(1) Other revenues consist of state and local government as well as commercial contracts performed by the U.S. Federal sector reporting segment.

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Taking into account the additional week in first quarter fiscal 2004, revenues from Federal sector showed moderate year over year growth in the first quarter of fiscal 2005 primarily from Civil agencies contracts, most notably certain contracts to provide assistance to government programs abroad. This was partially offset by $16 million in volume reductions on contracts with NASA and the Internal Revenue Service and the conclusion of programs with NASA, Centers for Disease Control and Prevention, and the Federal Bureau of Investigation which together provided $42 million of revenue in the first quarter of fiscal 2004. Revenue from the Department of Defense was up for the quarter primarily from contracts for missile defense, a US Navy multiple award contract and several intelligence contracts which combined for $89 million of additional revenue. Partially offsetting this growth was a $38 million reduction in revenues due to completion of certain logistics contracts with the US Army and the impact of a previously consolidated joint venture which is no longer consolidated due to a reorganization which resulted in minority ownership for CSC.

During the first quarter of fiscal 2005 the Company announced federal contract awards with a total value of $2.7 billion, compared to $474 million announced during the first quarter of fiscal 2004. The fiscal 2005 awards had minimal impact on first quarter revenue but are expected to have a positive impact on revenue for the remainder of fiscal 2005.

Costs and Expenses

The Company's costs and expenses were as follows (in millions):

Comparing the first quarter of fiscal 2005 and 2004, total costs and expenses decreased as a percentage of revenue. Lower costs of services as a percentage of revenue and the impact of the special item in fiscal 2004 were partly offset by higher depreciation and amortization, and selling, general and administrative costs.

The Company substantially matches revenues and costs in the same currency. Therefore, the foreign currency impact of approximately 2.6 percentage points for the quarter on revenues and costs did not have a material impact on costs and expenses as a percentage of revenue.

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Cost of Services

Cost of services (COS) as a percentage of revenue improved to 81.7% in the first quarter of fiscal 2005 from 82.5% in fiscal 2004. The improvement was primarily driven by reduced activity on lower margin contracts during fiscal 2005 as well as a favorable settlement with a customer as the result of reduced volumes on the customer contract. This improvement was offset by an increase in the COS expense ratio for Europe due to soft demand primarily in Germany, France, and Italy for consulting and systems integration services

Selling, General and Administrative

Selling, general and administrative (SG&A) expense increased as a percentage of revenue by .2% to 6.1% for the first quarter of fiscal 2005. The increase was driven by business development expense for both the Global Commercial and U.S. Federal sectors.

Depreciation and Amortization

Depreciation and amortization ratio increased .2% as a percentage of revenue to 6.8% for the first quarter of fiscal 2005 compared to the prior year attributable to computer equipment investment associated with increasing levels of Global Commercial and U.S. Federal outsourcing activity.

Interest Expense

The decrease in interest expense for the quarter is primarily the result of one less week in the first quarter of fiscal 2005 compared to the prior year period. Normalized interest expense decreased approximately $.5 million compared to the first quarter of fiscal 2004. This decrease was the result of lower average floating rate debt balances during the first quarter of fiscal 2005.

Special Items

During the first quarter of fiscal 2004 the Company recorded a special item of $6.2 million ($3.9 million net of tax) for equipment, and related disposal costs, that was no longer productive as the result of the DynCorp acquisition. As disclosed in the Company's fiscal 2004 Annual Report on Form 10-K, the Company has completed its review of the DynCorp operations and as a result the Company did not record any special items in the first quarter of fiscal 2005.

Taxes

The provision for income taxes for the first quarter of fiscal 2005 and 2004 are based upon estimated effective tax rates, including the impact of permanent differences between the book basis of assets and liabilities recognized for financial reporting purposes and the basis recognized for tax purposes. The Company's effective tax rates approximate 32.2% and 30.7% for the first quarter of fiscal 2005 and 2004, respectively. The increase in pretax income and a higher effective tax rate in fiscal 2005 resulted in an $11.6 million increase in taxes during the first quarter of fiscal 2005 compared to the first quarter of fiscal 2004.

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Cash Flows

The Company's cash flows were as follows (in millions):

Higher net earnings, an increase in non-cash expense, primarily depreciation and amortization and net advanced payments of approximately $145 million received for select new outsourcing contracts generated the increase in operating cash flow. These increases were partially offset by deferred contract costs incurred for the National Health Services (NHS) systems development contract of approximately $52 million, payment of management incentive bonuses and a decrease in accounts payable due to timing. An improvement in DSO to 90 days from 97 days for the first quarter of fiscal 2005 compared to fiscal 2004 partially offset the impact of increased receivable balances from revenue growth during the quarter.

Net cash outflow from investing activities increased during the first quarter of fiscal 2005 as compared to fiscal 2004 primarily as a result of investment in software related to the NHS contract of approximately $44 million, increased investment in computer equipment related to outsourcing contracts and the acquisition of the minority interest in a consolidated subsidiary. This increase was partially offset by decreased cash outflow for upfront investment in outsourcing contracts due to lower transition costs from certain major outsourcing wins in fiscal 2004.

The change in cash provided by financing activities is the result of higher borrowing activity in the first quarter of 2004 in connection with the DynCorp acquisition.

The balance of cash and cash equivalents was $359.9 million at July 2, 2004 and $609.7 million at April 2, 2004. Equity increased during the first quarter of fiscal 2005 as a result of earnings and the exercise of stock options. These increases were partially offset by unfavorable currency translation adjustments of $49.5 million and grants of unearned restricted stock of $11.0 million during the first quarter of fiscal 2005. As of July 2, 2004 the Company's debt to total capitalization ratio was 29.8%, down from 30.1% at the end of fiscal 2004. The decline in the ratio was due to the increase in equity.

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The Company's primary sources of liquidity include cash flows from operations, the issuance of commercial paper and short-term borrowings. If the Company were unable to sell commercial paper or if the Company determined it was too costly to do so, the Company has the ability to borrow under two syndicated backstop credit facilities.

Historically a majority of the Company's capital investments have been funded by cash from operations. At July 2, 2004 the Company had no commercial paper outstanding and committed lines of credit providing $321 million of long-term and $354 million of short-term commercial paper backup which expire on August 18, 2005 and August 13, 2004, respectively. The lines of credit require the Company to limit liens placed on assets to liens incurred in the ordinary course of business, limit maximum consolidated total debt to consolidated total capitalization ratio of .50 to 1.00 and maintain consolidated total debt to consolidated Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) ratio of not more than 2.50 to 1.00. In the near future we anticipate closing on a new five year line of credit to replace both the current short-term and long-term lines of credit.

It is management's opinion that the Company will be able to meet its liquidity and cash needs for the foreseeable future through a combination of cash flows from operating activities, cash balances, unused borrowing capacity and other financing activities, including the issuance of debt and/or equity securities, and/or the exercise of the put option described above and in the Company's Form 10-K.

Recent accounting pronouncements and the anticipated impact to the Company are described in the notes to the interim consolidated condensed financial statements included in this Form 10-Q as well as in the Company's Annual Report on Form 10-K for the year ended April 2, 2004.

The Company has identified several critical accounting estimates which are described in "Management's Discussion and Analysis" of the Companies Annual Report on Form 10-K for fiscal 2004. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions would have a material effect on the consolidated financial statements. The Company's critical accounting estimates relate to: revenue recognition and cost estimation on long-term, fixed-price contracts; revenue recognition on software license sales that require significant customization; capitalization of outsourcing contract costs and software development costs; assumptions related to purchase accounting and goodwill; assumptions to determine retirement benefits costs and liabilities; and assumptions and estimates used to analyze legal and tax contingencies. For all these es timates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Forward-Looking Statements

All statements 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.

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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, that could cause actual results to differ materially from the results described in such statements.

These factors include, without limitation, the following: (i) changes in the Global Commercial demand for information technology outsourcing, business process outsourcing and consulting and systems integration services; (ii) changes in U.S. federal government spending levels for information technology and other services; (iii) competitive pressures; (iv) the credit worthiness of the Company's commercial customers; (v) the Company's ability to recover its accounts receivable; (vi) the Company's ability to recover its capital investment in outsourcing contracts; (vii) the Company's ability to continue to develop and expand its service offerings to address emerging business demands and technological trends; (viii) the future profitability of the Company's long-term contracts with customers; (ix) the future profitability of the Company's fixed-price contracts; (x) the Company's ability to consummate and integrate acquisitions and form alliances; (xi) the Company's ability to attract and retain qualified personnel; (xii) early termination of client contracts; and (xiii) general economic conditions and fluctuations in currency exchange rates in countries in which the Company does business.

The Company is engaged in providing services under contracts with the U.S. Government. These 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.

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.

For a discussion of the Company's market risk associated with interest rates and foreign currencies as of April 2, 2004, see "Quantitative and Qualitative Disclosures about Market Risk" in the Part II, Item 7A, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Company's Annual Report on Form 10-K for the fiscal year then ended. For the three months ended July 2, 2004, there has been no significant change in related market risk factors.

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"Disclosure controls and procedures" are the controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. "Disclosure controls and procedures" include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in its Exchange Act reports is accumulated and communicated to the issuer's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures as of July 2, 2004 and, based upon this evaluation, have concluded that they are effective in all material respects.

"Internal control over financial reporting" is a process designed by, or under the supervision of, the issuer's principal executive and financial officers, and effected by the issuer's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

During the fiscal quarter ended July 2, 2004, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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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. These 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. 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. While no assurance can be made as to future claims, the Company is no t currently aware of any disputes or claims giving rise to any liability required to be reported under applicable disclosure law. Like many companies in the corporate community, the Company is facing legal proceedings involving allegations of improperly classifying a loosely defined cadre of employees as exempt from overtime; it is too soon to draw conclusions as to the likely outcome of these proceedings. However, it is the opinion of Company Management, after consultation with counsel, that none of the proceedings or disputes in which it currently is involved is likely ultimately to result in liability that will be material to the Company's results of operations or financial position.

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The directors elected were Irving W. Bailey, II, Stephen L. Baum, Rodney F. Chase, Van B. Honeycutt, William R. Hoover, Leon J. Level, F. Warren McFarlan, James R. Mellor and Thomas H. Patrick.

With respect to each nominee, the results of the vote were as follows:

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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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