Robert Dunn Michael Wolleben

ü CSC is an information technology (IT) services company that provides consulting and outsourcing services through two business segments focused on distinctly different end-markets. Computer Sciences The larger segment provides services to commercial sector Corp. (NYSE: CSC) clients, while the other focuses on public sector entities, such as federal, state, local and foreign governments. Price (9/3/2014) $60.05/share

Commercial: $79 per share ü The IT services industry has increasingly looked to separate commercial and government-focused IT assets over the last few Public Sector: $22 per years, as the former trade at almost 15% premiums to the latter, share given higher margin and growth profiles. As well, commercially focused businesses are less susceptible to variability in Corp. Costs: ($16 per government spending/decision-making. Separations have also share) aimed to sharpen management focus as well as eliminate any perceived conflicts of interest in bidding on government Net Debt/Other: ($9.50 contracts. In 2012-2013, L-3 Communications, SAIC Inc., and per share) Exelis all announced tax-free spin-offs of IT services assets. SOTP*: $75 per share ü CSC’s is in the midst of an operational turnaround, which seems to be gaining traction and is likely management’s main near-term focus. As well, its public comments have downplayed potential conflicts of interest and highlighted possible cross-selling *SOTP total may not equal parts due to rounding opportunities between segments, indicating comfort with the current operating structure. That said, management does not rule out any measure that would create value for shareholders and potential catalysts for a split could emerge in FY2015-2016.

ü Considering peer group multiples, we value the commercial business segment at $79 per share and the public sector segment NOTE: This publication does not at $22 per share. Accounting for corporate costs of about $16 per advocate for breakups. However, authors share as well as net debt and other liabilities of $9.50 per share, a select companies for this report based on sum-of-the-parts valuation of $75 is derived. the potential for a future transaction. In many cases, these companies have come under activist investor pressure, media ü Future potential catalysts include a spin-off or sale of the scrutiny, or general market speculation government business, an uptick in IT spending, acquisitions, and that a spin-off or asset sale is possible. share repurchases. Potential risks include inaction on a split or sale, a lack of execution on turnaround plans, and a recession.

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HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.” The Background

Computer Sciences Corporation (NYSE: CSC) was founded in 1959, largely as a software provider to computer manufacturers. In the mid-1960s, CSC set its sights on serving end-users, of which the US government was by far the largest, followed by aerospace companies. Over the next several decades, through innovation as well as organic and acquisitive expansion, CSC experienced rapid growth. Today CSC serves more than 2,500 clients in over 70 countries with a workforce of roughly 80,000. The company currently reports in three main business segments: (1) Global Business Services (GBS); (2) Global Infrastructure Services (GIS); and (3) North American Public Sector (NPS). CSC’s GBS and GIS segments comprise the company’s commercial offerings, while NPS offers services to governments.

In the March-ending FY2014, CSC generated revenue of $13 billion, with adjusted operating income and EBITDA of $1.42 billion and $2.43 billion, respectively. The so-called commercial business, which includes both the GBS (35% of revenue) and GIS (35%) segments, contributed about 70% of total revenue, 65% of EBIT, and 73% of EBITDA. Government (or public sector) services accounted for 32% of revenue, 35% of EBIT, and 27% of EBITDA (see Background #1).

Background #1 Computer Sciences: Historical Segment and Consolidated Results (Adjusted) ($ in millions)

F2012 F2013 F2014 F2015 F2016 1QF14 1QF15 Revenue: Global Business Services (GBS) $4,877.0 $4,843.0 $4,320.0 $4,449.6 $4,560.8 $1,054.0 $1,088.0 Global Infrastructure Services (GIS) $4,840.0 $4,690.0 $4,579.0 $4,556.1 $4,601.7 $1,147.0 $1,131.0 North Amer. Public Sector (NPS) 4,880.0 4,662.0 4,099.0 3,894.1 3,894.1 1,053.0 1,018.0 Total $14,476.0 $14,195.0 $12,998.0 $12,899.8 $13,056.6 $3,254.0 $3,237.0

Commercial $9,717.0 $9,533.0 $8,899.0 $9,005.7 $9,162.5 $2,201.0 $2,219.0 Government $4,880.0 $4,662.0 $4,099.0 $3,894.1 $3,894.1 $1,053.0 $1,018.0

Operating Income: Global Business Services $205.0 $405.0 $574.0 $511.7 $661.3 $113.0 $112.0 Global Infrastructure Services ($27.0) $166.0 $382.0 $364.5 $437.2 $92.0 $77.0 North Amer. Public Sector $341.0 $511.0 $524.0 $467.3 $331.0 $127.0 $151.0 Corporate ($65.0) ($406.0) ($327.0) ($350.0) ($350.0) ($64.0) ($82.0) Total $454.0 $676.0 $1,153.0 $993.5 $1,079.5 $268.0 $258.0

Commercial $178.0 $571.0 $956.0 $876.2 $1,098.5 $205.0 $189.0 Government $341.0 $511.0 $524.0 $467.3 $331.0 $127.0 $151.0

Depreciation & Amortization Global Business Services $203.0 $176.0 $152.0 $154.8 $137.1 $40.0 $39.0 Global Infrastructure Services 763.0 722.0 704.0 $722.4 $639.8 174.0 194.0 North Amer. Public Sector 159.0 158.0 148.0 $144.5 $128.0 37.0 35.0 Corporate 16.0 14.0 14.0 $10.3 $9.1 3.0 4.0 Total $1,141.0 $1,070.0 $1,018.0 $1,032.0 $914.0 $254.0 $272.0

EBITDA Global Business Services (GBS) $408.0 $581.0 $726.0 $666.5 $798.4 $153.0 $151.0 Global Infrastructure Services (GIS) $736.0 $888.0 $1,086.0 $1,086.9 $1,076.9 $266.0 $271.0 North Amer. Public Sector $500.0 $669.0 $672.0 $611.8 $458.9 $164.0 $186.0 Corporate ($49.0) ($392.0) ($313.0) ($339.7) ($340.9) $3.0 ($78.0) Total $1,595.0 $1,746.0 $2,171.0 $2,025.5 $1,993.4 $586.0 $530.0

Commercial $1,144.0 $1,469.0 $1,812.0 $1,753.4 $1,875.3 $419.0 $422.0 Government $500.0 $669.0 $672.0 $611.8 $458.9 $164.0 $186.0

Operating Margin Commercial 1.8% 6.0% 10.7% 9.7% 12.0% 9.3% 8.5% Government 7.0% 11.0% 12.8% 12.0% 8.5% 12.1% 14.8% Total 3.1% 4.8% 8.9% 7.7% 8.3% 8.2% 8.0%

EBITDA Margin Commercial 11.8% 15.4% 20.4% 19.5% 20.5% 19.0% 19.0% Government 10.2% 14.4% 16.4% 15.7% 11.8% 15.6% 18.3% Total 11.0% 12.3% 16.7% 15.7% 15.3% 18.0% 16.4% Source: Company reports.

P a g e | 2 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

In terms of the relevant near-term history, CSC is emerging from a difficult period in 2011-2012, when it experienced a more than 50% decline in its stock price and market capitalization. In short, CSC was slow to react to the gradual commoditization of the IT infrastructure business over the preceding decade while also seemingly losing internal discipline in its contracting, leading to, among other things, a proliferation of large, complex/custom contracts that were largely on a fixed-cost (as opposed to cost-plus) basis. Anecdotally, CSC points to a roll-up strategy with inadequate integration and a holding-company approach to management as drivers of its inadequate internal discipline. The result was a low-margin revenue mix and a bloated cost structure, which exacerbated the negative impact of a sluggish recovery in IT consulting and outsourcing work as well as increased pressure on federal budgets. Moreover, a series of negative developments, emblematic of the systemic lack of control, occurred during this period. These included a US Securities & Exchange Commission (SEC) investigation into accounting irregularities launched in February 2011; myriad charges, write-offs, and accounting adjustments related to poor contract execution (most notably a $1.5 billion write-off announced in December 2011 on a contract to upgrade health records for the UK National Health Service); and downgrades to its credit rating to BBB+ (in December 2011) and then BBB- (in May 2012).

In March 2012, CSC named Michael Lawrie as the new CEO, and over the next several months the company embarked on a wholesale change in management, including the CFO and the presidents of both the BIS and NPS divisions. In September 2012, Mr. Lawrie, who is known as turnaround specialist with prior experience at UK-based Misys Pls. as well as IBM, laid out a comprehensive five-year turnaround plan aimed at generating $5-plus of EPS in FY2017 (versus an adjusted $0.67 in FY2012). The plan focused on five key areas: (1) cost control; (2) improving the revenue mix by rationalizing verticals and improving the clarity of its offerings; (3) moving up the value chain to garner faster-growing/higher-margin work; (4) improving internal accountability/discipline by better aligning internal drivers, such as compensation; and (5) reducing capital intensity and improving the capital allocation strategy (see Background #2).

Background #2 An Overview of Computer Sciences’ Evolving Business Model

Source: Company reports.

P a g e | 3 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

According to the turnaround plan, revenue was to remain largely flat in FY2013-FY2014, with the main focus on cost removal/control. CSC’s goal was to drive 300-400 basis points of operating margin improvement with $1.0-$1.2 billion of SG&A cost cuts and procurement savings. For FY2015-FY2017, CSC targeted revenue growth of 3%-5%, largely driven by improving business mix and next-generation commercial offerings, as well as an additional 200- 300 basis points of operating leverage driven margin expansion. Underlying CSC’s assumptions were normalized margins of 10%-12% for the commercial business and 8%-9% in the public business (see Background #3).

Background #3 Details of CSC’s Strategic Turnaround Plan

Source: Company reports.

Management is substantively on pace to achieving its objectives, at least on the bottom line; in that context, FY2014 EPS were $3.91, and the company has guided to FY2015 EPS of $4.35- $4.55 (with anecdotal commentary suggesting the higher end of that range) on roughly flat sales year over year. CSC’s credit rating has been boosted back to BBB+.

Commercial: Global Business and Infrastructure Services

CSC’s commercial offerings are separated into two segments: (1) Global Business Services (GBS), and (2) Global Infrastructure Services (GIS). Customers include large global enterprises in the financial services, healthcare, manufacturing, and diversified industrial arenas, such as Deutsche Bank (NYSE: DB), Merck (NYSE: MRK), Bombardier (private), Coca-Cola (NYSE: KO), Verizon (NYSE: VZ), and Chevron (NYSE: CVX). Not surprisingly, competitors also include large, sophisticated players, including IBM (NYSE: IBM), Accenture (NYSE: ACN), L-3 (NYSE: LLL), and Hewlett-Packard (NYSE: HP)

P a g e | 4 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

The Global Business Services (GBS) segment provides technology solutions to businesses and is divided into three major sub-segments: (1) Consulting, which provides consulting and systems integration services; (2) Industry Software & Solutions (IS&S), which provides outsourcing and business process services; and (3) Applications Services, which offers cloud, mobile, and big data services to clients via the “as a service” (aaS) commercial model.

Background #4 Global Business Services Segment (GBS) ($ in millions) F2012 F2013 F2014 1QF14 1QF15 Global Business Services (GBS) Revenue $4,877.0 $4,843.0 $4,320.0 $1,054.0 $1,088.0 Operating income $205.0 $405.0 $574.0 $113.0 $112.0 EBITDA $408.0 $581.0 $726.0 $153.0 $151.0

Operating margin 4.2% 8.4% 13.3% 10.7% 10.3% EBITDA margin 8.4% 12.0% 16.8% 14.5% 13.9%

Bookings - $3,400 $6,100 $1,200 $1,200 Book to bill - 0.7x 1.4x 1.1x 1.1x

Source: Company reports.

In FY2014, GBS revenue fell 10.8% to $4.3 billion (or about 6%, ex currency), as about a 16% decline in consulting revenue was only partially offset by a 4% rise at IS&S sales and 3% growth in Applications (see Background #4). Consulting revenue was hurt by execution issues as well as by the proactive effort to reposition the business to focus on higher-margin work. Operating income improved 42% to $574 million as the operating margin expanded 490 basis points to 13.3% due to the company’s cost take-out initiatives, including an aggressive shift of personnel to lower cost centers as well as improved productivity.

In 1Q15 revenue increased 3.2% to $1.09 billion (or up 1%, ex currency) driven by a 7% gain in IS&S offset by a 1% decline at Applications and a 12% decline in Consulting work. CSC changed leadership at the Consulting unit during the quarter and predicts sequential improvement through FY2015. The operating margin declined 40 basis points to 10.3%, largely due to investments in the Consulting business. With contract awards of $1.2 billion in 1Q15 and a book- to-bill to 1.1x, management expects “modest” top-line growth in FY2015. As well, management guided to a FY2015 margin profile in the range of “14%-15%” at GBS. Gartner Inc., an industry research firm, estimates the consulting and implementation services sector will grow at about a 5% CAGR though 2018. While CSC’s growth can be expected to modestly lag the overall market due to an increasingly intense competitive environment, the operating margin should remain relatively stable in the “mid-double-digit” range.

The Global Infrastructure Service (GIS) Segment provides virtual desktop solutions, data center management, and storage services to businesses. The segment also provides next-generation offerings, including cloud and cyber security as well as “infrastructure as a service” (IaaS) and “storage as a service” (SaaS) solutions.

P a g e | 5 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

Background #5 Global Infrastructure Services Segment (GIS) ($ in millions) F2012 F2013 F2014 1QF14 1QF15 Global Infrastructure Services (GIS) Revenue $4,840.0 $4,690.0 $4,579.0 $1,147.0 $1,131.0 Operating income ($27.0) $166.0 $382.0 $92.0 $77.0 EBITDA $736.0 $888.0 $1,086.0 $266.0 $271.0

Operating margin -0.6% 3.5% 8.3% 8.0% 6.8% EBITDA margin 15.2% 18.9% 23.7% 23.2% 24.0%

Bookings - $3,200 $4,100 $900 $1,200 Book to bill - 0.7x 0.9x 0.8x 1.1x

Source: Company reports.

In FY2014, GIS revenue declined 2.4% to $4.6 billion (down 2.2%, ex currency) on price-downs and contract restructurings, but operating income jumped 130% to $382 million, primarily driven by the company’s ongoing cost-reduction initiatives (see Background #5).

In 1Q FY15 GIS revenue decreased 1.4% to $1.13 billion (down 3.2%, ex currency), largely due to contract completions, price-downs, and modifications. Revenue from GIS’s next-generation cloud and cyber offerings were up 55% and 21%, respectively, aided by strategic partnerships with AT&T (NYSE: T), Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MFST), and VMware (NYSE: VMW). Operating income declined about 16% to $77 million as investments in next- generation offerings, which management indicates will be an important growth engine in coming years (see Background #6), trimmed the operating margin by 120 basis points to 6.8%. While ongoing contract restructurings and completions will likely drive a modest decline in GIS revenue for full year FY2015, management expects margins to be in the “high-single-digits” (but not quite at its 9%-10% target). Longer term, given CSC’s strategic partnerships and the growth potential presented in next-generation offerings, top-line growth of 1%-2% can be reasonably projected, along with a margin profile in the 9%-10% range.

Background #6 CSC Commentary on Growth in Next-Generation Offerings

FY2012 FY2014 3-5 years Cloud offerings ~$100 million ~$200 million $1 billion-$1.5 billion Cyber offerings ~$600 million $600 million-$700 million $1 billion-$1.5 billion Big data offerings Negligible $100 million-$200 million $1 billion-$1.5 billion

Source: Company reports.

Government: North American Public Sector Services

The North American Public Sector (NPS) segment provides IT services to the US federal government as well as other state, local, and foreign governments. Branches of the US federal government, including Dept. of Defense (DoD), NASA, and the US Army, are the largest

P a g e | 6 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.” customers, but CSC also does work for the governments of the UK, Australia, Germany, Malaysia, and Singapore.

In FY2014, NPS revenue fell 12%, primarily driven by softness in the US federal market, reflecting budget cuts (e.g., sequestration) and delayed-decision making, but operating income advanced 2.5% to $524 million, as the operating margin expanded 180 basis points to 12.8%, driven by cost savings (see Background #7). Notably, management expects NPS margins, which are currently well-above the historical average, to moderate through FY2015. Management’s cost reduction initiatives have temporarily inflated the profit margin on fixed-price contracts but will narrow as savings are passed along to customers on cost-plus contracts.

In 1Q FY15, NPS revenue decreased 3.3% to $1.0 billion, driven primarily by lower revenue on contracts with the DoD and other civil agencies given contract conclusions as well as tasking reductions. With a book-to-bill of 0.3x at the end of 1Q15, management expects a “mid-single- digit” decline in NPS FY2015 revenue and believes that margins will begin to normalize around “the high-single-digit to low-double-digit” range through the remainder of the fiscal year.

Longer term, management is optimistic that pent-up demand for government services following several years of softness will help growth at some point, but visibility remains low. The federal appropriations bill passed in early 2014 eliminated the near-term threat of sequestration/government shutdown as well as offering more discretion in terms of budget allocation, likely to the benefit of cyber, but industry commentary suggests that money has not yet begun to actually flow. Given current trends and the inherent uncertainty, it is reasonable to assume NPS revenue will flatten in FY2016 (following declines in FY2012-FY2014). Management’s view is that normalized NPS margins are in the 8%-9% range.

Background # 7 North American Public Sector Segment (NPS) ($ in millions) F2012 F2013 F2014 1QF14 1QF15 North American Public Sector (NPS) Revenue $4,880.0 $4,662.0 $4,099.0 $1,053.0 $1,018.0 Dept. of Defense $3,071.0 $2,848.0 $2,401.0 $595.0 $562.0 Civil agencies $1,571.0 $1,600.0 $1,497.0 $405.0 $373.0 Other $238.0 $214.0 $201.0 $53.0 $83.0 Operating income $341.0 $511.0 $524.0 $127.0 $151.0 EBITDA $500.0 $669.0 $672.0 $164.0 $186.0

Operating margin 7.0% 11.0% 12.8% 12.1% 14.8% EBITDA margin 10.2% 14.4% 16.4% 15.6% 18.3%

Bookings - $3,200 $4,100 $700 $300 Book to bill - 0.7x 1.0x 0.7x 0.3x Source: Company reports.

P a g e | 7 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

Sources and Uses of Cash Flow

At the end of 1Q FY15, CSC had $2.4 billion in cash and debt of $2.88 billion. (The company also had $615 million of operating leases and $346 million of unfunded pension obligations.)

In FY2014, CSC generated $1.56 billion in cash flow from operations and deployed about $892 million of net capital expenditures, which have averaged 6%-7% of revenue over the last five years. The company declared $119 million in dividends (or $0.80 per share) and repurchased 9.8 million shares at an average price of about $52 per share (or an aggregate of about $505 million). All told, CSC returned just over 100% of net income to shareholders in FY2014. In May 2014, CSC increased the regular dividend by 15% to $0.92 per share, implying an about 1.6% yield. In 1QFY15, CSC repurchased an additional 2.4 million shares at an average price of $61.50 (or an aggregate of $148 million) and declared $29 million of dividends. (See Background #8.) Management expects to generate roughly $700 million of free cash flow in FY2015 and plans to continue to execute on its $1.5 billion share repurchase authorization and dividend distributions.

The company also has a history of acquisitions and divestitures, which management indicates is a strategy it will likely continue. On the acquisition front, in October 2013 CSC purchased ServiceMesh, a provider of enterprise cloud computing software, for $158 million (plus potential earn-outs of $137 million). In August 2013, CSC acquired Infochips, a provider of big data services, but did not disclose terms. In October 2012, CSC bought 42Six Solutions, which was also aimed at bolstering its big data analytics capabilities, for $35 million. In terms of divestitures, in May 2013 CSC sold its Base Operations, Aviation, and Range Services business to Lindsay Goldberg & Co. for $175 million. In December 2012, CSC sold a technology staffing unit called Paxus Corp. to Adcorp for $63 million as well as its credit services business to Equifax for $1 billion.

Background #8 Computer Sciences: Consolidated Sources and Uses of Cash Flow ($ in millions) 3 mos. F2009 F2010 F2011 F2012 F2013 F2014 1QF15 Cash flow from operations $1,986.0 $1,643.0 $1,564.0 $1,176.0 $1,119.0 $1,560.0 $273.0 Capital expenditures, net ($1,482.0) ($1,382.0) ($951.0) ($1,141.0) ($877.0) ($892.0) ($203.0) PP&E ($699.0) ($578.0) ($663.0) ($569.0) ($395.0) ($420.0) ($102.0) Software purchased/developed ($165.0) ($176.0) ($138.0) ($179.0) ($115.0) ($71.0) ($14.0) Payments on outsourcing contracts ($163.0) ($173.0) ($164.0) ($227.0) ($162.0) ($197.0) ($52.0) Payments on long-term financing ($532.0) ($537.0) ($91.0) ($177.0) ($237.0) ($242.0) ($84.0) Proceeds on asset sales $77.0 $82.0 $105.0 $11.0 $32.0 $38.0 $49.0 Free cash flow $504.0 $261.0 $613.0 $35.0 $242.0 $668.0 $70.0 Source: Company reports.

P a g e | 8 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

The Breakup

The rationale for the separation of CSC’s commercial and public-sector focused IT assets could be twofold. First, standalone commercially focused IT services equities (peers to GBS) trade at premium multiples to government-focused (NPS peers) concerns. Second, the separation could sharpen management’s focus as well as remove any perceived conflicts of interest, to the benefit of top- and bottom-line growth at both segments, which would likely yield further revaluation benefits.

The blueprint for a separation of commercially focused and government-focused IT assets has been laid out in several recent transactions. In July 2012, L-3 Communications spun off its underperforming government services business into publicly traded Engility Holdings Inc. (NYSE: EGL). In September 2013, SAIC Inc. completed a tax-free separation of its commercial and government IT services businesses; the spin entity was named Sciences Applications International Corporation (NYSE: SAIC), while the parent was renamed Leidos Holdings (NYSE: LDOS). Most recently, in December 2013, Exelis (NYSE: XLS), which itself was spun off from ITT Corp. (NYSE: ITT) in 2011, announced plans to spin off its military services arm into a publicly traded entity, to be named Vectrus. That transaction is expected to be completed sometime in 2014. The rationales for these separations were myriad but included the elimination of perceived conflicts of interest (primarily in bidding on government contracts) and improved management focus/agility, as well as the desire to separate commercial assets, which tend to be higher-margin/higher-growth as well as less susceptible to budget pressures and the variability of government spending/decision-making.

The performance of these stocks following the separation has been relatively solid, reflecting both industry-wide and company-specific trends. Spin entity SAIC has appreciated about 29% since beginning regular-way trading in September 2013, while parent entity Leidos, following a modest initial gain, has declined about 14% (see Breakup #1). L-3’s share price has increased 51% since the July 2012 spin-off of Engility, whose share price has about doubled since it became a standalone entity. Exelis’s share price is roughly flat since the announcement of its spin-off plans on December 11, 2013 but is up about 52% since its separation from ITT, whose stock has risen 173% since the October 2011 transaction.

Breakup #1 Post-Separation Stock Performance

LLL EGL S&P 500 LDOS SAIC S&P 500 ITT XLS S&P 500 5-day -3.8% -15.8% 0.8% 3.4% -0.9% -1.2% 15.7% -3.1% 0.6% 1-month -3.8% -8.3% 4.0% 3.4% 3.5% 3.6% 13.0% -19.0% -0.7% 6-months 9.3% 11.2% 8.6% -3.0% 8.3% 9.1% 28.1% 2.0% 11.5% 1-year 25.5% 67.6% 23.3% - - - 18.7% -2.1% 12.7% Through 8/22/14 51.6% 96.1% 46.7% -14.7% 34.6% 17.8% 175.1% 55.9% 59.6%

Source: Company data and Bloomberg.

P a g e | 9 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

Anecdotally, management has downplayed perceived conflicts of interest (given a relative dearth of procurement programs) and discussed potential cross-selling synergies between its commercial and government businesses, which suggests comfort with the current corporate structure. That said, management does not rule out any measure that would create value for shareholders. An important near-term dynamic to consider is that with margins above the corporate average, NPS is currently an accretive business from management’s perspective, but it could be described as “over-earning” relative to its historical margin profile. Given the expectation that top-line pressure persists and margins normalize into the 8%-9% range, management’s perspective on NPS’s strategic fit could continue to evolve.

Another potential catalyst to consider could be that with the cost-control/margin expansion portion of CSC’s turnaround plan having successfully (but largely) played out, an inability to accelerate top-line growth in FY2015-FY2017 could increase investor pressure on management to pursue a split to better compete with more focused peers. Moreover, with Mr. Lawrie’s initial 5-year employment contract ending in March of 2017 a split could mark the final act of a successful turnaround (or a potentially attractive avenue for his successor to create value for shareholders).

P a g e | 10 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.” The Breakdown

Given the clear delineation of CSC’s various business segments, a sum-of-the-parts analysis appears appropriate, particularly as each segment offers obvious peer comparisons. As discussed earlier, commercially focused IT services equities trade at premium multiples to government-focused concerns (as well as to commercially focused infrastructure companies). GBS peers currently trade on average at 9.5x C2015E EBITDA (and 14.2x C2015E EPS), while NPS peers currently trade on average at 8.4x C2015E EBITDA (and 14.8x C2015E EPS). GIS peers trade at 5.5x C2015E EBITDA and 11.0x 2015E EPS. As such, it appears that if CSC were to separate into two businesses (i.e., commercial and government) via a spin-off or asset sale, it could prove to be a value-creating catalyst, as the businesses would likely be revalued. Moreover, to the extent increased management focus and/or the removal of any perceived conflicts of interest improves CSC’s top- and bottom-line growth, that could help narrow its valuation discount to peers. Over the last ten years, CSC’s stock has traded at about 13x forward EPS and 5x EV/EBITDA versus respective peer averages of about 16x and 9x. The disparity is at least in part a result of CSC’s inconsistent execution and relative underperformance over the last few years. That said, the company’s recent progress on its turnaround plan should, in and of itself, warrant a further narrowing of the stock’s historical discount to peers.

Breakdowns #1 and #2 detail the operating profiles and valuations of CSC’s segment peers discussed throughout the remainder of the Breakdown section of this report.

P a g e | 11 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

Breakdown #1 Computer Sciences: Commercial Segment Comparables ($ in millions, except per share amounts; shares in millions) Global Business Services (GBS) Global Infrastructure Services (GIS) International Computer Cognizant Tech. Business Leidos Holdings L-3 Sciences Corp. Accenture Solutions Corp. Machines Corp. Infosys LTD. Inc. Communications AtoS Global Hewlett Packard (NASDAQ: (NYSE: CSC) (NYSE: ACN) CTSH) (NYSE: IBM) (NYSE: INFY) (NYSE: LDOS) (NYSE: LLL) (ATO-FR) (NYSE: HPQ) (stock prices as of 9/3/14) Share Price $60.05 $81.86 $45.92 $191.95 $61.22 $37.93 $110.15 $77.87 $38.07 FD Shares Out. (mn.) 148.3 670.8 607.3 997.6 574.3 74.8 86.2 101.0 1,871.4 Market Capitalization 8,902.5 54,908.1 27,887.0 191,487.8 35,156.4 2,835.9 9,498.5 7,862.2 71,242.4 Net Debt 0.4 (3,509.9) (4,129.2) 36,750.0 (4,586.9) 1,150.0 3,639.0 (296.7) 7,490.0 Enterprise Value 8,902.9 51,424.9 23,757.7 228,373.8 30,569.5 3,985.9 13,212.5 7,814.4 79,129.4

F2014 Sales 12,998 30,394 8,843 99,751 8,249 5,772 12,629 11,443 112,298 F2015E Sales 12,900 29,812 10,124 97,773 8,859 5,065 12,136 11,509 111,678 F2016E Sales 13,057 31,626 11,526 98,384 9,887 5,050 11,970 12,251 110,725

F2016E Net Income 746 3,361 1,733 18,926 2,203 192 726 637 7,328 Net Income Margin 5.8% 11.3% 17.1% 19.4% 24.9% 3.8% 6.0% 5.5% 6.6%

Shareholders' Equity 3,844 54,278 6,136 22,929 7,933 1,595 6,098 4,052 27,656 ROE 16.3% 5.7% 25.3% 78.3% 24.9% 11.8% 11.5% 14.6% 25.7% Price/book 2.3x 1.0x 4.5x 8.4x 4.4x 1.8x 1.6x 1.9x 2.6x

F2015 Free cash flow 700 3,036 1,038 16,077 1,820 386 920 370 7,295 Free cash flow yield 7.9% 5.9% 4.4% 7.0% 6.0% 9.7% 7.0% 4.7% 9.2% Average, ex. CSC 6.7% F2015E EPS $4.52 $4.53 $2.50 $17.90 $3.46 $2.48 $8.04 $5.91 $3.72 Price F2015E EPS 13.3x 18.1x 18.4x 10.7x 17.7x 15.3x 13.7x 13.2x 10.2x Average, ex. CSC 15.6x

F2016E EPS $5.01 $4.93 $2.82 $19.82 $3.86 $2.68 $8.78 $6.48 $3.92 Price F2016E EPS 12.0x 16.6x 16.3x 9.7x 15.9x 14.2x 12.5x 12.0x 9.7x Average, ex. CSC 14.2x

F2015E EBITDA 2,025 4,868 2,098 26,605 2,420 444 1,429 1,283 13,873 EV/EBITDA 4.4x 10.6x 11.3x 8.6x 12.6x 9.0x 9.2x 6.1x 5.7x Average, ex. CSC 10.2x 5.9x

F2016E EBITDA 1,993 5,196 2,373 28,371 2,713 449 1,484 1,444 14,062 EV/EBITDA 4.5x 9.9x 10.0x 8.0x 11.3x 8.9x 8.9x 5.4x 5.6x Average, ex. CSC 9.5x 5.5x Dividend $0.92 $3.72 Nil $4.40 $2.84 Nil $0.84 $0.95 $0.64 Dividend yield 1.5% 4.5% N/A 2.3% 4.6% N/A 0.8% 1.2% 1.7% Average, ex. CSC 3.1%

F2011 EPS 5.28 $2.67 1.19 11.52 2.62 - 8.35 4.16 4.58 F2015E EPS $4.52 $4.53 $2.50 $17.90 $3.46 $2.48 $8.04 $5.91 $3.72 5-year EPS CAGR -3.8% 14.1% 20.4% 11.6% 7.2% - -0.9% 9.2% -5.1%

# of employees 76,000 293,000 178,600 431,212 160,000 23,000 48,000 76,300 288,500 EV/employee 0.12x 0.18x 0.13x 0.53x 0.19x 0.17x 0.28x 0.10x 0.27x Average, ex. CSC 0.25x Source: Company reports, Bloomberg, and Institutional Research Group estimates.

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Breakdown #2 Computer Sciences: Public Sector Segment Comparables ($ in millions, except per share amounts; shares in millions) Computer Booz Allen CACI Engility ICF International ManTech MAXIMUS Sciences Corp. Hamilton International Inc. Holdings Inc. Inc. International Corp. Inc. SAIC Inc. (NYSE: (NYSE: CSC) (NYSE: BAH) (NYSE: CACI) (NYSE: EGL) (NASDAQ: ICFI) (NASDAQ: MANT) (NYSE: MMS) SAIC) (stock prices as of 9/3/14) Share Price $60.05 $22.50 $72.74 $34.96 $33.68 $29.18 $41.90 $45.76 FD Shares Out. (mn.) 148.3 150.5 23.0 17.6 19.5 37.3 67.0 48.0 Market Capitalization 8,902.5 3,386.3 1,673.7 616.0 655.7 1,087.5 2,807.0 2,195.9 Net Debt 0.4 1,335.7 1,266.2 368.8 107.0 24.3 (181.6) 265.0 Enterprise Value 8,902.9 4,721.9 2,942.1 996.0 762.8 1,111.8 2,625.4 2,460.9

F2014E Sales 12,998 5,479 3,565 1,407 949 2,310 1,331 4,121 F2015E Sales 12,900 5,272 3,551 1,408 1,027 1,884 1,710 3,861 F2016E Sales 13,057 5,339 3,544 1,430 1,096 1,887 1,905 3,872

F201E Net Income 746 257 136 56 51 58 166 145 Net Income Margin 5.8% 4.9% 3.8% 4.0% 5.0% 3.1% 9.7% 3.8%

Shareholders' Equity 3,844 172 1,208 443 474 1,134 530 377 ROE 16.3% N/A 10.9% 10.4% 9.3% 4.3% 27.3% 36.8% Price/book 2.3x 19.7x 1.4x 1.4x 1.4x 1.0x 5.3x 5.8x

F2015E Free cash flow 700 333 143 73 67 118 160 210 Free cash flow yield 7.9% 7.0% 4.9% 7.3% 8.8% 10.6% 6.1% 8.5% Average, ex. CSC 7.6% F2015E EPS $4.52 $1.63 $5.35 $2.75 $2.20 $1.29 $2.09 $2.86 Price/2014E EPS 13.3x 13.8x 13.6x 12.7x 15.3x 22.6x 20.0x 16.0x Average, ex. CSC 16.3x

F2016E EPS $5.01 $1.64 $5.48 $3.06 $2.56 $1.54 $2.26 $3.15 Price/2015E EPS 12.0x 13.7x 13.3x 11.4x 13.2x 18.9x 18.5x 14.5x Average, ex. CSC 14.8x

F2015E EBITDA 2,025 538 321 117 92 128 275 258 EV/EBITDA 4.4x 8.8x 9.2x 8.5x 8.3x 8.7x 9.5x 9.5x Average, ex. CSC 8.9x

F2016E EBITDA 1,993 551 325 129 108 130 295 268 EV/EBITDA 4.5x 8.6x 9.1x 7.8x 7.1x 8.6x 8.9x 9.2x Average, ex. CSC 8.4x Dividend $0.92 $0.44 Nil Nil Nil $0.84 $0.20 $1.12 Dividend yield 1.5% 2.0% N/A N/A N/A 2.9% 0.5% 2.4% Average, ex. CSC 1.9% F2011 EPS 5.28 1.24 3.47 N/A 1.38 3.43 0.91 N/A F2015E EPS $4.52 $1.63 $5.35 $2.75 $2.20 $1.29 $2.09 $2.86 5-year EPS growth rate -3.8% 7.1% 11.4% N/A 12.4% -21.7% 23.1% N/A

% of revenue from US Defense 17% 76% 79% 79% 9% 95% 0% 40% % of revenue from US Government 32% 99% 96% 98% 73% 99% 70% 93% # of employees 76,000 22,000 15,300 7,500 4,950 8,000 11,000 13,000 EV/employee 0.12x 0.21x 0.19x 0.13x 0.15x 0.14x 0.24x 0.19x Average, ex. CSC 0.18x Source: Company reports, Bloomberg, and Institutional Research Group estimates.

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Commercial Segment

CSC’s commercial segment is divided into two separate businesses: (1) Global Business Services (GBS); and (2) Global Infrastructure Services (GIS).

Global Business Services peers, such as Accenture (NYSE: CAN), Cognizant Technology Solutions (NASDAQ: CTSH), IBM (NYSE: IBM), Infosys Ltd. (NYSE: INFY), Leidos (NYSE: LDOS), and L-3 Communications (NYSE: LLL), on average currently trade at 9.5x 2015E EBITDA and 14.2x 2015E EPS. On a free cash flow basis, the group trades with an average yield of 6.7% (see Breakdown #3).

Breakdown #3 Computer Sciences: Global Business Services (GBS) Comparables EV/2015E EBITDA FCF Yield Accenture 9.9x 5.9% Cognizant Tech. Solutions Corp. 10.0x 4.4% IBM Corp. 8.0x 7.0% Infosys LTD. 11.3x 6.0% Leidos Holdings Inc. 8.9x 9.7% L-3 Communications 8.9x 7.0% Average 9.5x 6.7% Source: Bloomberg.

In FY2014, GBS generated $4.3 billion of revenue, posted adjusted operating income of $574.0 million, and reported depreciation & amortization of $152.0 million, resulting in adjusted EBITDA of $726.0 million. The adjusted EBIT and EBITDA margins were 13.3% and 16.8%, respectively. In 1Q FY15, GBS revenue grew 3.2% to $1.08 billion, while adjusted EBIT and EBITDA were essentially flat at $112 million and $151 million, respectively. Growth in the GBS segment has been hurt by the repositioning of its consulting business, which was down 12% in the quarter, but management recently made a leadership change and expects performance to improve in 2H FY15. Anecdotally, management projects “modest” top-line growth and margins in the “mid-double-digits” with a goal of “14%-15%” for the GBS segment for FY2015.

Based on the current consolidated consensus forecasts and management’s segment commentary, GBS revenue can be projected to grow about 3% to $4.45 billion in FY2015 and an additional 2.5% to $4.56 billion in FY2016. Assuming operating margins in-line with management’s “14%-15%” commentary in FY2016, it can be forecast that the GBS business will generate FY2016E EBIT and EBITDA of $661.3 million and $798.4 million, respectively.

Applying an 8.0x multiple to FY2016E EBITDA, which assumes CSC will continue to trade at a modest discount to the group average and more in-line with lower-valued peers, results in an enterprise value of $6.39 billion, or $43 per share (see Breakdown#4).

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Breakdown #4 Computer Sciences: GBS Fair Value Based on FY2016E EBITDA ($ in millions, except per share amounts; shares in millions) GBS F2015E Revenue $4,449.6 Revenue Growth Est. 2.5% 2016E Revenue $4,560.8 Operating margin 14.5% Operating Income $661.3 D&A $137.1 F2016E EBITDA $798.4 EBITDA Margin 17.5% Multiple 8.0x EV $6,387.3 Shares Outstanding 148.3 Per Share Basis $43.08 Source: Company reports, Institutional Research Group estimates.

Current consensus for FY2016 net income is approximately $727 million; assuming corporate and interest costs are assigned as a pro rata share of EBITDA as well as assuming a 30% tax rate, it can be forecast that GBS will contribute net income of $369.3 million in FY2016E. Assuming capital expenditures continue to trend at about 6% of total revenue and are assigned in pro rata proportion to depreciation & amortization, one can estimate FY2016 free cash flow of $387.7 million. Applying the average peer free cash flow yield of 6.8% results in an enterprise value of $6.8 billion or $46 per share (see Breakdown #5). (Note: For an apples-to-apples comparison with the main EV/EBITDA calculation in Breakdown #4, corporate costs are unallocated on a tax-effected basis.)

Breakdown #5 Computer Sciences: GBS Fair Value Based on FY2016E FCF ($ in millions, except per share amounts; shares in millions) GBS Operating income $661.3 Corp. SG&A ($116.6) Interest expense ($17.1) F2016E EBT $527.6 Tax rate 30% F2016 Net income $369.3 D&A $137.1 Capital expenditures ($118.7) F2016E Simple Cash Flow $387.7 Corporate costs $69.6 Average Yield 6.7% Enterprise Value $6,792.8 Shares Outstanding 148.3 Per Share Basis $45.82 Source: Company reports, Institutional Research Group estimates.

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Global Infrastructure Services’ comparable peer group includes AtoS Global (ATO-FR) and Hewlett Packard (NYSE: HPQ), which currently trade at 5.5x FY2016E EBITDA and 10.8x FY2016E EPS. On a free cash flow basis, the group trades with a 7.0% yield (see Breakdown #6). Notably, in 2008 HP purchased IT infrastructure player Electronic Data Solutions (EDS) for $13.9 billion, or about 5.7x trailing-12-month EBITDA (or 0.62x TTM revenue).

Breakdown #6 Computer Sciences: Global Infrastructure Services (GIS) Comparables EV/C2015E EBITDA FCF Yield AtoS Global 5.4x 4.7% Hewlett Packard 5.7x 9.2% Average 5.5x 7.0% Source: Bloomberg.

In FY2014, GIS generated $4.6 billion of revenue, had adjusted operating income of $382.0 million, and reported depreciation & amortization of $704.0 million, resulting in adjusted EBITDA of $1.1 billion. The adjusted EBIT and EBITDA margins were 8.3% and 23.7%, respectively. In 1Q FY15, GIS revenue contracted 1.4% to $1.1 billion; adjusted EBIT fell 16% to $77 million, but adjusted EBITDA increased 2% to $271 million (implying respective margins of 6.8% and 24%). Growth at GIS has been hurt by contract restructurings and completions (as well as price-downs), partially offset by solid growth in next-generation offerings, such as cloud (up 55% in 1Q) and cyber security (up 21% in 1Q). While contract restructurings and completions will continue to weigh on GIS revenue in FY2015, management anecdotally expects that its next-generation offerings and the growing contribution from partnerships will be a key driver of future growth. As well, management commented that while operating margins of 9%- 10% remain the goal, that level of profitability is likely “a bit ambitious” in FY2015.

Based on the current consolidated consensus forecasts and management’s segment commentary, GIS revenue is projected to decline 0.5% to $4.56 billion in FY2015 but grow 1.0% to $4.60 billion in FY2016. Assuming margins in-line with management’s 9%-10% longer-term operating margin commentary, it can be forecast that the GIS segment will generate FY2016E EBIT and EBITDA of $437.2 million and $1.08 billion, respectively.

Applying an EBITDA multiple of 5.0x results in an enterprise value of $5.38 billion, or $36 per share (see Breakdown #7).

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Breakdown #7 Computer Sciences: GIS Fair Value Based on FY2016E EBITDA ($ in millions, except per share amounts; shares in millions) GIS F2015E Revenue $4,556.1 Revenue Growth Est. 1% 2016E Revenue $4,601.7 Operating margin 9.5% Operating Income $437.2 D&A $639.8 F2016E EBITDA $1,076.9 EBITDA Margin 23.4% Multiple 5.0x EV $5,384.6 Shares Outstanding 148.3 Per Share Basis $36.32 Source: Company reports, Institutional Research Group estimates.

Given current consolidated FY2016E net income consensus of $727 million and assuming corporate and interest costs are assigned on a pro rata share proportional to EBITDA, as well as a 30% tax rate, it can be forecast that the GBS segment will contribute net income of $179.8 million in FY2016. Assuming capital expenditures total 6% of consolidated revenue and are assigned on a pro rata share of D&A, FY2016 free cash flow can be estimated at $265.6 million. Applying the average peer free cash flow yield of 7.0% yields an enterprise value of $5.15 billion or $35 per share (see Breakdown #8).

Breakdown #8 Computer Sciences: GIS Fair Value Based on FY2016E FCF ($ in millions, except per share amounts; shares in millions) GIS Operating income $437.2 Corp. SG&A ($157.3) Interest expense ($23.1) F2016E EBT $256.8 Tax rate 30% F2016E Net income $179.8 D&A $639.8 Capital expenditures ($553.9) F2016E Simple Cash Flow $265.6 Corporate costs $93.9 Average Yield 7.0% Enterprise Value $5,155.1 Shares outstanding 148.3 Per Share Basis $34.77 Source: Company reports, Institutional Research Group estimates.

P a g e | 17 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

North American Public Sector (NPS)

Comparable peers for the North American Public Sector business include Booz Allen (NYSE: BAH), CACI (NYSE: CACI), Engility (NYSE: EGL), ICF International (NASDAQ: ICFI), ManTech (NASDAQ: MANT), Maximus Inc. (NYSE: MMS), and SAIC (NYSE: SAIC), which currently trade at 8.4x 2015 estimated EBITDA and 14.8x estimated 2015 EBITDA. On a free cash flow basis, the group trades with a 7.6% yield (see Breakdown #9).

Breakdown #9 Computer Sciences: North American Public Sector (NPS) Comparisons EV/2015E EBITDA FCF Yield Booz Allen Hamilton 8.6x 7.0% CACI International Inc. 9.1x 4.9% Engility Holdings Inc. 7.8x 7.3% ICF International Inc. 7.1x 8.8% ManTech International Corp. 8.7x 10.6% MAXIMUS Inc. 8.9x 6.1% SAIC Inc. 9.2x 8.5% Average 8.4x 7.6% Source: Bloomberg.

In FY2014, the NPS segment posted a 12% decline in revenue to $4.1 billion, generated operating income of $524.0 million, and reported depreciation & amortization of $148.0 million, resulting in adjusted EBITDA of $672.0 million. The EBIT and EBITDA margins were 12.8% and 16.4%, respectively. In 1Q FY15, revenue declined 3.3% to $1.0 billion, primarily due to a decline in bookings with the US government, while operating income and EBITDA rose 19% to $151 million and 13% to $186 million, respectively. Given a book-to-bill of 0.3x at the end of 1Q FY15 and the ongoing budget/spending uncertainty, management projected a “mid-single- digit” decline in NPS revenue for FY2015. As well, management expects NPS margins will moderate from current levels to around 10% for the full year as the company shares cost take- out/efficiency gains with customers on cost-plus contracts. Management continues to see normalized NPS margins of 8%-9%. While management is anecdotally optimistic on the potential benefit of pent-up government spending, visibility remains low.

Given current consensus forecasts, management’s commentary, and admittedly low visibility into government spending, it can be assumed that NPS revenue will decline 5% to $3.89 billion in FY2015E and flatten in FY2016 (after several years of declines). Assuming segment operating margins normalize at around 8.5%, it can be forecast that NPS will generate FY2016E EBIT and EBITDA of $331.0 million and $458.9 million, respectively.

Applying a roughly 7.0x multiple to FY2016E EBITDA, which is more in-line with lower-valued peer ICF and again reflects the expectation that CSC will trade at a modest discount to peers near term, results in an enterprise value of about $3.21 billion, or about $22 per share (see Breakdown #10).

P a g e | 18 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

Breakdown #10 Computer Sciences: NPS Fair Value Based on FY2016E EBITDA ($ in millions, except per share amounts; shares in millions) NPS F2015E Revenue $3,894.1 Revenue Growth Est. 0% 2016E Revenue $3,894.1 Operating margin 8.5% Operating Income $331.0 D&A $128.0 2016E EBITDA $458.9 EBITDA Margin 11.8% Multiple 7.0x EV $3,212.6 Shares Outstanding 148.3 Per Share Basis $21.67 Source: Company reports, Institutional Research Group estimates.

Current consolidated consensus for net income is $727 million; assuming corporate and interest costs are assigned on a pro rata share proportional to EBITDA as well as a 30% tax rate, it can be forecast that the NPS segment would contribute net income of $177.9 million in FY2016. Assuming capital expenditures are 6% of total revenue and assigned on a pro rata share of D&A, FY2016 FCF can be estimated at $195.1 million. Applying the average peer free cash flow yield of 7.6% yields an enterprise value of $3.1 billion, or $21 per share (see Breakdown #11).

Breakdown #11 Computer Sciences: NPS Fair Value Based on FY2016E FCF ($ in millions, except per share amounts; shares in millions) NPS Operating income $331.0 Corp. SG&A ($67.0) Interest expense ($9.8) F2016E EBT $254.1 Tax rate 30% F2016E Net income $177.9 D&A $128.0 Capital expenditures ($110.8) F2016E Simple Cash Flow $195.1 Corporate costs $40.0 Average Yield 7.6% Enterprise Value $3,087.8 Shares outstanding 148.3 Per Share Basis $20.83 Source: Company reports, Institutional Research Group estimates.

P a g e | 19 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.”

Corporate costs, not included in segment EBIT and EBITDA, totaled $313 million in FY2014. For FY2016E, we capitalize $341 million of corporate costs at 7.0x, which is roughly the weighted average of the multiples used for segment EBITDA, representing about $16 per share. In addition, at the end of 1Q FY15, CSC carried net debt of $439 million, or about $3 per share, as well as $961 million or $6.50 per share of operating leases and pension obligations. On a sum-of-the-parts basis, a fair value estimate for CSC of $75 per share can be derived (see Breakdown #12). We note our fair value target equates to about a 7.5% yield on estimated FY2016 free cash flow of about $848.5 million.

Breakdown #12 Computer Sciences: Sum-of-the-Parts Fair Value Estimate ($ in millions, except per share amounts; shares in millions) Corporate Enterprise Other Market GBS GIS NPS Costs Value Net Debt Liabilities Cap F2015E Revenue $4,449.6 $4,556.1 $3,894.1 Revenue Growth Est. 2.5% 1.0% 0.0% F2016E Revenue $4,560.8 $4,601.7 $3,894.1 Operating Income $661.3 $437.2 $331.0 D&AE $137.1 $639.8 $128.0 2015E EBITDA $798.4 $1,076.9 $458.9 ($340.9) ($439.0) ($961.0) Multiple 8.0x 5.0x 7.0x 7.0x 1.0x 1.0x EV $6,387.3 $5,384.6 $3,212.6 ($2,399.7) 12,584.95 ($439.0) ($961.0) 11,184.95 Shares Outstanding 148.3 148.3 148.3 148.3 148.3 148.3 148.3 Per Share Basis $43.08 $36.32 $21.67 ($16.19) ($2.96) ($6.48) $75.45 Source: Company reports, Bloomberg and Institutional Research Group estimates.

P a g e | 20 HIDDEN OPPORTUNITIES “Valuing possible breakups by providing sum-of-the-parts analysis.” The Wrap-Up

On a sum-of-the-parts basis, a fair valuation of $75 per share can be reached, representing a roughly 25% premium to the current CSC share price.

Catalysts to unlocking this value appear rooted in the separation or sale of the company’s public sector segment, which could improve the operating performance of each business and narrow the stock’s historical valuation discount. As described earlier, pure-play commercial IT services equities trade at 9.5x C2015E EBITDA, while government-focused IT service concerns trade at about 8.4x (based off relatively depressed levels of earnings, given tepid government spending).

Other potential value creation avenues could include a continued improvement in operating performance, which should warrant a narrowing of the stock’s historical discount to peers, a sharp uptick in government IT spending, acquisitions, and accelerated share repurchases. Risks include management’s maintaining the current structure or an inability to execute on internal initiatives/turnaround plans, thus perpetuating the discounted conglomerate valuation, as well as an economic recession/government shutdown.

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