Computer Sciences Corporation (CSC or the Company) is one of the world leaders in the information technology (I/T) and professional services industry. Since it was founded in 1959, the Company has helped clients use I/T more efficiently in order to improve their operations and profitability, achieve business results and focus on core competencies.

CSC offers a broad array of services to clients in the Global Commercial and government markets and specializes in the application of complex I/T to achieve its customers’ strategic objectives. Its service offerings include information technology and business process outsourcing, and I/T and professional services.

Outsourcing involves operating all or a portion of a customer’s technology infrastructure, including systems analysis, applications development, network operations, desktop computing and data center management. CSC also provides business process outsourcing, managing key functions for clients, such as procurement and supply chain, call centers and customer relationship management, credit services, claims processing and logistics.

I/T and professional services include systems integration, consulting and other professional services. Systems integration encompasses designing, developing, implementing and integrating complete information systems. Consulting and professional services includes advising clients on the strategic acquisition and utilization of I/T and on business strategy, security, modeling, simulation, engineering, operations, change management and business process reengineering.

CSC also licenses sophisticated software systems for the financial services markets and provides a broad array of end-to-end e-business solutions that meet the needs of large commercial and government clients. The Company focuses on delivering results by linking business innovation skills with seasoned delivery expertise to provide flexible and scalable solutions. To do so, CSC draws on its vast experience in designing, building and maintaining large, complex, mission-critical systems and applies this knowledge to today’s business challenges.

CSC does not have exclusive agreements with hardware or software providers and believes this vendor neutrality enables it to better identify and manage solutions specifically tailored to each client’s needs.

Major Markets

CSC provides its services to clients in Global Commercial industries and to the U.S. federal government. Segment and geographic information is included in Note 14 to the Company’s consolidated financial statements for the year ended April 1, 2005.

In the Global Commercial market sector, CSC’s service offerings are marketed to clients in a wide array of industries including aerospace/defense; automotive; chemical and energy; consumer goods; financial services; healthcare; manufacturing; retail/distribution; telecommunications; and utilities. CSC’s Global Commercial market sector includes U.S. state and local and foreign government clients.

CSC has provided I/T services to the U.S. federal government since 1961 and is one of its top I/T service providers and a top-ten contractor overall. The Company serves a broad federal customer base, including most civil departments and branches of the military, as well as the Department of Homeland Security. CSC provides a broad array of services to the U.S. federal government, ranging from traditional systems integration and outsourcing to complex project management and technical services. Key offerings

include enterprise modernization, telecommunications and networking, managed services, base and range operations, and training and simulation.

Geographically, CSC has major operations throughout North America, Europe and the Asia-Pacific region.

During the last three fiscal years, the Company’s revenue mix by major markets was as follows:

	2005		2004		2003
U.S. Commercial	27	%	27	%	34	%
Europe	31		27		27
Other International	9		9		10
Global Commercial	67		63		71
U.S. Federal Government	33		37		29
Total Revenues	100	%	100	%	100	%

Fiscal 2005 Overview

During fiscal 2005, CSC announced awards valued at approximately $16.0 billion for continuing operations ($16.8 billion including discontinued operations), including $9.0 billion of Global Commercial awards and $7.0 billion for continuing operations ($7.8 billion including discontinued operations) with the U.S. federal government. This total award level for continuing operations is a record for the Company. These multi-year awards represent the estimated value at contract signing. They cannot be considered firm orders, however, due to their variable attributes, including demand-driven usage, modifications in scope of work due to changing customer requirements, the annual funding constraints and indefinite delivery/indefinite quantity characteristics of major portions of the Company’s U.S. federal activities.

In a transaction designed to divest non-core operations and enhance the Company’s strategic and financial flexibility, CSC sold certain operations during February 2005. These operations, which are reported as discontinued operations, include DynCorp International and DynMarine units and selected DynCorp Technical Services contracts providing non-I/T services to U.S. federal government and international clients. This transaction allows the Company to continue focusing on its core strengths of providing a broad range of I/T, engineering and professional services to the U.S. federal government. The transaction also provided CSC additional capital resources to enhance the Company’s financial position.

During April 2005 CSC signed and completed an agreement to exchange the Company’s Health Plans Solutions (HPS) operations along with cash for CSC common shares. HPS develops enterprise software for the U.S. commercial healthcare industry, and was not considered a core business for the Company due to its platform and size. CSC will continue to provide a full range of I/T services to both government and commercial clients in the global healthcare market. The HPS business is reported as a discontinued operation. For further discussion, please see Notes 2 and 16, subsequent events.

Global Commercial Market Highlights

Within the Global Commercial market, there were several significant awards to CSC during fiscal 2005.

CSC’s largest commercial award during fiscal 2005 was the seven and a quarter year, $1.6 billion I/T outsourcing contract extension with General Dynamics. The agreement further bolsters this long-standing relationship dating back to 1991 when the Company was awarded a 10 year, $3 billion contract—one of the first and largest I/T services arrangements.

The Company expanded its relationship with Ascension Health, the largest U.S. nonprofit health system, through a new $1.35 billion, 10 year I/T services contract. This agreement adds to the seven year,

$200 million I/T services award last fiscal year. Under the new arrangement, CSC will manage help desk, network, security and telecommunications services as well as server, mainframe and desktop computing for 32 Ascension Health ministries and 80 facilities.

Zurich Financial Services, a global insurance-based financial services provider headquartered in Switzerland, and CSC signed a seven year, $1.3 billion (if all options are exercised) I/T applications outsourcing contract which calls for the Company to assume responsibility for all applications development and support services. Applications within the scope of this agreement support all insurance lines and all business processes including new business underwriting, customer service and claims.

CSC signed a $1.1 billion, 10 year agreement to provide I/T infrastructure and network support services to Textron Inc., a global multi-industry company. Under the terms of the arrangement, the Company will manage and support Textron’s global data center, help desk and network operations, in addition to mainframe and midrange systems, desktops and engineering workstations.

Aon Corporation, a leading provider of risk management and workforce productivity solutions, entered into a seven year, $600 million I/T infrastructure support services contract with the Company. CSC will operate and manage Aon’s domestic telecommunications and data networks, desktop support and related help desk services. CSC and Aon Human Resources Outsourcing also have formed a strategic alliance to develop and deliver human resources business process outsourcing, for which the Company will provide I/T application and infrastructure outsourcing services on these engagements.

The Company entered into a $360 million, five year I/T applications management services agreement with Sun Microsystems. The arrangement calls for CSC to manage Sun’s full portfolio of business systems applications, including finance, manufacturing, messaging, enterprise resource planning, customer relationship management and data warehousing.

Renault, the international automaker, and CSC signed a five year, $236 million I/T infrastructure services contract calling for the Company to deliver network, midrange and mainframe support to Renault sites in France and Spain.

U.S. Federal Government Market Highlights

There were several significant awards to CSC during fiscal 2005 from the U.S. federal government.

The Company’s largest U.S. Federal Government award during the fiscal year was the U.S. Navy SeaPort Enhanced contract. CSC is one of a number of companies selected to compete for work under the $41.8 billion, 15 year arrangement for a broad range of comprehensive professional support services including engineering, technical and programmatic support to the Navy’s eight Warfare Center divisions. The Company’s portion of the arrangement is estimated to be $950 million (if all options are exercised), and is an extension of activities CSC currently performs under previously awarded contracts.

CSC was awarded a $762 million, 15 year (if all options are exercised) contract to operate and maintain the U.S. Navy’s Atlantic Undersea Test and Evaluation Center. The Company will deliver services including conducting test programs, operating range instrumentation and test support systems, and performing all base operations functions.

The Federal Aviation Administration (FAA) selected the Company for an 11 year, $589 million (if all options are exercised) agreement to modernize and add functionality to portions of the National Airspace System, increasing airspace capacity and reducing costs. This award calls for CSC to establish an open architecture platform, upgrade the core elements of the existing system and network FAA I/T infrastructure.

The Company signed a $525 million, 10 year (if all options are exercised) arrangement calling for CSC to provide I/T infrastructure support services to the U.S. Strategic Command. Under the terms of the

award, the Company will deliver operations maintenance and logistics, systems engineering, program management and procurement functions including management of desktops, servers, networks and related services.

The U.S. Army Aviation & Missile Command awarded CSC an 11 year, $500 million (if all options are exercised) Expedited Professional and Engineering Support Services blanket purchase agreement to provide technical domain advisory and assistance services, and systems engineering and analysis. The Company will support the design, development, testing, prototyping and integration of missile and aviation systems.

The U.S. Patent and Trademark Office awarded CSC an eight year, $280 million (if all options are exercised) agreement to deliver systems design, development, implementation, integration, maintenance, testing and training. The Company will also assess performance effectiveness and provide feedback to evolve and improve life cycle processes and enterprise architecture.

COMPETITION

The I/T and professional services markets in which CSC competes are not dominated by a single company or a small number of companies. A substantial number of companies offer services that overlap and are competitive with those offered by the Company. Some of these are large industrial firms, including computer manufacturers and major aerospace firms that may have greater financial resources than CSC and, in some cases, may have greater capacity to perform services similar to those provided by the Company.

CSC’s ability to obtain business is dependent upon its ability to offer better strategic concepts and technical solutions, better value, a quicker response, more flexibility or a combination of these factors. In the opinion of the Company’s management, CSC is positioned to compete effectively in the Global Commercial and U.S. federal government markets based on its technology and systems expertise and large project management skills. It is also management’s opinion that CSC’s competitive position is enhanced by the full spectrum of I/T and professional services it provides, from consulting to software and systems design, implementation and integration, to information technology and business process outsourcing to technical services.

EMPLOYEES

The Company has offices worldwide, and as of April 1, 2005 employed approximately 79,000 persons. The services provided by CSC require proficiency in many fields, such as computer sciences, programming, mathematics, physics, engineering, astronomy, geology, operations, research, economics, statistics and business administration.

U.S. SECURITIES AND EXCHANGE COMMISSION REPORTS

All of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to the U.S. Securities and Exchange Commission (SEC) on or after January 19, 1995 are available free of charge through the Company’s Internet website, www.csc.com, as soon as reasonably practical after the Company has electronically filed such material with, or furnished it to, the SEC.

Item 2. Properties

Owned properties as of April 1, 2005		Approximate Square Footage	General Usage
Blythewood, South Carolina	521,000		Computer and General Office
Austin, Texas	404,000		General Office
Falls Church, Virginia	401,000		General Office
Copenhagen, Denmark	368,000		Computer and General Office
Aldershot, United Kingdom	268,000		General Office
El Segundo, California	206,000		General Office
Newark, Delaware	176,000		Computer and General Office
San Diego, California	162,000		Computer and General Office
Taastrup, Denmark	147,000		Computer and General Office
Norwich, Connecticut	144,000		Computer and General Office
Petaling Jaya, Malaysia	126,000		Computer and General Office
Berkeley Heights, New Jersey	119,000		Computer and General Office
Meriden, Connecticut	118,000		Computer and General Office
Aaurus, Denmark	104,000		General Office
Moorestown, New Jersey	99,000		General Office
Chesterfield, United Kingdom	80,000		Computer and General Office
Maidstone, United Kingdom	79,000		Computer and General Office
Shatin, Hong Kong	74,000		General Office
Singapore	61,000		General Office
Jacksonville, Illinois	60,000		General Office
Sterling, Virginia	41,000		General Office
Various other U.S. and foreign locations	149,000		General Office
Leased properties as of April 1, 2005
Washington, D.C. area	3,166,000		Computer and General Office
Texas	908,000		Computer and General Office
Australia & other Pacific Rim locations	895,000		General Office
Georgia	834,000		General Office
Germany	758,000		General Office
New Jersey	649,000		General Office
England	554,000		Computer and General Office
Denmark	443,000		General Office
Ohio	438,000		General Office
Connecticut	422,000		General Office
Alabama	401,000		General Office
New York	382,000		General Office
Tennessee	353,000		General Office
Massachusetts	341,000		General Office
California	291,000		General Office
Delaware	250,000		General Office
France	247,000		General Office
Illinois	246,000		General Office
Florida	212,000		General Office
Sweden	209,000		General Office
Various other U.S. and foreign locations	2,579,000		Computer and General Office

Upon expiration of its leases, the Company does not anticipate any difficulty in obtaining renewals or alternative space. Lease expiration dates range from fiscal 2006 through 2018.

Item 3. Legal Proceedings

The Company is currently party to a number of disputes which involve or may involve litigation.

CSC is engaged in providing services under contracts with the U.S. Government. The contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Government investigate whether the Company’s operations are being conducted in accordance with these requirements. U.S. Government investigations of the Company, whether related to the Company’s federal government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon the Company, or could lead to suspension or debarment from future U.S. Government contracting. The Company believes it has adequately reserved for any losses we may experience from these investigations.

In the course of business, discrepancies or claims may arise as to the use or reliability of various software products provided by the Company for its customers. On February 11, 2005, the Company was named, along with other vendors to the insurance industry, and dozens of insurance companies in Hensley, et al. vs. Computer Sciences Corporation, et al., filed as a putative nationwide class action in state court in Miller County, Arkansas shortly before President Bush signed the Class Action Fairness Act into law. The plaintiffs allege the defendants conspired to wrongfully use software products licensed by the Company and the other software vendors to reduce the amount paid to the licensees’ insureds for bodily injury claims. Plaintiffs also allege wrongful concealment of the manner in which these software programs evaluate claims and wrongful concealment of information about alleged inherent errors and flaws in the software. Plaintiffs seek injunctive and monetary relief of less than $75,000 for each class member, as well as attorney’s fees and costs. The Company intends to defend itself vigorously against the allegations.

Litigation is inherently uncertain and it is not possible to predict the ultimate outcome of the matters discussed above. Considering the early stage of the Hensley case, the complicated issues presented by that matter, the fact that some defendants are seeking to remove this case to federal court and the fact that no class has been certified, it is not possible at this time to make meaningful estimates of the amount or range of loss that could result from this matter. It is possible that the Company’s business, financial condition, results of operations, or cash flows could be affected by the resolution of this matter. Whether any losses, damages or remedies ultimately resulting from this proceeding could reasonably have a material effect on the Company’s business, financial condition, results of operations, or cash flows will depend on a number of variables, including, for example, the timing and amount of such losses or damages, if any, and the structure and type of any such remedies. Depending on the ultimate resolution of these matters, some may be material to the Company’s operating results for a particular period if an unfavorable outcome results, although such a material unfavorable result is not presently expected, and all other litigation, in the aggregate, is not expected to result in a material adverse impact to the consolidated financial statements.

In an April 21 News Release and an April 25 filing of a Form 8-K, the Company announced the settlement of an overtime pay class action lawsuit against the Company. Under the settlement agreement, which has been preliminarily approved by the U.S. District Court of the Central District of California, approximately 30,000 current and former employees are entitled to make claims from the $24 million settlement. In accordance with prior guidance, after application of previously established accruals, a pre-tax charge of $14 million has been recorded in the fourth quarter, ended April 1, 2005. Disbursements to claimants are expected to begin in late August following final approval from the Court.

As reflected by Form 8-K filings made by Sears Holdings Corporation (SHC) on May 13, 2005 (following merger with K-Mart Holding Corporation), and by the Company on May 16, 2005, SHC’s subsidiary, Sears, Roebuck and Co. (Sears), and the Company are in dispute over applicable termination fees following Sears’ termination of its Master Services Agreement (Agreement) with the Company on May 11, 2005. The dispute is expected to be resolved pursuant to legal and arbitration proceedings during the summer of 2005. As of April 1, 2005, the Company had invested in net assets associated with the

Agreement, including accounts receivable, prepaid expense, software, property, plant and equipment, as well as other commitments. In addition to the above, the Company’s assets include $33 million of net outsourcing contract costs. The Company will vigorously pursue recovery for its associated assets and commitments. While the Company expects full recovery of its investments associated with this Agreement, if unsuccessful, the Company may experience a charge, which could be material, associated with the impairment of these assets.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Registrant

Name

Age

Year First
Elected as
an Officer

Term as
an Officer

Position Held
With the Registrant

Family
Relationship

Van B. Honeycutt^*

1987

Indefinite

Chairman and Chief
Executive Officer

None

Michael W. Laphen

2001

Indefinite

President and Chief
Operating Officer

None

Leon J. Level^*

1989

Indefinite

Vice President and Chief
Financial Officer

None

Harvey N. Bernstein

1988

Indefinite

Vice President

None

Paul M. Cofoni

2001

Indefinite

Vice President

None

Donald G. DeBuck

2001

Indefinite

Vice President and Controller

None

Hayward D. Fisk

1989

Indefinite

Vice President, General
Counsel and Secretary

None

Thomas R. Irvin

2004

Indefinite

Vice President and Treasurer

None

Paul T. Tucker

1997

Indefinite

Vice President

None

^* Director of the Company

Business Experience of Officers

Van B. Honeycutt joined the Company in 1975. He was elected Chief Executive Officer in April 1995, and Chairman of the Board of Directors in March 1997. He has been a director of the Company since 1993. Previous positions within the Company include President and Chief Operating Officer (1993-1995), President of the Industry Services Group (1988-1993), and President of CSC Credit Services, Inc. (1983-1988).

Michael W. Laphen joined the Company in 1977 and was elected President and Chief Operating Officer in April 2003 and Vice President in August 2001. He was President of the European Group from August 2000 to March 2003. Previous positions within the Company include President of the Federal Sector—Civil Group (1998-2000), and President of Systems Group—Integrated Systems Division (1992-1998).

Leon J. Level joined the Company in 1989 as Vice President and Chief Financial Officer and as a member of CSC’s Board of Directors. Former positions include Vice President and Treasurer of Unisys Corporation and Chairman of Unisys Finance Corporation; Assistant Corporate Controller and Executive Director of The Bendix Corporation; and Principal with the public accounting firm of Deloitte & Touche LLP.

Harvey N. Bernstein joined the Company as Assistant General Counsel in 1983. He became Deputy General Counsel and was elected a Vice President in 1988. Prior to joining the Company, he specialized in government procurement law at the firm of Fried, Frank, Harris, Shriver & Jacobson in Washington, D.C.

Paul M. Cofoni joined the Company in 1991 and was elected Vice President in August 2001. He has been President of the Federal sector since June 2001. Previous positions within the Company include President of the Technology Management Group (1998-2001) and Vice President of the Technology Management Group’s Eastern Region (1991-1998). Prior to joining the Company, he had a 17 year career with General Dynamics Corporation, where he held various executive-level positions.

Donald G. DeBuck joined the Company in 1979 and was elected Vice President and Controller in August 2001. Previous positions within the Company include Assistant Controller (1998-2001) and Vice President of Finance and Administration, Communications Industry Services (1996-1998).

Hayward D. Fisk joined the Company in 1989 as Vice President, General Counsel and Secretary. Prior to joining the Company, he was associated for 21 years with Sprint Corporation (formerly United Telecommunications, Inc.), in various legal and executive officer positions, most recently as Vice President and Associate General Counsel.

Thomas R. Irvin joined the Company as Assistant Treasurer in 1987 and was elected Vice President and Treasurer in November 2004. Prior to joining the Company, he held various financial and engineering positions with Ni-Cal Development Corporation, Raytheon and Dravo Corporation.

Paul T. Tucker joined the Company in 1996 as a Corporate Development executive, and in August 1997 was elected Vice President of Corporate Development. From 1990 to 1995 he was President and Chief Executive Officer of Knight-Ridder Financial, an electronic real-time financial market information company. Previously, he founded and served as President and Chief Technologist of HAL Communications Corp., a communications hardware and software company and was an Associate Professor and Senior Research Engineer at the University of Illinois.

PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a) Holders

Common stock of Computer Sciences Corporation is listed and traded on the New York Stock Exchange under the ticker symbol “CSC.”

As of May 17, 2005 the number of registered shareholders of Computer Sciences Corporation’s common stock was 10,222. The table shows the high and low intra-day prices of the Company’s common stock as reported on the composite tape of the New York Stock Exchange for each quarter during the last two calendar years and through May 17, 2005.

	2005				2004		2003
Calendar Quarter	High		Low		High	Low	High	Low
1^st	56.51		44.03		47.00	39.60	36.65	27.50
2^nd	48.87	^*	42.31	^*	46.43	38.07	42.61	26.52
3^rd					48.98	40.80	44.95	36.70
4^th					58.00	46.70	44.99	37.38

* Through May 17, 2005

(b) Purchases of Equity Securities

The following table provides information on a monthly basis for the fourth quarter ended April 1, 2005 with respect to the Company’s purchases of equity securities.

Period

Total Number
of Shares
Purchased(1)

Average Price
Paid Per
Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs

Maximum
Number of
Shares that
May Yet Be
Purchased
Under the
Plans or
Program

January 1, 2005 to January 28, 2005

638

50.34

January 29, 2005 to February 25, 2005

February 26, 2005 to April 1, 2005

⁽¹⁾ The Company accepted 638 shares of its common stock in fourth quarter ended April 1, 2005 from employees in lieu of cash due to the Company in connection with the exercise of stock options. Such shares of common stock are stated at cost and held as treasury shares to be used for general corporate purposes.

Item 6. Selected Financial Data

COMPUTER SCIENCES CORPORATION

	Five-Year Review
In millions except per-share amounts	April 1, 2005				April 2, 2004				March 28, 2003				March 29, 2002				March 30, 2001
Total assets		$	12,633.9			$	11,804.0			$	10,433.2			$	8,610.5			$	8,174.8
Debt:
Long-term		1,303.0				2,306.4				2,204.7				1,872.9				1,029.0
Short-term		78.4				52.9				249.9				309.6				1,195.7
Current maturities		7.3				7.2				24.7				21.3				158.7
Total		1,388.7				2,366.5				2,479.3				2,203.8				2,383.4
Stockholders’ equity		6,494.7				5,503.7				4,606.4				3,623.6				3,215.2
Working capital		1,811.9				1,974.1				1,475.3				624.5				(329.1		)
Property and equipment:
At cost		5,520.3				4,988.9				4,131.2				3,844.6				3,466.5
Accumulated depreciation and amortization		3,154.9				2,818.9				2,152.6				1,947.4				1,625.2
Property and equipment, net		2,365.4				2,170.0				1,978.6				1,897.2				1,841.3
Current assets to current liabilities		1.5:1				1.6:1				1.5:1				1.2:1				0.9:1
Debt to total capitalization		17.6		%		30.1		%		35.0		%		37.8		%		42.6		%
Book value per share		$	33.97			$	29.30			$	24.66			$	21.17			$	19.06
Stock price range (high)		58.00				47.00				50.10				53.47				99.88
(low)		38.07				26.52				24.30				28.99				29.50

Five-Year Review (Continued)

	Fiscal Year
In millions except per-share amounts	2005		2004		2003		2002			2001
Revenues	$	14,058.6	$	13,447.9	$	11,162.3	$	11,256.6		$	10,391.3
Costs of services	11,315.1		10,828.2		8,934.9		9,080.0			8,334.9
Selling, general and administrative	807.8		793.7		699.5		734.9			757.4
Depreciation and amortization	1,051.0		966.0		799.7		799.4			634.8
Interest, net	140.7		160.6		134.3		142.4			89.8
Special items	28.6		22.7		1.3		(1.5		)	222.0
Total costs and expenses	13,343.2		12,771.2		10,569.7		10,755.2			10,038.9
Income before taxes	715.4		676.7		592.6		501.4			352.4
Taxes on income	219.0		200.5		164.1		154.5			105.6
Income from continuing operations	$	496.4	$	476.2	$	428.5	$	346.9		$	246.8
Basic earnings per common share, continuing operations	$	2.62	$	2.54	$	2.49	$	2.04		$	1.47
Diluted earnings per common share, continuing operations	$	2.59	$	2.52	$	2.48	$	2.03		$	1.45
Average common shares outstanding	189.575		187.273		172.317		170.054			168.260
Average common shares outstanding assuming dilution	191.799		188.704		173.119		171.279			170.767

Notes:

Special items represent charges incurred for exit and disposal activities and charges related to the early retirement of debt.

No dividends were paid by CSC during the five years presented.

Operating results for fiscal 2004, fiscal 2003, fiscal 2002 and fiscal 2001 have been restated to conform to the current presentation with regard to the Company’s reporting of certain activities which were sold or classified as available for sale during 2005 as discontinued operations, see Note 2.

The consolidated financial statements included in Item 8 of this Annual Report present income from discontinued operations and the gain on sale of discontinued operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

GENERAL

The following discussion and analysis provides information that management believes is 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 Company’s consolidated financial statements and notes thereto for the year ended April 1, 2005. There are three primary objectives of this discussion:

· to provide a narrative explanation of the consolidated financial statements, as presented through the eyes of management;

· to enhance the disclosures in the consolidated financial statements and footnotes, providing context within which the consolidated financial statements should be analyzed; and

· to provide information to assist the reader in ascertaining the predictive value of the reported financial results.

To achieve these objectives, the discussion is presented in the following sections:

Overview—includes a brief description of the business and how it earns revenue and generates cash, as well as a discussion of the key business drivers, economic and industry factors, fiscal 2005 highlights and fiscal 2006 commentary.

Results of Operations—discusses year-over-year changes to operating results for fiscal 2003 to 2005, describing the factors affecting revenue on a consolidated and reporting segment basis, including new contracts, acquisitions and currency impacts, and also by describing the factors affecting changes in the major cost and expense categories.

Financial Condition—discusses causes of changes in cash flows and describes the Company’s liquidity position and available capital resources.

Critical Accounting Estimates—discusses accounting policies that require critical judgments and estimates.

Forward-Looking Statements and Risk Factors that May Affect Future Results—describes the nature of forward-looking statements and lists several factors that may affect future results.

OVERVIEW

The Company’s primary service offerings are outsourcing and I/T and professional services. Outsourcing activities include operating all or a portion of a customer’s technology infrastructure and applications, and business process outsourcing. I/T and professional services include systems integration, consulting and other professional services and software systems sales and related services. CSC provides these services to customers in the Global Commercial and U.S. federal government markets. On a geographic basis, CSC provides services to Global Commercial customers in the United States, Europe and other international locations. Operations in Australia, Asia and Canada generate substantially all revenue within Other International.

Economic and Industry Factors

Global Commercial markets are affected by various economic and industry factors. The economic environment in the regions CSC serves will impact customers’ decisions for discretionary spending on I/T projects. CSC is in a highly competitive industry which pressures pricing and requires companies to continually seek ways to differentiate themselves through several factors, including service offerings and

flexibility. Management monitors industry factors including relative market shares, growth rates, billing rates, staff utilization rates and margins as well as macroeconomic indicators such as interest rates, inflation rates and foreign currency rates.

The U.S. federal market is also highly competitive and has unique characteristics. All U.S. government contracts and subcontracts may be modified, curtailed or terminated at the convenience of the government if program requirements or budgetary constraints change. In the event that a contract is terminated for convenience, the Company generally is reimbursed for its allowable costs through the date of termination and is paid a proportionate amount of the stipulated profit or fee attributable to the work performed. Shifting priorities of the U.S. government can also impact the future of projects. The Company recognized the U.S. government’s increased priorities on defense and homeland security programs and has focused business development efforts in these areas. Management monitors government priorities and industry factors through numerous industry and government publications and forecasts, legislative activity, budgeting and appropriation processes and by participating in industry professional associations.

Business Drivers

Revenue is generated by providing services on a variety of contract vehicles lasting from less than six months to 10 years or more. Factors affecting revenue include:

· the Company’s ability to successfully bid on and win new contract awards,

· the ability to satisfy existing customers and obtain add-on business and win contract re-competes,

· the ability to compete on price, services offered, technical ability, experience and flexibility,

· the ability to successfully identify and integrate acquisitions and leverage them to generate new revenues,

· the ability to successfully identify and divest non-core operations which may impact revenue in the short-term but provide resources to pursue longer-term growth opportunities, and

· for international business, currency fluctuations.

Earnings are driven by the above revenue factors, in addition to the following:

· the ability to control costs, particularly labor costs, subcontractor expenses and overhead costs including healthcare, pension and general and administrative costs,

· the ability to anticipate headcount needs to avoid staff shortages or excesses, and

· the ability to accurately estimate various factors incorporated in contract bids and proposals.

Cash flows are impacted by the above earnings, in addition to other factors including the following:

· timely management of receivables and payables,

· investment opportunities available, particularly related to business acquisitions and dispositions and large outsourcing contracts, and

· the ability to efficiently manage capital including debt and equity instruments.

Key Performance Indicators

The Company manages and assesses the performance of its business through various means, with the primary financial measures including new contract wins, revenue growth, margins, cash flow and return on investment.

New contract wins—In addition to being a primary driver of future revenue, focusing on new contract wins also provides management an assessment of the Company’s ability to compete. The total level of wins tends to fluctuate from year to year depending on the timing of new and recompeted contracts as well as numerous external factors. CSC employs stringent financial and operational reviews and discipline in the new contract process to evaluate risks and generate appropriate margins and returns from new contracts.

Revenue growth—Year-over-year revenues tend to vary less than new contract wins, and reflect performance on both new and existing contracts. With a wide array of services offered, the Company is able to pursue additional work from existing customers. In addition, incremental increases in revenue will not necessarily result in linear increases in costs, particularly overhead and other indirect costs, thus potentially improving profit margins. Foreign currency fluctuations also impact revenue growth.

Margins—Margins reflect the Company’s performance on contracts and ability to control costs. While the ratios of various cost elements as a percentage of revenue can shift as a result of acquisitions or dispositions of business with different cost profiles, as with the impact of the March 2003 Dyncorp acquisition, a focus on maintaining and improving overall margins leads to improved efficiencies and profitability. Although the majority of the Company’s costs are denominated in the same currency as revenues, increased use of off-shore support also exposes CSC to additional margin fluctuations.

Cash flow—A primary driver affecting CSC’s cash flow is the ability to manage receivables and payables. Thus, a review of the receivables measurement of “days sales outstanding” (DSO) supports an ongoing focus on timely collections. The Company also regularly reviews the U.S. Generally Accepted Accounting Principles (GAAP) cash flow measurements of operating, investing and financing cash flows.

Return on investment (ROI)—ROI is an effective indicator combining a focus on margins with efficient and productive net asset utilization. A combination of strong margins (measures how efficiently profit is generated from revenue) and investment base turnover (measures how effectively revenue is generated from investors’ capital) is required to generate sufficient returns on capital. In addition, the timing of cash flows impacts ROI, so that large, up-front investments particularly on new outsourcing contracts require higher margins in order to generate adequate ROI.

Readers should be cautioned that DSO, free cash flow and ROI are not GAAP measures, and that the Company’s definition of such measures may differ from other companies. Therefore, such measures may not be comparable to other companies. CSC calculates DSO as follows: Total receivables at quarter-end divided by revenue-per-day. Revenue-per-day equals total revenues for the quarter divided by the number of days in the fiscal quarter. Free cash flow is equal to the sum of operating and investing cash flows, excluding acquisitions and dispositions and purchases or sales of available for sale securities. ROI is calculated by multiplying profit margin times investment base turnover. The profit margin used is profit before interest and special items and after tax divided by revenues. Investment base turnover equals revenues divided by average debt and equity.

Fiscal 2005 Highlights

A significant event during fiscal 2005 was the February divestiture of the Company’s DynCorp International and DynMarine units and selected DynCorp Technical Services contracts (referred to collectively as DynCorp International or DI). The DI operations were purchased with DynCorp in March 2003. All results reported here classify these operations as discontinued operations. Also, the Company exchanged its Health Plans Solutions business for shares of CSC stock in April 2005. These operations also are classified as discontinued operations in this Report.

The DynCorp International divestiture resulted in an after tax gain of $228.8 million on $850 million of proceeds, consisting of $775 million of cash and $75 million of paid-in-kind preferred stock, reported in fiscal 2005. Additional gain is expected to be realized in fiscal 2006 from working capital adjustment

consideration expected to be received, which will increase the gain. Net income from the DI operations for the year was $73.2 million, an increase of 117% from fiscal 2004, notwithstanding fiscal 2005’s partial year results. Revenue for the partial year of discontinued DI operations was $1,683.7 million, up 40% from fiscal 2004.

Health Plans Solutions realized net income of $11.8 million for fiscal 2005 versus $9.3 million for fiscal 2004. Revenues were $107.8 million versus $114.2 million for fiscal 2005 versus fiscal 2004, respectively.

As the results of operations of DI and Health Plan Solutions are reported as discontinued operations, all revenue commentary, unless otherwise noted, refers to continuing operations only.

Continuing operations highlights for the year included:

· Revenues rose 4.5%, approximately 1.8% before currency fluctuations.

· Net income grew 5.6%.

· Continuing earnings per share were up 2.8%, 3.1% before special items.

· Contract awards of $16.0 billion were announced, a record for CSC, with new Global Commercial awards totaling $9.0 billion and new U.S. Federal awards of $7.0 billion.

· Cash flows from operating activities generated $1.9 billion versus $1.7 billion in fiscal 2004, investing activities used cash of $.6 billion ($1.4 billion before disposition proceeds of $.8 billion) versus $1.3 billion in the prior year, and free cash flow grew to $501 million, up from $355 million in fiscal 2004.

· DSO improved to 83 days at year-end, down from 85 days at the end of the prior year.

· Debt-to-total capitalization ratio was 17.6% at year-end, improved from 30.1% a year earlier, results that include the impact of $1 billion in debt retirement.

· ROI for the year on total operations was 8.7% flat compared with the prior year.

The Company’s level of announced new business awards was the highest in CSC’s history. Significant wins included the following:

Global Commercial:

· General Dynamics ($1.60 billion),

· Ascension Health ($1.35 billion),

· Zurich Financial Services ($1.3 billion),

· Textron Incorporated ($1.1 billion),

· Aon ($600 million),

· Sun Microsystems ($360 million), and

· Renault ($236 million).

U.S. Federal:

· U.S. Navy SeaPort Enhanced ($950 million),

· U.S. Navy’s Atlantic Undersea Test and Evaluation Center ($762 million),

· Federal Aviation Administration ($589 million),

· U.S. Strategic Command ($525 million),

· U.S. Army Aviation and Missile Command ($500 million), and

· U.S. Patent and Trademark Office ($280 million).

These multi-year awards represent the estimated value at contract signing. However, they cannot be considered firm orders due to their variable attributes, including demand-driven usage, modifications in scope of work due to changing customer requirements, annual funding constraints and indefinite delivery/indefinite quantity characteristics of major portions of the Company’s U.S. Federal activities.

Revenue growth in the Global Commercial sector was the result of recent years’ significant contract wins, particularly in Europe. U.S. Federal sector wins have also been strong, but for fiscal 2005 their revenue impact was offset by the completion, reduced scope or de-consolidation of a small number of significant programs. Currency shifts during the year also favorably impacted revenue. The Company’s growth has created a broad, long-term global revenue base across numerous customers, industries, geographic regions and service offerings. Approximately 80% of CSC’s revenues come from long-term contracts including Global Commercial outsourcing and U.S. federal government engagements.

An increase in cash flow from operations during fiscal 2005 reduced the Company’s use of commercial paper during the year. This reduction in commercial paper coupled with the redemption of $1 billion of term debt during fiscal 2005 significantly reduced the debt to total capitalization ratio at year end. The increase in cash flow from operations was driven by higher earnings during fiscal 2005 as well as an increase in non-cash expenses and deferred revenue.

Fiscal 2006 Commentary

As a top-ten contractor and I/T service provider to the U.S. federal government, CSC’s U.S. Federal sector is well-positioned to benefit from anticipated growing demand. The U.S. federal government is one of the world’s largest I/T services consumers, and its spending is expected to continue to increase during the upcoming year in order to improve technologies in the areas of defense, homeland security and civil agency modernization. While the ultimate distribution of U.S. federal funds and project assignments can vary, the Company expects its broad I/T and outsourcing capabilities to be viewed favorably by the U.S. federal government.

While demand for I/T outsourcing services continues to grow, particularly in Europe, the I/T services industry continued to experience overall flat global demand for commercial project-oriented activities during fiscal 2005. Many customers maintained lower levels of discretionary spending in response to the economic environment in their region, particularly in Central Europe. However, indications suggest stabilization in the North American market’s demand for consulting and systems integration services, although the Company expects continued global price pressure resulting from supply conditions. Worldwide global demand for outsourcing services is expected to be strong again during fiscal 2006, particularly for business process outsourcing (BPO). To capitalize on the expanding human resources (HR) BPO market, CSC entered into a strategic alliance with Aon Human Resources Outsourcing to deliver HR BPO services. While the future demand for outsourcing services is not known with certainty, the long-term nature of major outsourcing engagements allows CSC to benefit from a certain level of continuity. Thus, the record-setting year of new business awards for continuing operations, much of which came from new outsourcing engagements is expected to generate growth in fiscal 2006 Global Commercial revenues. During fiscal 2005, the Company’s Global Commercial segment benefited from currency fluctuations in Europe and Other International regions. The Company cannot forecast with certainty future movement in currency exchange rates or its impact on operating results.

The Company’s overall short-term financial objectives include:

1. Successfully launch the numerous new contracts won during fiscal 2005, with particular focus on the large new outsourcing contracts.

2. Effectively manage working capital and capital investment.

3. Maintain appropriate investment base turnover rates and operating margins, particularly focusing on the new business, in order to generate an improved return on investment.

4. Pursue the large current pipeline of commercial and U.S. Federal opportunities and win the Company’s proportionate share.

5. Strategically deploy the proceeds of recent divestitures to further strengthen the Company’s financial position and capitalize on growth and expansion opportunities.

The Company’s primary long-term objective is to continue developing and obtaining the core capabilities and differentiating factors that will enable CSC to compete effectively in both the Federal and Global Commercial markets. The Company will continue to evaluate strategic opportunities that enhance its core capabilities and review its portfolio of business operations for overall strategic fit. Continued long-term revenue and earnings growth will come from the combination of internal growth and acquisitions.

RESULTS OF OPERATIONS

Revenues

Revenues for the Global Commercial and U.S. Federal sector segments (see Note 14) for fiscal 2005, fiscal 2004 and fiscal 2003 are as follows:

	Fiscal 2005					Fiscal 2004					Fiscal 2003
Dollars in millions	Amount		Percent Change			Amount		Percent Change			Amount
U.S. Commercial	$	3,829.7		7.2	%	$	3,572.0		(4.6	)%	$	3,742.8
Europe	4,325.7			17.5		3,681.8			23.5		2,981.2
Other International	1,227.3			1.4		1,210.8			5.1		1,151.6
Global Commercial sector	9,382.7			10.8		8,464.6			7.5		7,875.6
U.S. Federal sector	4,675.9			(6.2	)	4,983.1			51.5		3,288.6
Corporate						.2					(1.9		)
Total	$	14,058.6		4.5		$	13,447.9		20.5		$	11,162.3

The major factors affecting the percent change in revenues are presented as follows:

Fiscal 2005 vs. Fiscal 2004

	Approximate Impact of Currency Fluctuations			Net Internal Growth			Total
U.S. Commercial					7.2	%	7.2	%
Europe		8.5	%		9.0		17.5
Other International		5.0			(3.6	)	1.4
Global Commercial sector		4.4			6.4		10.8
U.S. Federal sector					(6.2	)	(6.2	)
Corporate
Total		2.7			1.8		4.5

Fiscal 2004 vs. Fiscal 2003

	DynCorp Acquisition	Approximate Impact of Currency Fluctuations			Net Internal Growth			Total
U.S. Commercial						(4.6	)%	(4.6	)%
Europe			16.1	%		7.4		23.5
Other International			13.4			(8.3	)	5.1

Nevada	95-2043126
(State of incorporation or organization)	(I.R.S. Employer Identification No.)
2100 East Grand Avenue	90245
El Segundo, California	(zip code)
(Address of principal executive offices)

Title of each class:		Name of each exchange on which registered
Common Stock, $1.00 par value per share		New York Stock Exchange
Preferred Stock Purchase Rights

	COMPUTER SCIENCES CORPORATION
	(Exact name of Registrant as specified in its charter)

Item		Page
1.	Business		1
2.	Properties		5
3.	Legal Proceedings		6
4.	Submission of Matters to a Vote of Security Holders		7
Part II
5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		9
6.	Selected Financial Data		10
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
7A.	Quantitative and Qualitative Disclosures About Market Risk		34
8.	Consolidated Financial Statements and Supplementary Data		35
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		84
9A.	Controls and Procedures		84
Part III
10.	Directors and Executive Officers of the Registrant		85
11.	Executive Compensation		85
12.	Security Ownership of Certain Beneficial Owners and Management		85
13.	Certain Relationships and Related Transactions		85
14.	Principal Accountant Fees and Services		85
Part IV
15.	Exhibits		85