-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JyiM6lwKIfDOG3MiaGkPtk91BsJSWNnuvdAwJfdMPa+vGpr6SvEPcltjf3+WE44c 5tNXOP/908bukc0q2MxN3g== 0000023082-03-000010.txt : 20030207 0000023082-03-000010.hdr.sgml : 20030207 20030207162650 ACCESSION NUMBER: 0000023082-03-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021227 FILED AS OF DATE: 20030207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER SCIENCES CORP CENTRAL INDEX KEY: 0000023082 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 952043126 STATE OF INCORPORATION: NV FISCAL YEAR END: 0402 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-04850 FILM NUMBER: 03545030 BUSINESS ADDRESS: STREET 1: 2100 E GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3106150311 MAIL ADDRESS: STREET 1: 2100 EAST GRAND AVE CITY: EL SEGUNDO STATE: CA ZIP: 90245 10-Q 1 csc10q_fy0303.htm FORM 10-Q csc10q-fy0303

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________

FORM 10-Q

(Mark One)

[X]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

 

 

For the quarter ended December 27, 2002

 

 

OR

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934



For the transition period from _________________ to _________________


Commission File No. 1-4850

 

COMPUTER SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)

 

Nevada
(State or Other Jurisdiction of
Incorporation or Organization)

95-2043126
(I.R.S. Employer
Identification No.)

 

 

2100 East Grand Avenue
El Segundo, California
(Address of Principal Executive Offices)


90245
(Zip Code)

Registrant's Telephone Number, Including Area Code: (310) 615-0311

          Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]  No [  ]  

         172,167,828 shares of Common Stock, $1.00 par value, were outstanding on January 24, 2003.


 

 

COMPUTER SCIENCES CORPORATION

INDEX TO FORM 10-Q

 

 

 

PART I.

FINANCIAL INFORMATION

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Condensed Statements of Income, Third Quarter and
   Nine Months Ended December 27, 2002 and December 28, 2001


3

 

 

 

 

Consolidated Condensed Balance Sheets, December 27, 2002 and March 29, 2002

4

 

 

 

 

Consolidated Condensed Statements of Cash Flows, Nine Months Ended
   December 27, 2002 and December 28, 2001


5

 

 

 

 

Notes to Consolidated Condensed Financial Statements

6

 

 

 

Item 2.

Management's Discussion and Analysis of
   Financial Condition and Results of Operations


18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

 

 

 

Item 4.

Controls and Procedures

26

 

 

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 5.

Exhibits and Reports on Form 8-K

27

 

 

 

   Signatures and Certifications

30

2


PART I, ITEM 1. FINANCIAL STATEMENTS
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)

 

   Third Quarter Ended   

 

   Nine Months Ended   

(In millions except
per-share amounts)

Dec. 27,
   2002   

 

Dec. 28,
   2001   

 

Dec. 27,
   2002   

 

Dec. 28,
   2001   

 

 

 

 

 

 

 

 

Revenues

$2,793.6    

 

$2,893.5    

 

$8,267.4    

 

$8,344.1    

 

 

 

 

 

 

 

 

Costs of services

2,248.5    

 

2,344.8    

 

6,665.3    

 

6,802.7    

 

 

 

 

 

 

 

 

Selling, general and administrative

167.6    

 

184.0    

 

524.5    

 

548.0    

 

 

 

 

 

 

 

 

Depreciation and amortization

195.3    

 

204.2    

 

588.5    

 

591.9    

 

 

 

 

 

 

 

 

Interest expense

36.3    

 

38.6    

 

106.4    

 

118.1    

 

 

 

 

 

 

 

 

Interest income

     (1.7)   

 

     (3.7)   

 

      (5.5)   

 

     (9.5)   

 

 

 

 

 

 

 

 

Total costs and expenses

 2,646.0    

 

 2,767.9    

 

 7,879.2    

 

 8,051.2    

 

 

 

 

 

 

 

 

Income before taxes

147.6    

 

125.6    

 

388.2    

 

292.9    

 

 

 

 

 

 

 

 

Taxes on income

    41.9    

 

    38.5    

 

    110.7    

 

     89.9    

 

 

 

 

 

 

 

 

Net income

$ 105.7    
======    

 

$   87.1    
======    

 

$   277.5    
=======   

 

$   203.0    
======    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    Basic

$ 0.62   
=====   

 

$   0.51    
======    

 

$     1.62   
=======   

 

$     1.20   
=======   

 

 

 

 

 

 

 

 

    Diluted

$ 0.61   
=====   

 

$   0.51    
======    

 

$     1.61   
=======   

 

$     1.19   
=======   

 

 

 

 

See accompanying notes.

3


 

 COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS

(In millions)

Dec. 27, 2002
(unaudited)

 

March 29, 2002

 

 

 

ASSETS

 

 

 

  Cash and cash equivalents

  $   161.0   

 

$    149.1 

  Receivables

2,852.9   

 

2,753.9 

  Prepaid expenses and other current assets

   515.1   

 

    401.2 

      Total current assets

 3,529.0   

  3,304.2 

 

 

 

 

  Property and equipment, net

1,860.7   

 

1,908.0 

  Outsourcing contract costs, net

953.3   

 

992.2 

  Software, net

384.2   

 

375.6 

  Excess of cost of businesses acquired over
    related net assets, net

1,749.2   

 

1,641.0 

  Other assets

    407.2   

 

     389.5 

      Total assets

$  8,883.6   

 

$  8,610.5 

 

 

 

 

LIABILITIES

 

 

 

  Short-term debt and current
    maturities of long-term debt

$   208.9   

 

$    331.0 

  Accounts payable

477.0   

 

530.4 

  Accrued payroll and related costs

503.5   

 

541.5 

  Other accrued expenses

746.6   

 

876.9 

  Deferred revenue

218.8   

 

284.2 

  Income taxes payable

    286.8   

 

     144.0 

      Total current liabilities

  2,441.6   

 

   2,708.0 

 

 

 

 

  Long-term debt, net

2,023.9   

 

1,873.1 

  Other long-term liabilities

366.4   

 

405.8 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

  Common stock issued, par value $1.00 per share

172.2   

 

171.6 

  Additional paid-in capital

1,067.2   

 

1,047.6 

  Earnings retained for use in business

2,915.8   

 

2,638.3 

  Accumulated other comprehensive loss

(84.5)  

 

(215.4)

  Less common stock in treasury

      (19.0)  

 

       (18.5)

      Total stockholders' equity

    4,051.7   

 

     3,623.6 

      Total liabilities and stockholders' equity

$  8,883.6   
========   

 

$  8,610.5 
======== 

 

 

 See accompanying notes.

4


 COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)

 

           Nine Months Ended         

(In millions)

Dec. 27, 2002

 

Dec. 28, 2001

Cash flows from operating activities:

 

 

 

  Net income

$   277.5     

 

$   203.0     

  Adjustments to reconcile net income to net
    cash provided by operating activities:


 


      Depreciation and amortization and other
        non-cash charges


631.0     

 


643.8     

      Changes in assets and liabilities, net of
        effects of acquisitions:


 


          Increase in assets

(166.5)    

 

(322.1)    

          (Decrease) increase in liabilities

    (269.8)    

 

     18.5     

Net cash provided by operating activities

    472.2     

 

    543.2     

Investing activities:

 

 

 

  Purchases of property and equipment

(401.7)    

 

(475.1)    

  Acquisitions, net of cash acquired

(7.7)    

 

(41.6)    

Dispositions

73.6     

 

 

  Outsourcing contracts

(75.8)    

 

(158.0)    

  Software

(95.5)    

 

(103.4)    

  Other investing cash flows

    16.1     

 

    16.2     

Net cash used in investing activities

    (491.0)    

 

    (761.9)    

Financing activities:

 

 

 

  Borrowings (repayment) under commercial paper, net

21.2     

 

(679.1)    

  Borrowings (repayment) under lines of credit, net

15.0     

 

(74.6)    

  Proceeds from debt issuance

.4     

 

1,000.0     

  Principal payments on long-term debt

(34.5)    

 

(160.4)    

  Proceeds from stock option and other common stock      transactions

20.8     

 


71.7     

  Other financing cash flows

     (2.7)    

 

       2.0     

Net cash provided by financing activities

      20.2     

 

   159.6     

Effect of exchange rate changes on cash
  and cash equivalents


      10.5
     

 


     (1.4)
    

Net increase (decrease) in cash and cash equivalents

11.9     

 

(60.5)    

Cash and cash equivalents at beginning of year

     149.1     

 

    184.7     

Cash and cash equivalents at end of period


$   161.0     
======     

 


$   124.2     
=======    

  

 

See accompanying notes.

5


 COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)

(A)

Revenue Recognition

 

Computer Sciences Corporation (CSC or the Company) provides services under time and materials, level of effort, cost-based, unit-price and fixed-price contracts. For time and materials and level of effort types of contracts, revenue is recorded when services are provided at agreed upon billing rates. For cost-based contracts, revenue is recorded at the time such fees are probable and estimable by applying an estimated factor to costs as incurred, such factor being determined by the contract provisions and prior experience. Revenue is recognized on unit-price contracts based on unit metrics times the agreed upon contract unit price. Revenue on long-term, fixed-price development contracts is recognized on the basis of the estimated percentage-of-completion if the Company can dependably estimate and measure the extent of progress and the cost to complete. The Company applies the method of revenue recognition because projected contract revenues and costs are reasonably estimable based on the C ompany's business practices, methods and historical experience. The method requires estimates of costs and profits over the entire term of the contract, including estimates as to resources and costs necessary to complete performance. Management regularly reviews project profitability and underlying estimates. Revisions to the estimates at completion are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. Provisions for estimated losses, if any, are recognized in the period in which the loss is determined. Costs under time and materials, level of effort, cost-based, unit-price and fixed-price contracts are expensed as incurred, except for certain costs on outsourcing contracts and sales of proprietary software which are amortized over the useful life as described below.

 

Revenue on outsourcing contracts is recognized based on the services performed or information processed during the period in accordance with contract terms and agreed-upon billing rates for the services provided. Costs on outsourcing contracts are charged to expense as incurred, except that contract acquisition and transition costs are deferred and charged to expense or reflected as a reduction of revenue over the life of the contract, as described in notes (B) and (C).

 

Revenues from sales of proprietary software are recognized upon receipt of a signed contract documenting customer commitment, delivery of the software and determination of the fee amount and its probable collection. However, if significant customization is required, revenues are recognized as the software customization services are performed in accordance with the percentage-of-completion method. Costs incurred in connection with sales of proprietary software are expensed as incurred, except for the costs of developing computer software products, which are capitalized and amortized over the life of the software products, as more fully described in note (D).

6


(B)

Reclassification

 

During the third quarter of fiscal 2003, the Securities and Exchange Commission Staff indicated the guidance in Emerging Issues Task Force (EITF) Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" should be applied broadly to all forms of consideration provided by a vendor to its customer, and all arrangements in which an entity pays cash or other forms of consideration to its customers. Accordingly, such consideration is now accounted for as a reduction of revenue. The Company acquires information technology assets from outsourcing clients at negotiated prices and subsequently records the assets at their fair values. Any excess paid over the fair value amounts (the premium) is included in outsourcing contract costs and amortized over the contract life. In accordance with EITF Issue No. 01-09, amortization of premiums has been reclassified from costs and expenses to a reduction of revenue beginning in the third qu arter of fiscal 2003. Prior period amounts have been classified to conform to current year presentation. The amounts were $11.8 million and $7.4 million for the third quarter of fiscal 2003 and 2002, respectively. The amounts for the nine months ended December 27, 2002 and December 28, 2001 were $35.2 million and $35.7 million, respectively. These amounts reduced revenues and total costs and expenses by less than 1%, with no impact on income.

Additionally, during the third quarter of fiscal 2003, the Company reclassified the provision doubtful accounts from costs of services to selling, general and administrative. Prior period amounts have been adjusted to conform to current year presentation. For the first nine months of fiscal 2003 and 2002, the amounts were $7.4 million and $16.2 million, respectively. The change in presentation had no impact on revenues or income.

(C)

Outsourcing Contract Costs

 

Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract are deferred and expensed over the contract life. These costs consist of contract acquisition and transition costs, including the cost of due diligence activities after competitive selection and costs associated with installation of systems and processes. Costs incurred for bid and proposal activities are expensed as incurred. Fixed assets acquired in connection with outsourcing transactions are capitalized and depreciated consistent with fixed asset policies described in note (E). Amounts paid to clients in excess of the fair market value of acquired property and equipment are capitalized as outsourcing contract costs and amortized over the contract life. The amortization of these outsourcing contract costs is accounted for as a reduction in revenue, as described in note (B). Management regularly reviews outsourcing contracts for impairment.

(D)

Software

 

The Company capitalizes costs incurred to develop commercial software products after technological feasibility has been established. Costs incurred to establish technological feasibility are charged to expense as incurred. Enhancements to existing software products are capitalized where such enhancements extend the life or significantly expand the marketability of the products. Capitalized software is amortized based on current and estimated future revenues from the product. The amortization expense is not less than the straight-line amortization expense over product useful life.

 

7


 

The company capitalizes costs incurred to develop internal-use computer software. Internal and external costs incurred in connection with development of upgrades or enhancements that result in additional functionality are also capitalized. These capitalized costs are amortized on a straight-line basis over the estimated useful life of the software. Purchased software is capitalized and amortized over the estimated useful life of the software.

 

Unamortized capitalized and purchased software consisted of the following (in millions):

 

December 27,      2002    

 

March 29,
   2002   

Commercial software products

$192.6      

 

$187.4    

Internal-use software

81.1      

 

  94.3    

Purchased software

  110.5      

 

   93.9    

               Total

$384.2      
=====      

 

$375.6    
=====    

 

Depreciation and amortization of $195.3 and $204.2 million for the third quarter ended December 27, 2002 and December 28, 2001, respectively, include amortization of capitalized software development costs and purchased software as follows (in millions):

 

     Third Quarter Ended     

 

December 27,     2002    

 

December 28,
    2001    

Commercial software products

$ 10.9      

 

$ 12.9      

Internal-use software

6.2      

 

   4.2      

Purchased software

    9.6      

 

     6.9      

               Total

$ 26.7      
=====      

 

$ 24.0      
====      

 

Depreciation and amortization of $588.5 and $591.9 million for the nine months ended December 27, 2002 and December 28, 2001, respectively, include amortization of capitalized software development costs and purchased software as follows (in millions):

 

Nine Months Ended

 

December 27,     2002    

 

December 28,     2001    

Commercial software products

$ 43.8     

 

$ 38.3    

Internal-use software

25.1     

 

10.6    

Purchased software

   27.2     

 

   21.4    

               Total

$ 96.1     
=====     

 

$ 70.3    
=====    

 

8


(E)

Depreciation and Amortization

 

The Company's depreciation and amortization policies are as follows:

Property and Equipment:

 

  Buildings

10 to 40 years

  Computers and related equipment

3 to 10 years

  Furniture and other equipment

2 to 10 years

  Leasehold improvements

Shorter of lease term or useful life

Software

2 to 10 years

Credit information files

10 to 20 years

Outsourcing contract costs

Contract life

 

For financial reporting purposes, computer equipment is depreciated using either the straight-line or sum-of-the-years'-digits method, depending on the nature of the equipment's use. The cost of other property and equipment, less applicable residual values, is depreciated using the straight-line method. Depreciation commences when the specific asset is complete, installed and ready for normal use. Outsourcing contract costs and credit information files are amortized on a straight-line basis over the years indicated above. Software amortization is described in note (D).

 

Included in the consolidated condensed balance sheets are the following accumulated depreciation and amortization amounts (in millions):

 

Dec. 27, 2002

 

 March 29, 2002 

Property and equipment

$2,134.7      

 

$1,976.4      

Excess of cost of businesses acquired over
related net assets


303.8      

 


285.6      

(F)

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions, in particular estimates of anticipated contract costs utilized in the revenue recognition process, that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

 

9


(G)

Basic and diluted earnings per share (EPS) are calculated as follows (in millions except per share amounts):

 

           Third Quarter Ended          

 

Dec. 27, 2002

 

Dec. 28, 2001

Net income

$   105.7     
=======     

 

$     87.1     
========     

Common share information:

 

 

 

Average common shares outstanding     for basic EPS

171.669     

 

170.475     

Dilutive effect of stock options

     .489     

 

    1.278     

Shares for diluted EPS

172.158     
======     

 

171.753     
======     

Basic EPS

$    0.62     

 

$     0.51     

Diluted EPS

$    0.61     

 

$     0.51     

 

          Nine Months Ended          

 

Dec. 27, 2002

 

Dec. 28, 2001

Net income

$  277.5     
======     

 

$    203.0     
=======     

Common share information:

 

 

 

Average common shares outstanding   for basic EPS

171.553     

 

169.754     

Dilutive effect of stock options

     .892     

 

   1.062     

Shares for diluted EPS

172.445     
======     

 

170.816     
======     

Basic EPS

$   1.62     

 

$     1.20     

Diluted EPS

$   1.61     

 

$     1.19     

 

The computation of diluted EPS did not include stock options which were antidilutive, as their exercise price was greater than the average market price of CSC common stock during the periods presented. The number of such options was 8,539,225 and 6,850,842 at December 27, 2002 and December 28, 2001, respectively.

(H)

No dividends were paid during the periods presented. At December 27, 2002 and March 29, 2002, there were 172,149,241 and 171,571,591 shares, respectively, of $1.00 par value common stock issued, and 448,974 and 433,754 shares of treasury stock, respectively.

 

10


(I)

Cash payments for interest on indebtedness were $111.8 million and $106.3 million for the nine months ended December 27, 2002 and December 28, 2001, respectively. Cash payments for taxes on income were $53.8 million and $21.6 million for the nine months ended December 27, 2002 and December 28, 2001, respectively.

For purposes of reporting cash and cash equivalents, the Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. The Company's investments consist of high quality securities issued by a number of institutions having high credit ratings, thereby limiting the Company's exposure to concentrations of credit risk. With respect to financial instruments, the Company's carrying amounts of its other current assets and liabilities were deemed to approximate their market values due to their short maturity. At December 27, 2002, the Company has no outstanding material hedge contracts with respect to its foreign exchange or interest rate positions.

(J)

The components of comprehensive income, net of income tax, are as follows (in millions):

 

            Third Quarter Ended          

 

Dec. 27, 2002

 

Dec. 28, 2001

Net income

$ 105.7     

 

$ 87.1     

Foreign currency translation   adjustment

40.2     

 

(27.8)    

Unrealized (loss) gain on available for   sale securities

      (1.9)    

 

       .1     

Comprehensive income

$ 144.0     
======     

 

$ 59.4     
======    

            Nine Months Ended            

 

Dec. 27, 2002

 

Dec. 28, 2001

Net income

$277.5     

 

$203.0     

Foreign currency translation   adjustment

132.1     

 

(11.0)    

Unrealized (loss) gain on available for   sale securities

     (1.2)    

 

       .5     

Comprehensive income

$408.4     
=====     

 

$192.5     
=====     

 

Accumulated other comprehensive income presented on the accompanying consolidated condensed balance sheets consists of accumulated foreign currency translation adjustments, minimum pension liability adjustments, and net unrealized gain or loss on available for sale securities.

11


(K)

CSC provides management and information technology consulting, systems integration and outsourcing. Based on the criteria of Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure about Segments of an Enterprise and Related Information," CSC has two reportable segments: the U.S. federal sector and the Global commercial sector. The U.S. federal sector operates principally within a regulatory environment subject to governmental contracting and accounting requirements, including Federal Acquisition Regulations, Cost Accounting Standards and audits by various U.S. federal agencies. The U.S. federal sector revenues reported below will vary from U.S. Federal government revenue presented elsewhere in this report due to overlapping activities between segments. Information on reportable segments is as follows (in millions):

 

 

Global
Commercial
Sector

 

U.S.
Federal
Sector

 



Corporate

 



Total

Third Quarter Ended December 27, 2002

 

 

 

 

 

 

 

    Revenues

$2,001.5     

 

$794.0

 

$(1.9)   

 

$2,793.6

    Earnings (loss) before
      interest and taxes


134.6     

 


59.9

 


(12.3)   

 


182.2

 

 

 

 

 

 

 

 

Third Quarter Ended December 28, 2001

 

 

 

 

 

 

 

    Revenues

2,165.0     

 

728.2

 

.3    

 

2,893.5

    Earnings (loss) before
      interest and taxes


115.4     

 


52.0

 


(6.9)   

 


160.5

 

 

 

 

 

 

 

 

 

Global
Commercial
Sector

 

U.S.
Federal
Sector

 



Corporate

 



Total

Nine Months Ended December 27, 2002

 

 

 

 

 

 

 

    Revenues

$5,919.1     

 

$2,350.2

 

(1.9)   

 

$8,267.4

    Earnings (loss) before
      interest and taxes


340.0     

 


169.3

 


(20.2)   

 


489.1

 

 

 

 

 

 

 

 

Nine Months Ended December 28, 2001

 

 

 

 

 

 

 

    Revenues

6,303.2     

 

2,040.6

 

.3    

 

8,344.1

    Earnings (loss) before
      interest and taxes


289.9     

 


133.5

 


(21.9)   

 


401.5

(L)

As previously disclosed in the Company's fiscal 2002 and 2001 Annual Reports on Form 10-K, the Company recorded a special charge of $137.5 million ($91.3 million after tax) or 54 cents per share (diluted) in fiscal 2001. Due to declining global demand for commercial consulting and systems integration, healthcare software license sales, and out-of-scope outsourcing assignments, management performed a broad review of operations and developed and authorized a global restructuring plan. The plan required reductions in head count, facility consolidation, and realignment of consulting and integration practices. Included in the $137.5 special charge were employee severance costs of $67.9 million, write-offs in connection with consolidation of facilities of $29.6 million, write-off of capitalized software and computer-related assets of $22.1 million and $17.9 million related to phased-out operations and other assets.

 

12


 

As of December 27, 2002, substantially all involuntary termination benefits have been paid and substantially all 1,896 employees, of which 722 were U.S. employees, have been terminated. Approximately $5 million of accrued costs related to the consolidation of facilities remained at December 27, 2002 and will be paid through the end of the facility lease terms.

(M)

In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill no longer be amortized when the new standard is adopted. The new standard also requires an initial goodwill impairment assessment in the year of adoption and annual impairment tests thereafter. The Company adopted SFAS No. 142 on March 30, 2002.

 

The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of each of the Company's reporting units with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of the impairment loss, if any. During the second quarter ended September 27, 2002, the Company completed the initial goodwill assessment and the annual goodwill impairment test. Based on the results of these tests, no impairment losses were identified and performance of step two was not required.

 

A summary of net income and earnings per share for the quarter and the nine months ended December 28, 2001 as adjusted to remove the amortization of goodwill and acquired employee workforce is as follows (in millions):

 

 

Three
Months
Ended
Dec. 28, 2001

 

Nine
 Months
Ended
Dec. 28, 2001

 

 

 

 

 

 

Net income as reported

$  87.1       

 

$203.0      

 

Goodwill amortization, net of taxes

18.1       

 

54.3      

 

Employee workforce amortization

      .6       

 

     1.8      

 

Net income as adjusted

$105.8       
=====       

 

$259.1      
=====      

 

 

 

 

 

 

Basic earnings per share:

 

 

 

 

As reported

$0.51       

 

$1.20      

 

Goodwill amortization, net of taxes

.11       

 

.33      

 

Employee workforce amortization

                    

 

             

 

As adjusted

$0.62       
=====       

 

$1.53      
=====     

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

As reported

$0.51       

 

$1.19      

 

Goodwill amortization, net of taxes

.11       

 

.33      

 

Employee workforce amortization

                 

 

                 

 

As adjusted

$0.62       
=====       

 

$1.52      
=====      

 

13


 

A summary of the changes in the carrying amount of goodwill by segment for the nine months ended December 27, 2002 is as follows (in millions):

 

 

Global
Commercial
   Sector    

 

U.S.
Federal
  Sector  

 



  Total    

 

 

 

 

 

 

 

 

Balance as of March 29, 2002

$1,580.9     

 

$60.1     

 

$1,641.0     

 

Additions

8.9     

 

 

 

8.9     

 

Reclassification

13.9     

 

     

 

13.9     

 

Foreign currency translation

    85.4     

 

             

 

    85.4     

 

 

 

 

 

 

 

 

Balance as of December 27, 2002

$1,689.1     
======     

 

$60.1     
====     

 

$1,749.2    
======    

 

 

Additions to goodwill during the nine months ended December 27, 2002 related to an earnout payment associated with an acquisition made in Europe during fiscal 2001. On March 30, 2002, the Company reclassified its acquired employee workforce intangible asset to goodwill in accordance with SFAS No. 141, "Business Combinations" and SFAS No. 142. The foreign currency translation amount relates to the impact of foreign currency adjustments in accordance with SFAS No. 52, "Foreign Currency Translation."

 

A summary of amortized intangible assets as of December 27, 2002 and March 29, 2002 is as follows (in millions):

 

                  December 27, 2002                 

 

Gross
Carrying Value

 

Accumulated
Amortization

 


  Net  

 

 

 

 

 

 

Software

$   804.7     

 

$  420.5     

 

$   384.2 

Outsourcing contract costs

   1,493.0     

 

   539.7     

 

  953.3 

Other intangible assets

     67.1     

 

     50.1     

 

     17.0 

Total intangible assets

$2,364.8     
======     

 

$1,010.3     
======     

 

$1,354.5 
====== 

 

                 March 29, 2002                      

 

Gross
Carrying Value

 

Accumulated
Amortization

 


  Net  

 

 

 

 

 

 

Software

$   712.0     

 

$  336.4     

 

$   375.6

Outsourcing contract costs

1,380.3     

 

388.1     

 

992.2

Employee workforce acquired

17.0     

 

3.1     

 

13.9

Other intangible assets

        67.1     

 

     48.6     

 

     18.5

Total intangible assets

$ 2,176.4     
=======     

 

$ 776.2     
=====     

 

$ 1,400.2
======

 

14


 

Amortization (including reduction of revenues as described in note (B)) related to intangible assets was $69.1 million and $56.9 million for the three months and $222.9 million and $175.4 million for the nine months ended December 27, 2002 and December 28, 2001, respectively. Estimated amortization related to intangible assets at March 29, 2002 for each of the subsequent five years, fiscal 2003 through fiscal 2007, is as follows (in millions): $244.1, $230.1, $202.5, $173.2, and $143.0, respectively.

(N)

In August 2001, the Financial Accounting Standard Board (FASB) issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses existing accounting impairment rules and broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted this statement on March 30, 2002. Adoption of this statement did not have a significant effect on the Company's consolidated financial position or results of operations.

(O)

As previously disclosed in the Company's fiscal 2002 and 2001 Annual Reports on Form 10-K, in connection with the December 2000 acquisition of Mynd Corporation (Mynd), the Company incurred costs to exit and consolidate activities, involuntarily terminate employees and take other actions to integrate Mynd into the Company. These actions were required in order to execute management's plan to eliminate or reposition product redundancies and to streamline infrastructure.

The components of the acquisition integration liabilities were employee severance costs of $77.6 million, facility and data center consolidations costs of $93.4 million and other costs of $29.2 million. The involuntary termination benefits accrued of $77.6 million related to 518 Mynd employees, of which 306 were U.S. employees and 212 were international employees; as of December 27, 2002, approximately $57.5 million of the $77.6 million had been paid and all of the 518 employees had been involuntarily terminated. The remaining balance represents scheduled payments to be made through 2006.

(P)

On October 29, 2001, the Company commenced an exchange offer for any or all of its employee stock options with an exercise price of $70 or more. The exchange offer expired on November 28, 2001, and all of the stock options tendered into the offer were accepted for exchange and canceled on November 29, 2001. The canceled options covered 2,352,820 shares of the Company's common stock, which represented approximately 16% of the shares underlying the Company's total stock options outstanding immediately prior to such cancellation.

 

New options covering 2,285,430 shares of the Company's stock were issued in exchange for the canceled options, on a share-for-share basis, on May 30, 2002, to those individuals who remained regular, full-time employees of the Company on such date. The new options have an exercise price of $46.90, the market price of the underlying shares on the date of grant. The Company did not record any compensation expense in connection with the exchange offer. The new options have the same vesting schedule and vesting start date as the options that were canceled.

 

15


(Q)

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 clarifies guidance related to the classification of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications. The provision of SFAS No. 145 related to the extinguishment of debt will be effective for the Company on March 29, 2003. The provision of SFAS No. 145 related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications was effective for all transactions occurring after May 15, 2002. Adoption of this statement is not expected to have a significant effect on the Company's consolidated financial position or results of operations.

(R)

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces previous accounting guidance provided by Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and will be effective for the Company for exit or disposal activities initiated after December 31, 2002. Adoption of this statement could impact the accounting for future exit or disposal activities.

(S)

In November 2002, the EITF reached a consensus on Issue 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue 00-21 provides guidance and criteria for determining when a multiple deliverable arrangement contains more than one unit of accounting. The guidance also addresses methods of measuring and allocating arrangement consideration to separate units of accounting. The guidance will be effective for revenue arrangements entered into in interim periods beginning after June 15, 2003 and cumulative-effect adjustment may be elected. The Company is currently evaluating EITF Issue No. 00-21 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

(T)

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." The interpretation requires disclosure about the nature and terms of obligations under certain guarantees that the Company has issued. The interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this interpretation are effective immediately. The Company is currently evaluating FIN 45 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

(U)

In November 2002, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." The interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation applies immediately to variable interest entities created after January 31, 2003 and variable interest entities in which the Company obtains an interest after January 31, 2003. For variable interest entities in which a company obtained an interest before February 1, 2003, the interpretation applies to the interim period beginning after June 15, 2003. The Company has not determined the impact of FIN 46 on its consolidated financial position or results of operations.

 

16


(V)

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure - an amendment of FASB Statement No. 123." SFAS No. 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The statement will be effective for the Company's fiscal year 2004.

(W)

The Company guarantees working capital credit lines established with local financial institutions for its foreign business units. Generally, guarantees have a one-year term and are renewed annually. CSC guarantees up to $507 million of such working capital credit lines; however, as of December 27, 2002, the amount of the maximum potential payment is $60.9 million, the amount of related outstanding subsidiary debt. The $60.9 million outstanding debt is reflected in the Company's consolidated financial statements.

(X)

On December 13, 2002, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with DynCorp, a provider of systems, services, outsourcing and e-business solutions primarily to the U.S. Government. The Merger Agreement provides for the merger of a wholly owned subsidiary of the Company with and into DynCorp (the Merger). Upon consummation of the Merger (i) DynCorp will become a wholly-owned subsidiary of CSC and (ii) each outstanding share of common stock of DynCorp will be converted into, subject to adjustment as provided in the Merger Agreement, $15 cash and shares of CSC common stock having a market value of $43. Consummation of the Merger is subject to customary conditions, including antitrust regulatory clearances and approval by the shareholders of DynCorp.

 

17


PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter and First Nine Months of Fiscal 2003 versus
Third Quarter and First Nine Months of Fiscal 2002

 

Revenues

During the third quarter ended December 27, 2002, the Company's total revenues decreased $99.9 million, or 3.5%, over the same period last year. On a constant currency basis, total revenues decreased by 6.4%.

U.S. federal sector revenue increased 9.0% to $794.0 million during the third quarter compared to the third quarter of fiscal 2002. The civil agencies business generated substantial revenue growth from new and increased task orders and accounted for approximately 80% of the U.S. federal sector growth. Revenue gains were generated by work related to additional tasking from the Immigration and Naturalization Service, General Services Administration and the Internal Revenue Service Prime contracts. The Missile Defense Agency contract and work related to intelligence community activities continued to contribute to revenue growth. During the third quarter, the U.S. federal sector's revenue growth was adversely impacted by 3.3 percentage points from a schedule delay and a change in estimate of resources and costs necessary to complete performance on a Department of Defense contract with a consequent impact to income before taxes of $24 million. In order to minimize the effect of schedule delays on completion of certain system implementation tests, additional resources were added, resulting in the change in estimate of resources necessary.

Global commercial sector revenue declined 7.6%, or $163.5 million, from the same quarter last year. The decrease was principally driven by declines in U.S. commercial operations and other international revenue. Global commercial revenue benefited by approximately 3 percentage points due to currency fluctuations in Europe, Australia, and Asia.

U.S. commercial revenue declined 11.8%, or $130.1 million to $970.7 million during the third quarter of fiscal 2003 from the same period last year. The revenue decline principally relates to a reduction in outsourcing activities. Outsourcing revenues declined as a result of the expiration of an outsourcing contract as well as client reduction in billable volumes and discretionary projects partially offset by approximately $48 million in new outsourcing activities.

European revenue remained virtually unchanged with revenues of $760.1 million for the third quarter compared to the corresponding period last year. Approximately 15% growth in outsourcing activities were offset by revenue declines in professional services and consulting and systems integration, including the financial services vertical market. Currency fluctuations favorably impacted European revenue by approximately 9 percentage points.

Other international revenue for the third quarter was down 10.7% to $270.7 million. The decline was primarily attributable to reduced product sales and related services reflecting the continued economic downturn in the Asian market. Currency fluctuations in Australia and Asia favorably impacted other international revenue growth by approximately 4 percentage points.

18


For the first nine months of fiscal 2003, the Company's total revenues decreased by $76.7 million, or approximately 1%. On a constant currency basis, revenues decreased by approximately 3%. Global commercial revenue declined by $384.1 million, or 6.1%, to $5.9 billion for the first nine months of fiscal 2003. U.S. commercial revenue declined by $276.6 million, or 8.6%, and European revenue declined by $21.4 million, or 1%, for the first nine months of fiscal 2003. The U.S. commercial decline can be attributed approximately equally to revenue declines in outsourcing activities and consulting and systems integration services. European revenues declined as a result of reductions in consulting and systems integration activities partially offset by approximately $127 million in outsourcing growth. Other international operations represented the remaining decline in revenues of $86.1 million in Global commercial, and reflected a 9% decrease from the prior year's first nine months. The decrease in other international revenues is a result of reduced product sales and related services resulting from the Asian economic downturn. U.S. federal sector revenue increased by 15.2% to $2.4 billion for the first nine months of fiscal 2003. Revenue gains were generated from new and increased work related to intelligence community contracts and civil agencies as noted above.

CSC provides information technology services to J.P. Morgan Chase & Co. as a prime contractor pursuant to a 1996 agreement expiring in July 2003. During the fourth quarter of fiscal 2003, CSC and J.P. Morgan will restructure the service delivery model so that in the future, CSC will provide services to J.P. Morgan primarily as a subcontractor, and such services will be less capital intensive. Following this restructuring, total annual revenues from services provided directly or indirectly to J.P. Morgan are expected to be approximately 40% of the annual revenue CSC currently realizes under the 1996 agreement, excluding variable project work.


The Company announced new business awards of $3.9 billion for the first nine months, including $1.5 billion related to new U.S. federal contract awards and $2.4 billion related to Global commercial activities. The comparable new awards for the first nine months of fiscal 2002 were $10.2 billion. The Company has created a broad, long-term global revenue base across numerous customers, industries, geographic regions and service offerings.

During the third quarter of fiscal 2003, the Securities and Exchange Commission Staff indicated the guidance in Emerging Issues Task Force (EITF) Issue No. 01-09, "Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products)" should be applied broadly to all forms of consideration provided by a vendor to its customer, and all arrangements in which an entity pays cash or other forms of consideration to its customers. Accordingly, such consideration is now accounted for as a reduction of revenue. The Company acquires information technology assets from outsourcing clients at negotiated prices and subsequently records the assets at their fair values. Any excess paid over the fair value amounts (the premium) is included in outsourcing contract costs and amortized over the contract life. In accordance with EITF Issue No. 01-09, amortization of premiums has been reclassified from costs and expenses to a reduction of revenue beginning in the third qu arter of fiscal 2003. Prior period amounts have been classified to conform to current year presentation. The amounts were $11.8 million and $7.4 million for the third quarter of fiscal 2003 and 2002, respectively. The amounts for the nine months ended December 27, 2002 and December 28, 2001 were $35.2 million and $35.7 million, respectively. These amounts reduced revenues and total costs and expenses by less than 1%, with no impact on income.

19


Costs and Expenses

The Company's costs and expenses as a percentage of revenue are as follows (dollars in millions):

 

Dollar Amount

 

         Percentage of Revenue         

 

Third Quarter

 

Third Quarter

 

First Nine Months

 

    Fiscal    

 

    Fiscal    

 

       Fiscal       

 

2003

 

2002

 

2003

 

2002

 

2003

 

2002

Costs of services

$2,248.5 

 

$2,344.8

 

80.5% 

 

81.0% 

 

80.6% 

 

81.5% 

Selling, general and administrative

167.6 

 

184.0

 

6.0    

 

6.4    

 

6.3    

 

6.6    

Depreciation and amortization

195.3 

 

204.2

 

7.0    

 

7.1    

 

7.1    

 

7.1    

Interest expense, net

     34.6 

 

     34.9

 

 1.2    

 

 1.2    

 

 1.2    

 

 1.3    

    Total

$2,646.0 
====== 

 

$2,767.9
======

 

94.7% 
=====

 

95.7% 
=====

 

95.2% 
=====

 

96.5% 
=====

 

Total costs and expenses decreased as a percentage of revenue compared to fiscal 2002 for both the third quarter and the first nine months of fiscal 2003. Approximately .7 percentage points of the decrease from last year's comparable quarter and first nine months relates to the change in accounting for goodwill amortization as described below.

Comparing the third quarter of fiscal 2003 to fiscal 2002, costs of services decreased as a percentage of revenue. U.S outsourcing and consulting and systems integration services contributed approximately 2 percentage points of costs of services improvement through cost containment. Approximately 1 percentage point or $30 million of improvement relates to a reduction in costs of service estimates and related current liabilities for a U.S. federal sector contract. This decrease, and its consequent favorable impact on income before taxes, is the result of a decline in selected service and units required by the contract as a result of the completion of a computer systems inventory. This improvement is not expected to benefit future performance. The favorable performance improvements were offset by approximately 1.5 percentage points related to European and other operations, and by approximately 1 percent or $24 million related to the revenue reduction of the Department of Defense contract not ed above.

During the third quarter of fiscal 2003, Enron Energy Services Inc. (EES), a subsidiary of Enron Corporation, notified the Company of EES' intention to terminate consulting and outsourcing services. As a result of the indicated intention to terminate, the Company incurred net expenses of $13.1 million related to outsourcing contract costs and other items associated with the EES contract, with such expenses included in the U.S. outsourcing discussion above. The Company is reviewing redeployment of the remaining EES contract computing and billing assets, with an aggregate net book value of $13.4 million, upon actual termination of the contract.

During the third quarter of fiscal 2003, the Company reclassified the provision for doubtful accounts from costs of services to selling, general and administrative. Prior period amounts have been adjusted to conform to current year presentation. For the first nine months of fiscal 2003 and 2002, the amounts were $7.4 million and $16.2 million, respectively. The change in presentation had no impact on revenues or income. For the third quarter of fiscal 2003, selling, general and administrative expense as a percentage of revenue decreased by .4 percentage points. The improvement can be principally attributed to the enhanced performance in the provision for doubtful accounts. The third quarter of fiscal 2002 included increased provision related to certain companies where the company provided consulting and systems integration and professional services. Excluding the effect of the provision, selling, general and administrative expense declined approximately $3.3 million.

20


Depreciation and amortization expense as a percentage of revenue was virtually unchanged from last year's third quarter. Last year's depreciation and amortization expense included $19.5 million related to goodwill and employee workforce amortization which is no longer amortized as a result of the Company's adoption of Statement of Financial Accounting Standards ("SFAS") No. 142 on March 30, 2002. Excluding goodwill and employee workforce acquired amortization, the depreciation and amortization expense as a percentage of revenue for the third quarter of fiscal 2002 was 6.4% compared with the 7.0% for the third quarter of fiscal 2003. The increase in depreciation expense as a percentage of revenues principally relates to a decline in revenue base combined with an increase in depreciation expense associated with occupying new facilities. The new facilities were exchanged for property utilized under operating leases.

Total costs and expenses for the first nine months of fiscal 2003 decreased as a percentage of revenue compared to the same period last year. Performance improvement in costs of services of approximately $65 million in the U.S. commercial operations and U.S. federal sector was partially offset by higher cost as a percentage of revenue in European operations which had a negative $16 million performance impact. Within

U.S. commercial, improvement was provided by greater utilization in consulting operations and improved performance in outsourcing operations. The unfavorable impact of European operations was primarily due to lower utilization as a result of reduced demand for project-oriented work in the European market. Other cost categories remained virtually unchanged from last year.

Interest Expense

The net interest expense decrease of $.3 million in the third quarter of fiscal 2003 compared to the same period last year resulted from a reduction in average outstanding debt, which decreased interest expense by $2.3 million. The reduction in interest expense was partially offset by a $2.0 million decrease in interest income. Net interest expense decreased $7.7 million for the first nine months of fiscal 2003 compared to the same period in fiscal 2002. The decrease resulted from a reduction in average outstanding debt, which was partially offset by $4.0 million decrease in interest income.

Income Before Taxes

Income before taxes increased to $147.6 million compared with $125.6 million reported for last year's third quarter. The resulting pre-tax margin was 5.3% compared with 4.3% for last year's third quarter and was 4.7% versus 3.5% for the first nine months of fiscal 2003 and fiscal 2002, respectively.

Net Income

Net income was $105.7 million for the third quarter of fiscal 2003, up from $87.1 million for the corresponding period last year. Excluding the amortization of goodwill and employee workforce acquired, net income for last year's third quarter was $105.8 million. As a result of the elimination of goodwill amortization, the tax provision for the first nine months of fiscal 2003 resulted in a 2.2% reduction in the Company's effective tax rate. However, excluding the impact of the amortization of goodwill and employee workforce acquired on the tax rate, the effective tax rate for the first nine months of fiscal 2003 is approximately 3 percentage points higher than the comparable rate for the same period last year due to the reduced relative impact of favorable permanent tax differences.

21


Cash Flows

Cash provided by operating activities was $472.2 million for the nine months ended December 27, 2002, compared with $543.2 million during the same period last year. The decrease of $71.0 million primarily resulted from unfavorable changes in working capital partially offset by an increase in net income.

The Company's cash expenditures for investing activities totaled $491.0 million for the most recent nine months versus $761.9 million during the same period last year. The decrease of $270.9 million results from the $73.6 million disposition of assets associated with the expiration of an outsourcing contract, as well as reductions in the expenditures for property and equipment, acquisitions, and outsourcing contract costs.

Cash provided by financing activities was $20.2 million for the most recent nine months versus $159.6 million for the same period a year ago. The change is principally driven by higher borrowing last year and lower capital expenditure requirements during the first nine months of fiscal 2003 compared to the corresponding period in fiscal 2002.

Financial Condition

During the first nine months of fiscal 2003, the Company's capital outlays included $580.7 million of business investments in the form of fixed asset purchases, acquisitions, software and outsourcing awards. These investments were funded from operating cashflows, and to a lesser extent, dispositions and additional borrowings. The Company's debt-to-total capitalization ratio decreased from 37.8% at fiscal 2002 year-end to 35.5% at December 27, 2002. The Company's debt-to-total capitalization ratio has improved significantly compared with the December 28, 2001 ratio of 41.5%. During fiscal 2002, the Company filed a shelf registration statement covering up to $1.5 billion of debt and/or equity securities.

The Company has an option to require a subsidiary of Equifax Inc. to purchase the Company's credit reporting business as further described in Note 12 of the Company's Annual Report on Form 10-K for fiscal 2002. The exercise price of this put option is equal to the appraised value of the business.

During June 2002, Telesens KSCL AG ("Telesens") filed an application for preliminary insolvency proceedings. CSC formed a marketing relationship with Telesens, invested in equity securities, and as a result of the sale of certain assets and operations obtained rights to software licenses and receivables with future scheduled payments. During the first quarter ended June 28, 2002, the Company expensed its remaining investment in Telesens equity securities. During the first nine months of fiscal 2003, the Company provided an allowance for the outstanding receivables. The remaining balances reflect management's current judgement of net realizable value.

During fiscal 1999, the Company entered into a five-year global technology contract with Budget Group, Inc. ("Budget") to provide outsourcing and business transformation services. On July 29, 2002, Budget filed a voluntary petition for Chapter 11 reorganization with the U.S. Bankruptcy Court. The Company continues to provide services under this contract and is being paid for them currently. In connection with the contract, the Company has an investment in equipment and software and has incurred outsourcing contract costs.

It is management's opinion that the Company will be able to meet its liquidity and cash needs for the foreseeable future through a combination of cash flows from operating activities, cash balances, unused borrowing capacity and other financing activities, including the issuance of debt and/or equity securities, and/or the exercise of the put option described above.

22


The Company's sources of liquidity include the issuance of commercial paper and short-term borrowings. If the Company was unable to sell commercial paper or if the Company determined it was too costly to do so, the Company has the ability to borrow under two syndicated backstop credit facilities.

At December 27, 2002, the Company's syndicated credit facilities were comprised of a $321.0 million facility which expires on August 18, 2005 and a $350.0 million facility which expires on August 15, 2003. As of December 27, 2002, the Company had no borrowings under these facilities and is in compliance with all terms of the agreements.

At December 27, 2002, the Company had $208.9 million of short-term debt and current maturities of long-term debt and $2.0 billion of long-term debt, including $321.0 million of commercial paper borrowings. As further described in Note 6 of the Company's Annual Report on Form 10-K for fiscal 2002, the classification of the Company's outstanding commercial paper is determined by the expiration dates of its backstop credit facilities.

On December 13, 2002, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with DynCorp, a provider of systems, services, outsourcing and e-business solutions primarily to the U.S. Government. The Merger Agreement provides for the merger of a wholly owned subsidiary of the Company with and into DynCorp (the "Merger"). Upon consummation of the Merger (i) DynCorp will become a wholly-owned subsidiary of CSC and (ii) each outstanding share of common stock of DynCorp will be converted into, subject to adjustment as provided in the Merger Agreement, $15 cash and shares of CSC common stock having a market value of $43. Consummation of the Merger is subjected to customary conditions, including antitrust regulatory clearances and approval by the shareholders of DynCorp.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill no longer be amortized when the new standard is adopted. The new standard also requires an initial goodwill impairment assessment in the year of adoption and annual impairment tests thereafter. The Company adopted SFAS No. 142 on March 30, 2002.

The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of the impairment loss, if any. During the second quarter ended September 27, 2002, the Company completed the initial goodwill assessment and the annual goodwill impairment test. No impairment losses were identified as a result of these tests.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses existing accounting impairment rules and broadens the presentation of discontinued operations to include more disposal transactions. The Company adopted this statement on March 30, 2002. Adoption of this statement did not have a significant effect on the Company's consolidated financial position or results of operations.

23


In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 clarifies guidance related to the classification of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications. The provision of SFAS No. 145 related to the extinguishment of debt will be effective for the Company on March 29, 2003. The provision of SFAS No. 145 related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications was effective for all transactions occurring after May 15, 2002. Adoption of this statement is not expected to have a significant effect on the Company's consolidated financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. SFAS No. 146 replaces previous accounting guidance provided by the Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)" and will be effective for the Company for exit or disposal activities initiated after December 31, 2002. The adoption of this statement could impact the accounting for future exit or disposal activities.

In November 2002, the EITF reached a consensus on Issue 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue 00-21 provides guidance and criteria for determining when a multiple deliverable arrangement contains more than one unit of accounting. The guidance also addresses methods of measuring and allocating arrangement consideration to separate units of accounting. The guidance will be effective for revenue arrangements entered into in interim periods beginning after June 15, 2003 and cumulative-effect adjustment may be elected. The Company is currently evaluating EITF Issue No. 00-21 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others." The interpretation requires disclosure about the nature and terms of obligations under certain guarantees that the Company has issued. The interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing a guarantee. The initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements in this interpretation are effective immediately. The Company is currently evaluating FIN 45 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

24


In November 2002, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." The interpretation clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. This interpretation applies immediately to variable interest entities created after January 31, 2003 and variable interest entities in which the Company obtains an interest after January 31, 2003. For variable interest entities in which a company obtained an interest before February 1, 2003, the interpretation applies to the interim period beginning after June 15, 2003. The Company has not determined the impact of FIN 46 on its consolidated financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation -Transition and Disclosure - an amendment of FASB Statement No. 123." SFAS No. 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The statement will be effective for the Company's fiscal year 2004.

Forward-Looking Statements

All statements and assumptions in this Form 10-Q and in the documents attached or incorporated by reference that do not directly and exclusively relate to historical facts constitute "forward-looking statements" within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements represent current expectations and beliefs of CSC, and no assurance can be given that the results described in such statements will be achieved.

25


Forward-looking information contained in these statements include, among other things, statements as to the impact of the proposed merger with DynCorp and other statements with respect to CSC's financial condition, results of operations, business strategies, operating efficiencies or synergies, competitive positions, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of CSC's control, that could cause actual results to differ materially from the results described in such statements.

These factors include, without limitation, the following: (i) changes in the global commercial demand for information technology outsourcing, business process outsourcing and consulting and systems integration services; (ii) changes in U.S. federal government spending levels for information technology services; (iii) competitive pressures; (iv) the credit worthiness of the Company's commercial customers; (v) the Company's ability to recover its accounts receivable; (vi) the Company's ability to recover its capital investment in outsourcing contracts; (vii) the Company's ability to continue to develop and expand its service offerings to address emerging business demands and technological trends; (viii) the future profitability of the Company's long-term contracts with customers; (ix) the future profitability of the Company's fixed-price contracts; (x) the Company's ability to consummate and integrate acquisitions and form alliances; (xi) the Company's ability to attract and retain qualified personnel; and (xii) general economic conditions and fluctuations in currency exchange rates in countries in which the Company does business.

These factors also include the following risks specifically related to the proposed merger with DynCorp: (i) the failure of the DynCorp stockholders to approve the proposed merger; (ii) the risk that CSC and DynCorp will be unable to meet conditions imposed for, or governmental clearances required for, the proposed merger; (iii) the risk that the CSC and DynCorp businesses will not be integrated successfully; (iv) the risk that the expected benefits of the proposed merger may not be realized; (v) the risk that resales of CSC stock following the merger may cause the market price to fall; and (vi) CSC's increased indebtedness after the merger.

Forward-looking statements in this Form 10-Q speak only as of the date of this Form 10-Q, and forward-looking statements in documents attached or incorporated by reference speak only as to the date of those documents. CSC does not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events, except as required by law.

 

 


 

PART I, ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK


For a discussion of the Company's market-risk associated with interest rates and foreign currencies as of March 29, 2002, see "Quantitative and Qualitative Disclosures about Market Risk" in Part II, Item 7A, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the Company's Annual Report on Form 10-K for the fiscal year then ended. For the nine months ended December 27, 2002, there has been no significant change in related market risk factors.

 

PART I, ITEM 4. CONTROLS AND PROCEDURES

"Disclosure controls and procedures" are the controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports filed or submitted by it under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. "Disclosure controls and procedures" include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in its Exchange Act reports is accumulated and communicated to the issuer's management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Company's Chief Executive Officer and Chief Financial Officer have evaluated the Company's disclosure controls and procedures within 90 days of the filing date of this Quarterly Report and, based upon this evaluation, have concluded that they are effective in all material respects. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

"Internal controls" are the internal accounting controls designed to provide reasonable assurances that:

    1. transactions are executed in accordance with management's general or specific authorization;
    2. transactions are recorded as necessary (a) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (b) to maintain accountability for assets;
    3. access to assets is permitted only in accordance with management's general or specific authorization; and
    4. the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, and no corrective actions with regard to significant deficiencies or material weaknesses.

26


Part II.  Other Information
Item 5.  Exhibits and Reports on Form 8-K

a.  Exhibits

3.1  

Restated Articles of Incorporation filed with the Nevada Secretary of State on November 21, 1988 (incorporated by reference to Exhibit III(i) to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1989)

 

 

3.2  

Certificate of Amendment of Restated Articles of Incorporation filed with the Nevada Secretary of State on August 11, 1992 (incorporated by reference to Appendix B to the Company's Proxy Statement for the Annual Meeting of Stockholders held on August 10, 1992)

 

 

3.3  

Certificate of Amendment of Articles of Incorporation filed with the Nevada Secretary of State on July 31, 1996 (incorporated by reference to Annex D to the Company's Proxy Statement for the Annual Meeting of Stockholders held on July 31, 1996)

 

 

3.4  

Certificate of Amendment of Articles of Incorporation filed with the Nevada Secretary of State on August 15, 2000 (incorporated by reference to Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 2000)

 

 

3.5  

Bylaws, amended and restated effective November 4, 2002

 

 

10.1  

1978 Stock Option Plan, amended and restated effective March 31, 1988* (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1996)

 

 

10.2  

1984 Stock Option Plan, amended and restated effective March 31, 1988* (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1996)

 

 

10.3  

1987 Stock Incentive Plan* (incorporated by reference to Exhibit X(xxiv) to the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1988)

 

 

10.4  

Schedule to the 1987 Stock Incentive Plan for United Kingdom personnel* (incorporated by reference to Exhibit X(xxv) to the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1988)

 

 

10.5  

1990 Stock Incentive Plan* (incorporated by reference to Exhibit 4(a) to the Company's Registration Statement on Form S-8 filed on August 15, 1990)

 

 

10.6  

1992 Stock Incentive Plan, amended and restated effective August 9, 1993* (incorporated by reference to Exhibit 10.8 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 1996)

 

 

10.7  

Schedule to the 1992 Stock Incentive Plan for United Kingdom personnel* (incorporated by reference to Exhibit 10.9 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 27, 1996)

 

 

10.8  

1995 Stock Incentive Plan* (incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 29, 1995)

 

 

10.9  

1998 Stock Incentive Plan* (incorporated by reference to Exhibit 10.10 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1998)

 

27


 

 

10.10  

2001 Stock Incentive Plan* (incorporated by reference to Appendix B to the Company's Proxy Statement for the Annual Meeting of Stockholders held on August 13, 2001)

 

 

10.11  

Form of Stock Option Agreement* (incorporated by reference to Exhibit 99(C)(13) to Amendment No. 2 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed on March 2, 1998)

 

 

10.12  

Annual Management Incentive Plan, effective April 2, 1983* (incorporated by reference to Exhibit X(i) to the Company's Annual Report on Form 10-K for the fiscal year ended March 30, 1984)

 

 

10.13  

Supplemental Executive Retirement Plan, amended and restated effective February 3, 2003*

 

 

10.14  

Deferred Compensation Plan, amended and restated effective December 9, 2002*

 

 

10.15  

Severance Plan for Senior Management and Key Employees, amended and restated effective August 12, 2002* (incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2002)

 

 

10.16  

Severance Agreement with Van B. Honeycutt, effective February 2, 1998* (incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 1997)

 

 

10.17  

Employment Agreement with Van B. Honeycutt, effective May 1, 1999* (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K for the fiscal year ended April 2, 1999)

 

 

10.18  

Amendment of Employment Agreement with Van B. Honeycutt, effective February 3, 2003*

 

 

10.19  

Form of Indemnification Agreement for Officers (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995)

 

 

10.20  

Form of Indemnification Agreement for Directors (incorporated by reference to Exhibit X(xxvi) to the Company's Annual Report on Form 10-K for the fiscal year ended April 1, 1988)

 

 

10.21  

1997 Nonemployee Director Stock Incentive Plan (incorporated by reference to Appendix A to the Company's Proxy Statement for the Annual Meeting of Stockholders held on August 11, 1997)

 

 

10.22  

Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the fiscal year ended April 3, 1998)

 

 

10.23  

Rights Agreement dated February 18, 1998 (incorporated by reference to Exhibit (c)(4) to Amendment No. 1 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed on February 26, 1998)

 

 

10.24  

Second Amended and Restated Credit Agreement (Long Term Facility) dated as of August 16, 2001 (incorporated by reference to Exhibit 10.24 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001)

 

 

10.25  

Second Amended and Restated Credit Agreement (Short Term Facility) dated as of August 16, 2001 (incorporated by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2001)

 

 

10.26  

First Amendment to Second Amended and Restated Credit Agreement (Short Term Facility) dated as of August 16, 2002 (incorporated by reference to Exhibit 10.26 to the Company's Quarterly Report on Form 10-Q/A for the fiscal quarter ended September 27, 2002)

 

28


99  

Revenues by Market Sector

_____________________

*Management contract or compensatory plan or agreement

 

 

b.

Reports on Form 8-K:

 

There was one report on Form 8-K filed during the third quarter of fiscal 2003. On December 13, 2002, the registrant filed a current report on Form 8-K reporting that it had entered into an agreement and plan of merger with DynCorp.

 

29


SIGNATURE AND CERTIFICATIONS

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

COMPUTER SCIENCES CORPORATION

 

 

 

 

 

 

 

 

 

Date: February 7, 2003

By:

/s/ Donald G. DeBuck                 
Donald G. DeBuck
Vice President and Controller
Chief Accounting Officer

 

 

 

 

30


I, Van B. Honeycutt, Chairman and Chief Executive Officer of the Company, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Computer Sciences Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 

Date: February 7, 2003

By:

 /s/ Van B. Honeycutt               
Van B. Honeycutt
Chairman and Chief Executive Officer

 

31


I, Leon J. Level, Vice President and Chief Financial Officer of the Company, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Computer Sciences Corporation;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 

Date: February 7, 2003

By:

 /s/ Leon J. Level                  
Leon J. Level
Vice President and Chief Financial Officer

 

32


EX-10.13 3 exhibit_10-13.htm SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN exhibit_10-13_serp

COMPUTER SCIENCES CORPORATION

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

ARTICLE I

Purpose

          The purpose of this Supplemental Executive Retirement Plan ("Supplemental Plan") is to provide retirement benefits to designated officers and key executives of Computer Sciences Corporation (the "Company") in addition to retirement benefits that may be payable under the Computer Sciences Corporation Employee Pension Plan, and in addition to any other retirement plan (other than the social security system to the extent provided herein) under which benefits may be payable with respect to such person.

          It is intended that this Supplemental Plan be a plan "for a select group of management or highly compensated employees" as set forth in Section 201(2) of the Employee Retirement Income Security Act of 1974.

          Subject to Article X hereof, benefits under this Supplemental Plan shall be payable solely from the general assets of the Company and no Participant or other person shall be entitled to look to any source for payment of such benefits other than the general assets of the Company.

ARTICLE ll

Effective Date/Restatement Date

          The Supplemental Plan was effective as of September 1, 1985. It is hereby amended and restated effective December 9, 2002.

ARTICLE lll

Participants

          No person shall be a Participant in this Supplemental Plan unless (a) such individual is specifically designated as such in a written instrument executed by the Chief Executive Officer of the Company (the "Chief Executive Officer"), and (b) such individual has consented to be governed by the terms of this Supplemental Plan by execution of a written instrument in form satisfactory to the Company.

          A person shall cease to be a Participant in this Supplemental Plan in the event of (a) a Plan amendment having such effect, or (b) the occurrence of an event described in this Supplemental Plan which terminates such participation, or (c) prior to a Change in Control (as hereinafter defined), the Chief Executive Officer notifies such person, in writing, of the discontinuance of such person's participation pursuant to Article XVIII of this Supplemental Plan. In determining whether any person shall commence or cease to be a Participant herein, the Chief Executive Officer, acting in such capacity, shall have complete and unfettered discretion.

ARTICLE IV

Retirement Benefits

          The amount of retirement benefit payable to each Participant upon Separation from Service (as defined in paragraph (d) below) shall be as determined in this Article IV, except as otherwise provided in Articles XIX, XX and XXI.

          (a)     A Participant who is entitled to receive a benefit under the Computer Sciences Corporation Employee Pension Plan ("Pension Plan"), shall be entitled to receive his Excess Benefit under this Supplemental Plan. The Excess Benefit is the additional monthly amount which the Participant would otherwise be entitled to receive under the Pension Plan as if the Participant had not elected to defer salary under the Company's Deferred Compensation Plan and had elected the normal form of life annuity payment option under the Pension Plan except for the limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code, as amended, less any benefits provided for under Appendix M of the Pension Plan. In addition to the benefit described in this paragraph (a), a benefit as described in paragraph (b) following shall be payable to the Participant.

          (b)     Each Participant, upon Separation from Service on or after attainment of age sixty-two (62) (the "Retirement Date"), shall receive an amount as determined under this paragraph (b) which is payable monthly in the form of a life annuity. The amount payable shall be equal to one-twelfth (1/12) of fifty percent (50%) of the Participant's Average Base Salary Rate (as defined in paragraph (d) below) reduced by the amount determined under paragraph (c) below and, as applicable, paragraph (e) below.

          (c)     The amount determined under this paragraph (c) shall generally be equal to the primary social security benefit paid or payable to the Participant at the time benefits commence under this Supplemental Plan, whether or not the Participant is denied social security benefits because of other income or voluntarily forgoes social security income. However, where a Participant commences to receive benefits under this Supplemental Plan prior to attaining the minimum age (the "Minimum Social Security Age") at which he will be entitled to commence receiving social security benefits (currently age sixty-two (62)), his benefits under this Plan shall be reduced by the amount of social security benefits it is estimated he would be entitled to receive monthly. The estimated social security benefit will be calculated based on the Participant's compensation through his Separation from Service date as though he were the Minimum Social Security Age on such date, and in accordance with social security rules in effect at the time of his Separation from Service.

          (d)     The term "Base Salary Rate" means the annual salary rate of a Participant exclusive of overtime, bonus, incentive or any other type of special compensation. The term "Average Base Salary Rate" means the average of the highest three (3) of the last five (5) Base Salary Rates of a Participant which are the Base Salary Rates in effect on his Retirement Date and on the same day and month for each of the four (4) years (or the period of Continuous Service if fewer than four (4) years) immediately preceding the Retirement Date. If the period of Continuous Service as of a Participant's Retirement Date is (i) less than two years but more than one year, "Average Base Salary Rate" means the average of the Base Salary Rate on his Retirement Date and on the same day and month of the immediately preceding year, or (ii) less than one year, "Average Base Salary Rate" means the Base Salary Rate on his Retirement D ate.

          Unless otherwise determined in writing with respect to a Participant by the Chief Executive Officer, the term "Continuous Service" means the period of service without interruption of a person commencing as of the date of hire of such person by the Company or an Affiliate and ending on the date of separation from service for any reason from the Company and all Affiliates ("Separation from Service"). The term "Affiliate" means a corporation or other entity of which fifty-one percent (51%) or more of the capital stock or capital or profits interest (in the case of a noncorporate entity) is directly or indirectly owned by the Company. A medical leave of absence not exceeding twelve (12) months authorized by a Company written policy or any other leave of absence authorized by a Company written policy or approved in writing by the Chief Executive Officer shall not be deemed an interruption in Continuous Service or a Separation from Serv ice.

          In the event the Company acquires a corporation or other entity ("Acquisition"), and any employee of the Acquisition, by written determination of the Chief Executive Officer of the Company, becomes a Participant in the Supplemental Plan, such Participant's period of Continuous Service shall commence no sooner than the date the Acquisition becomes an Affiliate of the Company unless the Company's Chief Executive Officer otherwise determines and so confirms in writing.

          (e)     If upon Separation from Service on or after attaining age sixty-two (62), or upon the granting of a special early separation benefit pursuant to paragraph (b) of Article V, a Participant has fewer than twelve (12) years of Continuous Service, the benefit otherwise payable under this Supplemental Plan shall be proportionately reduced, except for the benefit payable under paragraph (a) of this Article IV which shall not be reduced. By way of example, if a Participant otherwise entitled to benefits hereunder commencing at age sixty-two (62) has completed only ten (10) years of Continuous Service upon attainment of age sixty-two (62), such Participant's benefit shall be 10/12, or 83.33%, of the benefit otherwise payable hereunder.

          Unless expressly determined to the contrary in writing by the Chief Executive Officer, no period of service completed by a person after attainment of age sixty-five (65) and no adjustment to any person's Base Salary Rate which occurs after attainment of age sixty-five (65) shall be taken into account in computing benefits hereunder.

ARTICLE V

Eligibility for Benefits

          (a)     Except as otherwise provided in paragraph (a) of Article IV, and in paragraph (b) of this Article V, and in Articles VII, IX and X:

 

(i)

Participants shall become eligible to commence receiving retirement benefits under this Supplemental Plan after Separation from Service on or after attaining age sixty-two (62) and such benefits shall be calculated in accordance with the provisions of Article IV;

 

(ii)

no Participant in this Supplemental Plan shall have any vested interest in or right to receive a benefit hereunder until attainment of the age of sixty-two (62); and

 

(iii)

unless otherwise determined in writing by the Chief Executive Officer, any interruption in the Continuous Service of a Participant herein prior to the attainment of age sixty-two (62) shall terminate the participation in this Supplemental Plan of such Participant, and no benefit shall be payable to or with respect to such Participant.

          (b)     In the sole and unfettered discretion of the Chief Executive Officer, a Participant whose Separation from Service occurs prior to attainment of age sixty-two (62) may qualify for a special early separation benefit, payable monthly as calculated in accordance with the provisions of Article IV, except as follows:

 

(i)

For purposes of determining the Participant's Base Salary Rate, the Average Base Salary Rate and the number of years of Continuous Service completed by the Participant, the Participant's date of Separation from Service shall apply instead of the date of the Participant's attainment of age sixty-two (62); and

 

(ii)

For each twelve (12) month period by which the date of commencement of the Participant's benefit precedes the Participant's sixty-second (62nd) birthday, the benefit otherwise payable shall be reduced by five percent (5%), except for the benefit payable under paragraph (a) of Article IV which shall not be reduced. Proportionate fractional reduction shall be used for periods of fewer than twelve (12) months.


ARTICLE Vl

Form of Benefit Payments

          (a)     Except as provided in Articles Vll and XIX, benefits payable based on the calculations in Article IV of this Supplemental Plan shall be paid monthly for the life-time of the Participant (unless an optional form is selected under paragraphs (b) or (c) of this Article Vl). Upon the death of the Participant, benefits shall continue to be paid to the Participant's spouse for the lifetime of such spouse at the rate of fifty percent (50%) of Participant's benefit (and to be calculated without regard to the offset in Section IV(a) regarding Appendix M of the Pension Plan), provided certain conditions are met. The conditions of such Spousal Benefit are (1) that the spouse shall be married to the Participant as of the date of the Participant's Separation from Service and (2) the spouse shall be no more than five years younger than the Participant. In the event the spouse is more than five years younger than the Participant, the Participant may elect to receive benefit payments in the form of a joint and survivor option as described in paragraph (c) following.

          (b)     Any Participant, who before September 1, 1993 has commenced to receive benefits and has not made a written election to receive an annuity pursuant to paragraph (a) preceding or paragraph (c) following, shall be entitled to one hundred twenty (120) monthly benefit payments in the amount specified in paragraph (b) of Article IV preceding and a life annuity of the Excess Benefit as defined in paragraph (a) of Article IV preceding. If a Participant, who before September 1, 1993, has commenced to receive benefits and has not made a written election to receive an annuity pursuant to paragraph (a) preceding or paragraph (c) following, dies after Separation from Service and before receiving one hundred and twenty (120) monthly benefit payments, the remainder of the one hundred and twenty (120) monthly benefit payments shall be made to the Participant's designated beneficiary or, if no such beneficiary is t hen living or no such beneficiary can be located, to the Participant's estate. In the event a Participant has made a written election, prior to September 1, 1993, to receive an annuity pursuant to paragraph (a) preceding or paragraph (c) following, no benefit shall be payable under this paragraph (b), except that any Excess Benefit under the Pension Plan, as provided in paragraph (a) of Article IV, shall be payable at the rate of fifty percent (50%) thereof to the Participant's spouse.

          (c)     In the event that the Participant's spouse is more than five years younger than Participant, at any time prior to the later of September 1, 1993 or the commencement of benefits under this Supplemental Plan, a Participant may, in lieu of receiving benefits in the form described in paragraph (a) of this Article Vl, elect to receive benefit payments under this Supplemental Plan in the form of a joint and survivor option providing monthly benefits for the lifetime of the Participant with a stipulated percentage of such amount continued after the Participant's death to the spouse to whom the Participant is married as of the date of the Participant's Separation from Service, for the lifetime of such spouse. The amount of monthly payments available under this option shall be determined by reference to factors such as the Participant's life expectancy, the life expectancy of the Participant's spouse, prior benefits received under the Supplemental Plan, and the percentage of the Participant's monthly benefit which is continued after the Participant's death to the Participant's spouse, so that the value of the joint and survivor option is the actuarial equivalent of the benefits otherwise payable under paragraph (a) (or paragraph (b) if the Participant has elected coverage under paragraph (b) preceding) of this Article Vl inclusive of the Participant and the spousal fifty percent (50%) survivor benefits, which shall be calculated assuming the Participant's spouse was exactly five years younger than Participant. In determining the monthly amount payable under the joint and survivor option with respect to any Participant, the Company may rely upon such information as it, in its sole discretion, deems reliable, including but not limited to, the opinion of an enrolled actuary or annuity purchase rates quoted by an insurance company licensed to conduct an insurance business in the State of California. The election o f a joint and survivor option is irrevocable after benefit payments have commenced, and the monthly amount payable during the lifetime of the Participant shall in no event be adjusted by reason of the death of the Participant's spouse prior to the death of the Participant, or by reason of the dissolution of the marriage between the Participant and such spouse, or for any other reason.

ARTICLE Vll

Pre-Retirement Death Benefits

          In the event of the death of a Participant hereunder during a period of Continuous Service and participation in this Supplemental Plan, the beneficiary or the spouse of the Participant shall be entitled to benefits as provided below in paragraphs (a) and (b):

          (a)     Participant's spouse shall be entitled to a fifty percent (50%) or the actuarial equivalent spousal benefit (as determined pursuant to Article Vl, paragraphs (a) or (c), as applicable), attributable to Participant's Excess Benefit under Article IV (a) above (and to be calculated without regard to the offset in Article IV(a) regarding Appendix M of the Pension Plan), and with such spousal benefit to be reduced in an amount equal to any Qualified Pre-Retirement Survivor Annuity benefit under the Pension Plan relating to benefits on Appendix M thereof..

          (b)     At the written election of the Participant, either a benefit under paragraph (i) below or a benefit under paragraph (ii) below shall be paid by the Company. Such election shall be signed by the Participant and notarized and, if the Participant is married at the time of election, the election must also be signed by the Participant's spouse and notarized. The latest election on file in the Company's records shall be controlling.

 

(i)

A lump sum death benefit shall be payable by the Company to the Participant's designated beneficiary or, if no such beneficiary is then living or no such beneficiary can be located, to the Participant's estate. The amount of such death benefit shall be two (2) times the Participant's Base Salary Rate in effect on the date of the Participant's death. On the written request of a beneficiary but subject to the approval in writing of the Chief Executive Officer, the amount payable under this paragraph (b)(i) may be paid to a beneficiary in monthly or other installments over a period not exceeding one hundred and twenty (120) months.

 

(ii)

Participant's spouse shall receive a spousal fifty percent (50%) or the actuarial equivalent spousal benefit (as determined pursuant to Article Vl, paragraphs (a) or (c), as applicable), attributable to Participant's benefit under Article IV(b) above. In the event a Participant is not married at the time of Participant's death and the Participant has elected the fifty percent (50%) spousal benefit, a lump sum death benefit shall be payable in accordance with paragraph (b)(i) preceding.

          No benefits shall be payable under this Article Vll if the Participant's death occurs as a result of an act of suicide within twenty-five (25) months after commencement of participation in this Supplemental Plan.

ARTICLE Vlll

No Disability Benefits

          No disability benefit is payable under this Supplemental Plan.

ARTICLE IX

Right to Amend, Modify, Suspend or Terminate Plan

          By action of the Company's Board of Directors, the Company may amend, modify, suspend or terminate this Supplemental Plan without further liability to any employee or former employee or any other person. Notwithstanding the preceding sentence:

          (a)     this Supplemental Plan may not be amended, modified, suspended or terminated as to a Participant whose Separation from Service has occurred and who is entitled to receive or has commenced to receive benefits under this Supplemental Plan, without the express written consent of such Participant or, if deceased, such Participant's designated beneficiary or, if no beneficiary is then living or if no beneficiary can be located, such Participant's legal representative; and

          (b)     following a Change in Control (as defined in Article X), this Supplemental Plan may not be amended, modified, suspended or terminated as to any Participant who was a Participant prior to such Change in Control, without the express written consent of such Participant.

ARTICLE X

Change in Control

          The term "Change in Control" means, after the effective date of this Supplemental Plan, (a) the acquisition by any person, entity or group (as defined in Section 13(d)3 of the Securities Exchange Act of 1934, as amended) as beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Company, (b) a change during any period of two (2) consecutive years of a majority of the Board of Directors as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, (c) a sale of substantially all of the property and assets of the Company, (d) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which results in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, (e) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination, or (f) any other event constituting a change in control of the Company for purposes of Schedule 14A of Regulation 14A under the Securities Ex change Act of 1934.

          In the event a Participant who was a Participant as of the date of a Change in Control either (a) has an involuntary Separation from Service for any reason (which, for purposes of this Article X, shall include a voluntary Separation from Service for Good Reason, as hereinafter defined) within thirty-six full calendar months following such Change in Control, or (b) has a voluntary Separation from Service for any reason other than Good Reason (including the death of the Participant) more than twelve (12) full calendar months after, but within thirty-six (36) full calendar months following, such Change in Control, such Participant shall be entitled to receive immediately upon such Separation from Service benefits hereunder in accordance with Articles IV, Vl and Vll, as applicable, without regard to approval by the Chief Executive Officer or any other person(s). Such benefits shall be calculated as if, on the date of such Se paration from Service, the Participant (i) had completed a number of years of Continuous Service equal to the greater of twelve (12) or the actual number of years of his or her Continuous Service, and (ii) had attained an age equal to the greater of sixty-two (62) or his or her actual age.

          For purposes of this Supplemental Plan, a Participant's voluntary Separation from Service shall be deemed to be for "Good Reason" if it occurs within six months of any of the following without the Participant's express written consent:

          (a)     a substantial change in the nature, or diminution in the status, of the Participant's duties or position from those in effect immediately prior to the Change in Control;

          (b)     a reduction by the Company in the Participant's annual base salary as in effect on the date of a Change in Control or as in effect thereafter if such compensation has been increased and such increase was approved prior to the Change in Control;

          (c)     a reduction by the Company in the overall value of benefits provided to the Participant, as in effect on the date of a Change in Control or as in effect thereafter if such benefits have been increased and such increase was approved prior to the Change in Control (as used herein, "benefits" shall include all profit sharing, retirement, pension, health, medical, dental, disability, insurance, automobile, and similar benefits);

          (d)     a failure to continue in effect any stock option or other equity-based or non-equity based incentive compensation plan in effect immediately prior to the Change in Control, or a reduction in the Participant's participation in any such plan, unless the Participant is afforded the opportunity to participate in an alternative incentive compensation plan of reasonably equivalent value;

          (e)     a failure to provide the Participant the same number of paid vacation days per year available to him prior to the Change in Control, or any material reduction or the elimination of any material benefit or perquisite enjoyed by the Participant immediately prior to the Change in Control;

          (f)     relocation of the Participant's principal place of employment to any place more than 35 miles from the Participant's previous principal place of employment;

          (g)     any material breach by the Company of any stock option or restricted stock agreement; or

          (h)     conduct by the Company, against the Participant's volition, that would cause the Participant to commit fraudulent acts or would expose the Participant to criminal liability;

provided that for purposes of clauses (b) through (e) above, "Good Reason" shall not exist (A) if the aggregate value of all salary, benefits, incentive compensation arrangements, perquisites and other compensation is reasonably equivalent to the aggregate value of salary, benefits, incentive compensation arrangements, perquisites and other compensation as in effect immediately prior to the Change in Control, or as in effect thereafter if the aggregate value of such items has been increased and such increase was approved prior to the Change in Control, or (B) if the reduction in aggregate value is due to reduced performance by the Company, the business unit of the Company for which the Participant is responsible, or the Participant, in each case applying standards reasonably equivalent to those utilized by the Company prior to the Change in Control.

          Not later than the occurrence of a Change in Control, the Company shall cause to be transferred to a grantor trust described in Section 671 of the Internal Revenue Code, assets equal in value to all accrued obligations under this Supplemental Plan as of one day following a Change in Control, in respect of both active employees of the Company and retirees as of that date. Such trust by its terms shall, among other things, be irrevocable. The value of liabilities and assets transferred to the trust shall be determined by one or more nationally recognized firms qualified to provide actuarial services as described in Section 4 of the Computer Sciences Corporation Severance Plan for Senior Management and Key Employees. The establishment and funding of such trust shall not affect the obligation of the Company to provide supplemental pension payments under the terms of this Supplemental Plan to the extent such benefits are not paid from the trust.

ARTICLE Xl

No Assignment

          Benefits under this Supplemental Plan may not be assigned or alienated and shall not be subject to the claims of any creditor.

ARTICLE Xll

Administration

          This Supplemental Plan shall be administered by the Chief Executive Officer or by such other person or persons to whom the Chief Executive Officer may delegate functions hereunder. With respect to all matters pertaining to this Supplemental Plan, the determination of the Chief Executive Officer or his designated delegate shall be conclusive and binding. The Chief Executive Officer shall be eligible to participate in this Supplemental Plan in the same manner as any other employee; provided, however, that the designation of the Chief Executive Officer as a Participant and any other action provided herein with respect to the Chief Executive Officer's participation shall be taken by the Compensation Committee of the Board of Directors of the Company.

ARTICLE Xlll

Release

          In connection with any benefit or benefit payment under this Supplemental Plan, or the designation of any beneficiary or any election or other action taken or to be taken under the Supplemental Plan by any Participant or any other person, the Company, acting through its Chief Executive Officer or his delegate, may require such consents or releases as are reasonable under the circumstances, and further may require any such designation, election or other action to be in writing and in form reasonably satisfactory to the Chief Executive Officer or his delegate.

ARTICLE XIV

No Waiver

          The failure of the Company, the Chief Executive Officer or any other person acting on behalf thereof to demand a Participant or other person claiming rights with respect to a Participant to perform any act which such person is or may be required to perform hereunder shall not constitute a waiver of such requirement or a waiver of the right to require such act. The exercise of or failure to exercise any discretion reserved to the Company, its Chief Executive Officer or his delegate, to grant or deny any benefit to any Participant or other person under this Supplemental Plan shall in no way require the Company, its Chief Executive Officer or his delegate to similarly exercise or fail to exercise such discretion with respect to any other Participant.

ARTICLE XV

No Contract

          This Supplemental Plan is strictly a voluntary undertaking on the part of the Company and, except with respect to the obligations of the Company upon and following a Change in Control, which shall be absolute and unconditional, shall not be deemed to constitute a contract or part of a contract between the Company (or an Affiliate) and any employee or other person, nor shall it be deemed to give any employee the right to be retained for any specified period of time in the employ of the Company (or an Affiliate) or to interfere with the right of the Company (or an Affiliate) to discharge or retire any employee at any time, nor shall this Supplemental Plan interfere with the right of the Company (or an Affiliate) to establish the terms and conditions of employment of any employee.

ARTICLE XVI

Indemnification

          The Company shall defend, indemnify and hold harmless the Officers and Directors of the Company acting in their capacity as such (and not as Participants herein) from any and all claims, expenses and liabilities arising out of their actions or failure to act hereunder, excluding fraud or willful misconduct.

ARTICLE XVII

Claim Review Procedure

          Benefits will be provided to each Participant or beneficiary as specified in this Supplemental Plan. If such person (a "Claimant") believes that he has not been provided with benefits due under this Supplemental Plan, then he may file a request for review under this procedure with the Company's Vice President of Human Resources or Chief Financial Officer, as the Claimant may elect, within ninety (90) days after the date he should have received such benefits. If the Claimant files such a request with the Company's Vice President of Human Resources or Chief Financial Officer and that claim is denied, in whole or in part, then, within thirty (30) calendar days after making that request, the Company's officer with whom the Claimant shall have filed a request for review shall notify the Claimant of the specific reasons for the denial with specific references to pertinent Supplemental Plan provisions on which the denial is based. At that time the Claimant will be advised of his right to appeal that determination and given a description of any additional material or information necessary for the Claimant to perfect an appeal, an explanation of why such material or information is necessary, and an explanation of the Supplemental Plan's review and appeal procedure.

          A Claimant may appeal from a denial by submitting a written statement to the Plan Appeal Committee within sixty-five (65) calendar days after receiving the notice of denial:

          (a)     requesting a review by the Plan Appeal Committee of the claim;

          (b)     setting forth all of the grounds upon which the request for review is based and any facts in support thereof; and

          (c)     setting forth any issues or comments which the Claimant deems relevant to the claim.

          The Plan Appeal Committee shall be the Board of Directors of the Company or its Compensation Committee or any other duly authorized committee thereof, or any committee appointed by any such committee.

          The Plan Appeal Committee shall act upon an appeal within ninety (90) days or one hundred eighty (180) days in unusual circumstances, if the Plan Appeal Committee in its reasonable discretion finds that such unusual circumstances exist, after the later of its receipt of the appeal or its receipt of all additional material reasonably requested by the Plan Appeal Committee. The Plan Appeal Committee shall review the claim and all written materials submitted by the Claimant, and may require him to submit, within (10) days of its written notice, such additional facts, documents, or other evidence as the Plan Appeal Committee in its sole discretion deems necessary or advisable in making such a review. On the basis of its review, the Plan Appeal Committee shall make an independent good faith determination with respect to the Claimant's claim.

          If the Plan Appeal Committee denies a claim in whole or in part, the Committee shall give the Claimant written notice of its decision setting forth the specific reasons for the denial and specific references to the pertinent Supplemental Plan provisions on which its decision was based.

ARTICLE XVIII

Termination of Benefits and Participation

          Prior, but only prior to a Change in Control, the retirement benefits payable to any Participant under this Supplemental Plan, and the participation of such Participant in this Supplemental Plan, may be terminated if in the judgment of the Chief Executive Officer, upon the advice of counsel, such Participant, directly or indirectly:

          (a)     breaches any obligation to the Company under any agreement relating to assignment of inventions, disclosure of information or data, or similar matters; or

          (b)     competes with the Company, or renders competitive services (as a director, officer, employee, consultant or otherwise) to, or owns more than a 5% interest in, any person or entity that competes with the Company; or

          (c)     solicits, diverts or takes away any person who is an employee of the Company or advises or induces any employee to terminate his or her employment with the Company; or

          (d)     solicits, diverts or takes away any person or entity that is a customer of the Company, or advises or induces any customer or potential customer not to do business with the Company; or

          (e)     discloses to any person or entity other than the Company, or makes any use of, any information relating to the technology, know-how, products, business or data of the Company or its subsidiaries, suppliers, licensors or customers, including but not limited to the names, addresses and special requirements of the customers of the Company.

Article XIX

Lump-Sum Acceleration

          (a)     This Article XIX applies to benefits payable under paragraph (a) of Article IV and under paragraph (b) of Article IV.

          (b)     At any time within three (3) years after the occurrence of a Change in Control, a Participant or the Participant's Surviving Spouse may elect to receive a lump sum payment, in an amount determined below, sixty (60) days after giving written notice of the Participant's desire or the Participant's Surviving Spouse's desire to receive such lump sum benefit, to the person designated to administer this Supplemental Plan under Article XII. The date which is sixty (60) days after the notice is given shall be the "Commencement Date." The lump sum payment shall be determined in accordance with paragraphs (c) and (d) of this Article XIX, and then shall be reduced by a penalty equal to ten percent (10%) of such payment which shall be irrevocably forfeited.

          (c)     The lump sum payment shall equal the lump sum value of the Participant's (or the Participant's Surviving Spouse's, if applicable) remaining Benefit as of the Commencement Date. The lump sum value shall be computed by using the present value basis as is required under Section 417(e) of the Internal Revenue Code, as amended, at the Commencement Date for determining lump sums under qualified plans.

          (d)     In calculating the lump sum payment, the Cost of Living Adjustment called for under Article XXI shall be taken into account as follows: The Company shall determine the average of the 3 most recent adjustments under Article XXI (or the 3 most recent adjustments that would have occurred had Article XXI been in effect for all relevant periods). That average so-determined shall be deemed to apply for purposes of all future years for purposes of making the lump sum calculation.

Article XX

Hardship Withdrawal

          (a)     This Article XX applies to benefits payable under paragraph (a) of Article IV and under paragraph (b) of Article IV, and is applicable only to Participants who have commenced receiving retirement benefits under this Supplemental Plan.

          (b)     "Hardship" of a Participant shall mean an unforeseeable emergency which constitutes a severe financial hardship resulting from any one or more of the following:

 

(i)

sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a)of the Internal Revenue Code, as amended) of the Participant;

 

(ii)

loss of the Participant's property due to casualty; or

 

(iii)

any other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control.

          (c)     Whether a Participant has incurred a Hardship shall be determined by the person designated to administer this Supplemental Plan under Article XII, in his discretion on the basis of all relevant facts and circumstances and in accordance with nondiscriminatory and objective standards, uniformly interpreted and consistently applied.

          (d)     A Participant may make a withdrawal from the Participant's account, in the form of a lump sum, on account of the Participant's Hardship, only to the extent that the Hardship is not otherwise relievable:

 

(i)

through reimbursement or compensation by insurance or otherwise, or

 

(ii)

by liquidation of the Participant's assets (to the extent that such liquidation does not itself cause a Hardship).

           (e)     The amount of the lump sum hardship withdrawal shall not exceed the current lump sum value of the remaining benefits otherwise due determined immediately prior to the hardship distribution, as determined by using the methodology described in paragraphs (c) and (d) of Article XIX, without regard to the penalty provision of paragraph (a) of Article XIX.

          (f)     If a hardship lump sum distribution is made to a Participant, the amount of future benefits under this Supplemental Plan shall be reduced, as follows:

 

(i)

First, the current lump sum value of the benefits otherwise due shall be determined immediately prior to the hardship distribution by using the methodology described in paragraphs (c) and (d) of Article XIX, without regard to the penalty provision of paragraph (a) of Article XIX.

 

(ii)

Second, the amount of the lump sum hardship distribution to be made shall be subtracted from the amount so determined. The resulting net amount is called the "Resulting Net Value."

 

(iii)

Third, all future benefit payments shall be adjusted downward, to an amount that has a lump sum present value equal to the Resulting Net Value. Such lump sum present value shall be calculated using the methodology described in paragraphs (c) and (d) of Article XIX, without regard to the penalty provision of paragraph (a) of Article XIX.


          (g)     Participants may request a Hardship withdrawal from either benefits otherwise payable under paragraph (a) of Article IV or under paragraph (b) of Article IV, or from benefits payable under both paragraphs (a) and (b).

          (h)     The provisions of this Article XX shall be equally applicable to Participant's Surviving Spouse.

Article XXI

Cost of Living Adjustment

          (a)     This Article XXI applies to benefits payable on or after August 13, 2001 under paragraph (b) of Article IV, but does not apply to benefits payable under paragraph (a) of Article IV.

          (b)     On the first day of each fiscal year of the Company, following commencement of payment of benefits to the Participant (or that Participant's Surviving Spouse, as applicable) hereunder, the benefits payable to that Participant (or that Participant's Surviving Spouse) shall be subject to an upward adjustment, as follows:

 

(i)

Benefits payable shall be increased by an amount equal to the lesser of (A) the most recently published annual percent change in the Consumer Price Index (as defined below), as computed to the nearest one-tenth of one percent (0.1) for the twelve consecutive reference months of March of the prior calendar year through and including February of the current calendar year or (B) five percent (5%).

 

(ii)

Such adjustments, if any, shall be calculated for each year, irrespective of any other year's adjustment. For example, if the CPI change in four successive years is 3%, 6%, 7% and 3%, the Company would implement corresponding increases equal to 3%, 5%, 5% and 3%.

          (c)     The "Consumer Price Index" is "The Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items, 1982-84=100" as published by the Bureau of Labor Statistics.

          (d)     In the event that the Bureau of Labor Statistics reissues CPI data to correct an error in previously published CPI data, any affected benefits will be recalculated by the Company.

Article XXII

Certain Further Payments By the Company

           (a)     This Article XXII applies to benefits payable under paragraph (a) of Article IV and under paragraph (b) of Article IV.

          (b)     The Company shall be obligated to make certain further payments to Participants as set forth in this Article XXII.

          (c)     In the event that any amount or benefit payable to the Participant by the Company on or after August 13, 2001 pursuant to this Supplemental Plan (collectively, the "Taxable Benefits") is subject on or after August 13, 2001 to the tax imposed under Section 3121 of the Internal Revenue Code, as amended (the "FICA Tax"), or any similar tax that may hereafter be imposed, the Company shall pay to the Participant at the time specified in paragraph (d) below, the Tax Reimbursement Payment (as defined below). The "Tax Reimbursement Payment" is defined as an amount, which when reduced by any FICA Tax paid by the Participant on the Taxable Benefits (but without reduction for any Federal, state or local income taxes on such Taxable Benefits), shall be equal to the amount of any Federal, state or local income taxes payable because of the inclusion of the Tax Reimbursement Payment in the Participant's adju sted gross income, by applying the highest applicable marginal rate of Federal, state and local income taxation, respectively, for the calendar year in which the Tax Reimbursement Payment is to be made.

          (d)     For purposes of determining the amount of the Tax Reimbursement Payment, the Participant shall be deemed:

 

(i)

to pay Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made; and

 

(ii)

to pay any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal income taxes which could be obtained from the deduction of such state or local taxes if paid in such year (determined without regard to limitations on deductions based upon the amount of the Participant's adjusted gross income.)

          (e)     The Tax Reimbursement Payment attributable to a Taxable Benefit shall be paid to the Participant not more than thirty (30) days following the incurrence of the FICA Tax. If the amount of such Tax Reimbursement Payment cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Participant an amount estimated in good faith by the Company to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment as soon as the amount thereof can be determined.

EX-10.14 4 exhibit_10-14.htm AMENDMENT & RESTATEMENT OF THE CSC DEFERRED COMP PLAN Amendment & Restatement of CSC Deferred Comp Plan

 

 

 

 

 

 

AMENDMENT AND RESTATEMENT OF THE

COMPUTER SCIENCES CORPORATION

DEFERRED COMPENSATION PLAN

DECEMBER 9, 2002

 


 

TABLE OF CONTENTS

Page

ARTICLE I - DEFINITIONS

1

Section 1.1 - General

1

Section 1.2 - Account

1

Section 1.3 - Administrator

1

Section 1.4 - Board

2

Section 1.5 - Change in Control

2

Section 1.6 - Chief Executive Officer

2

Section 1.7 - Code

2

Section 1.8 - Committee

3

Section 1.9 - Company

3

Section 1.10- Deferred Compensation

3

Section 1.11- Election Form

3

Section 1.12- Eligible Key Executive

3

Section 1.13- Employee

3

Section 1.14- ERISA

3

Section 1.15- Exchange Act

3

Section 1.16- Hardship

3

Section 1.17- Key Executive

4

Section 1.18- Key Executive Plan

4

Section 1.19- Nonemployee Director

4

Section 1.20- Nonemployee Director Plan

4

Section 1.21- Partial First Plan Year

4

Section 1.22- Participant

5

Section 1.23- Payday

5

Section 1.24- Plan

5

Section 1.25- Plan Year

5

Section 1.26- Predecessor Plan

5

Section 1.27- Qualified Bonus

5

Section 1.28- Qualified Director Compensation

5

Section 1.29- Qualified Salary

5

Section 1.30- Retirement

6

Section 1.31- Section 401(a)(17) Limitation

6

Section 1.32- Separation from Service

6


ARTICLE II - ELIGIBILITY

6

Section 2.1 - Requirements for Participation

6

Section 2.2 - Deferral Election Procedure

7

Section 2.3 - Content of Election Form

7


ARTICLE III - PARTICIPANTS' DEFERRALS

7

Section 3.1 - Deferral of Qualified Bonus and
                      Qualified Director Compensation

7

Section 3.2 - Deferral for Partial First Plan Year

8

Section 3.3 - Deferral for Qualified Salary

8


ARTICLE IV - DEFERRED COMPENSATION ACCOUNTS

9

Section 4.1 - Deferred Compensation Accounts

9

Section 4.2 - Crediting of Deferred Compensation

9

Section 4.3 - Crediting of Earnings

9

Section 4.4 - Applicability of Account Values

10

Section 4.5 - Vesting of Deferred Compensation Accounts

10

Section 4.6 - Assignments, Etc. Prohibited

10


ARTICLE V - DISTRIBUTIONS OF DEFERRED COMPENSATION ACCOUNTS

10

Section 5.1 - Distributions upon a Key Executive's Retirement
                         and a Nonemployee Director's Separation from Service

10

Section 5.2 - Distributions upon a Key Executive's Pre-Retirement
                         Separation from Service

11

Section 5.3 - Distributions upon a Participant's Death

11

Section 5.4 - Optional Distributions

12

Section 5.5 - Applicable Taxes

12


ARTICLE VI - WITHDRAWALS FROM DEFERRED COMPENSATION
                        ACCOUNTS

13

Section 6.1 - Hardship Withdrawals from Accounts

13

Section 6.2 - Withdrawals after a Change in Control

13

Section 6.3 - Voluntary Withdrawals

13

Section 6.4 - Applicable Taxes

14


ARTICLE VII - ADMINISTRATIVE PROVISIONS

14

Section 7.1 - Administrator's Duties and Powers

14

Section 7.2 - Limitations Upon Powers

14

Section 7.3 - Final Effect of Administrator Action

15

Section 7.4 - Committee

15

Section 7.5 - Indemnification by the Company; Liability Insurance

15

Section 7.6 - Recordkeeping

15

Section 7.7 - Statement to Participants

16

Section 7.8 - Inspection of Records

16

Section 7.9 - Identification of Fiduciaries

16

Section 7.10- Procedure for Allocation of Fiduciary Responsibilities

16

Section 7.11- Claims Procedure

16

Section 7.12- Conflicting Claims

18

Section 7.13- Service of Process

18


ARTICLE VIII - MISCELLANEOUS PROVISIONS

18

Section 8.1 - Termination of the Plan

18

Section 8.2 - Limitation on Rights of Participants

18

Section 8.3 - Consolidation or Merger; Adoption of Plan by
                       Other Companies

19

Section 8.4 - Errors and Misstatements

19

Section 8.5 - Payment on Behalf of Minor, Etc

19

Section 8.6 - Amendment of Plan

20

Section 8.7 - Funding

20

Section 8.8 - Governing Law

20

Section 8.9 - Pronouns and Plurality

20

Section 8.10- Titles

21

Section 8.11- References

21

 


 

AMENDMENT AND RESTATEMENT OF THE
COMPUTER SCIENCES CORPORATION
DEFERRED COMPENSATION PLAN

as Amended and Restated Effective December 9, 2002

          Computer Sciences Corporation, a Nevada corporation, by resolution of its Board of Directors dated August 14, 1995, has adopted the Computer Sciences Corporation Deferred Compensation Plan (the "Plan"), which constitutes a complete amendment and restatement of the Computer Sciences Corporation Nonqualified Deferred Compensation Plan (the "Predecessor Plan"), effective as of September 30, 1995, for the benefit of its Nonemployee Directors, as defined below, and certain of its Key Executives, as defined below.

          The Plan was amended and restated effective as of February 2, 1998 and as of August 13, 2001, and is hereby amended and restated effective as of December 9, 2002.

          The Plan shall constitute two separate plans, one for the benefit of Nonemployee Directors and one for the benefit of Key Executives. The plan for Key Executives is a nonqualified deferred compensation plan which is unfunded and is maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, as defined below. The plan for Nonemployee Directors is not subject to ERISA.

ARTICLE I

DEFINITIONS

Section 1.1 General

          Whenever the following terms are used in the Plan with the first letter capitalized, they shall have the meaning specified below unless the context clearly indicates to the contrary.

Section 1.2 Account

          "Account" of a Participant shall mean the Participant's individual deferred compensation account established for his or her benefit under Article IV hereof.

Section 1.3 Administrator

          "Administrator" shall mean Computer Sciences Corporation, acting through its Chief Executive Officer or his or her delegate, except that if Computer Sciences Corporation appoints a Committee under Section 7.4, the term "Administrator" shall mean the Committee as to those duties, powers and responsibilities specifically conferred upon the Committee.

1


Section 1.4 Board

          "Board" shall mean the Board of Directors of Computer Sciences Corporation. The Board may delegate any power or duty otherwise allocated to the Administrator to any other person or persons, including a Committee appointed under Section 7.4.

Section 1.5 Change in Control

          "Change in Control" means, after September 30, 1995, (a) the acquisition by any person, entity or group (as defined in Section 13(d)3 of the Exchange Act), as beneficial owner, directly or indirectly, of securities of Computer Sciences Corporation representing twenty percent (20%) or more of the combined voting power of the then outstanding securities of Computer Sciences Corporation, (b) a change during any period of two (2) consecutive years of a majority of the Board as constituted as of the beginning of such period, unless the election of each director who was not a director at the beginning of such period was approved by vote of at least two-thirds of the directors then in office who were directors at the beginning of such period, (c) a sale of substantially all of the property and assets of Computer Sciences Corporation, (d) a merger, consolidation, reorganization or other business combination to which Computer Sciences Corporation is a party and the consummation of which results in the outstanding voting securities of Computer Sciences Corporation being exchanged for or converted into cash, property and/or securities not issued by Computer Sciences Corporation, (e) a merger, consolidation, reorganization or other business combination to which the Company is a party and the consummation of which does not result in the outstanding voting securities of the Company being exchanged for or converted into cash, property and/or securities not issued by the Company, provided that the outstanding voting securities of the Company immediately prior to such business combination (or, if applicable, the securities of the Company into which such voting securities are converted as a result of such business combination) represent less than 50% of the voting power of the Company immediately following such business combination, or (f) any other event constituting a change in control of Computer Sciences Corporation for purposes of Schedule 14 A of Regulation 14A under the Exchange Act.

Section 1.6 Chief Executive Officer

          "Chief Executive Officer" shall mean the Chief Executive Officer of Computer Sciences Corporation.

2


Section 1.7 Code

          "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time.

Section 1.8 Committee

          "Committee" shall mean the Committee, if any, appointed in accordance with Section 7.4.

Section 1.9 Company

          "Company" shall mean Computer Sciences Corporation and all of its affiliates, and any entity which is a successor in interest to Computer Sciences Corporation and which continues the Plan under Section 8.3(a).

Section 1.10 Deferred Compensation

          "Deferred Compensation" of a Participant shall mean the amounts deferred by such Participant under Article III of the Plan.

Section 1.11 Election Form

          "Election Form" shall mean the form of election provided by the Administrator to each Eligible Executive and Nonemployee Director pursuant to Section 3.1 or Section 3.3.

Section 1.12 Eligible Key Executive

          "Eligible Key Executive" shall mean any Key Executive who has been designated as eligible to participate in the Plan with respect to any Plan Year by the Chief Executive Officer.

Section 1.13 Employee

          "Employee" shall mean any person who renders services to the Company in the status of an employee as that term is defined in Code Section 3121(d), including officers but not including directors who serve solely in that capacity.

Section 1.14 ERISA

          "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

Section 1.15 Exchange Act

          "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

3


Section 1.16 Hardship

          (a)     "Hardship' of a Participant, shall mean an unforeseeable emergency which constitutes a severe financial hardship resulting from any one or more of the following:

(i) sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Code Section 152(a)) of the Participant;

(ii) loss of the Participant's property due to casualty; or

(iii) any other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control.

          (b)     Notwithstanding subsection(a) above, a financial need shall not constitute a Hardship unless it is for at least $1,000.00 (or the entire principal amount of the Participant's Accounts, if less).

          (c)     Whether a Participant has incurred a Hardship shall be determined by the Administrator in its discretion on the basis of all relevant facts and circumstances and in accordance with nondiscriminatory and objective standards, uniformly interpreted and consistently applied.

Section 1.17 Key Executive

          "Key Executive" shall mean any Employee of the Company who is an officer or other key executive of the Company and who qualifies as a "highly compensated employee or management employee" within the meaning of Title I of ERISA.

Section 1.18 Key Executive Plan

          "Key Executive Plan" shall mean the portion of this Plan which is maintained or the benefit of the Company's Key Executives.

Section 1.19 Nonemployee Director

          "Nonemployee Director" shall mean a member of the Board who is not an Employee.

Section 1.20 Nonemployee Director Plan

          "Nonemployee Director Plan" shall mean the portion of this Plan which is maintained for the benefit of the Company's Nonemployee Directors.

Section 1.21 Partial First Plan Year

          "Partial First Plan Year" shall mean that portion of the first Plan Year of the Plan subject to its amendment and restatement effective as of September 30, 1995, which shall begin on September 30, 1995 and end on March 29, 1996.

4


Section 1.22 Participant

          "Participant" shall mean any person who elects to participate in the Plan as provided in Article II and who defers Qualified Bonus, Qualified Director Compensation or Qualified Salary under the Plan.

Section 1.23 Payday

          "Payday" of a Key Executive shall mean the regular and recurring established day for payment of Qualified Salary to such Key Executive.

Section 1.24 Plan

          "Plan" shall mean the Computer Sciences Corporation Deferred Compensation Plan.

Section 1.25 Plan Year

          "Plan Year" shall mean the fiscal year of the Company.

Section 1.26 Predecessor Plan

          "Predecessor Plan" shall mean the Computer Sciences Corporation Nonqualified Deferred Compensation Plan as in effect and maintained by the Company for the benefit of its Nonemployee Directors prior to the amendment and restatement of the Plan effective as of September 30, 1995.

Section 1.27 Qualified Bonus

           "Qualified Bonus" of a Key Executive shall mean the Key Executive's annual bonus which may be payable to the Key Executive under the Computer Sciences Corporation Annual Incentive Plan or such other bonus or incentive compensation plan of the Company which may be designated from time to time by the Administrator.

Section 1.28 Qualified Director Compensation

          "Qualified Director Compensation" of a Nonemployee Director shall mean the retainer, consulting fees, committee fees and meeting fees which are payable to the Nonemployee Director by the Company.

Section 1.29 Qualified Salary

          "Qualified Salary" of a Key Executive shall mean the Key Executive's gross base salary which may be payable to the Key Executive on a Payday, including any portion thereof payable in the form of sick pay, vacation pay, pay in lieu of notice or jury pay, and determined before any exclusions, deductions or withholdings therefrom,

Section 1.30 Retirement

          "Retirement" shall mean, with respect to a Key Executive, a Separation from Service of such Key Executive (a) on or after attainment of age sixty-two (62) or (b) prior to attainment of age sixty-two (62) if the Chief Executive Officer shall designate such Separation from Service as Retirement for purposes of the Plan.

5


Section 1.31 Section 401(a)(17) Limitation

          "Section 401(a)(17) Limitation" with respect to a Key Executive's Qualified Salary for a Payday shall mean the amount equal to:

(a)     the annual compensation limit under Code Section 401(a)(17) in effect for the calendar year in which such Payday occurs, divided by

(b)     the total number of Paydays in a year for which such Key Executive's gross base salary would be payable to such Key Executive, based on the regular and recurring manner of payment for such Key Executive in effect on such Payday, as determined by the Administrator.

Section 1.32 Separation from Service

          (a)     "Separation from Service" of a Key Executive shall mean the termination of his or her employment with the Company by reason of resignation, discharge, death or Retirement. A leave of absence or sick leave authorized by the Company in accordance with established policies, a vacation period or a military leave shall not constitute a Separation from Service; provided, however, that failure to return to work upon expiration of any leave of absence, sick leave, military leave or vacation shall be considered a resignation effective as of the date of expiration of such leave of absence, sick leave, military leave or vacation.

          (b)     "Separation from Service" of a Nonemployee Director shall mean the Nonemployee Director's ceasing to serve as a member of the Board for any reason.

ARTICLE II

ELIGIBILITY

Section 2.1 Requirements for Participation

          Any Eligible Key Executive and any Nonemployee Director shall be eligible to be a Participant in the Plan.

6


Section 2.2 Deferral Election Procedure

          For each Plan Year, the Administrator shall provide each Eligible Key Executive and each Nonemployee Director with an Election Form on which such person may elect to defer his or her Qualified Bonus or Qualified Director Compensation under Article III and, in the case of an Eligible Key Executive, to defer his or her Qualified Salary under Article III. Each such person who elects to defer Qualified Bonus, Qualified Director Compensation or Qualified Salary under Article III shall complete and sign the Election Form and return it to the Administrator.

Section 2.3 Content of Election Form

          Each Participant who elects to defer Qualified Bonus, Qualified Director Compensation or Qualified Salary under the Plan shall set forth on the Election Form specified by the Administrator:

(a)     the amount of Qualified Bonus or Qualified Director Compensation to be deferred under Article III and the Participant's authorization to the Company to reduce his or her Qualified Bonus or Qualified Director Compensation by the amount of the Deferred Compensation,

(b)     in the case of a Participant who is an Eligible Key Executive, the amount of Qualified Salary to be deferred under Article III and the Participant's authorization to the Company to reduce his or her Qualified Salary by the amount of the Deferred Compensation,

(c)     the length of time with respect to which the Participant elects to defer the Deferred Compensation,

(d)     the method under which the Participant's Deferred Compensation shall be payable, and

(e)     such other information, acknowledgements or agreements as may be required by the Administrator.

 

7


ARTICLE III

PARTICIPANTS' DEFERRALS

Section 3.1 Deferral of Qualified Bonus and Qualified Director Compensation

          (a)     Each Eligible Key Executive and Nonemployee Director may elect to defer into his or her Account all or any portion of the Qualified Bonus and the Qualified Director Compensation, respectively, which would otherwise be payable to him or her for any Plan Year in which he or she has not incurred a Separation from Service as of the first day of the Plan Year in question. Such election shall be made by the Eligible Key Executive or Nonemployee Director by completing and delivering to the Administrator his or her Election Form for such Plan Year no later than the last day of the next preceding Plan Year, except (i) with respect to the Partial First Plan Year, in which case such election shall be made not later than September 29, 1995, and (ii) with respect to a person who first becomes an Employee or Nonemployee Director during a Plan Year, which person may make such election within 30 days after first becoming an Employee or Nonemployee Director, respectively.

          (b)     Any such election made by a Participant to defer Qualified Bonus or Qualified Director Compensation shall be irrevocable and shall not be amendable by the Participant, except:

(i) as set forth in Sections 6.2 and 6.3 hereof; or

(ii) in the event of a Hardship, a Participant may terminate the Participant's deferral election for the Plan Year in which the Hardship occurs with respect to all Qualified Bonus or Qualified Director Compensation which has not yet been deferred.

Section 3.2 Deferral for Partial First Plan Year

          For the Partial First Plan Year, Participants may defer any or all of the Qualified Bonus or Qualified Director Compensation which is earned by them after September 29, 1995 and before March 30, 1996. Deferral elections previously made by Nonemployee Directors for the 1996 Plan Year shall only remain effective with respect to Qualified Bonus or Qualified Director Compensation earned prior to September 30, 1995.

Section 3.3 Deferral of Qualified Salary

          (a)     Each Eligible Key Executive may elect to defer into his or her Account all or a portion of the Qualified Salary which would otherwise be payable to him or her for any Plan Year in which he or she has not incurred a Separation from Service as of the first day of the Plan Year in question. Such Eligible Key Executive may elect to defer his or her Qualified Salary for such Plan Year as follows:

(i) such Eligible Key Executive may elect to defer all or any portion of the amount by which his or her Qualified Salary exceeds the Section 401(a)(17) Limitation, or

(ii) such Eligible Key Executive may elect to defer all of the amount by which his or her Qualified Salary exceeds the greater of: (A) the dollar amount specified by such Eligible Key Executive under such election, or (B) the Section 401(a)(17) Limitation.

8


          Such election shall be made by the Eligible Key Executive by completing and delivering to the Administrator his or her Election Form for such Plan Year no later than the last day of the next preceding Plan Year. Notwithstanding the foregoing, with respect to the period commencing on August 13, 2001 and ending on March 29, 2002, an Eligible Key Executive may only elect to defer Qualified Salary under this Section 3.3 if the Administrator designates such Eligible Key Executive as eligible to make such deferrals. The Administrator shall determine the manner in which such Eligible Key Executive's deferral election shall be made for the period described in the preceding sentence, and an Eligible Key Executive's deferral election shall be made within 30 days of the designation of such Eligible Key Executive and shall only apply to Qualified Salary which would otherwise be payable after such deferral election is made.

          (b)     Any such election made by a Participant to defer Qualified Salary shall be irrevocable and shall not be amendable by the Participant, except:

(i) as set forth in Section 6.2 and 6.3; or

(ii) in the event of Hardship, a Participant may terminate the Participant's deferral election for the Plan Year in which the Hardship occurs with respect to all Qualified Salary which has not yet been deferred.

ARTICLE IV

DEFERRED COMPENSATION ACCOUNTS

Section 4.1 Deferred Compensation Accounts

          The Administrator shall establish and maintain for each Participant an Account to which shall be credited the amounts allocated thereto under this Article IV and from which shall be debited the Participant's distributions and withdrawals under Articles V and VI.

Section 4.2 Crediting of Deferred Compensation

          Each Participant's Account shall be credited with an amount which is equal to the amount of the Participant's Qualified Bonus, Qualified Director Compensation and Qualified Salary which such Participant has elected to defer under Article III at the time such Qualified Bonus, Qualified Director Compensation or Qualified Salary, whichever is applicable, would otherwise have been paid to the Participant.

Section 4.3 Crediting of Earnings

    1. Beginning on March 29, 2003 and subject to amendment by the Board, for each Plan Year earnings shall be credited to each Participant's Account (including the Accounts of Nonemployee Directors under the Predecessor Plan), at a rate equal to the 120-month rolling average yield to maturity of the index called the "Merrill Lynch US Corporate A-Rated 15+years Index" as of December 31 of the preceding Plan Year, compounded annually.
    2. Beginning on September 30, 1995 and until March 28, 2003, for each Plan Year earnings shall be credited to each Participant's Account (including the Accounts of Nonemployee Directors under the Predecessor Plan), at a rate equal to 120% of the 120-month rolling average yield to maturity on 10-year United States Treasury Notes as of December 31 of the preceding Plan Year, compounded annually.
    3. Earnings shall be credited on such valuation dates as the Administrator shall determine.

9


Section 4.4 Applicability of Account Values

          The value of each Participant's Account as determined as of a given date under this Article, plus any amounts subsequently allocated thereto under this Article and less any amounts distributed or withdrawn under Articles V or VI shall remain the value thereof for all purposes of the Plan until the Account is revalued hereunder.

Section 4.5 Vesting of Deferred Compensation Accounts

          Subject to the possible reductions provided for in Section 6.2 and 6.3 with respect to certain Participant withdrawals, each Participant's interest in his or her Account shall be 100% vested and non-forfeitable at all times.

Section 4.6 Assignments, Etc. Prohibited

          No part of any Participant's Account shall be liable for the debts, contracts or engagements of the Participant, or the Participant's beneficiaries or successors in interest, or be taken in execution by levy, attachment or garnishment or by any other legal or equitable proceeding, nor shall any such person have any rights to alienate, anticipate, commute, pledge, encumber or assign any benefits or payments hereunder in any manner whatsoever except to designate a beneficiary as provided in Section 5.3.

ARTICLE V

DISTRIBUTIONS OF DEFERRED COMPENSATION ACCOUNTS

Section 5.1 Distributions upon a Key Executive's Retirement and a Nonemployee Director's                        Separation from Service

          (a)     The Account of a Key Executive who incurs a Separation from Service upon his or her Retirement, and the Account of a Nonemployee Director who incurs a Separation from Service, in each case other than on account of death, shall be paid to the Participant as specified in any election made by the Participant pursuant to Section 5.4 hereof. Any remaining balance of the Participant's Account shall be paid to the Participant, as specified by the Participant in an election made pursuant to this Section 5.1. Such election shall specify (i) whether payment shall be made in a lump-sum distribution and/or in approximately equal annual installments over 5, 10 or 15 years, and (ii) whether payment(s) shall commence on the first, second, third, fourth or fifth anniversary of the date of such Separation of Service, or shall commence within thirty (30) days following the date of such Separation from Service. A Participant may elect to receive payment of a portion of the amount distributable under this Section 5.1 in a lump-sum distribution and the balance of the amount distributable under this Section 5.1 in approximately equal annual installments over 5, 10 or 15 years. A Participant may elect a distribution pursuant to this Section 5.1 in such other forms, or payable upon such other commencement dates, as are specified by the Administrator; provided, however, that no such election shall provide for payments to be made more than 20 years after such Participant's Separation from Service.

10


          (b)     At the time a Participant first elects to defer Qualified Bonus, Qualified Director Compensation or Qualified Salary under the Plan, he or she shall make an election pursuant to this Section 5.1. Such election shall remain in effect and shall apply to the Participant's total Account, as the same may increase or decrease from time to time. An election pursuant to this Section 5.1 may be superseded by a subsequent election, which subsequent election shall then apply to the Participant's total Account, as the same may increase or decrease from time to time. Notwithstanding the foregoing, no subsequent election pursuant to this Section 5.1 shall be effective unless it is made at least 13 months prior to the Participant's Separation from Service.

Section 5.2 Distributions upon a Key Executive's Pre-Retirement Separation from Service

          The Account of a Key Executive who incurs a Separation from Service prior to his or her Retirement and other than on account of his or her death shall be paid to the Participant in a lump-sum distribution within thirty (30) days following the date of such Separation from Service, notwithstanding any election to the contrary made by the Participant pursuant to Section 5.4 hereof.

Section 5.3 Distributions upon a Participant's Death

          (a)     Notwithstanding anything to the contrary in the Plan, the remaining balance of the Account of a Participant who dies (i) shall be paid to the persons and entities designated by the Participant as his or her beneficiaries for such purpose and (ii) shall be paid in the manner set forth in this Section 5.3. With respect to a Participant who does not incur a Separation from Service prior to his or her death, such balance shall be paid, as specified by the Participant in an election made pursuant to this Section 5.3. Such election shall specify whether payment shall be made (i) in a lump-sum distribution within thirty (30) days following the date of death or (ii) in accordance with the distribution election made pursuant to Section 5.1 hereof (in which case such Participant's death shall be considered the date of such Participant's Retirement for purposes of determining the date of co mmencement of distribution under such election). With respect to a Participant who does incur a Separation from Service prior to his or her death, such balance shall be paid, as specified by the Participant in an election made pursuant to this Section 5.3. Such election shall specify whether payment shall be made (1) in a lump-sum distribution within thirty (30) days following the date of death or (2) in accordance with the distribution election made pursuant to Section 5.1 hereof (with respect to the payments not yet made under such election).

          (b)     At the time a Participant first elects to defer Qualified Bonus, Qualified Director Compensation or Qualified Salary under the Plan, he or she shall make an election pursuant to this Section 5.3. Such election shall remain in effect and shall apply to the Participant's total Account, as the same may increase or decrease from time to time. An election pursuant to this Section 5.3 may be superseded by a subsequent election, which subsequent election shall then apply to the Participant's total Account, as the same may increase or decrease from time to time. Notwithstanding the foregoing, no subsequent election pursuant to this Section 5.3 shall be effective unless it is made at least 13 months prior to the Participant's Separation from Service.

11


Section 5.4 Optional Distributions

          (a)     At the time a Participant elects to defer Qualified Bonus, Qualified Director Compensation or Qualified Salary for any Plan Year, he or she may also elect, pursuant to this Section 5.4, to receive a special, lump-sum distribution of any or all of the amount deferred for such Plan Year on a date specified by the Participant in such election, which date must be at least 24 months after the date of such election. Any such special distribution shall be made within five (5) business days after the date therefor specified by the Participant, unless the Participant shall have died on or prior to such date, in which case no such special distribution shall be made.

          (b)     An election pursuant to this Section 5.4 may be superseded by one subsequent election; provided, however, that such subsequent election shall not be effective unless: (i) it is irrevocable; (ii) it is made at least 13 months prior to the Participant's Separation from Service and at least 24 months prior to the date upon which the special distribution will be made; and (iii) the date of the special distribution specified in the subsequent election is earlier than the date specified in the initial election.

          (c)     Notwithstanding the foregoing, an election pursuant to this Section 5.4 with respect to the Partial First Plan Year may be superseded by two subsequent elections; provided, however, that: (i) the first such subsequent election shall not be effective unless it is made prior to March 30, 1996 and at least 13 months prior to the Participant's Separation from Service and at least 24 months prior to the date upon which the special distribution will be made; and (ii) the second such subsequent election satisfies all the requirements set forth in paragraph (b)(i), (ii) and (iii) of this Section 5.4.

Section 5.5 Applicable Taxes

          All distributions under the Plan shall be subject to withholding for all amounts which the Company is required to withhold under federal, state or local tax law.

ARTICLE VI

WITHDRAWALS FROM DEFERRED COMPENSATION ACCOUNTS

Section 6.1 Hardship Withdrawals from Accounts

          A Participant may make a withdrawal from the Participant's Account on account of the Participant's Hardship, only to the extent that the Hardship is not otherwise relievable:

(a) through reimbursement or compensation by insurance or otherwise,

(b) by liquidation of the Participant's assets (to the extent that such liquidation does not itself cause a Hardship), or

(c) by cessation of deferrals under the Plan.

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Section 6.2 Withdrawals after a Change in Control

          At any time within three years after the occurrence of a Change in Control, a Key Executive may elect to withdraw all or any part of the Key Executive's Account by delivering a written election to such effect to the Administrator, provided, however, that if a Key Executive makes such an election, (i) the Key Executive shall forfeit, and the Key Executive's Account shall be debited with, an amount equal to 5% of the amount of the withdrawal distribution, (ii) the Key Executive's deferral election for the Plan Year in which the withdrawal distribution occurs shall be terminated with respect to any Qualified Bonus, Qualified Director Compensation and Qualified Salary which has not yet been deferred and (iii) the Key Executive shall not be permitted to defer Qualified Bonus, Qualified Director Compensation and Qualified Salary under the Plan for the two Plan Years immediately following the Plan Year of the withdrawal distribution.

Section 6.3 Voluntary Withdrawals

          At any time, a Participant may elect to withdraw all or any part of the Participant's Account by delivering a written election to such effect to the Administrator, provided, however, that if a Participant makes such an election, (i) the Participant shall forfeit, and the Participant's Account shall be debited with, an amount equal to 10% of the amount of the withdrawal distribution, (ii) the Participant's deferral election for the Plan Year in which the withdrawal distribution occurs shall be terminated with respect to any Qualified Bonus, Qualified Director Compensation and Qualified Salary which has not yet been deferred and (iii) the Participant shall not be permitted to defer Qualified Bonus, Qualified Director Compensation and Qualified Salary under the Plan for the two Plan Years immediately following the year of the withdrawal distribution.

Section 6.4 Applicable Taxes

          All withdrawals under the Plan shall be subject to withholding for all amounts which the Company is required to withhold under federal, state or local tax law.

ARTICLE VII

ADMINISTRATIVE PROVISIONS

Section 7.1 Administrator's Duties and Powers

          The Administrator shall conduct the general administration of the Plan in accordance with the Plan and shall have all the necessary power, authority and discretion to carry out that function. Among its necessary powers and duties are the following:

          (a)     To delegate all or part of its function as Administrator to others and to revoke any such delegation.

13


          (b)     To determine questions of eligibility of Participants and their entitlement to benefits, subject to the provisions of Section 7.11.

          (c)     To select and engage attorneys, accountants, actuaries, trustees, appraisers, brokers, consultants, administrators, physicians, or other persons to render service or advice with regard to any responsibility the Administrator or the Board has under the Plan, or otherwise, to designate such persons to carry out fiduciary responsibilities under the Plan, and (together with the Committee, the Company, the Board and the officers and Employees of the Company) to rely upon the advice, opinions or valuations of any such persons, to the extent permitted by law, being fully protected in acting or relying thereon in good faith.

          (d)     To interpret the Plan and any relevant facts for purpose of the administration and application of the Plan, in a manner not inconsistent with the Plan or applicable law and to amend or revoke any such interpretation.

          (e)     To conduct claims procedures as provided in Section 7.11.

Section 7.2 Limitations Upon Powers

          The Plan shall be uniformly and consistently administered, interpreted and applied with regard to all Participants in similar circumstances. The Plan shall be administered, interpreted and applied fairly and equitably and in accordance with the specified purposes of the Plan. Notwithstanding the foregoing, the distribution forms and commencement dates specified in Section 5.1(a) shall apply to such Participants, and in such manner, as the Administrator determines in its sole discretion.

Section 7.3 Final Effect of Administrator Action

          Except as provided in Section 7.11, all actions taken and all determinations made by the Administrator in good faith shall be final and binding upon all Participants, the Company and any person interested in the Plan.

Section 7.4 Committee

          (a)     The Administrator may, but need not, appoint a Committee consisting of two or more members to hold office during the pleasure of the Administrator. The Committee shall have such powers and duties as are delegated to it by the Administrator. Committee members shall not receive payment for their services as such.

          (b)     Appointment of Committee members shall be effective upon filing of written acceptance of appointment with the Administrator.

          (c)     A Committee member may resign at any time by delivering written notice to the Administrator.

          (d)     Vacancies in the Committee shall be filled by the Administrator.

14


          (e)     The Committee shall act by a majority of its members in office; provided, however, that the Committee may appoint one of its members or a delegate to act on behalf of the Committee on matters arising in the ordinary course of administration of the Plan or on specific matters.

Section 7.5 Indemnification by the Company; Liability Insurance

          The Company shall pay or reimburse any of the Company's officers, directors, Committee members or Employees who are fiduciaries with respect to the Plan for all expenses incurred by such persons in, and shall indemnify and hold them harmless from, all claims, liability and costs (including reasonable attorneys' fees) arising out of the good faith performance of their duties under the Plan. The Company may obtain and provide for any such person, at the Company's expense, liability insurance against liabilities imposed on such person by law.

15


Section 7.6 Recordkeeping

          (a)     The Administrator shall maintain suitable records of each Participant's Account which, among other things, shall show separately deferrals and the earnings credited thereon, as well as distributions and withdrawals therefrom and records of its deliberations and decisions.

          (b)     The Administrator shall appoint a secretary, and at its discretion, an assistant secretary, to keep the record of proceedings, to transmit its decisions, instructions, consents or directions to any interested party, to execute and file, on behalf of the Administrator, such documents, reports or other matters as may be necessary or appropriate under ERISA and to perform ministerial acts.

          (c)     The Administrator shall not be required to maintain any records or accounts which duplicate any records or accounts maintained by the Company.

Section 7.7 Statement to Participants

          By March 15 of each year, the Administrator shall furnish to each Participant a statement setting forth the value of the Participant's Account as of the preceding December 31 and such other information as the Administrator shall deem advisable to furnish.

Section 7.8 Inspection of Records

          Copies of the Plan and records of a Participant's Account shall be open to inspection by the Participant or the Participant's duly authorized representatives at the office of the Administrator at any reasonable business hour.

Section 7.9 Identification of Fiduciaries

           The Administrator shall be the named fiduciary of the Plan and, as permitted or required by law, shall have exclusive authority and discretion to operate and administer the Plan.


Section 7.10
Procedure for Allocation of Fiduciary Responsibilities

          (a)     Fiduciary responsibilities under the Plan are allocated as follows:

(i) The sole duties, responsibilities and powers allocated to the Board, any Committee and any fiduciary shall be those expressly provided in the relevant Sections of the Plan.

(ii) All fiduciary duties, responsibilities, and powers not allocated to the Board, any Committee or any fiduciary, are hereby allocated to the Administrator, subject to delegation.

          (b)     Fiduciary duties, responsibilities and powers under the Plan may be reallocated among fiduciaries by amending the Plan in the manner prescribed in Section 8.6, followed by the fiduciaries' acceptance of, or operation under, such amended Plan.

16


Section 7.11 Claims Procedure

          (a)     No distributions under this Plan to a Participant, former Participant or Participant's beneficiary shall be made except upon a claim filed in writing with the Committee, if in existence, or otherwise to a claims official designated by the Administrator.

          (b)     If the Committee or claims official wholly or partially denies the claim, it or he shall, within a reasonable period of time after receipt of the claim, provide the claimant with written notice of such denial, setting forth, in a manner calculated to be understood by the claimant:

(i) the specific reason or reasons for such denial;

(ii) specific reference to pertinent Plan provisions on which the denial is based;

(iii) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and

(iv) an explanation of the Plan's claims review procedure.

          (c)     The Administrator shall provide each claimant with a reasonable opportunity to appeal a denial of a claim to the Chief Executive Officer or his or her authorized delegate for a full and fair review. The claimant or his or her duly authorized representative:

(i) may request a review upon written application to the Chief Executive Officer or his authorized delegate (which shall be filed with the Committee or claims official);

(ii) may review pertinent documents; and

(iii) may submit issues and comments in writing.

          (d)     The Chief Executive Officer or his authorized delegate may establish such time limits within which a claimant may request review of a denied claim as are reasonable in relation to the nature of the benefit which is the subject of the claim and to other attendant circumstances but which shall be not less than sixty days after receipt by the claimant of written notice of denial of his or her claim.

          (e)     The decision by the Chief Executive Officer or his delegate upon review of a claim shall be made not later than sixty days after receipt by the Chief Executive Officer or his authorized delegate of the request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than one hundred twenty days after receipt of such request for review.

17


          (f)     The decision on review shall be in writing and shall include specific reasons for the decision written in a manner calculated to be understood by the claimant with specific references to the pertinent Plan provisions on which the decision is based.

          (g)     To the extent permitted by law, the decision of the Committee or claims official, if no appeal is filed, or the decision of the Chief Executive Officer or his delegate on review, when warranted on the record and reasonably based on the law and the provisions of the Plan, shall be final and binding on all parties.

Section 7.12 Conflicting Claims

          If the Administrator is confronted with conflicting claims concerning a Participant's Account, the Administrator may interplead the claimants in an action at law, or in an arbitration conducted in accordance with the rules of the American Arbitration Association, as the Administrator shall elect in its sole discretion, and in either case, the attorneys' fees, expenses and costs reasonably incurred by the Administrator in such proceeding shall be paid from the Participant's Account.

Section 7.13 Service of Process

          The Secretary of Computer Sciences Corporation is hereby designated as agent of the Plan for the service of legal process.

ARTICLE VIII

MISCELLANEOUS PROVISIONS

Section 8.1 Termination of the Plan

          (a)     While the Plan is intended as a permanent program, the Board shall have the right at any time to declare the Plan terminated completely as to the Company or as to any group, division or other operational unit thereof or as to any affiliate thereof.

          (b)     Discharge or layoff of any Employees without such a declaration shall not result in a termination of the Plan.

          (c)     In the event of any termination, the Board, in its sole and absolute discretion may elect to:

(i) maintain Participants' Accounts, payment of which shall be made in accordance with Articles V and VI; or

(ii) liquidate the portion of the Plan attributable to each Participant as to whom the Plan is terminated and distribute each such Participant's Account in a lump sum or pursuant to any method which is at least as rapid as the distribution method elected by the Participant under Section 5.4.

18


Section 8.2 Limitation on Rights of Participants

          The Plan is strictly a voluntary undertaking on the part of the Company and shall not constitute a contract between the Company and any Employee or any Nonemployee Director, or consideration for, or an inducement or condition of, the employment of an Employee or service of a Nonemployee Director. Nothing contained in the Plan shall give any Employee or Nonemployee Director the right to be retained in the service of a Company or to interfere with or restrict the right of the Company, which is hereby expressly reserved, to discharge or retire any Employee or Nonemployee Director, except as otherwise provided by a written employment agreement between the Company and the Employee or Nonemployee Director, at any time without notice and with or without cause. Inclusion under the Plan will not give any Employee or Nonemployee Director any right or claim to any benefit hereunder except to the extent such right has specifically become fixed under the terms of the Plan. The doctrine of substantial performance shall have no application to Employees, Nonemployee Directors, Participants or any other persons entitled to payments under the Plan.

Section 8.3 Consolidation or Merger; Adoption of Plan by Other Companies

          (a)     In the event of the consolidation or merger of the Company with or into any other entity, or the sale by the Company of substantially all of its assets, the resulting successor may continue the Plan by adopting it in a resolution of its Board of Directors. If within 90 days from the effective date of such consolidation, merger or sale of assets, such successor corporation does not adopt the Plan, the Plan shall be terminated in accordance with Section 8.1.

          (b)     There shall be no merger or consolidation with, or transfer of the liabilities of the Plan to, any other plan unless each Participant in the Plan would have, if the combined or successor plans were terminated immediately after the merger, consolidation, or transfer, an account which is equal to or greater than his or her corresponding Account under the Plan had the Plan been terminated immediately before the merger, consolidation or transfer.

Section 8.4 Errors and Misstatements

          In the event of any misstatement or omission of fact by a Participant to the Administrator or any clerical error resulting in payment of benefits in an incorrect amount, the Administrator shall promptly cause the amount of future payments to be corrected upon discovery of the facts and shall cause the Company to pay the Participant or any other person entitled to payment under the Plan any underpayment in cash in a lump sum, or to recoup any overpayment from future payments to the Participant or any other person entitled to payment under the Plan in such amounts as the Administrator shall direct, or to proceed against the Participant or any other person entitled to payment under the Plan for recovery of any such overpayment.

Section 8.5 Payment on Behalf of Minor, Etc.

          In the event any amount becomes payable under the Plan to a minor or a person who, in the sole judgment of the Administrator, is considered by reason of physical or mental condition to be unable to give a valid receipt therefor, the Administrator may direct that such payment be made to any person found by the Administrator in its sole judgment, to have assumed the care of such

19


minor or other person. Any payment made pursuant to such determination shall constitute a full release and discharge of the Company, the Board, the Administrator, the Committee and their officers, directors and employees.

Section 8.6 Amendment of Plan

          The Plan may be wholly or partially amended by the Board from time to time, in its sole and absolute discretion, including prospective amendments which apply to amounts held in a Participant's Account as of the effective date of such amendment and including retroactive amendments necessary to conform to the provisions and requirements of ERISA or the Code or regulations pursuant thereto; provided, however, that no amendment shall decrease the amount of any Participant's Account as of the effective date of such amendment. Notwithstanding the foregoing, Section 8.7 shall not be amended in any respect on or after a Change in Control.

Section 8.7 Funding

          (a)     Subject to Section 8.7(b), all benefits payable under the Plan will be paid from the general assets of the Company and no Participant or beneficiary shall have any claim against any specific assets of the Company.

          (b)     Not later than the occurrence of a Change in Control, the Company shall cause to be transferred to a grantor trust described in Section 671 of the Code, assets equal in value to all accrued obligations under the Plan as of one day following a Change in Control, in respect of both active employees of the Company and retirees as of that date. Such trust by its terms shall, among other things, be irrevocable. The value of liabilities and assets transferred to the trust shall be determined by one or more nationally recognized firms qualified to provide actuarial services as described in Section 4 of the Computer Sciences Corporation Severance Plan for Senior Management and Key Employees. The establishment and funding of such trust shall not affect the obligation of the Company to provide benefits payments under the terms of the Plan to the extent such benefits are not paid from the trust.

Section 8.8 Governing Law

          The Plan shall be construed, administered and governed in all respects under and by the laws of the State of California, except to the extent such laws may be preempted by ERISA.

Section 8.9 Pronouns and Plurality

          The masculine pronoun shall include the feminine pronoun, and the singular the plural where the context so indicates.

Section 8.10 Titles

          Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of the Plan.

Section 8.11 References

           Unless the context clearly indicates to the contrary, a reference to a statute, regulation or document shall be construed as referring to any subsequently enacted, adopted or executed statute, regulation or document.

20


EX-10.18 5 exhibit_10-18.htm AMENDMENT OF EMPLOYMENT AGREEMENT exhibit_10.18

AMENDMENT OF EMPLOYMENT AGREEMENT

 

               This Amendment of Employment Agreement ("Amendment") is made and entered into as of February 3, 2003 by and between Computer Sciences Corporation, a Nevada corporation (the "Company"), and Van B. Honeycutt, Chairman and Chief Executive Officer of the Company ("Executive"), for the purpose of amending the Employment Agreement dated as of May 1, 1999 (the "Effective Date") by and between the Company and Executive (the "Employment Agreement").

               WHEREAS, the Employment Agreement currently provides for an initial term of four years from the Effective Date, with an automatic extension for one additional four-year period (the "Single Automatic Extension"); and

               WHEREAS, upon the terms and conditions set forth herein, the Company and Executive desire to amend the Employment Agreement to provide that the Single Automatic Extension is for a seven-year, rather than a four-year, period;

               NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants set forth herein, the parties hereto hereby agree that the Employment Agreement shall be amended as follows, effective as of the date hereof:

1.

Section 1, Term of Employment; Duties, paragraph (a), which currently reads in its

entirety as follows:

"(a)

As used herein, the phrase "Term of Employment" shall mean the period

commencing on the Effective Date and ending on the earliest to occur of the fourth anniversary of the Effective Date or the date of termination of the Executive's employment in accordance with any one of Sections 6(a) through 6(e) below; provided, however, that the Term of Employment shall be automatically extended without further action of either party for one additional four-year period (the "Single Automatic Extension") unless written notice of either party's intention not to extend has been given to the other party hereto at least 60 days prior to the expiration of the effective Term of Employment; provided further that the Term of Employment may be extended after the Single Automatic Extension, by action of the Company's Board of Directors approving the terms and conditions of an offer of any such extension and giving written notice to Executive of such offer at least 60 days prior to the expiration of the then effective Term of Employment, f ollowed by Executive's acceptance of such offer within such time as may be provided by the Board as a condition of such offer."

shall be amended so that the phrase "four-year period" is replaced with "seven-year period."

2.

Section 6, Termination of Employment, paragraph (d), Termination Without

Cause or for Good Reason, subparagraphs (ii) and (iv), which currently read in their entirety as follows:

"(ii)    

a lump sum severance payment in an amount equal to the lesser of three

(3) or the number of years (including fractions thereof) by which the termination precedes Executive's 62nd birthday times his Base Salary, as in effect immediately prior to the delivery of notice of termination, plus the lesser of three (3) or the number of years (including fractions thereof) by which the termination precedes Executive's 62nd birthday times Executive's average annual cash incentive compensation bonus over the three most recent fiscal years preceding the year in which the date of termination occurs for which such a bonus was paid or deferred or for which the amount of such a bonus, if any, was determined, payable in a single installment promptly following Executive's termination;"

"(iv)

continuation of coverage by the benefits provided in Section 3 above,

including, without limitation, all medical and hospitalization (including dependent coverage), life, accident and disability protection, maintained for Executive's benefit immediately prior to the date of Executive's termination, for a period thereafter equal to the lesser of three (3) years or the number of years (including fractions thereof) by which the termination precedes Executive's 62nd birthday (followed by an 18-month period of COBRA continuation), provided that if Executive is ineligible under the terms of such benefit plans or programs to be covered, the Company shall provide Executive with substantially equivalent coverage through other sources or will provide Executive with a lump sum payment in such amount that after all taxes on that amount shall be equal to the cost to Executive of providing himself such benefit coverage, and"

shall be amended so that each time the phrase "62nd birthday" occurs, it is replaced with "65th birthday."

               IN WITNESS WHEREOF, each of the parties hereto has duly executed this Amendment as of the day and year first above written.

 

COMPUTER SCIENCES CORPORATION

   
 

By: /s/ Hayward D. Fisk       
Vice President, General Counsel
            and Secretary

   
 

/s/ Van B. Honeycutt       
VAN B. HONEYCUTT

EX-99 6 exhibit_99.htm REVENUES BY MARKET SECTOR EXHIBIT 99

EXHIBIT 99

COMPUTER SCIENCES CORPORATION
REVENUES BY MARKET SECTOR
(In millions)

 

 

  Third Quarter Ended  

 

       % of Total       

 

Dec. 27,
  2002  

 

Dec. 28,
  2001  

 

Fiscal
  2003  

 

Fiscal
  2002  

 

 

 

 

 

 

 

 

Global commercial:

 

 

 

 

 

 

 

  U.S. commercial

$969.1   

 

$1,091.4   

 

35%     

 

38%     

  Europe

760.1   

 

761.3   

 

27        

 

26        

  Other International

   274.8   

 

  304.0   

 

   9        

 

 10        

        Total

2,004.0   

 

2,156.7   

 

 71        

 

 74        

 

 

 

 

 

 

 

 

U.S. federal government:

 

 

 

 

 

 

 

  Department of Defense

464.6   

 

460.7   

 

17       

 

16       

  Civil agencies

   325.0   

 

    276.1   

 

 12       

 

 10       

        Total

    789.6   

 

    736.8   

 

 29       

 

 26       

Total Revenues

$2,793.6   
======   

 

$2,893.5   
======   

 

100%    
====    

 

100%   
====   

 

 

    Nine Months Ended    

 

       % of Total       

 

Dec. 27,
  2002  

 

Dec. 28,
  2001  

 

Fiscal
  2003  

 

Fiscal
  2002  

 

 

 

 

 

 

 

 

Global commercial:

 

 

 

 

 

 

 

  U.S. commercial

$2,915.3   

 

$3,169.9   

 

35%     

 

38%     

  Europe

2,142.5   

 

2,163.8   

 

26        

 

26        

  Other International

    857.0   

 

    941.6   

 

  10        

 

  11        

        Total

  5,914.8   

 

  6,275.3   

 

  71        

 

  75        

 

 

 

 

 

 

 

 

U.S. federal government:

 

 

 

 

 

 

 

  Department of Defense

1,386.4   

 

1,267.1   

 

17        

 

15        

  Civil agencies

    966.2   

 

    801.7   

 

  12        

 

  10        

        Total

 2,352.6   

 

 2,068.8   

 

  29        

 

  25        

Total Revenues

$8,267.4   
======   

 

$8,344.1   
======   

 

100%     
====     

 

100%     
====     

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