[November 04, 2005]

Fitch Affirms Computer Sciences Corp. at 'A'; Stable Outlook

NEW YORK --(Business Wire)-- Nov. 4, 2005 -- Fitch Ratings has affirmed Computer Sciences Corp.'s (CSC's) issuer default rating (IDR) and senior unsecured debt at 'A'. Fitch has also assigned an 'A' rating to the company's bank credit facility. The company's 'F1' commercial paper program is also affirmed by Fitch. The Rating Outlook is Stable. Approximately $1.3 billion of debt is affected by Fitch's action.

The Stable Outlook and ratings affirmation reflect CSC's strong and improved credit metrics, long-standing market position in the information technology (IT) services industry, consistent operating cash flow, and improved operating margins. The ratings are also supported by the company's geographic and industrial diversity of revenues, the quality customer base, solid contract signings and significant pipeline of transactions from the government sector, and the consistency and financial and operational discipline of management. Embedded into the ratings is continued minimal negative impact from any problem contracts. While Fitch recognizes the potential event risk associated with various shareholder pressures, it currently has no immediate impact on the company's ratings profile.

Ratings concerns center on cash requirements for strong levels of contract signings and the resultant pressure on free cash flow, limited opportunities in operating margin upside due to pricing pressures, and competitive challenges for IT services providers as strong competition exists from a variety of sources, including in-sourcing, off-shore competition, and a variety of smaller and larger worldwide IT services participants. Given CSC's current capital structure, Fitch expects the company to either initiate a stock buyback program or make an acquisition in the near-term. CSC's credit protection measures are currently strong for the ratings, and Fitch expects any moderate company-driven shareholder-friendly transactions will result in CSC maintaining credit metrics within historical ranges.

Liquidity is solid and is mostly supported by $405 million of cash and equivalents at Sept. 30, 2005 and consistent free cash flow, which was $460 million for fiscal 2005 ending April 1, 2005 and approximately $130 million for the latest 12 months ending Sept. 30, 2005, due to higher working capital requirements. Fitch believes CSC's free cash flow for fiscal 2006 will be pressured due to higher capital spending to support strong contract signings. Additional liquidity is provided by an undrawn $700 million unsecured revolving credit agreement expiring August 2009. The bank agreement has various covenants, including maintaining total debt to total capitalization below 50% and maintaining leverage (measured by total debt to EBITDA) below 2.5 times (x). In addition, the company could potentially monetize its credit reporting business by exercising a put to Equifax.

Total debt as of Sept. 30, 2005, was approximately $1.3 billion, consisting of four tranches of senior unsecured notes and capital leases. Approximate debt maturities are as follows: $300 million of 3.5% term notes due April 2008, $200 million of 6.25% term notes due March 2009, $500 million of 7.375% term notes due June 2011, and $300 million of 5.0% term notes due February 2013. Estimated leverage (measured by total debt/operating EBITDA) for the latest 12 months (LTM) ending Sept. 30, 2005, was approximately 0.7x, flat when compared with fiscal year-end 2005, but an improvement from 1.2x at fiscal 2004. Adjusted leverage was approximately 1.7x, also flat to fiscal year-end 2005, but better than the 2.4x in fiscal 2004. Free cash flow to total debt remains in excess of 30% on annual basis. Interest coverage increased to 16x as of Sept. 30, 2005, a modest improvement from 12x at the end of fiscal 2005.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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