CSC reports second quarter revenue up 32%

Computer Sciences Corporation today reported results for its fiscal 2004 second quarter, ended October 3, 2003. Revenues were $3.59 billion, up 32% over last year`s second quarter. Net earnings per share (diluted) were 57 cents after the approximately 3 cents per-share impact of an after-tax special charge of $5.7 million ($9.2 million pre-tax) related to the March 7, 2003, DynCorp acquisition.

The quarter`s strong revenue growth was again led by CSC`s U.S. federal government activities. Revenues derived from the U.S. federal government nearly doubled from the comparable year-ago quarter to $1.52 billion, an increase of 97%. The March 7, 2003, DynCorp acquisition was the principal driver of CSC`s U.S. federal government revenue growth. Global commercial year-over-year revenue increased also, benefiting from a strong contribution from significant new outsourcing accounts as well as foreign currency benefits.

For the second quarter (ended October 3):

* Revenues were $3.59 billion, up 32% (approximately 28% in constant currency);

* Net income was $108.1 million after the pre-tax special charge of $9.2 million ($5.7 million after tax);

* Earnings per share (diluted) were 57 cents;

* and announced major new business awards were $3.5 billion. For the six months (ended October 3):

* Revenues were $7.15 billion, up 30.5% over the comparable six-month period of fiscal 2003 (approximately 26% in constant currency);

* Net income was $200.4 million after the pre-tax special charge of $15.4 million ($9.6 million, or 5 cents per share, after tax);

* Earnings per share (diluted) were $1.06;

* and announced major new business awards totaled $7.8 billion.

"Our results for the second quarter continue to track to our expectations," said CSC Chairman and Chief Executive Officer Van B. Honeycutt. "We have completed a solid first six months of the current fiscal year. Our commitment to continue to provide premier services to the U.S. federal government, exemplified by the March acquisition of DynCorp, has played a major role in our strong revenue growth over the past six months. The federal IT services environment remains strong, with particular emphasis in the near-term on services supporting the U.S. Department of Defense. Among the key areas of focus within the U.S. federal market strengthened as a result of the DynCorp acquisition are homeland security, IT and business process outsourcing, enterprise modernization and telecommunications.

"The 29-month federal pipeline of opportunities currently stands at approximately $41 billion, evenly divided between DoD and civil agencies. Importantly, approximately $15 billion in federal contracts is scheduled to be awarded over the remainder of our fiscal 2004. We see demand for global commercial IT services continuing to fluctuate, depending on geography and specific customer needs. The market for global commercial IT infrastructure services continues to be firm, especially in Europe. During the first two quarters of the current fiscal year, we have announced $4.6 billion in commercial awards. Together with the $2.6 billion in commercial awards for the March quarter, commercial awards during the last nine months were $7.2 billion of the $11.6 billion total - an indicator of solid contributions to future revenue.

"As customers worldwide strive to increase their competitive advantage through improved operating efficiencies, CSC`s record of successful participation as a service provider in this cooperative effort has positioned us very well to take advantage of this commercial opportunity set," Honeycutt continued.

"The demand for short-term commercial consulting and systems integration services continues to be mixed, depending to a large degree on specific geographic market conditions. Our North American short-term project activities seem to have stabilized, but softness in Europe and Asia Pacific persists. The strength of our commercial outsourcing business in Europe during the quarter more than offset the reduced discretionary spending which normally fuels demand for global consulting and systems integration activity.

"Our announced awards for the second quarter were $3.5 billion, bringing the total through the first six months of fiscal 2004 to approximately $7.8 billion, which is already greater than the total for all of our last fiscal year," Honeycutt added. "Federal awards accounted for a significant portion of the second-quarter award total, resulting in a fairly even split between commercial and federal awards for the six-month period. More than 80% of our revenue is derived from longer-term, recurring revenue sources, split about equally between U.S. federal government and commercial engagements.

"For the third quarter of fiscal 2004, ending January 2, 2004, we believe revenues will be in the $3.6 billion range, and earnings per share (diluted) will be in the 68 cents to 70 cents range. We remain comfortable with the consensus revenue and earnings-per- share estimates for the full year. These quarterly and annual estimates exclude any further DynCorp acquisition-related special charge."

CSC adopted EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables," effective for the second quarter on a prospective basis. Its adoption did not have a significant impact on CSC`s revenue, earnings or balance sheet profile.

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The second-quarter pre-tax charge of $9.2 million relates to the DynCorp acquisition and principally represents the write-off of equipment that is not sufficiently robust to accommodate the larger, integrated business, and the cost to exit certain CSC facilities as legacy CSC and DynCorp operations are combined. In coming quarters, CSC expects to recognize additional acquisition-related charges not exceeding $7 million.

For the second quarter, revenue derived from CSC`s U.S. federal government activities continued to reflect the positive impact of the recent DynCorp acquisition. Revenues increased to $1.52 billion, up 97% from last year`s $771.7 million. Revenues generated from CSC`s DoD related activities more than doubled to $984.6 million from $449.3 million in last year`s second quarter. The quarter`s gain benefited materially from the DynCorp acquisition along with increases from ongoing work performed for the Naval Sea Systems Command`s multiple contracts and the Defense Enterprise Integration Services activity. CSC`s civil agencies revenue was $534.6 million, up 65.8% compared to the $322.4 million reported in the comparable quarter last year. The civil agencies quarterly growth was primarily attributable to the DynCorp acquisition.

Global commercial revenues were up 6.3% (approximately 1% in constant currency) to $2.07 billion compared with $1.95 billion in last year`s second quarter. U.S. commercial revenue was $932.0 million, down 1.9%. European revenue was $851.9 million, up 21.1% (approximately 11% in constant currency) compared to last year`s $703.5 million. Global commercial and European revenue were the beneficiaries of meaningful new outsourcing activities and favorable currency exchange rate movements. CSC`s non-European international revenue declined 2.3% (down approximately 13% in constant currency) to $288.1 million from $294.8 million in last year`s second quarter.

As announced in the company`s press release dated October 16, 2003, a teleconference will be held today at 5:00 p.m. EST to discuss the second-quarter results. This teleconference can be accessed from the CSC Web site at www.csc.com/investorrelations, in a listen-only mode.