Fitch Affirms Computer Sciences' IDR at 'BBB+'; Revises Outlook to Stable

--Consistent annual free cash flow (FCF) supported by substantial recurring revenue from long-term contracts (75%-80% of total revenue). Fitch forecasts FCF of $700 million - $800 million in fiscal 2012, assuming no U.S. default.

--Solid liquidity totaling $3.3 billion, consisting of an undrawn $1.5 billion RCF due 2015 and $1.8 billion of cash as of April 1, 2011.

--Strong market position in both government and commercial IT services markets.

--Improving commercial revenue growth prospects. Fitch estimates CSC's commercial revenue grew 2.7% and 1.4% in the fourth quarter and full year of fiscal 2011, respectively. Excluding the National Health Services (NHS) contract, CSC's commercial revenue grew approximately 5% in the quarter and 4% for the full year.

--Significant market opportunities in cybersecurity, healthcare, cloud, application modernization, and datacenter transformation, particularly for the federal government.

--Diversified revenue mix with respect to service offerings and end markets served with commercial and government representing 63% and 37%, of total FY 2011 revenue, respectively. Furthermore, CSC addresses a broad range of industries within the commercial sector.

--Solid historical contract pricing and services delivery execution minimizes material problem contracts in both the commercial and government businesses, excluding the extraordinarily challenging the NHS contract.

Rating concerns center on:

--Uncertainty of U.S. federal IT spending, including risk of default associated with the ongoing debt-ceiling debate and implementation of cost containment measures due to fiscal pressures. Fitch believes the risks associated with a government shutdown are mitigated by CSC's solid liquidity position and significant exposure to the commercial sector (63% of total revenue).

--Prospect for intensifying event risk, in terms of an acquisition of the company or accelerated share repurchases, if the NHS contract is terminated or subjected to material scope reduction beyond the tentative memorandum of understanding (MOU).

--Increasingly unfavorably outlook for timely approval of future federal budgets in light of the unresolved debt ceiling debate. Fitch believes this increases the risk of continuing resolutions (CR) that maintain prior fiscal year funding levels and/or a government shutdown. CR delay funding for new awards, while a government shutdown would also cease funding for existing contracts delivering nonessential services.

--Ongoing SEC investigation into accounting adjustments and related disclosures.

--Softening global macroeconomic outlook that could derail solid commercial sector demand.

--Risk of tax or procurement reforms instituted by the U.S. federal government that materially reduce federal and/or commercial demand for IT services.

A Positive rating action could occur in the event CSC:

--Signs a MOU with the NHS that excludes material modifications from the current agreement.

--Maintains positive revenue momentum in the commercial sector, thereby offsetting any weakness in the North American Public Sector (NPS) from a decline in federal IT spending.

A Negative rating action could occur in the event CSC:

--Confronts a material reduction in federal spending, particularly the Department of Defense, to reduce the sizable federal deficit.

--Pursues sizable debt-financed share repurchases or acquisitions.

--Aggressive implementation of U.S. federal procurement reforms and/or alterations to U.S. tax policies or other legislation that materially reduces federal and/or commercial demand for IT services.

CSC's liquidity was solid as of April 1, 2011 supported by $1.8 billion of cash and equivalents and a new, fully undrawn $1.5 billion RCF expiring in March 2015 compared with a maturity of July 2012 for the prior facility. Financial covenants consist of minimum interest coverage and maximum leverage of 3x. Liquidity is also supported by CSC's consist FCF. Fitch estimates FCF of approximately $700 million-$800 million in fiscal 2012 compared with nearly $600 million in FY 2011, excluding dividends.

Furthermore, CSC could monetize its credit reporting business by exercising a put option prior to Aug. 1, 2013 that requires Equifax Inc. (Equifax) to purchase the business for cash within 180 days after the option exercise date. Although the purchase price will be determined by a third-party appraiser and is subject to negotiation, Equifax, based on an internal analysis, most recently estimated the fair value of the business to be $625 million-$700 million, as of Dec. 31, 2010.

As of April 1, 2011, Fitch estimates total debt was approximately $2.6 billion, primarily consisting of:

--$700 million of 5.50% term notes due March 2013;

--$300 million of 5.00% term notes, due February 2013; and

--$1 billion of 6.50% term notes due March 2018.

Additional information is available at '[ www.fitchratings.com ]'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 13, 2010).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Amended

[ http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646 ]

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: [ HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS ]. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '[ 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.

N@N

Fitch Affirms Computer Sciences' IDR at 'BBB+'; Revises Outlook to Stable