CSC maintains characteristic silence on accounting errors.

Computer Sciences Corp. has been historically tight-lipped, but its current silence over a decade of apparent accounting errors that could amount to $600 million is particularly deafening to analysts.

But they're not surprised by it.

"IT companies have recently become more open in their disclosures but CSC has lagged. It's the company culture," said Joseph Vail, an analyst at Jefferies & Co. Inc.

This much is known about the two recent earning restatements the E1 Segundo-based information technology consultant has issued:

In May, the company said it would restate its earnings from 2000 to 2006 alter finding miscalculations that translated to a charge of up to $400 million, adding its previously filed annual report should be scrapped. Former chief executive Van Honeycutt left his post about 10 days before the announcement and was replaced by Michael Laphen.

Earlier this month, the company announced that more accounting errors were found in its earnings from 1997 to 2007 under a newly adopted tax law called Fin-48, resulting in an additional charge of $200 million.

Except to clarify that the two charges do not overlap, Computer Sciences spokeswoman Janet Herin declined comment beyond the press release because the company "cannot engage in selective disclosure on material matters."

Jeff Embersits, analyst at Shareholder Value Management, characterized the announcements as "smokescreens until they can fix the real problems. Pretty soon, they're standing there naked and the stock gets hit."

Problems lie in the $15 billion company's lack of cash flow--the main reason why investors haven't liked the company's stocks, said George Price, analyst at Stifel Nicolaus & Co.

Computer Sciences--which has a long-term contract to modernize the IRS information technology systems along with other government contracts that add up to a third of its annual revenue--operates on thin margins compared to its competitors.

For example, Accenture Ltd. generated free cash flow equal to about 10 percent of its $20 billion in revenues. Computer Sciences, by contrast, generated only about 4.5 percent after its restructuring costs.

Things were looking up with the 2005 appointment of Chief Financial Officer Michael Keane, who seemed keen on making sure the company is left with more cash after financing each project.

But that may change if the company is forced to pay penalties on tax liabilities under Fin-48, an accounting rule that took effect in January.

While Computer Sciences is not the only company affected by the new tax law, it is the only major IT services company to be targeted so far.

"This is definitely concerning. The tax issues suggest hurdles to future cash flow' investment," Price said.

Computer Sciences Corp. (NYSE:CSC)
El Segundo

CEO: Michael Laphen

Employees: 79,000

Market gap: $9.6 billon

P/E *: 25.56

EPS *: $2.16

* Twelve months trailing.

Source: Yahoo Finance

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BY BOOYEON LEE

Staff Reporter