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1st QUARTER FY 2015 EARNINGS PRESENTATION August 7, 2014

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Page 1: 1st QUARTER FY 2015 EARNINGS PRESENTATION...1st Quarter FY 2015 Earnings Presentation August 7, 2014 4 Basis of Presentation During the first quarter of fiscal year 2015, CSC changed

1st QUARTER FY 2015 EARNINGS PRESENTATIONAugust 7, 2014

Page 2: 1st QUARTER FY 2015 EARNINGS PRESENTATION...1st Quarter FY 2015 Earnings Presentation August 7, 2014 4 Basis of Presentation During the first quarter of fiscal year 2015, CSC changed

2August 7, 20141st Quarter FY 2015 Earnings Presentation

Forward-Looking Statements

All written or oral statements made by CSC at this meeting or in these presentation materials that do not directly and exclusively relate to historical facts constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements represent CSC’s expectations and beliefs, and no assurance can be

given that the results described in such statements will be achieved. These statements are subject to risks, uncertainties, and other factors, many outside of CSC’s control, that could cause actual results to differ materially from the results described in such statements. For a

description of these factors, please see CSC’s most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

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3August 7, 20141st Quarter FY 2015 Earnings Presentation

Non-GAAP Reconciliations

This presentation includes certain non-GAAP financial measures, such as operating income, operating margin, earnings before interest and taxes (EBIT), EBIT margin, free cash flow, and capital expenditures. These non-GAAP financial measures are not meant to be considered in

isolation or as a substitute for results prepared in accordance with accounting principles generally accepted in the United States (GAAP). A reconciliation of non-GAAP financial measures included

in this presentation to the most directly comparable financial measures calculated and presented in accordance with GAAP accompanies this presentation and is on our website at www.csc.com.

CSC management believes that these non-GAAP financial measures provide useful information to investors regarding the Company’s financial condition and results of operations as they provide

another measure of the Company’s profitability and ability to service its debt, and are considered important measures by financial analysts covering CSC and its peers.

Page 4: 1st QUARTER FY 2015 EARNINGS PRESENTATION...1st Quarter FY 2015 Earnings Presentation August 7, 2014 4 Basis of Presentation During the first quarter of fiscal year 2015, CSC changed

4August 7, 20141st Quarter FY 2015 Earnings Presentation

Basis of Presentation

During the first quarter of fiscal year 2015, CSC changed its pension accounting policy. Under the new policy, actuarial gains and losses and changes in fair value of plan assets are recorded in

the year in which they occur. Also during the quarter, CSC changed its inter-company accounting policy. Previously, inter-company transactions between segments were generally reflected as inter-company revenue. Under the new policy, inter-company transactions are now generally treated as cost transfers. The company has recast its financial statements for the year-ago

period to reflect both these accounting policy changes.

Page 5: 1st QUARTER FY 2015 EARNINGS PRESENTATION...1st Quarter FY 2015 Earnings Presentation August 7, 2014 4 Basis of Presentation During the first quarter of fiscal year 2015, CSC changed

1st QUARTER FY 2015 EARNINGS PRESENTATION

Mike LawrieChief Executive Officer

Page 6: 1st QUARTER FY 2015 EARNINGS PRESENTATION...1st Quarter FY 2015 Earnings Presentation August 7, 2014 4 Basis of Presentation During the first quarter of fiscal year 2015, CSC changed

6August 7, 20141st Quarter FY 2015 Earnings Presentation

NPS business performing well

EPS* of $1.03 consistent with expectations

Maintaining FY 2015 EPS* target of $4.35 – $4.55

Key Messages

*EPS from Continuing Operations

Commercial business in line with expectations

Investing in new offerings and partnerships

Continuing to return capital to shareholders

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1st QUARTER FY 2015 EARNINGS PRESENTATION

Paul SalehChief Financial Officer

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8August 7, 20141st Quarter FY 2015 Earnings Presentation

1st Quarter Results Q1 FY15 Q1 FY14

Revenue ($M) $ 3,237 $ 3,254

YoY Growth – GAAP (0.5%)

YoY Growth – cc (1.9%)

Operating Income ($M) 304 332

Operating Margin (%) 9.4% 10.2%

EBIT ($M) 248 269

EBIT Margin 7.7% 8.3%

Income from Continuing Operations ($M) 159 161*

EPS from Continuing Operations $ 1.03 1.03**

Bookings ($B) $ 2.7 $ 2.8 *Q1 FY14 Income from Continuing Operations was $145 million prior to the change in the pension accounting policy

**Q1 FY14 EPS from Continuing Operations was $0.93 prior to the change in the pension accounting policy

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9August 7, 20141st Quarter FY 2015 Earnings Presentation

NPS 31%

GIS35%

GBS34%

Global Business Services (GBS)

Q1 FY15 Q1 FY14

Revenue ($M) $ 1,088 $ 1,054 YoY Growth – GAAP 3.2% YoY Growth – cc 0.9%

Operating Income ($M)– As reported 108 113

– Adjusted for restructuring 112 122

Operating Margin (%)– As reported 9.9% 10.7%– Adjusted for restructuring 10.3% 11.6%

Bookings ($B) $ 1.2 $ 1.2 Offerings

Next-Generation Technology Consulting

Industry Software and Solutions

Applications

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10August 7, 20141st Quarter FY 2015 Earnings Presentation

Global Infrastructure Services (GIS)

NPS 31%

GIS35%

GBS34%

Q1 FY15 Q1 FY14

Revenue ($M) $ 1,131 $ 1,147 YoY Growth – GAAP (1.4%)YoY Growth – cc (3.2%)

Operating Income ($M)– As reported 71 92 – Adjusted for restructuring 77 92 Operating Margin (%) – As reported 6.3% 8.0%– Adjusted for restructuring 6.8% 8.0%

Bookings ($B) $ 1.2 $ 0.9 OfferingsPlatform

Workplace Services

Data Center

Enterprise Service Management

Next-Generation Cyber & Cloud Solutions

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11August 7, 20141st Quarter FY 2015 Earnings Presentation

North American Public Sector (NPS)

DoD 55%Civil 37%Other 8%

NPS 31%

GBS34%

GIS35%

Q1 FY15 Q1 FY14

Revenue ($M) $ 1,018 $ 1,053

YoY Growth – GAAP (3.3%)

Operating Income ($M)

– As reported 151 127 – Adjusted for restructuring 151 127

Operating Margin (%)

– As reported 14.8% 12.1%– Adjusted for restructuring 14.8% 12.1%

Bookings ($B) $ 0.3 $ 0.7 OfferingsMission-Specific IT Services

Business Services • Consulting• Applications • BPO

Infrastructure Services • Workplace• Platform• Data Center • Enterprise Service Management• Next-Generation Cyber & Cloud Solutions

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12August 7, 20141st Quarter FY 2015 Earnings Presentation

Financial Highlights

Effective Tax Rate

Favorable mix of global income

Benefits from favorable outcome in non-U.S. jurisdictionContinuing with tax planning strategies

Q1 FY15 Q1 FY14

Free Cash Flow $70M ($9M)

Cash and Equivalents $2.4B $1.9B

Cap Ex — Including Capital Leases $203M $220M

Cap Ex as a % of Revenue 6.3% 6.8%

Capital to Shareholders

Q1 FY15 Q1 FY14

Share Repurchases2.4M shares

$148M2.8M shares

$127M

Dividend Payments $29M $30M

Cash Flow Performance

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13August 7, 20141st Quarter FY 2015 Earnings Presentation

Cost Takeout and Reinvestment Update

$350M – $400M~$105M

~$110M

COST TAKEOUT• Continued G&A efficiency• Low-cost delivery centers• Productivity gains from automation• Contract management

REINVESTMENTS• Finance and HR systems• Customer-committed savings• Restructuring

– Workforce rebalancing– Real estate optimization

• Next-generation offerings

Q1 FY15

$450M – $500M

FY15 Targets

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14August 7, 20141st Quarter FY 2015 Earnings Presentation

FY 2015 Targets

Revenue

Reinvestments

Cost Takeout $450 – $500 million

Free Cash Flow $700 million

Flat to slightly up• Commercial — modest growth• NPS — mid-single digit decline

$350 – $400 million

EPS from Continuing Operations $4.35 – $4.55

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1st QUARTER FY 2015 EARNINGS PRESENTATION

Supplemental Information

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16August 7, 20141st Quarter FY 2015 Earnings Presentation

$BFY14 FY15

North American Public SectorNPSGlobal Business ServicesGBS Global Infrastructure ServicesGIS

Bookings*

*The summation of the quarter bookings number may not equal the full-year number, due to rounding

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17August 7, 20141st Quarter FY 2015 Earnings Presentation

Non-GAAP Reconciliations

Q1 FY15 Q1 FY14Q1 FY14

As Previously Reported*

Earnings Before Interest and Taxes $ 248 $ 269 $ 246 Interest Expense (39) (39) (39)Interest Income 5 4 4 Taxes on Income (55) (73) (66)Income from Continuing Operations $ 159 $ 161 $ 145

Q1 FY15 Q1 FY14Q1 FY14

As Previously Reported*

Revenue ($M) $ 3,237 $ 3,254 $ 3,254 Pre-tax Margin % 6.6% 7.2% 6.5%Operating Income Margin % 9.4% 10.2% 9.5%EBIT Margin % 7.7% 8.3% 7.6%

Earnings Before Interest and Taxes ($M)

Margin %

Operating Income ($M) Q1 FY15 Q1 FY14Q1 FY14

As Previously Reported*

Operating Income $ 304 $ 332 $ 309 Corporate G&A (56) (64) (64)Mark-to-Market Adjustment to Pension Expense (1) - - Interest Expense (39) (39) (39)Interest Income 5 4 4 Other Income, Net 1 1 1 Income from Continuing Operations Before Taxes $ 214 $ 234 $ 211

*Before the change in the pension accounting policy

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18August 7, 20141st Quarter FY 2015 Earnings Presentation

Adjusted Operating Income by Segment

$M Operating Income

Restructuring Costs

Adjusted Operating

Income

Adjusted Operating

MarginGBS $ 108 $ 4 $ 112 10.3%GIS 71 6 77 6.8%NPS 151 - 151 14.8%Corporate & Eliminations (26) - (26)Total $ 304 $ 10 $ 314 9.7%

$M Operating Income

Restructuring Costs

Adjusted Operating

Income

Adjusted Operating

Margin

Operating Income

As Previously Reported

GBS $ 113 $ 9 $ 122 11.6% $ 106 GIS 92 - 92 8.0% 82 NPS 127 - 127 12.1% 121 Corporate & Eliminations - (2) (2) - Total $ 332 $ 7 $ 339 10.4% $ 309

Q1 FY15

Q1 FY14

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19August 7, 20141st Quarter FY 2015 Earnings Presentation

Q1 FY14 Select P&L Items

$M except EPSAs

Previously Reported

As Reported Impact of MtM*

Revenue $ 3,254 $ 3,254 $ - Cost of Services 2,456 2,437 (19)SG&A 292 288 (4)Income from Continuing Operations, Before Taxes 211 234 23 Taxes on Income 66 73 7 Income from Continuing Operations 145 161 16 Income from Discontinued Operations, Net of Taxes 14 16 2 Net Income 159 177 18 Net Income Attributable to Noncontrolling Interest, Net of Taxes 3 3 - Net Income Attributable to CSC Common Stakeholders 156 174 18 EPS - Continuing Operations $ 0.93 $ 1.03 $ 0.10 EPS - Discontinued Operations $ 0.09 $ 0.11 $ 0.02

*Change in the pension accounting policy

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20August 7, 20141st Quarter FY 2015 Earnings Presentation

Non-GAAP Reconciliation

*Capital lease payments, repayments of obligations related to assets acquired under long-term financing arrangements, and proceeds from the sale of assets (included in investing activities) are included in the calculation of Free Cash Flow

Free Cash Flow* ($M) Q1 FY15 Q1 FY14Net Cash Provided by Operating Activities $ 273 $ 213 Net Cash Used in Investing Activities (114) (101)Business Dispositions (5) (56)Short-Term Investments - (5)Payments on Capital Leases and Other Long-Term Asset Financings (84) (60)

Free Cash Flow $ 70 $ (9)

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21August 7, 20141st Quarter FY 2015 Earnings Presentation

Selected Cash Flow Items

$MNet Income $ 151 $ 177 Depreciation and Amortization 272 255 Change in Assets and Liabilities (154) (200) Gain on Dispositions (20) (25) Other 24 6 Operating Cash Flow 273 213

Capital Expenditures (119) (160) Business Dispositions 5 56 Other - 3 Investing Cash Flow (114) (101)

Capital Leases and Other Financing (84) (60) Business Dispositions (5) (56) Other - (5) Free Cash Flow $ 70 $ (9)

Q1 FY15 Q1 FY14

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22August 7, 20141st Quarter FY 2015 Earnings Presentation

Recast FY14 and FY13 Quarterly Revenues by Segment

Quarterly revenues have been recast to reflect the change in CSC’s inter-company accounting policy

$M Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 FY14GBS $ 1,054 $ 1,021 $ 1,093 $ 1,152 $ 4,320 GIS 1,147 1,114 1,145 1,173 4,579 NPS 1,053 1,052 990 1,004 4,099 Corporate & Eliminations - - - - - Total Revenues $ 3,254 $ 3,187 $ 3,228 $ 3,329 $ 12,998

$M Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13GBS $ 1,256 $ 1,185 $ 1,201 $ 1,201 $ 4,843 GIS 1,189 1,153 1,178 1,170 4,690 NPS 1,183 1,190 1,157 1,132 4,662 Corporate & Eliminations - - - - - Total Revenues $ 3,628 $ 3,528 $ 3,536 $ 3,503 $ 14,195

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23August 7, 20141st Quarter FY 2015 Earnings Presentation

Recast FY14 and FY13 Quarterly OI by Segment

Quarterly operating income (loss) has been recast to reflect the change in pension accounting policy and change in CSC’s inter-company accounting policy

$M Q1 FY14 Q2 FY14 Q3 FY14 Q4 FY14 FY14GBS $ 113 $ 122 $ 138 $ 201 $ 574 GIS 92 109 89 92 382 NPS 127 163 122 112 524 Corporate & Eliminations - (29) (15) (20) (64)Total OI $ 332 $ 365 $ 334 $ 385 $ 1,416

$M Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 FY13GBS $ 77 $ 92 $ 106 $ 130 $ 405 GIS 25 55 67 19 166 NPS 97 148 135 131 511 Corporate & Eliminations (28) (4) (28) (53) (113)Total OI $ 171 $ 291 $ 280 $ 227 $ 969

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24August 7, 20141st Quarter FY 2015 Earnings Presentation

• Operating Cost: Equal to the sum of (1) cost of services, (2) segment SG&A, excluding Corporate G&A, (3) depreciation and amortization, and (4) restructuring costs

• Operating Income: Revenue minus Operating Cost• Operating Income Margin: Operating Income as a percentage of Revenue• Earnings Before Interest and Taxes: Revenue minus cost of services, selling, general and

administrative expenses, depreciation and amortization, restructuring costs, and other income (expense)

• Earnings Before Interest and Taxes Margin: Earnings Before Interest and Taxes as a percentage of Revenue

• Pre-tax Margin: Income from Continuing Operations Before Taxes as a percentage of Revenue• Free Cash Flow: Equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding

business acquisitions and dispositions, and investments (including short-term investments and purchase or sale of available-for-sale securities), and (3) payments on capital leases and other long-term asset financings

• Capital Expenditures: Equal to sum of purchases of property, equipment, and software, and payments on outsourcing contracts, less proceeds from sales of assets

Non-GAAP and Other Definitions

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1st QUARTER FY 2015 EARNINGS PRESENTATION

Thank You