Computer Sciences (CSC) 8-K CSC Reports Third Quarter Results

Contact	Chris Grandis	FOR RELEASE
	Media Relations Director	Moved on Business Wire
	Corporate	February 10, 2010
	703.641.2316
	cgrandis@csc.com
		Bryan Brady
		Vice President, Investor Relations
		Corporate
		703.641.3000
		investorrelations@csc.com

CSC REPORTS THIRD QUARTER RESULTS

Significant Increases in Profitability and New Business Awards

FALLS CHURCH, Va., Feb. 10 – CSC (NYSE: CSC) today reported third quarter fiscal 2010 revenue of $4.0 billion and fully diluted earnings per share (EPS) of $1.36 compared to third quarter fiscal 2009 revenue of $4.0 billion and EPS of $1.06, a 28% EPS increase over last year.

Highlights include:

·   New business awards of $6.8 billion for the quarter and $14.9 billion through three quarters, an increase of 17% over the previous year;

·   Pre-tax margin of 7.36%, representing a 71 basis point improvement from the previous year;

·   Operating margin of 9.54%, a 15 basis point improvement from the previous year;

·   Operating cash flow of $131 million, $407 million through three quarters;

·   Year-to-date Free Cash Flow of -$140 million, nearly $200 million better than internal plan.

Commenting on the results, CSC Chairman and Chief Executive Officer, Michael Laphen said, “Despite the sluggish pace of the worldwide economic recovery, our revenue held firm both sequentially and year-over-year as our margin rates and earnings continue to improve.  I was particularly pleased with our new business awards of $6.8 billion, significantly above last quarter and last year.  On a year-to-date basis, we are $2.2 billion ahead of last year and well positioned to meet our guidance expectations of $17-$18 billion in new business awards.”

New Business Awards

For the quarter, the new business awards totaled $6.8 billion.  Across the three lines of business, North American Public Sector (NPS) contributed $0.8 billion, Business Solutions and Services (BSS) reported $0.8 billion, and Managed Services Sector (MSS) closed $5.2 billion of new business including the previously announced contract with Zurich Financial Services and the 5-year renewal and expansion of the Raytheon contract.

Business Outlook

“The market trend towards increased Outsourcing continues, as evidenced by our MSS bookings,” said Laphen, “and this underlines one of our core competencies in delivering customer value. We expect this trend to fuel sequential growth in the fourth quarter. In BSS, our Verticals show encouraging growth signs, particularly in transformational and compliance projects, and this is expected to contribute to fourth quarter growth. We anticipate our NPS business will return to positive growth with the awarding of delayed contracts and closure of other opportunities, delivering mid single digit growth for the full year in this sector.”

Lines of Business

NPS revenue was $1.48 billion, MSS revenue was $1.62 billion, BSS revenue was $0.89 billion.  These amounts were comparable to last year’s results.  In constant currency, MSS was down 5.3% and BSS was down 8.4%.  Collectively, CSC’s commercial lines of business, MSS and BSS, realized sequential growth of 3%.

Guidance

The company re-affirmed its guidance for fiscal year 2010 anticipating revenue in the $16.0 – $16.5 billion range, EPS in the higher end of the $4.80 - $5.00 range, and free cash flow equal or greater than 90% of net income.

Conference Call and Webcast

CSC senior management will host a conference call and Webcast at 11 a.m. EST today.  The conference call dial-in number for domestic callers is 888-318-7469.  International callers will need to dial 719-325-2192.  The pass code for all participants is 1323453.  The Webcast and presentation slides can be accessed at www.csc.com/investorrelations.

Non-GAAP Measures

In an effort to provide investors with additional information regarding the company’s results as determined by generally accepted accounting principles (GAAP), the company has also disclosed in this press release non-GAAP information which management believes provides useful information to investors, including: operating income, operating margin and free cash flow.  A reconciliation of the adjustments to GAAP results for this quarter and prior periods, as well as the rationale for management’s use of non-GAAP measures, is included in the tables below.

About CSC

CSC is a global leader in providing technology-enabled solutions and services through three primary lines of business.  These include Business Solutions & Services, the Managed Services Sector and the North American Public Sector.  CSC’s advanced capabilities include system design and integration, information technology and business process outsourcing, applications software development, Web and application hosting, mission support and management consulting.  Headquartered in Falls Church, VA., CSC has approximately 92,000 employees and reported revenue of $16.0 billion for the 12 months ended January 1, 2010.  For more information, visit the company’s Web Site at www.csc.com.

All statements in this press release and in all future press releases that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent the company’s intentions, plans, expectations and beliefs, and are subject to risks, uncertainties and other factors, many of which are outside the company’s control. These factors could cause actual results to differ materially from such forward-looking statements. For a written description of these factors, see the section titled “Risk Factors” in CSC’s Form 10-K for the fiscal year ended April 3, 2009 and any updating information in subsequent SEC filings.  The company disclaims any intention or obligation to update these forward-looking statements whether as a result of subsequent event or otherwise, except as required by law.

CSC-Page 4										2/10/2010
Revenues by Segment
(unaudited)
	Quarter Ended
	January 1, 2010			January 2, 2009			% of Total
(In millions)							Fiscal 2010			Fiscal 2009
Business Solutions & Services	$	887		$	893			23	%		23	%
Managed Services Sector		1,618			1,607			41			41
Department of Defense		1,074			1,069			27			27
Civil agencies		353			373			9			9
Other (1)		50			34			1			1
North American Public Sector		1,477			1,476			37			37
Corporate & Eliminations		(29	)		(24	)		(1	)		(1	)
Total Revenues	$	3,953		$	3,952			100	%		100	%
	Nine Months Ended
	January 1, 2010			January 2, 2009			% of Total
(In millions)							Fiscal 2010			Fiscal 2009
Business Solutions & Services	$	2,589		$	2,934			22	%		23	%
Managed Services Sector		4,761			5,308			40			42
Department of Defense		3,405			3,130			29			25
Civil agencies		1,062			1,217			9			10
Other (1)		150			117			1			1
North American Public Sector		4,617			4,464			39			36
Corporate & Eliminations		(75	)		(78	)		(1	)		(1	)
Total Revenues	$	11,892		$	12,628			100	%		100	%
Note (1): Other revenues consist of state, local and foreign government as well as commercial contracts performed by the North American Public Sector (NPS).

CSC-Page 5										2/10/2010
Consolidated Statements of Income
(unaudited)
	Quarter Ended						Nine Months Ended
(In millions except per-share amounts)	January 1, 2010			January 2, 2009			January 1, 2010			January 2, 2009
Revenues	$	3,953		$	3,952		$	11,892		$	12,628
Costs of services (excludes depreciation and amortization)		3,105			3,085			9,476			10,097
Selling, general and administrative		239			261			732			824
Depreciation and amortization		280			282			825			912
Interest expense		50			68			158			191
Interest income		(6	)		(12	)		(20	)		(31	)
Other (income)/expense		(6	)		5			(15	)		9
Total costs and expenses	$	3,662		$	3,689		$	11,156		$	12,002
Income before taxes	$	291		$	263		$	736		$	626
Taxes on income	$	75		$	100		$	166		$	(114	)
Net Income	$	216		$	163		$	570		$	740
Less: Net Income attributable to noncontrolling interest, net of tax	$	5		$	2		$	12		$	7
Net Income attributable to CSC common shareholders	$	211		$	161		$	558		$	733
Earnings per share
Basic	$	1.38		$	1.06		$	3.67		$	4.84
Diluted	$	1.36		$	1.06		$	3.62		$	4.80
Average common shares outstanding for:
Basic EPS		152.784			151.485			152.052			151.352
Diluted EPS		155.430			151.857			154.279			152.619

CSC-Page 6				2/10/2010
Selected Balance Sheet Data
(unaudited)
(In millions)	January 1, 2010			April 3, 2009
Assets
Cash and cash equivalents	$	2,427		$	2,297
Receivables, net		3,935			3,786
Prepaid expenses and other current assets		1,935			1,624
Total current assets	$	8,297		$	7,707
Property and equipment, net		2,330			2,353
Outsourcing contract costs, net		651			684
Software, net		469			476
Goodwill		3,921			3,784
Other assets		528			615
Total assets	$	16,196		$	15,619
Liabilities
Short-term debt and current maturities of long-term debt	$	131		$	62
Accounts payable		415			636
Accrued payroll and related costs		765			822
Other accrued expenses		1,176			1,264
Deferred revenue		795			915
Income taxes payable and deferred income taxes		280			317
Total current liabilities	$	3,562		$	4,016
Long-term debt, net	$	4,176		$	4,173
Income tax liabilities		476			486
Other long-term liabilities		1,302			1,326
Stockholders' equity		6,680			5,618
Total liabilities and stockholders' equity	$	16,196		$	15,619
Debt as a percentage of total capitalization		39.2	%		43.0	%

CSC-Page 7				2/10/2010
Consolidated Statements of Cash Flows
(unaudited)
	Nine Months Ended
(In millions)	January 1, 2010			January 2, 2009
Cash flows from operating activities:
Net income	$	570		$	740
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization and other non-cash charges		878			987
Stock-based compensation		49			47
Provision for losses on accounts receivable		17			20
Unrealized foreign currency exchange (gain)/loss, net		(44	)		93
Gain on dispositions		(7	)		(2	)
Changes in assets and liabilities, net of effects of acquisitions:
Increase in assets		(173	)		(125	)
Decrease in liabilities		(883	)		(832	)
Net cash provided by operating activities		407			928
Investing activities:
Purchases of property and equipment		(437	)		(557	)
Outsourcing contracts		(106	)		(114	)
Acquisitions		(5	)		(100	)
Software		(106	)		(129	)
Other investing cash flows		140			62
Net cash used in investing activities		(514	)		(838	)
Financing activities:
Net repayments of commercial paper		(1	)		(263	)
Borrowings under lines of credit		101			1,647
Repayments on lines of credit		(43	)		(119	)
Principal payments on long-term debt		(27	)		(324	)
Proceeds from stock options, and other common stock transactions		79			12
Repurchase of common stock, net of settlement		(2	)		(4	)
Excess tax benefit from stock-based compensation		7			1
Other financing cash flows		-			3
Net cash provided by financing activities	$	114		$	953
Effect of exchange rate changes on cash and cash equivalents	$	123		$	(69	)
Net increase  in cash and cash equivalents	$	130		$	974
Cash and cash equivalents at beginning of year	$	2,297		$	699
Cash and cash equivalents at end of period	$	2,427		$	1,673

CSC-Page 8                                                                                                                                2/10/2010

Non-GAAP Financial Measures

The following tables reconcile operating income and free cash flow to the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States (GAAP). CSC management believes that these non-GAAP financial measures provide useful information to investors regarding the Company’s financial condition and results of operations as they provide another measure of the Company’s profitability and ability to service its debt, and are considered important measures by financial analysts covering CSC and its peers. Management uses operating income to evaluate business unit financial performance and it is one of the measures used in assessing management performance. One of the limitations associated with the use of operating income (as compared to reported earnings) is that it does not reflect the complete financial results of the Company. CSC compensates for these limitations by providing a reconciliation between operating income and reported earnings.

GAAP Reconciliations
(In millions)
Operating Income (unaudited)	Quarter Ended						Nine Months Ended
	January 1, 2010			January 2, 2009			January 1, 2010			January 2, 2009
Operating Income	$	377		$	371		$	982		$	935
Corporate G&A		(48	)		(47	)		(123	)		(140	)
Interest expense		(50	)		(68	)		(158	)		(191	)
Interest income		6			12			20			31
Other income/(expense)		6			(5	)		15			(9	)
Income Before Taxes		291			263			736			626
Taxes on income		75			100			166			(114	)
Income from continuing operations		216			163			570			740
Less: Net income attributable to noncontrolling interest, net of tax		5			2			12			7
Net income attributable to CSC common shareholders	$	211		$	161		$	558		$	733
Free Cash Flow (unaudited)	Quarter Ended						Nine Months Ended
	January 1, 2010			January 2, 2009			January 1, 2010			January 2, 2009
Free cash flow	$	(107	)	$	333		$	(140	)	$	170
Net cash used in investing activities		228			282			514			838
Acquisitions, net of cash acquired		-			(38	)		(5	)		(100	)
Business dispositions		2			-			14			-
Capital lease payments		8			6			24			20
Net cash provided by operating activities	$	131		$	583		$	407		$	928
Net cash used in investing activities	$	(228	)	$	(282	)	$	(514	)	$	(838	)
Net cash provided by financing activities	$	106		$	665		$	114		$	953
Operating Income	$	377		$	371		$	982		$	935
Operating Margin		9.54	%		9.39	%		8.26	%		7.40	%
Pre-tax margin		7.36	%		6.65	%		6.19	%		4.96	%

Note: Capital lease payments and proceeds from the sale of property and equipment (included in investment activities) are included in the calculation of Free Cash Flow (FCF).  Operating Margin is defined as operating income as a percentage of revenue.  Pre-tax Margin is defined as Income before taxes as a percentage of revenue.