All statements and assumptions in this quarterly report on Form 10-Q and in the documents attached or incorporated by reference that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent current expectations and beliefs of CSC, and no assurance can be given that the results described in such statements will be achieved.

Forward-looking information contained in these statements include, among other things, statements with respect to the Company's financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of the Company's control, which could cause actual results to differ materially from the results described in such statements. These forward looking statements should be read in conjunction with our Annual Report on Form 10-K. The reader should specifically consider the various risks discussed in the Risk Factors section of our Annual Report on Form 10-K.

Forward-looking statements in this quarterly report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached or incorporated by reference speak only as to the date of those documents. The Company does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as required by law.

General

The following discussion and analysis provides information management believes relevant to an assessment and understanding of the consolidated results of operations and financial condition of Computer Sciences Corporation (CSC or the Company). The discussion should be read in conjunction with the interim consolidated condensed financial statements and notes thereto and the Company's Annual Report on Form 10-K for the year ended April 3, 2009. The following discusses the Company's results of operations and financial condition as of and for the quarter ended July 3, 2009, and the comparable period for the prior fiscal year.

The reader should note free cash flow is a non-GAAP measure and the Company's definition of such measure may differ from other companies. We define free cash flow as equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions and dispositions, purchase or sale of available for sale securities, and (3) capital lease payments. However, CSC's free cash flow measures do not distinguish operating cash flows from investing cash flows as they are required to be presented in accordance with GAAP. In addition to being a management tool for its evaluation of the business performance, this non-GAAP financial measure also provides useful information to investors regarding the Company's financial condition and results of operations as it provides another measure of the Company's performance and ability to service its debt. Management compensates for the limitations of this non-GAAP measure by also reviewing the GAAP measures, and reconciliation thereto, of operating, investing and financing cash flows, as well as by reviewing the debt-to-total capitalization ratios.

Return on Investment (ROI) is a ratio that uses a non-GAAP measure of Adjusted Net Income in the numerator. Adjusted Net Income consists of net income available to CSC common shareholders adjusted to exclude tax effected interest expense and special items.

First Quarter Overview

Key operating results and significant developments for the first quarter include:

· First quarter revenues as reported decreased 12.2% to $3.9 billion, and declined 6.2% in constant currency compared to the first quarter of the prior fiscal year.

· Net income increased 8.3% to $131 million for the first quarter, up from $121 million in the first quarter of the prior fiscal year.

· Diluted earnings per share rose 7.6% to $0.85 for the first quarter, up from $0.79 in the first quarter of the prior fiscal year.

· Business awards of $3.5 billion were announced for the quarter, down from $5.4 billion announced in the first quarter of prior fiscal year. The first quarter of fiscal 2010 total consisted of $1.1 billion awarded to MSS, $1.6 billion awarded to the NPS and $.8 billion awarded to BSS.

· DSO of 93 days improved 4 days compared to the end of the first quarter of the prior fiscal year.(1)

· Debt-to-total capitalization ratio(2) at quarter-end was 41.1% compared to 43.0% at fiscal year-end 2009.

· ROI for the twelve months ended July 3, 2009, was 14.5%, driven significantly by tax benefits in the last three quarters of fiscal 2009.(3)

· Cash used in operating activities was $297 million for the first quarter, compared to cash used of $56 million for the first quarter of prior fiscal year.

· Cash used in investing activities was $158 million for the first quarter, compared to cash used of $329 million for the first quarter of prior fiscal year.

· Cash used in financing activities was $14 million for the first quarter, compared to cash provided of $299 million for the first quarter of prior fiscal year.

· Free cash outflow for the first quarter was $462 million compared to $329 million for the first quarter of the prior fiscal year.(4)

(1) DSO for the quarter is calculated as total receivables, at quarter-end divided by revenue-per-day. Revenue-per-day equals total revenues for the last quarter divided by the number of days in the fiscal quarter. Total receivables includes unbilled receivables but excludes tax receivables.

(2) Debt-to-total capitalization is defined as total current and long-term debt divided by total debt and equity including noncontrolling interest.

(3) ROI is calculated by multiplying profit margin times investment base turnover. The profit margin used is last four quarters' adjusted net income (net income available to CSC common shareholders adjusted to exclude tax effected interest expense and special items), divided by revenues. Investment base turnover equals revenues divided by average debt and equity.

(4) The following is a reconciliation of free cash flow to the most directly comparable U.S. Generally Accepted Accounting Principle (GAAP) financial measure:

                                                            Quarter Ended
(Amounts in millions)                              July 3, 2009       July 4, 2008

Free cash flow                                     $        (462 )   $         (329 )
Net cash used in investing activities                        158                329
Acquisitions                                                   -                (62 )
Capital lease payments                                         7                  6
Net cash used in operating activities              $        (297 )   $          (56 )
Net cash used in investing activities              $        (158 )   $         (329 )
Net cash (used)/provided by financing activities   $         (14 )   $          299

Reportable Segments

CSC provides information technology and business process outsourcing, consulting and systems integration services and other professional services to its customers. The Company targets the delivery of these services within three broad service lines or sectors: North American Public Sector (NPS), Managed Services Sector (MSS), and Business Solutions and Services (BSS). The Company's organization has continued to evolve, and management decided to consolidate and streamline the management and reporting structure. Therefore, at the start of fiscal 2010, the Company changed its internal organization structure, including a change to further strengthen market position with consolidating its application management services business, including all offshore activity, with its outsourcing business. These changes resulted in modifications to the Company's reportable segments pursuant to SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information."

Consequently, the Company's reportable segments in fiscal 2010 are as follows:

· North American Public Sector (NPS) - The NPS segment operates principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards and audits by various U.S. Federal agencies. In fiscal 2009, NPS was treated as a reportable segment and continues to be a reportable segment in fiscal 2010.

· Managed Services Sector (MSS) - The MSS segment provides large-scale outsourcing solutions offerings as well as midsize services delivery to customers globally. In fiscal 2009, Global Outsourcing Services (GOS) was considered a separate operating and reportable segment. In fiscal 2010, the name of the segment was changed to Managed Services Sector; and the Applications & Technology Services (ATS) unit was moved from the Business Solutions & Services - Other (BS&S - Other) segment to MSS due to the fact that its services, particularly its applications management, are more aligned with the Company's outsourcing services rather than consulting services. ATS results are no longer reported separately to the Chief Operating Decision Maker (CODM) and are included with the MSS segment.

· Business Solutions & Services (BSS) - The BSS segment provides industry specific consulting and systems integration services, business process outsourcing, and intellectual property (IP) - based software solutions. These service offerings and clientele overlap. In fiscal 2009, multiple operating segments that reported directly into the CODM were aggregated into three reportable segments: BS&S- Consulting, BS&S- Financial Services and BS&S- Other. As a result of the reorganization for fiscal 2010, the BSS line of service is now a single operating segment with one sector president reporting directly to the CODM with financial information provided at the consolidated BSS sector level. Based on this change, BSS is considered a reportable segment in fiscal 2010. Furthermore, most of the India operating segment, which was part of the BS&S - Other reportable segment in fiscal 2009, has been moved to the MSS operating segment and renamed ATS as noted above.

Based on the above changes, the Company recast the prior period's reportable segments to be comparable with fiscal 2010.

Results of Operations

Revenues

                                              Quarter Ended
(Dollars in millions)   July 3, 2009      July 4, 2008      Change       Percent

NPS                     $       1,519     $       1,493     $    26           1.7 %
MSS                             1,564             1,897        (333 )       (17.6 %)
BSS                               838             1,074        (236 )       (22.0 %)
Corporate                           4                 4           -             -
Subtotal                        3,925             4,468        (543 )       (12.2 %)
Eliminations                      (27 )             (31 )         4             -
Total Revenue           $       3,898     $       4,437     $  (539 )       (12.2 %)

The factors affecting the percent change in revenues for the first quarter of fiscal 2010 are as follows:

                                                               Approximate
                                                                Impact of
                                                                 Currency          Net Internal
                                           Acquisitions        Fluctuations           Growth           Total

NPS                                                  0.8  %                -                0.9 %          1.7 %
MSS                                                    -                (9.7 %)            (7.9 %)       (17.6 %)
BSS                                                    -                (7.5 %)           (14.5 %)       (22.0 %)
   Cumulative Net Percentage                         0.3 %              (6.0 %)            (6.5 %)       (12.2 %)

Revenue for the first quarter of fiscal 2010 decreased 12.2% compared to the same quarter in the prior year, with a 1.7% increase in NPS offset by larger declines in BSS and MSS. Currency fluctuations for first quarter of fiscal 2009 accounted for approximately 6.0%, or $264 million, of the decline. Approximately $170 million, or 3.7%, of the decline was due to an extra week in the prior year first quarter. After the impact of currency and the extra week, the remaining decline of 2.5% is the result of reduced volumes and demand in the BSS and MSS sectors and is discussed further below.

North American Public Sector

The Company's North American Public Sector revenues were generated from the
following sources:
                                                                   Quarter Ended
(Amounts in millions)                       July 3,2009      July 4, 2008        Change        Percent

   Department of Defense                   $       1,121     $       1,020     $      101            9.9 %
   Civil agencies                                    366               426            (60 )        (14.1 %)
   Other (1)                                          32                47            (15 )        (31.9 %)
   Total North American Public Sector      $       1,519     $       1,493     $       26            1.7 %

(1) Other revenues consist of state, local and select foreign government as well as commercial contracts performed by the North American Public Sector reporting segment.

NPS revenue increased $26 million, or 1.7%, in the fiscal 2010 first quarter as compared to the same period in the prior year. Approximately $12 million, or 0.8%, was due to an acquisition made in the fiscal 2009 third quarter of a logistics engineering business. The one extra week in the first quarter of fiscal 2009 resulted in approximately $67 million of revenue in the prior year, adversely affecting the quarterly comparison by 4.7%. Growth on existing programs in support of Department of Defense agencies, including a field operations program won in fiscal 2009, more than offset declines in Civil agencies and other.

Managed Services Sector

MSS revenue declined $333 million, or 17.6%, in the fiscal first quarter 2010 as compared to the same period in the prior year. Approximately $184 million, or 9.7%, was due to adverse currency movements between the two periods. The remaining decline of $150 million, or 7.9%, was primarily due to reduced scope and project work on various existing clients as well as several contract conclusions and terminations. The extra week in the first quarter of fiscal 2009 contributed approximately $35 million, or 1.7%, to the decline as well. Partly offsetting the declines was $11 million from a new fiscal 2009 contract in the manufacturing industry, as well as increased scope and project work on other clients. MSS has experienced pricing pressures and instituted cost reduction actions in the first quarter and prior year to mitigate these pressures. These items included staff reductions and shifting certain back-office functions to lower cost geographies.

Business Solutions and Services

BSS revenue declined $236 million, or 22.0%, in the fiscal 2010 first quarter as compared to the same period in the prior year. Approximately $80 million, or 7.5%, was due to adverse currency movements between the two periods. Of the remaining $156 million decline, or 14.5%, approximately 5 percentage points was due to the extra week in the prior year quarter, 3 percentage points was due to declines in an Australian staffing business and an Asian valued-added reseller business, and 3 percentage points was due to declines in the financial services business including lower software license sales. The remaining decline of approximately $39 million, or 3.6%, resulted from a decline in consulting work as new projects were delayed and existing projects concluded. The Company has experienced subdued discretionary project demand in BSS; consequently, it has taken mitigating actions to include adjusting staffing levels and aligning resources with growth areas.

Costs and Expenses

The Company's costs and expenses were as follows:

                                                                        Quarter Ended
                                                                                 Percentage                   Percentage
                                              Amount                             of Revenue                  Point Change
(Dollars in millions)             July 3, 2009      July 4, 2008       July 3, 2009       July 4, 2008

Cost of services
(excludes depreciation
and amortization)                 $       3,156     $       3,602               81.0 %             81.2 %               (.2 %)
Selling, general and
administrative                              247               278                6.3                6.3                   -
Depreciation and amortization               270               317                7.0                7.1                 (.1 )
Interest expense, net                        48                54                1.2                1.2                  .-
Other (income)/expense                       (8 )               7                (.2 )               .2                 (.4 )
  Total                           $       3,713     $       4,258               95.3 %             96.0 %               (.7 %)

Costs and expenses as a percentage of revenue for the first quarter of fiscal 2010 decreased .7% points to 95.3% from 96.0% in fiscal 2009. The improvement was a result of a .2% points decrease in cost of services, .1% point decrease in depreciation and amortization, as well as a .4% impact of a change in other (income)/expense.

The Company substantially matches revenues and costs in the same currency. As such, the foreign currency impact of approximately 6.0 percentage points on revenues and costs for the quarter did not have a material impact on costs and expenses as a percentage of revenue. The Company is increasing its use of off-shore support and therefore its exposure to foreign currency fluctuations. The Company's efforts to manage the exposure to foreign currency fluctuations has reduced the gains and losses from foreign currency fluctuations and resulted in additional costs, all of which is reported in other (income)/expense.

Costs of Services

Costs of services (COS) as a percentage of revenue declined .2% points for the first quarter of fiscal 2010. The improvement came from cost reduction programs in BSS and MSS implemented in the current and prior periods that reduced headcount. These improvements were offset by increasing pricing pressure and lower staff utilization rates, especially in BSS, and a slight business mix shift in the quarter for NPS which has higher COS ratios than BSS and MSS. In addition, a $13 million reduction of COS was recorded in the first quarter of fiscal 2010 from the reversal of a prior service credit, resulting from the Company's decision to freeze future benefits relating to salary and service for most participants in the U.S.-based Computer Sciences Corporation Employee Pension Plan. Approximately $7 million of the curtailment credit was in NPS and $6 million in MSS. See Note 7 to the Consolidated Condensed Financial Statements for further discussion.

Selling, General and Administrative

Selling, general and administrative (SG&A) expense, which declined in dollar terms, as a percentage of revenue was unchanged in the first quarter of fiscal 2010 at 6.3%. The SG&A ratio benefited from the business mix as NPS has lower SG&A ratios than MSS and BSS. Additional benefit to the SG&A ratio came from the Company's ongoing cost containment measures, including the MSS segment movement of some back-office functions to lower cost geographies. These factors partly offset a slight increase in the ratio in MSS caused primarily by approximately $4 million in increased allowance for doubtful accounts in the quarter.

Depreciation and Amortization

Depreciation and amortization (D&A) declined $47 million primarily due to reduced capital expenditures and the effect of movements in foreign exchange rates. By asset type, slightly over half of the decrease was in amortization of intangible assets, including deferred contract costs and acquired customer-related intangibles, as normal amortization outweighed the impact of new additions. The remainder of the decrease was in depreciation of property and equipment, reflecting the Company's efforts to limit capital spending.

D&A as a percentage of revenue declined .1% points for the first quarter of fiscal 2010. The ratio benefited from the business mix towards greater NPS business which has lower D&A ratios than MSS and BSS. In addition, both NPS and BSS D&A ratios declined slightly in the fiscal 2010 first quarter versus fiscal 2009, offsetting an increase in the MSS ratio quarter over quarter. While the Company continues to focus on reducing capital expenditures, which is driving lower depreciation expense overall, the 17.6% MSS revenue decline in the first quarter exceeded the MSS D&A decline of 14%, causing the ratio to increase in the quarter versus the prior year.

Interest Expense, Net

Interest expense, net of interest income, declined $6 million in fiscal 2010 first quarter as compared to the fiscal 2009 first quarter. The decrease was due to a higher cash and cash equivalents balance at July 3, 2009, versus July 4, 2008 ($1.9 billion versus $616 million, respectively), causing higher interest income. The higher income was partially offset by higher debt in the first quarter of fiscal 2010 ($4.2 billion versus $3.8 billion), but at a lower average borrowing cost than a year ago. The higher cash and debt balances are primarily a result of the October 2008 $1.5 billion draw down of the Company's credit facility to repay commercial paper and maturing long term debt, as well as to increase the Company's liquidity position. The interest rate on the credit facility was lower than that on the commercial paper and term debt.

Other (Income)/Expense

Other income of $8 million in the first quarter of fiscal 2010 compared to other expense of $7 million in the first quarter of fiscal 2009. Other (income)/expense includes foreign exchange gains and losses on intercompany and foreign currency balances, gains and losses on foreign exchange forward contracts and purchased options, equity in earnings of unconsolidated affiliates, as well as hedging costs and other miscellaneous gains and losses from the sale of non-operating assets. Other income in the first quarter of fiscal 2010 resulted from a $4 million gain on the sale of the Company's former headquarters building in El Segundo, California and $5 million from equity in earnings of unconsolidated affiliates.

Net foreign exchange losses of $13 million in the first quarter of fiscal 2009 were attributable to the costs to hedge foreign currency intercompany balances and foreign currency economic risk associated with off-shore operations, as well as miscellaneous foreign currency losses due to unhedged intercompany balances, partly offset by $6 million from equity in earnings of unconsolidated affiliates.

Taxes

The effective tax rate was 28.3% and 29.6% for the first quarter ended July 3, 2009, and July 4, 2008, respectively. The decrease in the fiscal year 2010 rate was primarily attributable to a shift in the global mix of earnings into permanently reinvested foreign jurisdictions. The fiscal year 2009 effective tax rate also reflects the reclassification of prior year income from noncontrolling interests to a separate line following the adoption of a new accounting standard at the beginning of fiscal year 2010.

As of July 3, 2009, the Company's liability for uncertain tax positions was $504 million, including interest of $79 million and penalties of $26 million. There were no material changes to the uncertain tax positions in the first quarter of fiscal year 2010 compared to fiscal year end 2009.

Interest expense is expected to continue to accrue at approximately $4 million quarterly (net of tax benefit) on existing uncertain tax positions, before the effect of compounding or changes in interest rates, until payments are made or the underlying uncertain tax positions are resolved in the Company's favor. The Company is unable to predict when these events may occur.

Earnings per Share

Earnings per share on a diluted basis were $.85 for the quarter ended July 3, 2010, compared to $.79 for the prior year quarter. The increase in earnings per share was the result of an increase in net income attributable to CSC common shareholders of $10 million and a decrease in the share base (on a fully diluted basis) of 419,000 shares. The reduction in the share base was the result of a decline in common stock equivalents due to the decline in the Company's stock price on a year over year basis.

Financial Condition

Cash Flows

The Company's cash flows were as follows:

                                                                        Quarter Ended

(Amounts in millions)
                                                               July 3, 2009       July 4, 2008
Net cash used in operations                                    $        (297 )   $          (56 )
Net cash used in investing                                              (158 )             (329 )
Net cash provided by financing activities                                (14 )              299
Effect of exchange rate changes on cash and cash equivalents              92                  3
Net increase (decrease) in cash and cash equivalents                    (377 )              (83 )
Cash and cash equivalents at beginning of year                         2,297                699
  Cash and cash equivalents at quarter end                     $       1,920     $          616

Net cash used in operations for the first quarter of fiscal 2010 was $297 million compared to $56 million for the prior year. The higher outflow was driven by both lower non-cash charges and greater increases in working capital, as described further below.

· Depreciation and amortization expenses and other non-cash charges of $283 million were $58 million lower than the prior year quarter. Decreases were seen in all segments, led by MSS which reports approximately two-thirds of the Company's depreciation and amortization. D&A declined $47 million due to reduced capital expenditures and foreign exchange rate changes. By asset type, slightly over half of the decrease was in amortization of intangible assets, including deferred contract costs and acquired customer-related . . .