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

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Revenues from Federal sector showed strong year over year growth for the second quarter of fiscal 2005 and moderate growth for the six months year-to-date primarily from Civil agencies contracts, most notably certain contracts to provide assistance to government programs abroad. This growth was partially offset for the second quarter by $17 million in volume reductions on certain NASA contracts, and the conclusion of contracts with NASA and the Federal Bureau of Investigation which together provided $40 million in revenue in the second quarter of fiscal 2004. The growth for the six months year-to-date was partially offset by $27 million in volume reduction 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 $82 million of incremental revenue during the comparable period in fiscal 2004.

Revenue from the Department of Defense decreased for the quarter primarily due to reduced efforts on certain logistic and support 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 a minority interest for CSC. These factors combined for a $140 million reduction in revenue. Partially offsetting this reduction were contracts for missile defense, a US Navy multiple award contract and several intelligence contracts which combined for $70 million of revenue. Revenue growth from the Department of Defense for the six months year-to-date, normalized for one less week in fiscal 2005, was minimal. Declines in revenue from the completion of projects and the de-consolidation of the joint venture were offset by new programs with the US Army.

During the second quarter and six months year-to-date of fiscal 2005 the Company announced federal contract awards with a total value of $2.0 billion and $4.7 billion, respectively, compared to $2.7 billion and $3.2 billion announced during the second quarter and six months year-to-date, respectively, of fiscal 2004. The fiscal 2005 awards had minimal impact on second 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):

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Comparing the second quarter and six months year-to-date of fiscal 2005 and 2004, total costs and expenses decreased as a percentage of revenue. Lower selling, general and administrative costs as a percentage of revenue and the impact of the special item in fiscal 2004 were partially offset by higher depreciation and amortization costs for the second quarter and six months year-to-date for fiscal 2005.

The Company substantially matches revenues and costs in the same currency. Therefore, the foreign currency impact of approximately 3.3 and 2.9 percentage points for the quarter and six months year-to-date, respectively, on revenues and costs did not have a material impact on costs and expenses as a percentage of revenue.

Cost of Services

Cost of services (COS) as a percentage of revenue was flat for the second quarter of fiscal 2005 compared to fiscal 2004. Cost of services improved to 82.1% from 82.4% for the six months ended October 1, 2004 versus the comparable period for fiscal 2004. The improvement in the cost of services ratio was driven by reduced employment costs on outsourcing activities and reduced volumes on lower margin activities, such as the product reseller business. The reduction in employment costs for outsourcing activities resulted from productivity gains from capital investment. These improvements were partially offset by an increase in the COS expense ratio for Europe as staff utilization was impacted by continued soft demand primarily in Germany, France, and Italy for consulting and systems integration services and a decrease in software license sales. As part of a comprehensive settlement and finalizing of a cost sharing agreement on a U.S. Federal contract, the Company recorded a $14 million charge to cost of services during the second quarter. The charge related to costs on phase one of the contract. Subsequent phases, which management anticipates to be profitable, are committed, but not yet contracted, as they will be definitized at a later date. If appropriate, CSC may account for such subsequent phases when definitized on a combined basis with the current work effort.

Selling, General and Administrative

Selling, general and administrative (SG&A) expense decreased as a percentage of revenue by .5% to 5.1% for the second quarter of fiscal 2005 and by .1% to 5.6% for the six months year-to-date of fiscal 2005. The decrease was driven by reduced head count and lower business development expenses for U.S. Federal Sector and reduced infrastructure costs for Europe due to the consolidation and centralization of certain administrative functions.

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Depreciation and Amortization

Depreciation and amortization increased .3% as a percentage of revenue to 6.7% for the second quarter of fiscal 2005 compared to the prior year and .2% as a percentage of revenue to 6.7% for the six months year-to-date attributable to computer equipment investment associated with increasing levels of Global Commercial and U.S. Federal outsourcing activity and the replacement of leased equipment with purchased equipment on a contract.

Interest Expense

Net interest expense decreased approximately $1.1 million compared to the second quarter of fiscal 2004. For the six months year-to-date net interest expense decreased $4.3 million, primarily as the result of one less week in the six months year-to-date of fiscal 2005 compared to the prior year period. Normalized net interest expense decreased approximately $1.5 million compared to the six months year-to-date of fiscal 2004. The decreases were the result primarily of an increase in interest income for the second quarter of fiscal 2005 and lower average interest bearing debt balances during the six months year-to-date of fiscal 2005.

Special Items

As disclosed in the Company's fiscal 2004 Annual Report on Form 10K, the Company has completed its review of the DynCorp operations and as a result the Company did not record any special items in the three or six month periods ended October 1, 2004 of fiscal 2005. During the three and six months ended October 3, 2003 the Company recorded special items of $9.2 million and $15.4 million ($5.7 million and $9.6 million after tax) for equipment, and related disposal costs that were no longer productive as the result of the DynCorp acquisition

Taxes

The provision for income taxes for 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 31.6% and 31.9% for the three and the six months ended October 1, 2004, compared to the 30.4% and 30.5% for the comparable periods in fiscal 2004. The increase in pretax income and a higher effective tax rate in fiscal 2005 resulted in a $13.0 million increase in taxes during the second quarter of fiscal 2005 compared to the second 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 $183 million received for select new contracts generated the increase in operating cash flow. These increases were partially offset by deferred costs incurred on system development contracts of approximately $80 million, payment of management incentive bonuses and a decrease in accounts payable due to timing. DSO for the current year of 88 days was essentially flat compared to the prior year second quarter and had minimal impact on free cash flow. The Company's DSO performance is affected by revenue recognition on long-term fixed-priced contracts which result in unbilled receivable balances (see Critical Accounting Estimates, Note 1 - Summary of Significant Accounting Policies, and Note 7 - Receivables, in the Company's Annual Report on Form 10-K for the year ended April 2, 2004). Milestone billings on these contracts may be impacted by modifications to contract scope, sche dule, and price. The Company routinely negotiates such contract modifications in both the U.S. Federal and Global Commercial sectors.

Net cash outflow from investing activities increased during the six months of fiscal 2005 as compared to fiscal 2004 primarily as a result of increased investment in computer equipment related to outsourcing contracts, investment in new outsourcing contracts, investment in contract dedicated software related to the NHS contract and the acquisition of the minority interest in a consolidated subsidiary.

The change in cash provided by financing activities is the result of higher borrowing activity in fiscal 2004 to finance working capital requirements.

Liquidity and Capital Resources

The balance of cash and cash equivalents was $546.3 million at October 1, 2004 and $609.7 million at April 2, 2004. Equity increased during the six months year-to-date of fiscal 2005 as a result of earnings and the exercise of stock options. These increases were partially offset by

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grants of unearned restricted stock of $11.0 million during the first quarter of fiscal 2005. As of October 1, 2004 the Company's debt to total capitalization ratio was 29.1%, down from 30.1% at the end of fiscal 2004. The decline in the ratio was due to the increase in equity.

The Company has $500 million of 7.5% term debt that is due August, 2005 and is included in current maturities of long-term debt on the balance sheet. Please see the discussion below regarding the Company's ability to meet its liquidity and cash needs for the foreseeable future.

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 a syndicated backstop credit facility.

Historically a majority of the Company's capital investments have been funded by cash from operations. As of October 1, 2004 the Company had no commercial paper outstanding. In August, 2004 the Company entered into a new credit agreement for a committed line of credit providing $700 million of long-term commercial paper backup. The new credit line replaced the existing short-term and long-term credit facilities and expires in August, 2009. The line of credit requires 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.

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 in the Company's Form 10-K.

Recent Accounting Pronouncements and Critical Accounting Estimates

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.

During its September 2004 meeting the Emerging Issues Task Force (EITF) reached a consensus on Issue 04-10, Determining Whether to Aggregate Operating Segments That Do Not Meet the Quantitative Thresholds. Issue 04-10 addresses how an enterprise should evaluate the aggregating criteria in Paragraph 17 of FASB Statement No. 131, Disclosures About Segments of an Enterprise and Related Information, when determining whether operating segments that do not meet the quantitative thresholds may be aggregated in accordance with Paragraph 19 of that Statement. Issue 04-10 is effective for fiscal periods ending after October, 2004. The Company is currently evaluating the effects, if any, the Issue will have on its segment reporting disclosure.

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:

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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. Modifications to contract scope, schedule, and price may be required on development contracts accounted for on a percentage-of-completion basis. Accounting for such changes prior to formal contract modification requires evaluation of the characteristics and circumstances of the effort completed and assessment of probability of recovery. If recovery is deemed probable, the Company may, as appropriate, either defer the costs until the parties have agreed on the contract change or recognize the costs and related revenue as current period contract performance. T he Company routinely negotiates such contract modifications in both the U.S. Federal and Global Commercial sectors. For all these estimates, we caution that future events may not develop 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.

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, including the impact of the Company's ability to negotiate contract modifications as may be required on changes to development 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.

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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 six months ended October 1, 2004, there has been no significant change in related market risk factors.

PART I, ITEM 4. CONTROLS AND PROCEDURES

"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 October 1, 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

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in accordance with generally accepted accounting principles and includes those policies and procedures that:

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.

During the fiscal quarter ended October 1, 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 not currently aware o f 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. The Company intends to investigate and defend this litigation while also pursuing alternative dispute resolution possibilities.

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