of your goal for this year? And one final question, which was acquisition pricing. How are the levels out there versus last quarter and a year ago?

I’ll take the voluntary-involuntary attrition. Certainly, yes, we have established a pretty significant goal to reduce year-over-year our attrition by 1.5%. And while we’re halfway through the year, we’re seeing a good positive trend downwards and our employee engagement activities, I think, are really working. And frankly, there’s nothing like winning and growing the business with the kind of work that we’re doing to keep people really excited about working at a company like Science Applications International. So I think it’s a stretch goal, but one that still looks like it’s in the art of the attainable at this point. Laura Lederman - William Blair & Company: And the acquisition pricing. And while I still have you, why not follow up on the Dell Tech and how that’s going in terms of getting it up and running?

Dell Tech continues to progress well, as Mark mentioned, we’re doing our next wave, wave one, next week. Mark and I were just talking about it before the call. He’s very bullish about the preparation that the business units, some half a dozen, have made to transition off of Legacy to Cost Point Dell Tech. So we’re positive about that. Acquisition premiums, if you’re talking about the 40% premium that SI International got from Serco; Wow! Exciting times. We’re still actively involved in looking for acquisitions that have real strategic merit for us. Our pipeline of potential acquisitions is still looking good and we’re engaged in dialogue that I can’t really talk about.

Your next question comes from Jason Kupferberg - UBS.

So on EPS for the year, I guess year-to-date you guys are up about 21% year-over-year, if I’m not mistaken. Obviously you’re keeping your guidance at 11% to 18%. And I understand that you would have some conservatism, especially looking ahead to your fiscal fourth quarter, but is it fair to say that the high end of 11% to 18% is now a lot more likely, just given where you are year-to-date? Or should we not make that conclusion because it’s simply premature given some of the funding uncertainties around the CR?

Our approach is to stick with our guidance and let the numbers and our results reflect where we might be in that range. That’s more up to you to determine.

In terms of some of the real estate actions that you made reference to, can you give us a sense, in terms of potential proceeds or cost savings that might yield from this program?

Some of the facilities that we mentioned in Ken’s remarks are currently not occupied but some are and we certainly expect to pick up efficiencies under the Project Alignment umbrella by having greater density with our folks, both on the East Coast and out here in San Diego. So that’s part of our overall margin improvement and Project Alignment plan that is long-term in nature that we’ve talked about. We, just like most non-operating items, we don’t have any projections for gains or losses on sales of real estate baked into our guidance. As I think you know, in general, we are positioned well on our real estate from a cost versus fair market value, but we’re not counting on any up tick from selling at gains as part of meeting our financial objectives. So hard to predict when such sales can take place and at what prices so we’ll just let those fall out as they occur.

Just so we understand what you’re saying is that this is all part of your ongoing 20 basis points to 30 basis points of annual improvement. We shouldn’t think of this as something incremental on top of what’s already going on with Project Alignment?

I think our margin improvement plan was articulated before Project Alignment existed. Project Alignment does include a more aggressive approach to our facilities management and we’re doing Project Alignment in order to be more competitive in the market place on several fronts.

Can you tell us the mix of new versus renewal bookings in the quarter?

If you look at the very strictest definition of what’s a re-compete, almost nothing was re-compete business. That is it’s all new. But when you look at really what’s the same kind of work done for the same kind of customer, that’s really kind of an extension of what you’re doing, it’s, again, more rich in terms of new business but there is a reasonable of recurring business. As an example, the large Intel job that Ken mentioned, it’s a new contract vehicle so it’s not a re-compete in any sense but it’s really employing the same kind of people doing the same kind of things.

And maintaining a similar revenue run rate?

Right.

I might add, I’m sure we’re going to be asked this question, our re-compete win rate continues to be high. It was 90% for the quarter versus dollars and 93% versus the number of wins. So we’re continuing to hit the ball out of the park with regard to re-competes.

Your next question comes from Cai von Rumohr - Cowen and Company.

VACIS, you mentioned second half should be stronger than the first half. Could you give us some color on how many you shipped in the first half and about how many you might do in the second half.

Ten in the first half, and we have schedule 42 in the second half. And to give you a comparison for last year, our second half this year has about 15 more units in it than the second half of last year.

And of the 90, what should we expect in terms of a capture rate? Are some of those high probability? Does this all imply good probability of strong growth in this business next year?

Well, certainly it’s good opportunities. Of the 90 units we have roughly 35 that could be international. And that’s in Brazil. We’re right now submitting a bid there. And the others are the military mobile units which could be upwards to 50. So our chances are probably better domestically than internationally but we’re going to swing the bat and see what we can do in Brazil.

And cash flow. I think the Telcordia, my understanding was that you might have to pay $25.0 million or so in the second half and could you give us some color on maybe a range on what you might get in cash from the real estate actions?

Let me clarify, Cai, that we expect to cut a check for about $35.0 million with interest to the IRS when we settle our tax year 2006. That we expect to occur in the second half of the year and that will show up geographically in cash flows from discontinued operations so it has no affect on the model I talked about in my earlier remarks and our guidance for operating cash flow. With respect to real estate, we prefer to not disclose what prices are associated with specific pieces of property because we’re in negotiations.

You bought a little more stock than I had guessed, 8 million shares, again 150. I think you had kind of cautioned going into the quarter that you wanted to keep a cash balance of over $500.0 million. Looks like cash flow might now be quite as robust in the second half. How should we think about your stock repurchase plans for the second half?

First I would say our cash flow is pretty robust in the second half. It’s about the same as the second quarter, we’ll do about that same amount for the rest of the year, roughly speaking. So we do expect strong cash flow for the year. We do uphold the principal of keeping at least $500.0 million of cash on hand. So that’s a regulator. And we continue to meet quarterly on our repurchase strategy with our Board of Directors.

And as you recall, that’s kind of the third priority. First is to invest in driving organic growth, which is paying handsome rewards to date. Second is strategic acquisitions, and then to acquire when we feel the price is right.

Your next question comes from Ed Caso - Wachovia Securities.

What percent of revenue was from commercial?

5%, Ed.

Any major re-competes that we should be watching in the next sort of through the end of FY10?

The major re-competes for FY09 are about a half a dozen. We have an SPOC 2 award that’s expected in September for about $500.0 million. We have a C COMR2 award, which is a multiple IDIQ award, in December for about $0.75 billion. They’re the really high nails. The rest are in the order of under $200.0 million.

Then when you go out a little further that’s when you run into united and then a little later on the re-compete, which are the big, big, ticket items.

New Orleans, any issues in that part of the world given the recent storm?

Well, certainly our Entergy customers seem to have fared better this time with Gustaf. On a personal note we had 800-900 people in the affected area and so far, knock on wood, every thing seems to be okay but we’re still assessing property damage.

Your next question comes from Analyst for Joseph Nadol - JP Morgan.

I just wanted to ask a quick question about margins. With the charge related to the NRC in this quarter and the commercial severance actions sort of depressing the margins. Does that mean that there’s room for maybe more than the 20 basis points-30 basis points of margin expansion when we look to next year?

Well, we’re confident in our recovery for the rest of this year for the reasons I set forth. Next year will depend on our mix, our product mix in particular. We do expect to continue to be more efficient in the SG&A area over time and we expect our commercial to get recovered and stay recovered. I think it’s possible to have some up side to those numbers but that’s not part of our base plan. We’re sticking to our 20 basis points-30 basis points as we set out to do and if there’s any change to that we’ll comment in our December conference call when we provide our first fiscal 2010 guidance.

Are there sort of ongoing, I know that some of the severance costs this quarter were not associated with the commercial actions but more with Project Alignment. Are there sort of sustained costs associated with Project Alignment, and if so can you give us sort of the ballpark of what they are per quarter, or it will vary by quarter?

Our general model with Project Alignment is that our investment will be offset, or more than offset, by savings generated in the program. So this quarter was only about $1.0 million. And we might have had some smaller savings buried in the operations from some of the things we’ve done under Project Alignment, but generally speaking, it should pay for itself going forward and we don’t expect, at this point, and we’ll provide quarterly updates to this, any real clumpy charges on the horizon.

Is it correct to assume that the EnRAP revenue this quarter was about $85.0 million and if so, over what period of time, I know the ramp down you said would start in Q4, sort of over what period of time do you expect that to ramp down?

Well, it really starts ramping down in the fourth quarter and we will eventually go to zero pretty quick, as the vehicles get integrated with the COMS equipment and we ship it to Kuwait for disposition in Iraq and Afghanistan. Now, that’s the vehicle side. We do have the logistics piece, which we won sometime ago, which will continue and if we win the re-compete that will give us sustainable revenue going forward of about $100.0+ million. On an annual basis, not on a quarter basis.

And just to correct the quarterly amount, we have two programs, they together are $55.0 million to $60.0 million per quarter in the second quarter.

Your next question comes from Dhruv Chopra with Morgan Stanley. Dhruv Chopra – Morgan Stanley: I was wondering if, Ken, you could speak a little bit about the commercial business. What types of actions did you take? How are you going to compete more effectively with some of the off-shore providers? And what’s the long-term strategy for the commercial business?

And it has caused us, because of the down turn in business with some of our core customers, like BP and Scottish Power, to re-invigorate our thought process around the strategy. And really what we’ve reconciled is we really want to move up what I would call the noble work business and not get into the fray of being commoditized in the pure IT services outsourcing. That historically has been a good business for our company, but again, we’ve got way too many competitors and the international implication, India, China, you name it, suggests that this is going to be pressure on margins and become a much, much lower margin business. Having said that, we have a wonderful science-based consulting business in oil and gas, in utilities, in life sciences, and even in the public service sector, that we are investing in, really trying to develop more and more opportunities. So we basically realigned our SG&A to focus on those markets and to continue to serve our key customers in the IT outsourcing but to not to pursue that as vigorously as we have done in the past. So it’s still a business that I like; it should come back to margins that are as good, if not better, than our government segment and we are still recognized in those four market segments as being very, very good domain experts and thought leaders. And we want to continue in that vein. Dhruv Chopra – Morgan Stanley: Just to clarify, can you provide some color on the split between how much IT work you do versus some of the more noble-type work?

No.

Your next question comes from Joseph Vafi - Jefferies & Company. Joseph Vafi - Jefferies & Company: I was wondering if we could talk, we’re sitting here in early September, the end of the government’s fiscal year and Mark, you said you were a little bit conservative on some of the new project ramps or the new contract ramps. What are you seeing out there in terms of budget flush share at this point at the end of the fiscal year?

We’re seeing a strong funding environment but we personally haven’t seen a glut of material equipment buys thus far. We still have a full month to go here in September but it’s been pretty much business as usual through the summer as far as we can see.

I would just add, the adjudication process just seems to be a little bit slower. And that doesn’t cause us alarm but if they really want to get these things funded, they only have the better part of a month to get things done. So hopefully we’ll see a little more heightened activity and that’s why we’re somewhat bullish if that portends then we might have a very strong third quarter. But Marks’ right, we want to be vigilant and conservative going forward because we just don’t know the unknown unknowns. Joseph Vafi - Jefferies & Company: Mark, you’re saying that you’re seeing a good funding environment but at the same time I think Ken just said that there’s some slow down or there’s some delays in the funding.

In decisions. Joseph Vafi - Jefferies & Company: And the funding is actual live awarded funds for existing contract vehicles then?

And the funding of new awards once they’re decided. Joseph Vafi - Jefferies & Company: On VACIS, I know obviously the second half is going to be bigger than the first half but do you have visibility how the quarters in the second half will play out there?

We have a shipment schedule that is firm. We have had pretty high predictability of that in the past and so we’re confident that our team will deliver in accordance with that schedule and deliver the 40 units or so in the second half and that’s the basis of our forecast. Joseph Vafi - Jefferies & Company: So we’re not really sure yet if we’re going to see more revenue in Q3 or Q4 from those.

Again, our projections are based on that shipment schedule to the extent that there are new orders received, the lead time is a significant but not effect until next fiscal year. Joseph Vafi - Jefferies & Company: On this conflict of interest issues, obviously this is pretty old and coming up now. Is there anything else we should be aware of or that might be out there from a conflict point of view that is something that you’re working on or being having to address with the government at this point?

With the government? Joseph Vafi - Jefferies & Company: I mean similar cases or something to that effect.

I think lots of companies have similar issues to this. I think there’s just a growing awareness that the firewalls that traditionally allowed companies to do front-end work as well as get into the development are now perhaps being scrutinized by Congress, et al, and viewed as something they might want to change. If they don’t change, our business doesn’t change whatsoever. If they do change, perhaps we have a little bit more up side because of the platform independence that I stated in my opening remarks.

Your next question comes from Bill Loomis - Stifel, Nicolaus. William Loomis - Stifel, Nicolaus & Company: Just looking at the VACIS systems, of the 90 that you expect to be decided on in the next three months, you mentioned that roughly 50 were the military mobile VACIS and then the 35 which you said were primarily Brazil. Was that the IP6500?

It’s a combination. Brazil is looking for some fixed sites as well as mobile. So the 35 actually are comprised of three different variances of our detection products. And, as I mentioned, we’re going to swing the bat and see if we can win one, two, or all three. All three would net us actually 37. Highly unlikely but the opportunity is there. I like it in that it’s really penetrating the international market. If we win some here, we’ve got five units that Dubai Customs has ordered, that gives us a good footprint to expand internationally. William Loomis - Stifel, Nicolaus & Company: And just following up on the Dubai five. Obviously there are some very big ports in the Middle East. Do you see additional sales to the Middle East or are these basically, if you will, are they testing them with an eye to a much greater number down the road?

I think we have found that Dubai is a much more forward-leaning country and once more, advanced state of the art, especially in their port security. So I would anticipate, especially in that area, that there will be a lot of interest once we have those up and operational and people see that we don’t impede commerce and we actually can provide a lot more security at a relatively low cost. William Loomis - Stifel, Nicolaus & Company: And just going to the Pole Cam and the Michelin Tire contract. What was the revenue contribution? Was there any in the quarter and what do you see for the year on those logistics programs?

Bill, Pole Cam has shifted to the right. I earlier advised that the revenue estimates for this year would be $50.0 million to $75.0 million. We’re looking at about $25.0ish million if things go well from this point forward. And there was negligible revenue year-to-date, including the second quarter, of course. So that, we’ll just keep you posted on. Conversely, things are going well for tires. The team has done a remarkable job. We’re delivering double-digit operating profit or contract fees on that opportunity. The revenue’s not that big but the contribution to economic profit and margins is very healthy. William Loomis - Stifel, Nicolaus & Company: Okay, how you’re accounting for the Michelin Tire contract, the assets, the tires are now passing through. You’re just capturing the fee in revenue and that’s why it’s high margin?

Essentially. William Loomis - Stifel, Nicolaus & Company: Is that the same way Pole Cam is going to work for you?

No, Pole Cam we will have pass throughs, so higher revenue, lower fee.

Your next question comes from George Shapiro - Citigroup.

If I look at your guidance of revenue growth, even at the high end of 9%, given what you’ve done in the first half implies only about 6% growth in the second half. Now, would that be more in the third quarter and less in the fourth? Because in the fourth you’ve got the tougher comparison on EnRAP?

The effect would be in the fourth quarter. We typically have a pretty strong third quarter and our measures of conservatism concerning the funding environment, as well as the EnRAP wind down, as well as the slower ramp potentially on new programs, is attributed to the fourth quarter. In addition to the higher comparative prior year that you mentioned.

And on the other side, on the margins, to kind of get your 20 basis points-30 basis points improvement, you’ve got to average a little over 8% in the third and fourth quarter. Traditionally your third quarter has been much stronger. Will that be the same this year or will both quarter be over 8%?

We don’t want to say too much about individual quarters but obviously we do have to run above 8%. We’re confident in doing so. I would say that in the four metrics we have revenue earnings per share, cash flow, and operating margins. The margin one will be the toughest one for us to achieve, given where we are. But we have a road map for the elements that I laid out earlier and pending no surprises and pending our delivery of the product shipments as well as our normal, more favorable labor utilization and our turn around in the commercial, we’ll make it. But I don’t want to point it heavily to one quarter or the other in Q3 or Q4. I’ve got to be strong in both.

I guess in general, I mean it certainly looked like the bias would be that you might do a little better on revenues and a little worse on margin, but you’re not changing your guidance to reflect that at all.

We believe, looking at our plan going forward, that we still can fall within the guidance that we gave. 20 basis points-30 basis points, 6% to 9%, 11% to 18% EPS.

Your next question comes from Erik Olbeter - Pacific Crest. Erik Olbeter – Pacific Crest Securities: Mark, you had mentioned earlier that you were hoping to bid on a couple of large opportunities in the Intel community and also you discussed possibly needing to increase your R&D expenditures, have you seen those RFPs or RFIs start to come out? Are you still confident that by the end of your fiscal year you could see possibly bidding on a couple of big opportunities? And what should we expect in terms of R&D?

I’ll cover part of the question. Ken may want to comment on the larger initiative. But as you might have picked up in Ken’s remarks, we did win a cyber-related procurement in the intelligence arena, significantly north of $100.0 million in the second quarter. We’re really pleased with that. Ken talked a lot about it. Above that, but certainly off to a good start there. I did mention our R&D investments up-ticked quite a bit in the second quarter. We generally expect to run at that pace or slightly above that pace for the rest of the year. Part of that investment clearly is going to our cyber initiative, which we think is a huge opportunity for us, so it’s getting a lot of focus in terms of our science and technology community. That’s focused in our intelligence group and so far they’re off to a great start.

I think Mark hit it. We’re getting ourselves well positioned to exploit every opportunity that meets our company’s competencies in the cyber area. We have a couple of outstanding bids, one of which we just won, the cyber security opportunity that was north of $150.0 million and so I’m pleased with where we are. You know, the conundrum on the IR&D on the first half is we were bidding so many opportunities that we really prescriptively slowed down IR&D so that we could put the talent that we needed on those opportunities. And that’s really starting to pay off. Typically, third quarter, fourth quarter, we start seeing the RFPs slow down and we’ll regroup and continue to invest in R&D programs.

Your last question comes from Timothy Quillin - Stephens, Inc. Timothy Quillin – Stephens, Inc. : I think this has been asked a couple of different ways but I was just hoping you could put some meat on the bones of Project Alignment in terms of what it means or how we can quantify that potential, you know, incremental savings on top of the 20 basis points to 30 basis points, both on facilities management and shared services.

I’ll try again. We articulated our margin improvement program a long time ago and all of those elements are still intact, a combination of improving fee, improving mix, and taking cost structure out, mostly from IT modernization efforts. Project Alignment was designed and continues to be designed to generate $100.0 million per year out of our cost structure, which we want to preserve the option of adjusting our pricing structure in the market place, reinvesting in our people, spending more in business development, spending more in IR&D, etc. So we are gearing that savings to reinvest into the business and we’re not directionally intending to drop that to the bottom line, although it’s certainly possible that some of that occurs. But it’s not a part of our EPS growth story that we articulated in our IPO and since then.

Having said that, if you lowered your infrastructure cost by $100.0 million and continued to grow top line, incremental margin will expand, which has a positive impact. I think that’s all we have time for today. On behalf of the team here I really want to thank you for your interest in the company and feel free to give us a call over the next couple of weeks and again, hope to see many of you in October.