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SECURITIES AND EXCHANGE COMMISSION
(Mark One) |
|
[X] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
For the quarter ended January 2, 2004 |
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OR |
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[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
For the transition period from _________________ to _________________
Commission File No. 1-4850
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Nevada |
95-2043126 |
2100 East Grand Avenue |
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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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
187,576,312 shares of Common Stock, $1.00 par value, were outstanding on January 30, 2004.
COMPUTER SCIENCES CORPORATION
INDEX TO FORM 10-Q
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PART I. |
FINANCIAL INFORMATION |
Page |
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Item 1. |
Financial Statements |
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Consolidated Condensed Statements of Income, Third Quarter and |
1 |
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Consolidated Condensed Balance Sheets, |
2 |
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Consolidated Condensed Statements of Cash Flows, |
3 |
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Notes to Consolidated Condensed Financial Statements |
4 |
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Item 2. |
Management's Discussion and Analysis of |
13 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
22 |
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Item 4. |
Controls and Procedures |
22 |
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PART II. |
OTHER INFORMATION |
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Item 6. |
Exhibits and Reports on Form 8-K |
24 |
i
PART I, ITEM 1. FINANCIAL STATEMENTS
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
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Third Quarter Ended |
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Nine Months Ended |
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(In millions except |
Jan. 2, |
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Dec. 27, |
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Jan. 2, |
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Dec. 27, |
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Revenues |
$3,621.2 |
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$2,793.6 |
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$10,767.2 |
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$8,267.4 |
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Costs of services |
2,930.1 |
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2,248.5 |
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8,820.4 |
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6,665.3 |
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Selling, general and administrative |
205.0 |
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167.6 |
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613.6 |
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524.5 |
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Depreciation and amortization |
251.9 |
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195.3 |
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715.9 |
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588.5 |
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Interest expense |
42.6 |
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36.3 |
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126.2 |
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106.4 |
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Interest income |
(1.6) |
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(1.7) |
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(6.0) |
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(5.5) |
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Special items |
7.3 |
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22.7 |
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Total costs and expenses |
3,435.3 |
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2,646.0 |
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10,292.8 |
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7,879.2 |
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Income before taxes |
185.9 |
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147.6 |
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474.4 |
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388.2 |
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Taxes on income |
57.5 |
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41.9 |
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145.6 |
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110.7 |
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Net income |
$ 128.4 |
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$ 105.7 |
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$ 328.8 |
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$ 277.5 |
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Earnings per share: |
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Basic |
$ 0.69 |
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$ 0.62 |
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$ 1.76 |
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$ 1.62 |
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Diluted |
$ 0.68 |
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$ 0.61 |
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$ 1.74 |
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$ 1.61 |
See accompanying notes.
1
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In millions) |
Jan. 2, 2004 |
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March 28, 2003 |
ASSETS |
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Cash and cash equivalents |
$ 148.4 |
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$ 299.6 |
Receivables |
3,622.5 |
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3,320.2 |
Prepaid expenses and other current assets |
608.3 |
|
468.3 |
Total current assets |
4,379.2 |
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4,088.1 |
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Property and equipment, net |
2,144.4 |
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1,987.6 |
Outsourcing contract costs, net |
968.6 |
|
923.5 |
Software, net |
378.9 |
|
355.6 |
Excess of cost of businesses acquired over |
2,654.9 |
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2,507.3 |
Other assets |
580.7 |
|
571.1 |
Total assets |
$11,106.7 |
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$10,433.2 |
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LIABILITIES |
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Short-term debt and current |
$ 58.8 |
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$ 274.8 |
Accounts payable |
573.7 |
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643.2 |
Accrued payroll and related costs |
545.0 |
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638.8 |
Other accrued expenses |
1,015.2 |
|
990.0 |
Deferred revenue |
242.3 |
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222.6 |
Income taxes payable |
342.6 |
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217.8 |
Total current liabilities |
2,777.6 |
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2,987.2 |
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Long-term debt, net |
2,391.3 |
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2,204.9 |
Other long-term liabilities |
680.4 |
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634.7 |
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STOCKHOLDERS' EQUITY |
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Common stock issued, par value $1.00 per share |
187.9 |
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187.2 |
Additional paid-in capital |
1,526.8 |
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1,502.2 |
Earnings retained for use in business |
3,407.3 |
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3,078.5 |
Accumulated other comprehensive income (loss) |
154.6 |
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(142.5) |
Less common stock in treasury |
(19.2) |
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(19.0) |
Total stockholders' equity |
5,257.4 |
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4,606.4 |
Total liabilities and stockholders' equity |
$11,106.7 |
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$10,433.2 |
See accompanying notes.
2
COMPUTER SCIENCES CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
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Nine Months Ended |
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(In millions) |
Jan. 2, 2004 |
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Dec. 27, 2002 |
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Cash flows from operating activities: |
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Net income |
$ 328.8 |
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$ 277.5 |
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Adjustments to reconcile net income to net |
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Depreciation and amortization and other |
775.5 |
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631.0 |
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Changes in assets and liabilities, net of |
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Increase in assets |
(373.5) |
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(166.5) |
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Decrease in liabilities |
(57.1) |
(269.8) |
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Net cash provided by operating activities |
673.7 |
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472.2 |
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Investing activities: |
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Purchases of property and equipment |
(531.9) |
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(401.7) |
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Acquisitions, net of cash acquired |
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(7.7) |
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Dispositions |
26.9 |
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73.6 |
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Outsourcing contracts |
(191.9) |
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(75.8) |
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Software |
(115.1) |
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(95.5) |
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Other investing cash flows |
(7.8) |
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16.1 |
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Net cash used in investing activities |
(819.8) |
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(491.0) |
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Financing activities: |
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(Repayment) borrowings under commercial paper, net |
(309.2) |
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21.2 |
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Borrowings under lines of credit, net |
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15.0 |
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Proceeds from debt issuance |
298.1 |
|
.4 |
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Principal payments on long-term debt |
(30.1) |
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(34.5) |
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Proceeds from stock option and other common stock transactions |
24.8 |
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20.8 |
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Other financing cash flows |
6.8 |
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(2.7) |
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Net cash (used in) provided by financing activities |
(9.6) |
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20.2 |
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Effect of exchange rate changes on cash |
4.5 |
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10.5 |
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Net increase (decrease) in cash and cash equivalents |
(151.2) |
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11.9 |
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Cash and cash equivalents at beginning of year |
299.6 |
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149.1 |
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$ 148.4 |
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$ 161.0 |
See accompanying notes.
3
COMPUTER SCIENCES CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
(A) |
Basic and diluted earnings per share are calculated as follows (in millions except per share amounts): |
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Third Quarter Ended |
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Jan. 2, 2004 |
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Dec. 27, 2002 |
Net income |
$ 128.4 |
|
$ 105.7 |
Common share information: |
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Average common shares outstanding for basic EPS |
187.385 |
|
171.669 |
Dilutive effect of stock options |
1.579 |
|
.489 |
Shares for diluted EPS |
188.964 |
|
172.158 |
Basic EPS |
$ 0.69 |
|
$ 0.62 |
Diluted EPS |
0.68 |
|
0.61 |
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Nine Months Ended |
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|
Jan. 2, 2004 |
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Dec. 27, 2002 |
Net income |
$ 328.8 |
|
$ 277.5 |
Common share information: |
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Average common shares outstanding for basic EPS |
187.151 |
|
171.553 |
Dilutive effect of stock options |
1.322 |
|
.892 |
Shares for diluted EPS |
188.473 |
|
172.445 |
Basic EPS |
$ 1.76 |
|
$ 1.62 |
Diluted EPS |
1.74 |
|
1.61 |
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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 the common stock of Computer Sciences Corporation (CSC or the Company) during the periods presented. The number of such options was 8,933,581 and 8,539,225 at January 2, 2004 and December 27, 2002, respectively. |
(B) |
At January 2, 2004, the Company had eight stock incentive plans which authorized the issuance of stock options, restricted stock and other stock-based incentives to employees, which are described more fully in Note 10 of the Company's 2003 Annual Report filed on Form 10-K. The Company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. In accordance with Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation Transition and Disclosure," the following pro forma net income and earnings per share information is presented as if the Company accounted for stock-based compensation awarded under the stock incentive plans using the fair value based method. Under the fair value based method, the estimated fair value of stock incentive awards is charged against income on a straight-line basis over the vesting period. |
4
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Third Quarter Ended |
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(In millions except per share amounts) |
Jan. 2, 2004 |
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Dec. 27, 2002 |
Net income, as reported |
$128.4 |
|
$105.7 |
Add: Stock-based employee compensation |
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expense included in reported net income, net |
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of related tax effects |
.9 |
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1.1 |
Deduct: Total stock-based employee |
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compensation expense determined under fair |
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value based method for all awards, net of |
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related tax effects |
(9.1) |
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(12.5) |
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Pro forma net income |
$120.2 |
|
$ 94.3 |
Earnings per share: |
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Basic as reported |
$0.69 |
|
$0.62 |
Basic pro forma |
0.64 |
|
0.55 |
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Diluted as reported |
0.68 |
|
0.61 |
Diluted pro forma |
0.64 |
|
0.55 |
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Nine Months Ended |
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|
Jan. 2, 2004 |
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Dec. 27, 2002 |
Net income, as reported |
$328.8 |
|
$277.5 |
Add: Stock-based employee compensation |
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expense included in reported net income, net |
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of related tax effects |
4.0 |
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4.0 |
Deduct: Total stock-based employee |
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compensation expense determined under fair |
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value based method for all awards, net of |
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related tax effects |
(31.3) |
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(40.2) |
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Pro forma net income |
$301.5 |
|
$241.3 |
Earnings per share: |
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Basic as reported |
$1.76 |
|
$1.62 |
Basic pro forma |
1.61 |
|
1.41 |
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Diluted as reported |
1.74 |
|
1.61 |
Diluted pro forma |
1.60 |
|
1.40 |
5
(C) |
Included in the consolidated condensed balance sheets are the following accumulated depreciation and amortization amounts (in millions): |
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Jan. 2, 2004 |
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March 28, 2003 |
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Property and equipment |
$2,715.7 |
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$2,184.6 |
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Excess of cost of businesses acquired over |
330.2 |
|
308.7 |
(D) |
No dividends were paid during the periods presented. At January 2, 2004 and March 28, 2003, there were 187,935,201 and 187,206,632 shares, respectively, of $1.00 par value common stock issued, and 452,257 and 449,249 shares of treasury stock, respectively. |
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(E) |
Cash payments for interest on indebtedness were $122.5 million and $111.8 million for the nine months ended January 2, 2004 and December 27, 2002, respectively. Net cash payments for taxes on income were $32.0 million and $53.8 million for the nine months ended January 2, 2004 and December 27, 2002, respectively. |
(F) |
The components of comprehensive income, net of tax, are as follows (in millions): |
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Third Quarter Ended |
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Jan. 2, 2004 |
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Dec. 27, 2002 |
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Net income |
$128.4 |
|
$105.7 |
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Foreign currency translation adjustment |
150.4 |
|
40.2 |
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Unrealized loss on available for sale securities |
(.1) |
|
(1.9) |
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Comprehensive income |
$278.7 |
|
$144.0 |
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Nine Months Ended |
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|
Jan. 2, 2004 |
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Dec. 27, 2002 |
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Net income |
$328.8 |
|
$277.5 |
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Foreign currency translation adjustment |
297.6 |
|
132.1 |
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Unrealized loss on available for sale securities |
(.5) |
|
(1.2) |
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Comprehensive income |
$625.9 |
|
$408.4 |
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Accumulated other comprehensive income (loss) presented on the accompanying consolidated condensed balance sheets consists of accumulated foreign currency translation adjustments, minimum pension liability adjustments, and net unrealized gain (loss) on available for sale securities. |
(G) |
CSC provides management and information technology consulting, systems integration and outsourcing. Based on the criteria of SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," CSC aggregates operating segments into 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): |
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Global |
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U.S. |
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Third Quarter Ended |
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Revenues |
$2,136.7 |
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$1,484.5 |
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|
$3,621.2 |
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Earnings (loss) before special |
136.7 |
|
105.8 |
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$(8.3) |
|
234.2 |
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Third Quarter Ended |
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Revenues |
2,001.5 |
|
794.0 |
|
(1.9) |
|
2,793.6 |
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Earnings (loss) before special |
134.6 |
|
59.9 |
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(12.3) |
|
182.2 |
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Global |
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U.S. |
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Nine Months Ended |
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Revenues |
$6,231.3 |
|
$4,535.9 |
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|
$10,767.2 |
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Earnings (loss) before special |
338.0 |
|
303.1 |
|
$(23.8) |
|
617.3 |
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Nine Months Ended |
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Revenues |
5,919.1 |
|
2,350.2 |
|
(1.9) |
|
8,267.4 |
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Earnings (loss) before special |
340.0 |
|
169.3 |
|
(20.2) |
|
489.1 |
(H) |
A summary of the changes in the carrying amount of goodwill by segment for the nine months ended January 2, 2004 is as follows (in millions): |
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Global |
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U.S. |
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Balance as of March 28, 2003 |
$1,725.1 |
|
$782.2 |
|
$2,507.3 |
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Additions |
.3 |
|
18.5 |
|
18.8 |
|
Foreign currency translation |
128.8 |
|
|
|
128.8 |
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Balance as of January 2, 2004 |
$1,854.2 |
|
$800.7 |
|
$2,654.9 |
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Additions to Global Commercial Sector goodwill during the nine months ended January 2, 2004 relate to an earnout payment associated with an acquisition made in Europe. Additions to U.S. Federal Sector goodwill relate to the March 2003 acquisition of DynCorp, see Note (J) for further details. 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 amortizable intangible assets as of January 2, 2004 and March 28, 2003 is as follows (in millions): |
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|
January 2, 2004 |
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Gross |
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Accumulated |
|
|
|
|
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Software |
$ 923.8 |
|
$ 544.9 |
|
$ 378.9 |
|
Outsourcing contract costs |
1,679.9 |
|
711.3 |
|
968.6 |
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Customer and other intangible assets |
226.5 |
|
70.5 |
|
156.0 |
|
Total intangible assets |
$2,830.2 |
|
$1,326.7 |
|
$1,503.5 |
|
|
March 28, 2003 |
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|
|
Gross |
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Accumulated |
|
|
|
|
|
|
|
|
|
|
Software |
$ 782.7 |
|
$ 427.1 |
|
$ 355.6 |
|
Outsourcing contract costs |
1,503.0 |
|
579.5 |
|
923.5 |
|
Customer and other intangible assets |
252.1 |
|
53.9 |
|
198.2 |
|
Total intangible assets |
$2,537.8 |
|
$1,060.5 |
|
$1,477.3 |
|
Amortization expense related to intangible assets was $83.2 million and $69.1 million for the three months and $252.8 million and $222.9 million for the nine months ended January 2, 2004 and December 27, 2002, respectively. Estimated amortization expense related to intangible assets as of March 28, 2003 for each of the subsequent five fiscal years, fiscal 2004 through fiscal 2008, is as follows (in millions): $305.6, $261.8, $225.9, $191.5, and $131.1. |
8
(I) |
As disclosed in the Company's fiscal 2003 Annual Report on Form 10-K, the Company reviewed its operations, product strategies and the carrying value of its assets to identify any potential exit or disposal activities in connection with the DynCorp acquisition during March 2003. As a result, during the third quarter and nine months ended January 2, 2004, special items of $7.3 million and $22.7 million ($5.0 million and $14.6 million after tax) or 3 cents and 8 cents per share (diluted) were recorded, respectively. The charges include equipment and related disposal costs, that cannot accommodate the larger, integrated U.S. Federal sector business, and its use has been discontinued. In addition, after further review the Company determined that certain CSC facilities were no longer needed as a result of the acquisition and costs to exit those facilities are also included in the special items. Since its acquisition of DynCorp, the Company has recorded $27.9 million of special charges related to exit and disposal activities arising from the acquisition. As of January 2, 2004 the Company has completed its review of exit and disposal activities related to the acquisition with DynCorp and does not expect any future special items related to the acquisition. |
(J) |
As previously disclosed in the Company's fiscal 2003 Annual Report on Form 10-K, the Company acquired all of the outstanding equity securities of DynCorp during March 2003 for a purchase price of $622.0 million and the assumption of $296.4 million of outstanding DynCorp debt. The acquisition was accounted for under the purchase method and accordingly, the purchase price of the acquisition was allocated to the net assets acquired based on estimates of the fair values at the date of the acquisition. Initial goodwill was $721.7 million and other identified intangible assets including customer contracts and related customer relationships acquired from DynCorp were valued at $185.0 million. During the second quarter ended October 3, 2003, the Company finalized the fair value of the other identified intangibles principally due to the completion of third party appraisals and adjusted the purchase price allocation. These non-cash adjustments resulted in the intangible assets decreasing by $25.7 mi llion, with offsetting increases to goodwill and deferred tax assets by $15.7 million and $10.0 million, respectively. The $159.3 million of intangible assets for customer contracts and related customer relationships has a weighted-average useful life of approximately 10 years and is amortized based on the estimated timing of related cash flows. |
|
In connection with the acquisition of DynCorp, the Company incurred costs to exit and consolidate activities, involuntarily terminate employees, and other costs to integrate DynCorp into the Company. As of January 2, 2004, 55 employees have been involuntarily terminated out of a total of 75 expected to be terminated. The components of the acquisition integration liabilities included in the purchase price allocation for DynCorp are presented in the following table. The liabilities have been adjusted from those included in the preliminary purchase price allocation based upon the receipt of information and more analysis conducted by the Company. Adjustments reduced the liability balances for facility consolidation and other by $4.4 million and $.3 million, respectively, and increased the severance payments liability by $.1 million, thereby decreasing goodwill by $4.6 million. |
9
(In millions) |
Acquisition Integration |
|
|
|
|
Balance Remaining at Jan. 2, 2004 |
Severance payments |
$ 7.5 |
|
|
$ 6.2 |
|
$ 1.3 |
Facility consolidations |
66.6 |
|
|
11.7 |
|
54.9 |
Other |
6.1 |
|
|
.1 |
|
6.0 |
|
$ 80.2 |
|
|
$ 18.0 |
|
$ 62.2 |
|
The Company is continuing to review the preliminary fair value estimates of assets acquired and liabilities assumed as a result of the DynCorp acquisition, including valuations associated with exit and facility consolidation, litigation, assets and liabilities related to taxes and long-term contracts, and other matters unresolved at the time of acquisition. The Company continues to evaluate DynCorp's accounting treatment for conformance including accounting for long-term contracts. During the second quarter ended October 3, 2003, the Company recorded various adjustments to assets acquired and liabilities assumed as information was received, resulting in a net increase to goodwill of $4.7 million, excluding adjustments referenced above. During the third quarter ended January 2, 2004, the Company made additional adjustments that resulted in the goodwill balance increasing by $2.7 million. In total, these adjustments resulted in an increase to goodwill of $7.4 million for the nine months ende d January 2, 2004. Adjustments, if any, to the purchase price are expected to be finalized during the fourth quarter of fiscal 2004. |
(K) |
The Company guarantees working capital credit lines established with local financial institutions for its foreign business units. Generally, guarantees have one-year terms and are renewed annually. CSC guarantees up to $458.4 million of such working capital lines; however, as of January 2, 2004, the amount of the maximum potential payment is $52.9 million, the amount of the related outstanding subsidiary debt. The $52.9 million outstanding debt is reflected in the Company's consolidated financial statements. The Company indemnifies its software license customers from claims of infringement on a United States patent, copyright, or trade secret. CSC's indemnification covers costs to defend customers from claims, court awards or related settlements. The Company maintains the right to modify or replace software in order to eliminate any infringement. Historically, CSC has not incurred any significant costs related to customer software license indemnification. Management considers the likelihood of incurring future costs to be remote. Accordingly, the Company has not recorded a related liability. |
(L) |
In November 2002 and May 2003, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 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 became effective for all revenue arrangements entered into after July 4, 2003. Adoption of this statement did not have a significant effect on the Company's consolidated financial position or results of operations. |
10
(M) |
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement was effective for contracts entered into or modified after June 30, 2003. Adoption of this statement did not have a significant effect on the Company's consolidated financial position or results of operations. |
(N) |
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective for financial instruments entered into or modified after May 31, 2003. Adoption of this statement did not have a significant effect on the Company's consolidated financial position or results of operations. |
(O) |
In May 2003, the EITF reached a consensus on Issue No. 01-08, "Determining Whether an Arrangement Contains a Lease." EITF Issue No. 01-08 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of FASB Statement No. 13, "Accounting for Leases" and is effective for arrangements entered into or modified after June 30, 2003. The guidance in Issue No. 01-08 is based on whether the arrangement conveys to the purchaser (lessee) the right to use a specific asset, and could require lease accounting for certain outsourcing contracts, for which it is not economically feasible or practical to deliver service using alternative assets. CSC anticipates that in situations where lease accounting is required, the leases would be classified as operating leases, and therefore would not have a significant effect on the Company's consolidated financial statements. However, this conclusion will be dependent upon the facts and circumstances of ea ch individual contract, including certain contracts that for security or proprietary reasons inhibit movement of equipment, in which case capital lease classification may be required. Adoption of this statement did not have a significant effect on the Company's consolidated financial position at January 2, 2004, or results of operations for the quarter and nine months ended January 2, 2004. |
(P) |
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and 106." This statement revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by SFAS No. 87, "Employers Accounting for Pensions," SFAS No. 88, "Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and SFAS No. 106, "Employers Accounting for Postretirement Benefits Other Than Pensions." The new rules require additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. The required information must be provided separately for pension plans and for other postretirement benefit plans. The majority of the new disclosures will be effectiv e for the 2004 Form 10-K, with a delayed effective date for certain disclosures and for foreign plans. The Company is currently evaluating the effect of this pronouncement on its financial statement disclosures. |
11
|
|
(Q) |
In January 2004, the FASB issued FASB Staff Position (FSP) 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." This statement allows a sponsor of a postretirement health care plan (the Plan) that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act). The Company has elected to defer accounting for the effects of the Act. As such, any measures of the accumulated postretirement benefit obligation or net periodic postretirement benefit cost in the financial statements do not reflect the effects of the Act on the Plan. The Company notes that specific authoritative guidance on the accounting for the Act is pending and that guidance, when issued, could require the sponsor to change previously reported information. |
(R) |
The Company has prepared the unaudited consolidated condensed financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles for the United States have been condensed or omitted pursuant to such rules and regulations. It is recommended that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended March 28, 2003. In the opinion of the Company, the unaudited consolidated condensed financial statements included herein reflect all adjustments necessary to present fairly the financial position, the results of operations and the cash flows for such interim periods. The results of operations for such interim periods are not necessarily indicative of th e results for the full year. |
12
PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter and First Nine Months of Fiscal 2004 versus
Third Quarter and First Nine Months of Fiscal 2003
General
The following discussion and analysis provides information management believes relevant to an assessment and understanding of the consolidated results of operations and financial condition of Computer Sciences Corporation (CSC or the Company). The discussion should be read in conjunction with the interim consolidated condensed financial statements and notes thereto and the Company's Annual Report on Form 10-K for the year ended March 28, 2003. The following discusses the Company's results of operations and financial condition for the three and nine months ended January 2, 2004, and the comparable periods for the prior fiscal year.
Overview
Key highlights of the third quarter and year-to-date include:
Record contract awards in the third quarter continued the year's strong performance. The Company's announced awards through nine months already make this the highest year ever for contract awards. Third quarter awards included $4.8 billion related to Global Commercial activities and $1.2 billion related to new U.S. Federal awards. Significant awards included: United Kingdom National Health Service ($1.7 billion), SAS Group ($1.5 billion), Swiss Re ($700 million), National Grid Transco ($470 million), U.S. Postal Service ($200 million) and U.S. Department of Veterans Affairs ($200 million).
13
Management considers new contract awards an important measurement as they are indicative of future revenue. The Company's growth and new contract awards have created a broad, long-term global revenue base across numerous customers, industries, geographic regions and service offerings, providing significant diversity to cushion the Company from specific market or geographic downturns and also provide various avenues of future growth opportunities. Over 80% of CSC's revenues come from long-term contracts including Global Commercial outsourcing and U.S. Federal government engagements.
Revenue growth for the third quarter and nine months of fiscal 2004 was led by CSC's U.S. Federal sector which benefited significantly from the acquisition of DynCorp in March 2003. The anniversary date of the DynCorp acquisition will occur during the fourth quarter on March 7, and thus the favorable year-over-year revenue comparisons for this portion of the Federal business will not continue. Currency exchange rates shifts during the year have also continued to favorably impact revenue, but future changes in currency rates cannot be predicted. Softness in demand for short-term, project-oriented consulting and systems integration services has continued outside the U.S., particularly in Europe, but such weaker European revenues have thus far been offset by stronger outsourcing business. Lower discretionary spending from the ongoing global economic sluggishness continues to affect consulting and systems integration markets globally.
Continued focus on the balance sheet enabled the Company to pay down debt and improve its debt-to-capitalization ratio. Receivables were up from the second quarter, and for the year, due to the increases in revenue, currency fluctuations, and a heavier than usual impact of the year-end holidays on U.S. Federal government payment processing. Management looks to Days Sales Outstanding (DSO) as one factor in monitoring and managing its receivables, as it is a good indicator of how quickly receivables are being turned into cash. DSO at quarter-end was 91 days, down from the prior year third quarter of 93 days but up from the fiscal 2004 second quarter of 87 days. DSO can be calculated various ways by companies and therefore CSC's DSO may not necessarily be comparable to that reported by other companies. CSC calculates DSO as follows: Total receivables at quarter-end divided by revenue-per-day. Revenue-per-day equals total revenues for the quarter divided by the exact number of calendar days in the quarter.
Higher cash flow generated from operating activities in fiscal 2004 came from increased earnings and larger non-cash expense components such as depreciation and amortization. Higher outflows of cash for investing activities were primarily a result of up-front investments for new outsourcing contracts that required fixed asset purchases as well as other capitalized costs.
14
Revenues - Third Quarter
|
Fiscal Third Quarter |
|||
Dollars in millions |
2004 |
2003 |
Change |
Percent |
|
$ 896.6 |
$ 970.7 |
$(74.1) |
(7.6%) |
Europe |
933.2 |
760.1 |
173.1 |
22.8 |
Other International |
306.9 |
270.7 |
36.2 |
13.4 |
Global Commercial Sector |
2,136.7 |
2,001.5 |
135.2 |
6.8 |
U.S. Federal Sector |
1,484.5 |
794.0 |
690.5 |
87.0 |
Corporate |
|
(1.9) |
1.9 |
|
Total |
$3,621.2 |
$2,793.6 |
$827.6 |
29.6% |
During the third quarter ended January 2, 2004, the Company's total revenues increased 29.6%, or $827.6 million to $3,621.2 million, over the same period last year. On a constant currency basis, total revenues increased approximately 23%. The operations of DynCorp, which the Company acquired on March 7, 2003, provided approximately 25.3 percentage points of the Company's overall revenue growth.
U.S. Federal sector revenue increased 87.0%, or $690.5 million to $1,484.5 million during the third quarter. DynCorp accounted for approximately 89 percentage points of growth, which was offset by slight declines in Federal sector's other operations, mainly from certain Department of Defense contracts. These declines included an approximately 2.1 percentage point impact of a previously consolidated joint venture's revenue no longer being reported by CSC due to a reorganization that resulted in minority ownership for CSC. In addition, level of effort was down for the quarter on a logistics contract with the Army as the first deployment of the core project was completed. Another significant contract had been terminated at the end of the fiscal 2003 third quarter. Increased level of effort during the quarter on a U.S. Navy multiple awards contract and increased work on a variety of Department of Defense task order contracts partially offset the revenue reductions.
Global Commercial sector revenue increased 6.8%, or $135.2 million to $2,136.7 million, over the same quarter of last year. Global Commercial revenue benefited by approximately 9 percentage points due to currency fluctuations in Europe, Australia and Asia.
U.S. Commercial revenue declined 7.6%, or $74.1 million to $896.6 million during the third quarter of fiscal 2004 compared to the same period last year. Significantly reduced scope on the renewal of one engagement for which CSC was previously the primary outsourcing provider and is now a subcontractor accounted for approximately 3.7 percentage points of the decline. Two outsourcing contracts that substantially ended during fiscal 2003 accounted for approximately 2.3 percentage points of the decline. Lower outsourcing revenue also resulted from client reductions in billable volumes and discretionary projects. Lower outsourcing activities were partially offset by several new contracts, which in aggregate contributed approximately $62 million in revenue. The most significant new projects include Motorola, Ascension Health, and Bombardier Transportation.
15
European revenue of $933.2 million for the third quarter increased 22.8%, or $173.1 million compared to the same period in the prior year. Currency fluctuations favorably impacted revenue growth by approximately 17 percentage points. New outsourcing contracts contributed approximately $195 million in revenue growth, including Royal Mail Group, Bombardier Transportation, Marconi, ISS Group, and the United Kingdom's Department of Health. Declines in European consulting and systems integration services, as well as the financial services market sector, were offset by revenue gains in outsourcing activities.
Other International revenue for the third quarter increased 13.4% to $306.9 million. Currency fluctuations favorably impacted revenue growth by approximately 17 percentage points. The favorable currency impact was principally offset by a $13 million decline in outsourcing activities and an $8.4 million decline in third party product sales in Australia.
Revenues - Nine Months
Nine Months |
||||
Dollars in millions |
2004 |
2003 |
Change |
Percent |
|
$ 2,741.6 |
$ 2,924.8 |
$ (183.2) |
(6.3%) |
Europe |
2,604.3 |
2,142.4 |
461.9 |
21.6 |
Other International |
885.4 |
851.9 |
33.5 |
3.9 |
Global Commercial Sector |
6,231.3 |
5,919.1 |
312.2 |
5.3 |
U.S. Federal Sector |
4,535.9 |
2,350.2 |
2,185.7 |
93.0 |
Corporate |
|
(1.9) |
1.9 |
|
Total |
$10,767.2 |
$8,267.4 |
$2,499.8 |
30.2% |
The Company's total revenues increased 30.2%, or $2,499.8 million to $10,767.2 million during the nine months ended January 2, 2004, as compared to the same period last year. On a constant currency basis, total revenues increased approximately 25%. The operations of DynCorp provided 25.5 percentage points of the Company's overall revenue growth. The Company utilizes a fiscal reporting calendar and the first quarter of fiscal 2004 included an additional week of business operations compared to the same period last year. Excluding the former DynCorp operations, the additional week of operations is estimated to have contributed approximately 1 percentage point in revenue growth for the nine months, with the estimate taking into account CSC's outsourcing and professional services arrangements.
U.S. Federal sector revenue increased 93.0%, or $2,185.7 million to $4,535.9 million during the first nine months of fiscal 2004. DynCorp accounted for approximately 90 percentage points of the revenue growth. The remaining revenue growth in Federal sector came primarily from Department of Defense contracts, most notably missile defense and a U.S. Navy multiple awards contract.
Global Commercial sector revenue increased 5.3%, or $312.2 million to $6,231.3 million, over the first nine months of last year. Global Commercial revenue benefited by approximately 7 percentage points due to currency fluctuations in Europe, Australia and Asia.
16
U.S. Commercial revenue declined 6.3%, or $183.2 million to $2,741.6 million during the first nine months of fiscal 2004 compared to the same period last year. Significantly reduced scope on the renewal of one engagement for which CSC was previously the primary outsourcing provider and is now a subcontractor accounted for approximately 3.5 percentage points of the decline. Two outsourcing contracts that substantially ended during fiscal 2003 accounted for approximately 3.2 percentage points of the decline. New projects in aggregate contributed approximately $202 million in revenue for the nine months ended January 2, 2004, with the most significant contributions for the year coming from Motorola, Bombardier Transportation, and Ascension Health.
European revenue increased 21.6%, or $461.9 million to $2,604.3 million for the first nine months compared to the same period in the prior year. Approximately 15 percentage points of the increase was due to currency fluctuations. New outsourcing contracts accounted for the remaining growth, partially offset by declines in consulting and integration services as well as the financial services market sector. Approximately $410 million in revenue for the nine months was from new outsourcing contracts, with the largest contributions from Royal Mail Group, Bombardier Transportation, the United Kingdom's Department of Health, Marconi, and ISS Group.
Other International revenue for the first nine months increased 3.9% to $885.4 million. Growth was favorably impacted by approximately 12 percentage points from currency fluctuations. A $53 million decline in outsourcing activities in Australia, plus weaker third party product sales in Australia and Asia, offset the currency impact.
Costs and Expenses
The Company's costs and expenses as a percentage of revenue are as follows:
|
|
Percentage of Revenue |
||||||
|
|
Third Quarter |
|
First Nine Months |
||||
|
|
Fiscal |
|
Fiscal |
||||
|
|
2004 |
|
2003 |
|
2004 |
|
2003 |
Costs of services |
|
80.9% |
|
80.5% |
|
81.9% |
|
80.6% |
Selling, general and administrative |
|
5.7 |
|
6.0 |
|
5.7 |
|
6.3 |
Depreciation and amortization |
|
7.0 |
|
7.0 |
|
6.6 |
|
7.1 |
Interest expense, net |
|
1.1 |
|
1.2 |
|
1.1 |
|
1.2 |
Special items |
|
.2 |
|
|
|
.2 |
|
|
Total |
|
94.9% |
|
94.7% |
|
95.5% |
|
95.2% |
Comparing the third quarter and the first nine months of fiscal 2004 and 2003, total costs and expenses increased slightly as a percentage of revenue. Higher costs of services as a percentage of revenue and the impact of the special item in fiscal 2004 were mostly offset by lower depreciation and amortization, and selling, general and administrative costs.
The Company substantially matches revenues and costs in the same currency. Therefore, the foreign currency impact of approximately 6 percentage points for the quarter and 5 percentage points for the nine months on revenues and costs did not have a material impact on costs and expenses as a percentage of revenue.
17
The increase in costs of services as a percentage of revenue was principally caused by the former DynCorp operations, for which the expense mix is weighted more toward cost of services. The former DynCorp operations costs of services were running at 90% for the quarter and nine months, thus increasing CSC's consolidated cost of services as a percentage of revenue by approximately 2.2 percentage points for the quarter and 1.9 percentage points for the nine months ended January 2, 2004. Improvements in other operations offset much of the DynCorp impact for the quarter, particularly in the U.S. Federal sector, including adjustments from normal program reviews that resulted in increased profitability on long-term contracts and from the final settlement for modifications to a fixed-price contract.
Lower selling, general and administrative expenses (SG&A) as a percentage of revenue were also significantly driven by the former DynCorp operations, which carry a lower SG&A expense as a percentage of revenue (approximately 4.2% for the quarter and 3.7% for the nine months of fiscal 2004) than the composite of other CSC operations. Excluding the effects of the former DynCorp operations, the Company's SG&A expense as a percentage of revenue would have been approximately flat for the quarter at 6.0%, and down just .1 percentage point to 6.2% for the nine months ended January 2, 2004.
Depreciation and amortization costs as a percentage of revenue for the primarily labor-oriented DynCorp operations ran at approximately 1% in the quarter and nine months, which had a favorable impact on reducing the consolidated ratio. The DynCorp costs are predominantly for amortization of the purchased intangible assets. Offsetting increases at other CSC operations in the third quarter resulted in no overall change, and a change year-to-date of .5 percentage points. The increases were primarily in the other Federal operations as well as U.S. Commercial outsourcing business, and were due to a shift in business mix to more long-term outsourcing and less project work, resulting in relatively more capitalized costs as long-term outsourcing contracts typically require investments in infrastructure.
Net interest expense remained virtually unchanged as a percentage of revenue compared to the same period in the prior year. Net interest increased $6.4 million and $19.3 million for the quarter and nine months versus the same periods in the prior year, and is principally related to additional borrowings compared to the same period last year, driven in part by funding needs for the DynCorp acquisition.
Special Items
As disclosed in the Company's fiscal 2003 Annual Report on Form 10-K, the Company reviewed its operations, product strategies and the carrying value of its assets to identify any potential exit or disposal activities in connection with the DynCorp acquisition during March 2003. As a result, during the third quarter and nine months ended January 2, 2004, special items of $7.3 million and $22.7 million ($5.0 million and $14.6 million after tax) or 3 cents and 8 cents per share (diluted) were recorded, respectively. The charges include equipment and related disposal costs that cannot accommodate the larger, integrated U.S. Federal sector business, and such equipment's use has been discontinued. In addition, certain CSC facilities were no longer needed as a result of the acquisition and costs to exit those facilities are also included in the special items. Since its acquisition of DynCorp, the Company has recorded $27.9 million of special charges related to exit and disposal activities arising from the acquisition. No additional special charges related to the acquisition are expected.
18
Income Before Taxes
Income before taxes increased to $185.9 million and $474.4 million in the fiscal 2004 third quarter and first nine months, respectively, versus $147.6 million and $388.2 million in the corresponding prior periods. The resulting pre-tax margins were 5.1% and 4.4% for the quarter and nine months, respectively, compared with 5.3% and 4.7% for the corresponding periods in the prior year. The special item described above contributed to the decline, which was also affected by changes in operating costs and expenses as described above. The gross increase in income before taxes was also partially attributable to favorable currency fluctuations.
Income Taxes
The provisions for income taxes in fiscal 2004 and 2003 are based upon estimated effective tax rates, including the impact of permanent differences between the book basis of assets and liabilities recognized for financial reporting purposes and the basis recognized for tax purposes. The provision for income taxes increased by $15.6 million and $34.9 million for the three and nine months ended January 2, 2004, respectively, from the comparable periods last year. The increases were due primarily to higher pre-tax income in both the three and nine months ended January 2, 2004, and higher estimated effective tax rates in the three and nine months ended January 2, 2004, compared to the same periods last year. The Company's effective tax rates approximated 30.9% and 30.7% for the three and nine months ended January 2, 2004, respectively, compared to 28.4% and 28.5% in the comparable periods in fiscal 2003. Effective tax rates on earnings before the Special Items were 30.9% for the three and nine month periods ended January 2, 2004, respectively. The increase in the effective rates is a result of increased profits and the decreasing impact of existing favorable permanent tax differences that do not vary directly with increased profits.
Net Income and Earnings per Share
Net income was $128.4 million for the third quarter of fiscal 2004, up from $105.7 million for the third quarter of fiscal 2003. Fiscal 2004 third quarter diluted earnings per share were 68 cents (including 3 cents per share impact of special items) versus 61 cents reported for last year's third quarter.
For the nine months ended January 2, 2004, net income was $328.8 million, up from $277.5 million for the corresponding period last year. Diluted earnings per share for the first nine months of fiscal 2004 was $1.74 (including 8 cents per share impact of special items) versus $1.61 reported for last year's first nine months.
Cash Flows
Cash provided by operating activities was $673.7 million for the nine months ended January 2, 2004, compared with cash provided by operating activities of $472.2 million during the same period last year. The increase of $201.5 million primarily resulted from higher earnings coupled with an increase in non-cash expenses (primarily depreciation and amortization expense). Net working capital needs did not change significantly.
The Company's net cash used in investing activities totaled $819.8 million for the first nine months of fiscal 2004, compared to $491.0 million during the same period last year. The increase principally relates to investments in property and equipment and outsourcing contract costs in support of major new contract activities including Motorola, Marconi, and the Royal Mail Group. In addition, a significant cash inflow of $73.6 million a year ago related to the disposition of assets associated with the completion of an outsourcing contract was not repeated in fiscal 2004.
19
Cash used by financing activities was $9.6 million for the first three quarters of fiscal 2004, versus $20.2 million provided by financing activities for the same period a year ago. The change was driven principally by net repayments of debt in the current period versus a net increase in borrowings a year ago. See related discussion in Financial Condition section below.
Financial Condition
During the first nine months of fiscal 2004, the Company's capital outlays included $723.8 million of business investments in the form of fixed asset purchases and outsourcing contract costs. These investments were funded from operating cashflows, additional borrowings, and existing cash balances, which decreased from $299.6 million as of March 28, 2003, to $148.4 million at January 2, 2004. The Company's debt-to-total capitalization ratio decreased from 35.0% at March 28, 2003 to 31.8% at January 2, 2004.
During fiscal 2002, the Company filed a shelf registration statement covering up to $1.5 billion of debt and/or equity securities. As of January 2, 2004, the shelf registration has $900 million of unissued debt 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 13 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for fiscal 2003. The exercise price of this put option is equal to the appraised value of the business.
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.
The Company's sources of liquidity include the issuance of commercial paper and short-term borrowings. If the Company were 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 January 2, 2004, the Company's syndicated credit facilities were comprised of a $354 million facility, which expires August 13, 2004, and a $321 million facility, which expires August 18, 2005. As of January 2, 2004, the Company had no borrowings under these facilities and is in compliance with all terms of the agreements.
At January 2, 2004, the Company had $58.8 million of short-term debt and current maturities of long-term debt and $2.4 billion of long-term debt, including $91.8 million of commercial paper borrowings. As further described in Note 7 to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for fiscal 2003, the classification of the Company's outstanding commercial paper is determined by the expiration dates of its backstop credit facilities.
20
Recent Accounting Pronouncements and Critical Accounting Estimates
Recent accounting pronouncements and the anticipated impact to the Company are described in the notes to the interim consolidated condensed financial statements included in this Form 10-Q as well as in the Company's Annual Report on Form 10-K for the year ended March 28, 2003.
The accounting policies that the Company considers critical are described in "Management's Discussion and Analysis" of the Company's Annual Report on Form 10-K for fiscal 2003, and relate to revenue recognition, outsourcing contract costs, software development costs and retirement benefits. Most of the accounting policies that require the Company to make estimates are for estimates on contract-specific issues and thus do not have broad, company-wide implications or risks. While revisions to estimates or assumptions on a specific contract could result in a material adjustment to the financial statements, the risk is mitigated by the Company's broad portfolio of contracts that would typically have offsetting adjustments. The risks of changes in company-wide accounting estimates related to retirement benefits are further described in the aforementioned Form 10-K.
Forward-Looking Statements
All statements in this quarterly report on 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.
Forward-looking information contained in these statements include, among other things, statements with respect to the Company's financial condition, results of operations, cash flows, 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 the Company'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 and other 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; (xii) early termination of client contracts; and (xiii) general economic conditions and fluctuations in currency exchange rates in countries in which the Company does business.
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The Company is engaged in providing services under contracts with the U.S. Government. These contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. Government investigate whether the Company's operations are being conducted in accordance with these requirements. U.S. Government investigations of the Company, whether related to the Company's federal government contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed upon the Company, or could lead to suspension or debarment from future U.S. Government contracting.
Forward-looking statements in this quarterly report on Form 10-Q speak only as of the date hereof, and forward-looking statements in documents attached or incorporated by reference speak only as to the date of those documents. The Company 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 hereof 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 28, 2003, see "Quantitative and Qualitative Disclosures about Market Risk" in the 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 January 2, 2004, 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 as of January 2, 2004 and, based upon this evaluation, have concluded that they are effective in all material respects.
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"Internal control over financial reporting" is a process designed by, or under the supervision of, the issuer's principal executive and financial officers, and effected by the issuer's board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
(1) |
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
(2) |
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and |
(3) |
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements. |
During the fiscal quarter ended January 2, 2004, there was no change in the Company's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Exhibit Number |
Description of Exhibit |
2.1 |
Agreement and Plan of Merger dated as of December 13, 2002 and among the Company, DynCorp and Garden Acquisition LLC (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated December 13, 2002) |
3.1 |
Restated Articles of Incorporation filed with the Nevada Secretary of State on June 11, 2003 (incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended March 28, 2003) |
3.2 |
Certificate of Amendment of Certificate of Designations of Series A Junior Participating Preferred Stock (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003) |
3.3 |
Bylaws, amended and restated effective February 10, 2004 |
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) |
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Exhibit Number |
Description of Exhibit |
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 |
Form of Restricted Stock Agreement* (incorporated by reference to Exhibit 99(C)(14) to Amendment No. 2 to the Company's Solicitation/Recommendation Statement on Schedule 14D-9 filed on March 2, 1998) |
10.13 |
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) |
10.14 |
Supplemental Executive Retirement Plan, amended and restated effective August 11, 2003* (incorporated by reference to Exhibit 10.14 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003) |
10.15 |
Deferred Compensation Plan, amended and restated effective August 11, 2003* (incorporated by reference to Exhibit 10.15 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003) |
10.16 |
Severance Plan for Senior Management and Key Employees, amended and restated effective August 11, 2003* (incorporated by reference to Exhibit 10.16 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003) |
10.17 |
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) |
10.18 |
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) |
10.19 |
Amendment of Employment Agreement with Van B. Honeycutt, effective February 3, 2003* (incorporated by reference to Exhibit 10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended December 27, 2002) |
10.20 |
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) |
10.21 |
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) |
10.22 |
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) |
10.23 |
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) |
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Exhibit Number |
Description of Exhibit |
|
|
10.24 |
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) |
10.25 |
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) |
10.26 |
Second Amended and Restated Credit Agreement (Short Term Facility) dated as of August 15, 2003 (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) |
10.27 |
First Amendment to Second Amended and Restated Credit Agreement (Short Term Facility) dated as of August 16, 2002 (incorporated by reference to Exhibit 10.25 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 27, 2002) |
10.28 |
Second Amendment to Second Amended and Restated Credit Agreement (Short Term Facility) dated as of August 15, 2003 (incorporated by reference to Exhibit 10.28 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 2003) |
31.1 |
Section 302 Certification of the Chief Executive Officer |
31.2 |
Section 302 Certification of the Chief Financial Officer |
32.1 |
Section 906 Certification of the Chief Executive Officer |
32.2 |
Section 906 Certification of the Chief Financial Officer |
99 |
Revenue By Market Sector |
|
b. |
Reports on Form 8-K: |
|
There was one report on Form 8-K filed during the third quarter of fiscal 2004. On November 12, 2003, the registrant filed a current report on Form 8-K reporting its financial results for the fiscal quarter ended October 3, 2003. |
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SIGNATURES
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.
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COMPUTER SCIENCES CORPORATION |
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Date: February 12, 2004 |
By: |
/s/ Donald G. DeBuck |
BYLAWS
OF
COMPUTER SCIENCES CORPORATION
As amended February 10, 2004
BYLAWS
of
COMPUTER SCIENCES CORPORATION
ARTICLE I
OFFICES
Section 1. Principal Office.
The principal office of the corporation in the State of Nevada shall be in the City of Reno, County of Washoe.Section 2. Other Offices. The corporation may also have offices in such other places, both within and without the State of Nevada, as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Annual Meetings. Annual meetings of the stockholders shall be held at the office of the corporation in the City of El Segundo, State of California or at such other place, within or without the State of California, as shall be designated by the Board of Directors.
Section 2. Date of Annual Meetings; Election of Directors. Annual meetings of the stockholders shall be held at such time and date as the Board of Directors shall determine. At each such annual meeting, the stockholders of the corporation shall elect a Board of Directors and transact such other business as has properly been brought before the meeting in accordance with Section 12 of this Article II.
Section 3. Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, by the Articles of Incorporation or by these Bylaws, may be called by the Chairman of the Board, the Board of Directors or the Chief Executive Officer, and shall be called by the president or secretary at the request in writing of stockholders owning not less than seventy-five percent (75%) of the entire capital stock of the corporation issued and outstanding and entitled to vote, and shall not otherwise be called except as provided in the following sentence. In the event the corporation shall have failed to hold its annual meeting of stockholders for a period of 18 months from the last preceding annual meeting at which directors were elected or if such annual meeting shall have been held but directors shall not have been elected at such annual meeting, a special meet ing of the stockholders shall be called by the president or secretary at the request in writing of a majority of the Board of Directors or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request from stockholders shall be directed to the Chairman of the Board, the president, the vice president or the secretary. To be in proper written form, a stockholder's notice must set forth (i) the name and record address of such stockholder, (ii) the class or series and number of shares of capital stock of the corporation which are owned beneficially or of record by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the election of directors and any material interest of such stockholder in such election and (iv) a representation that such stockholder intends to appear in person or by proxy at such special meeting to vote on the election of directors at such meeting. The business transacted at such special meeting shall be confined to the election of directors.
Section 4. Notices of Meetings.
Notices of meetings of the stockholders shall be in writing and signed by the president, a vice president, the secretary, an assistant secretary, or by such other person or persons as the directors shall designate. Such notice shall state the purpose or purposes for which the meeting is called and the time when, and the place where, it is to be held. A copy of such notice shall be either delivered personally or shall be mailed, postage prepaid, to each stockholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before such meeting. If mailed, it shall be directed to the stockholder at his address as it appears upon the records of the corporation and upon such mailing of any such notice, the service thereof shall be complete, and the time of the notice shall begin to run from the date upon which such notice is deposited in the mail for transmission to such stockholder. If no such address appears on the books of the corporation and a stockholder has given no address for the purpose of notice, then notice shall be deemed to have been given to such stockholder if it is published at least once in a newspaper of general circulation in the county in which the principal executive office of the corporation is located. An affidavit of the mailing or publication of any such notice shall be prima facie evidence of the giving of such notice.Personal delivery of any such notice to any officer of a corporation or association, or to any member of a partnership shall constitute delivery of such notice to such corporation, association or partnership. If any notice addressed to the stockholder at the address of such stockholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that it is unable to deliver the notice to the stockholder at such address, all future notices shall be deemed to have been duly given to such stockholder, without further mailing, if the same shall be available for the stockholder upon written demand of the stockholder at the principal executive office of the corporation for a period of one year from the date of the giving of the notice to all other stockholders.
Section 5. Quorum. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business, except as otherwise provided by the statutes of Nevada or by the Articles of Incorporation. Regardless of whether or not a quorum is present or represented at any annual or special meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present in person or represented by proxy, provided that when any stockholders' meeting is adjourned for more than forty-five (45) days, or if after adjournment a new record date is fixed for the adjourned meeting, notice of the adjourn ed meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally noticed.
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Section 6. Vote Required.
When a quorum is present or represented at any meeting, the holders of a majority of the stock present in person or represented by proxy and voting shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the statutes of Nevada, the Articles of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. The stockholders present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.Section 7. Cumulative Voting. Except as otherwise provided in the Articles of Incorporation, every stockholder of record of the corporation shall be entitled at each meeting of the stockholders to one vote for each share of stock standing in his name on the books of the corporation. At all elections of directors of this corporation, each holder of shares of capital stock possessing voting power shall be entitled to as many votes as shall equal the number of his shares of stock multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for or any two or more of them, as he may see fit. The stockholders of this corporation and any proxyholders for such stockholders are entitled to exercise the right to cumulative voting at any meeting held for the election of directors if: (a) not less than forty-eight (48) hours before the time fixed for holding such meeting, if notice of the meeting has been given at least ten (10) days prior to the date of the meeting, and otherwise not less than twenty-four (24) hours before such time, a stockholder of this corporation has given notice in writing to the president or secretary of the corporation that he desires that the voting at such election of directors shall be cumulative; and (b) at such meeting, prior to the commencement of voting for the election of directors, an announcement of the giving of such notice has been made by the chairman or the secretary of the meeting or by or on behalf of the stockholder giving such notice. Notice to stockholders of the requirements of the preceding sentence shall be contained in the notice calling such meeting or in the proxy material accompanying such notice.
Section 8. Conduct of Meetings. Subject to the requirements of the statutes of Nevada, and the express provisions of the Articles of Incorporation and these Bylaws, all annual and special meetings of stockholders shall be conducted in accordance with such rules and procedures as the Board of Directors may determine and, as to matters not governed by such rules and procedures, as the chairman of such meeting shall determine. The chairman of any annual or special meeting of stockholders shall be designated by the Board of Directors and, in the absence of any such designation, shall be the president of the corporation.
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Section 9. Proxies.
At any meeting of the stockholders, any stockholder may be represented and vote by a proxy or proxies appointed by an instrument in writing. In the event that such instrument in writing shall designate two or more persons to act as proxies, a majority of such persons present at the meeting, or, if only one shall be present, then that one shall have and may exercise all of the powers conferred by such written instrument upon all of the persons so designated unless the instrument shall otherwise provide. No such proxy shall be valid after the expiration of six (6) months from the date of its execution, unless coupled with an interest, or unless the person executing it specifies therein the length of time for which it is to continue in force, which in no case shall exceed seven (7) years from the date of its execution. Subject to the above, any proxy duly execute d is not revoked and continues in full force and effect until (i) an instrument revoking it or duly executed proxy bearing a later date is filed with the secretary of the corporation or, (ii) the person executing the proxy attends such meeting and votes the shares subject to the proxy, or (iii) written notice of the death or incapacity of the maker of such proxy is received by the corporation before the vote pursuant thereto is counted.Section 10. Action by Written Consent. Any action, except election of directors, which may be taken by a vote of the stockholders at a meeting, may be taken without a meeting and without notice if authorized by the written consent of stockholders holding at least ninety percent (90%) of the voting power.
Section 11. Inspectors of Election. In advance of any meeting of stockholders, the Board of Directors may appoint inspectors of election to act at such meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, then, unless other persons are appointed by the Board of Directors prior to the meeting, the chairman of any such meeting may, and on the request of any stockholder or a stockholder proxy shall, appoint inspectors of election (or persons to replace those who fail to appear or refuse to act) at the meeting. The number of inspectors shall not exceed three.
The duties of such inspectors shall include: (a) determining the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies; (b) receiving votes, ballots or consents; (c) hearing and determining all challenges and questions in any way arising in connection with the right to vote; (d) counting and tabulating all votes or consents and determining the result; and (e) taking such other action as may be proper to conduct the election or vote with fairness to all stockholders. In the determination of the validity and effect of proxies, the dates contained on the forms of proxy shall presumptively determine the order of execution of the proxies, regardless of the postmark dates on the envelopes in which they are mailed. The inspectors of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects as the decision, act or certificate of all. Any report or certificate made by the inspectors of election is prima facie evidence of the facts stated therein.
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Section 12. Action at Meetings of Stockholders.
No business may be transacted at an annual meeting of stockholders, other than business that is either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the annual meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the annual meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of stockholders entitled to vote at such annual meeting and (ii) who complies with the notice procedures set forth in this Section 12.In addition to any other applicable requirements, for business properly to be brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Chairman of the Board, if any, the President, or the Secretary of the Corporation.
To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) days nor more than one hundred fifty (150) days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not later than the 5:00 o'clock, p.m., Los Angeles, California time on the tenth (10th) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice must set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of such stockholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such stockholder, (iv) a description of all arrangements or understandings between such stockholder and any other person or persons (including their names) in connection with the proposal of such business by such stockholder and any material interest of such stockholder in such business and (v) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the mee ting.
No business shall be conducted at the annual meeting of stockholders except business brought before the annual meeting in accordance with the procedures set forth in this Section 12, provided, however, that, once business has been brought properly before the annual meeting in accordance with such procedures, nothing in this Section 12 shall be deemed to preclude discussion by any stockholder of any such business. If the Chairman of an annual meeting determines that business was not brought properly before the annual meeting in accordance with the foregoing procedures, the Chairman shall declare to the meeting that the business was not brought properly before the meeting and such business shall not be transacted.
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ARTICLE III
DIRECTORS
Section 1. Number of Directors.
The exact number of directors that shall constitute the authorized number of members of the Board shall be eleven (11), all of whom shall be at least 18 years of age. The authorized number of directors may from time to time be increased to not more than fifteen (15) or decreased to not less than three (3) by resolution of the directors of the corporation amending this section of the Bylaws in compliance with Article VIII, Section 2 of these Bylaws. Except as provided in Section 2 of this Article III, each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders.A majority of the directors shall at all times consist of "Independent Directors." A person shall be considered an "Independent Director" if he or she:
(i) is not, and has not been within the past three years, employed by the Corporation in an executive capacity;
(ii) is not, and is not affiliated with an organization that is, an advisor or consultant to the Corporation, and within the last three years has not had, and is not affiliated with a company that has had, any business relationship with the Corporation, in any case for which disclosure is required pursuant to Item 404 of Regulation S-K of the Securities and Exchange Commission (or any successor to such rule);
(iii) is not a member of the immediate family of any person described in clauses (i) or (ii) above; and
(iv) does not have any financial relationship, other than as a stockholder of the Corporation, that could materially affect the exercise of his or her judgment as a director.
Section 2. Vacancies. Vacancies, including those caused by (i) the death, removal, or resignation of directors, (ii) the failure of stockholders to elect directors at any annual meeting, and (iii) an increase in the number of directors, may be filled by a majority of the remaining directors though less than a quorum. When one or more directors shall give notice of his or their resignation to the Board, effective at a future date, the acceptance of such resignation shall not be necessary to make it effective. The Board shall have power to fill such vacancy or vacancies to take effect when such resignation or resignations shall become effective, each director so appointed to hold office during the remainder of the term of office of the resigning director or directors. The directors of the Corporation may be removed from office by the vote of stockholders representing not less than two-thi rds (2/3) of the voting power of the issued and outstanding stock entitled to voting power; provided, however, that any director or directors who constitute fewer than all of the incumbent directors may not be removed from office at any one time or as the result of any one transaction except upon the vote of stockholders owning sufficient shares to prevent each director's election to office at the time of removal.
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Section 3. Authority.
The business of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.Section 4. Meetings. The Board of Directors of the corporation may hold meetings, both regular and special, at such place, either within or without the State of Nevada, which has been designated by resolution of the Board of Directors. In the absence of such designation, meetings shall be held at the office of the corporation in the City of El Segundo, State of California.
Section 5. First Meeting. The first meeting of the newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders and no notice of such meeting to the newly elected directors shall be necessary in order legally to constitute a meeting, provided a quorum shall be present.
Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board.
Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, or the president and shall be called by the president or secretary at the written request of two directors. Notice of the time and place of special meetings shall be given within 30 days to each director (a) personally or by telephone, telegraph, facsimile or electronic means, in each case at least twenty four (24) hours prior to the holding of the meeting, or (b) by mail, charges prepaid, addressed to him at his address as it is shown upon the records of the corporation (or, if it is not so shown on such records and is not readily ascertainable, at the place at which the meetings of the directors are regularly held) at least three (3) days prior to the holding of the meeting. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the Uni ted States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means, to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Any notice, waiver of notice or consent to holding a meeting shall state the time, date and place of the meeting but need not specify the purpose of the meeting.
Section 8. Quorum. Presence in person of a majority of the Board of Directors, at a meeting duly assembled, shall be necessary to constitute a quorum for the transaction of business and the act of a majority of the directors present and voting at any meeting, at which a quorum is then present, shall be the act of the Board of Directors, except as may be otherwise specifically provided by the statutes of Nevada or by the Articles of Incorporation. A meeting at which a quorum is initially present shall not continue to transact business in the absence of a quorum.
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Section 9. Action by Written Consent.
Unless otherwise restricted by the Articles of Incorporation or by these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if a written consent thereto is signed by all members of the Board. Such written consent shall be filed with the minutes of proceedings of the Board of Directors.Section 10 Telephonic Meetings. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, members of the Board of Directors or of any committee designated by the Board of Directors may participate in a meeting of the Board or committee by means of a conference telephone network or a similar communications method by which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to the preceding sentence constitutes presence in person at such meeting.
Section 11. Adjournment. A majority of the directors present at any meeting, whether or not a quorum is present, may adjourn any directors' meeting to another time, date and place. If any meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time, date and place shall be given, prior to the time of the adjourned meeting, to the directors who were not present at the time of adjournment. If any meeting is adjourned for less than twenty-four (24) hours, notice of any adjournment shall be given to absent directors, prior to the time of the adjourned meeting, unless the time, date and place is fixed at the meeting adjourned.
Section 12. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees of the Board of Directors. Such committee or committees shall have such name or names, shall have such duties and shall exercise such powers as may be determined from time to time by the Board of Directors.
Section 13. Committee Minutes. The committees shall keep regular minutes of their proceedings and report the same to the Board of Directors.
Section 14. Compensation of Directors. The directors shall receive such compensation for their services as directors, and such additional compensation for their services as members of any committees of the Board of Directors, as may be authorized by the Board of Directors.
Section 15. Mandatory Retirement of Directors. A director of the Corporation shall not serve beyond, and shall automatically retire at, the close of the first annual meeting of stockholders held after the director shall become age 70; provided, however that if the Board of Directors shall determine that it is in the best interests of the Corporation and its stockholders for a person to continue to serve as a director of the Corporation until the close of any annual meeting after the annual meeting upon which this Section 15 would otherwise require such person to retire, then such person shall not be so required to retire until the close of such later annual meeting.
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ARTICLE IV
OFFICERS
Section 1. Principal Officers.
The officers of the corporation shall be elected by the Board of Directors and shall be a president, a secretary and a treasurer. A resident agent for the corporation in the State of Nevada shall be designated by the Board of Directors. Any person may hold two or more offices.Section 2. Other Officers. The Board of Directors may also elect one or more vice presidents, assistant secretaries and assistant treasurers, and such other officers and agents, as it shall deem necessary.
Section 3. Qualification and Removal. The officers of the corporation mentioned in Section 1 of this Article IV shall hold office until their successors are elected and qualify. Any such officer and any other officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors.
Section 4. Resignation. Any officer may resign at any time by giving written notice to the corporation, without prejudice, however, to the rights, if any, of the corporation under any contract to which such officer is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 5. Powers and Duties; Execution of Contracts. Officers of this corporation shall have such powers and duties as may be determined by the Board of Directors. Unless otherwise specified by the Board of Directors, the president shall be the chief executive officer of the corporation. Contracts and other instruments in the normal course of business may be executed on behalf of the corporation by the president or any vice president of the corporation, or any other person authorized by resolution of the Board of Directors.
ARTICLE V
STOCK AND STOCKHOLDERS
Section 1. Issuance. Every stockholder shall be issued a certificate representing the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the certificate shall contain a statement setting forth the office or agency of the corporation from which stockholders may obtain a copy of a statement or summary of the designations, preferences and relative or other special rights of the various classes of stock or series thereof and the qualifications, limitations or restrictions of such rights. The corporation shall furnish to its stockholders, upon request and without charge, a copy of such statement or summary.
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Section 2. Facsimile Signatures.
Whenever any certificate is countersigned or otherwise authenticated by a transfer agent or transfer clerk, and by a registrar, then a facsimile of the signatures of the officers of the corporation may be printed or lithographed upon such certificate in lieu of the actual signatures. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, before such certificates shall have been delivered by the corporation, such certificates may nevertheless be issued as though the person or persons who signed such certificates, had not ceased to be an officer of the corporation.Section 3. Lost Certificates. The Board of Directors may direct a new stock certificate to be issued in place of any certificate alleged to have been lost or destroyed, and may require the making of an affidavit of that fact by the person claiming the stock certificate to be lost or destroyed. When authorizing such issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent, require the owner of the lost or destroyed certificate to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.
Section 4. Transfer of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed for transfer, it shall be the duty of the corporation to issue a new certificate, cancel the old certificate and record the transaction upon its books.
Section 5. Record Date. The directors may fix a date not more than sixty (60) days prior to the holding of any meeting as the date as of which stockholders entitled to notice of and to vote at such meeting shall be determined; and only stockholders of record on such day shall be entitled to notice or to vote at such meeting. If no record date is fixed by the Board of Directors (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the sixtieth (60th) day preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to give consent to corporate action in writing without a meeting, when no prior action by the Board has been taken, shall be the day on which the first written consent is given; and (c) the record date for determining stockholders for any other purpose shall be the day on which the Board of Directors adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such action, whichever is later. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting.
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Section 6. Registered Stock.
The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the statutes of Nevada.Section 7. Dividends. In the event a dividend is declared, the stock transfer books will not be closed but a record date will be fixed by the Board of Directors and only shareholders of record on that date shall be entitled to the dividend.
ARTICLE VI
INDEMNIFICATION
Section 1. Indemnity of Directors, Officers and Agents. The corporation shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she is or was or has agreed to become a director or officer of the corporation or is serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise or by reason of actions alleged to have been taken or omitted in such capacity or in any other capacity while serving as a director or officer. The indemnification of directors and officers by the corporation shall be to the fullest extent authorized or permitted by applicable law, as such law exists or may hereafter be amended (but only to the extent that such amendment permits the corporation to provide broader indemnification rights than permitted prior to the amendment). The indemnification of directors and officers shall be against all loss, liability and expense (including attorneys fees, costs, damages, judgments, fines, amounts paid in settlement and ERISA excise taxes or penalties) actually and reasonably incurred by or on behalf of a director or officer in connection with such action, suit or proceeding, including any appeals; provided, however, that with respect to any action, suit or proceeding initiated by a director or officer, the corporation shall indemnify such director or officer only if the action, suit or proceeding was authorized by the board of directors of the corporation, except with respect to a suit for the enforcement of rights to indemnification or advancement of expenses in accordance with Section 3 hereof.
Section 2. Expenses The expenses of directors and officers incurred as a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative shall be paid by the corporation as they are incurred and in advance of the final disposition of the action, suit or proceeding; provided, however, that if applicable law so requires, the advance payment of expenses shall be made only upon receipt by the corporation of an undertaking by or on behalf of the director or officer to repay all amounts as advanced in the event that it is ultimately determined by a final decision, order or decree of a court of competent jurisdiction that the director or officer is not entitled to be indemnified for such expenses under this Article VI.
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Section 3. Enforcement
Any director or officer may enforce his or her rights to indemnification or advance payments for expenses in a suit brought against the corporation if his or her request for indemnification or advance payments for expenses is wholly or partially refused by the corporation or if there is no determination with respect to such request within 60 days from receipt by the corporation of a written notice from the director or officer for such a determination. If a director or officer is successful in establishing in a suit his or her entitlement to receive or recover an advancement of expenses or a right to indemnification, in whole or in part, he or she shall also be indemnified by the corporation for costs and expenses incurred in such suit. It shall be a defense to any such suit (other than a suit brought to enforce a claim for the advancement of expenses under Section 2 of this Article VI where the required undertaking, if any, has been received by the corporation) that the claimant has not met the standard of conduct set forth in the Nevada General Corporation Law. Neither the failure of the corporation to have made a determination prior to the commencement of such suit that indemnification of the director or officer is proper in the circumstances because the director or officer has met the applicable standard of conduct nor a determination by the corporation that the director or officer has not met such applicable standard of conduct shall be a defense to the suit or create a presumption that the director or officer has not met the applicable standard of conduct. In a suit brought by a director or officer to enforce a right under this Section 3 or by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that a director or officer is not entitled to be indemnified or is not entitled to an ad vancement of expenses under this Section 3 or otherwise, shall be on the corporation.Section 4. Non-exclusivity The right to indemnification and to the payment of expenses as they are incurred and in advance of the final disposition of the action, suit or proceeding shall not be exclusive of any other right to which a person may be entitled under these articles of incorporation or any bylaw, agreement, statute, vote of stockholders or disinterested directors or otherwise. The right to indemnification under Section 1 hereof shall continue for a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, next of kin, executors, administrators and legal representatives.
Section 5. Settlement The corporation shall not be obligated to reimburse the amount of any settlement unless it has agreed to such settlement. If any person shall unreasonably fail to enter into a settlement of any action, suit or proceeding within the scope of Section 1 hereof, offered or assented to by the opposing party or parties and which is acceptable to the corporation, then, notwithstanding any other provision of this Article VI, the indemnification obligation of the corporation in connection with such action, suit or proceeding shall be limited to the total of the amount at which settlement could have been made and the expenses incurred by such person prior to the time the settlement could reasonably have been effected.
Section 6. Purchase of Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
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Section 7. Conditions
The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the corporation or to any director, officer, employee or agent of any of its subsidiaries to the fullest extent of the provisions of this Article VI subject to the imposition of any conditions or limitations as the Board of Directors may deem necessary or appropriate.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Exercise of Rights. All rights incident to any and all shares of another corporation or corporations standing in the name of this corporation may be exercised by such officer, agent or proxyholder as the Board of Directors may designate. In the absence of such designation, such rights may be exercised by the Chairman of the Board or the president of this corporation, or by any other person authorized to do so by the Chairman of the Board or the president of this corporation. Except as provided below, shares of this corporation owned by any subsidiary of this corporation shall not be entitled to vote on any matter. Shares of this corporation held by this corporation in a fiduciary capacity and shares of this corporation held in a fiduciary capacity by any subsidiary of this corporation, shall not be entitled to vote on any matter, except to the extent that the settler or beneficial owner possesses a nd exercises a right to vote or to give this corporation or such subsidiary binding instructions as to how to vote such shares.
Solely for purposes of Section 1 of this Article VII, a "subsidiary" of this corporation shall mean a corporation, shares of which possessing more than fifty percent (50%) of the power to vote for the election of directors at the time determination of such voting power is made, are owned directly, or indirectly through one or more subsidiaries, by this corporation.
Section 2. Interpretation. Unless the context of a Section of these Bylaws otherwise requires, the terms used in these Bylaws shall have the meanings provided in, and these Bylaws shall be construed in accordance with the Nevada statutes relating to private corporations, as found in Chapter 78 of the Nevada Revised Statutes or any subsequent statute.
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ARTICLE VIII
AMENDMENTS
Section 1. Stockholder Amendments.
Bylaws may be adopted, amended or repealed by the affirmative vote of not less than seventy-five percent (75%) of the outstanding voting shares of this corporation.Section 2. Amendments by Board of Directors. Subject to the right of stockholders as provided in Section 1 of this Article VIII, Bylaws may be adopted, amended or repealed by the Board of Directors; provided, however, that the following provisions may not be amended or repealed by the Board of Directors until after January 1, 2005: (i) the percentage appearing in the first sentence of Article II, Section 3; (ii) the second paragraph of Article III, Section I; and (iii) this Article VIII.
ARTICLE IX
"ACQUISITION OF CONTROLLING INTEREST" PROVISIONS OF
THE NEVADA GENERAL CORPORATION LAW SHALL NOT APPLY
On and after February 16, 1998, the provisions of Section 78.378 to 78.3793, inclusive, of the Nevada Revised Statutes shall not apply to the corporation.
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EXHIBIT 31.1
Certification
I, Van B. Honeycutt, Chairman and Chief Executive Officer of the Company, certify that:
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
|
|
|
Date: February 12, 2004 |
By: |
/s/ Van B. Honeycutt |
EXHIBIT 31.2
Certification
I, Leon J. Level, Vice President and Chief Financial Officer of the Company, certify that:
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
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|
|
Date: February 12, 2004 |
By: |
/s/ Leon J. Level |
EXHIBIT 32.1
Certification
Pursuant to 18 U.S.C. Section 1350, I, Van B. Honeycutt, Chairman and Chief Executive Officer of Computer Sciences Corporation (the Company), hereby certify that:
(1) |
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004 (the Report) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and |
|
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: February 12, 2004 |
/s/ Van B. Honeycut |
EXHIBIT 32.2
Certification
Pursuant to 18 U.S.C. Section 1350, I, Leon J. Level, Vice President and Chief Financial Officer of Computer Sciences Corporation (the Company), hereby certify that:
(1) |
the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended January 2, 2004 (the Report) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and |
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|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: February 12, 2004 |
/s/ Leon J. Level |
EXHIBIT 99
COMPUTER SCIENCES CORPORATION
REVENUES BY MARKET SECTOR
(In millions)
Third Quarter Ended |
|
% of Total |
|||||
|
Jan. 2, 2004 |
|
Dec. 27, 2002 |
|
Fiscal 2004 |
|
Fiscal 2003 |
|
|
|
|
|
|
|
|
Global commercial: |
|
|
|
|
|
|
|
U.S. commercial |
$ 921.9 |
|
$969.1 |
|
25% |
|
35% |
Europe |
933.2 |
|
760.1 |
|
26 |
|
27 |
Other International |
309.8 |
|
274.8 |
|
9 |
|
9 |
Total |
2,164.9 |
|
2,004.0 |
|
60 |
|
71 |
|
|
|
|
|
|
|
|
U.S. federal government: |
|
|
|
|
|
|
|
Department of Defense |
940.1 |
|
464.6 |
|
26 |
|
17 |
Civil agencies |
516.2 |
|
325.0 |
|
14 |
|
12 |
Total |
1,456.3 |
|
789.6 |
|
40 |
|
29 |
Total Revenues |
$3,621.2 |
|
$2,793.6 |
|
100% |
|
100% |
Nine Months Ended |
|
% of Total |
|||||
|
Jan. 2, 2004 |
|
Dec. 27, 2002 |
|
Fiscal 2004 |
|
Fiscal 2003 |
|
|
|
|
|
|
|
|
Global commercial: |
|
|
|
|
|
|
|
U.S. commercial |
$ 2,816.0 |
|
$2,915.3 |
|
26% |
|
35% |
Europe |
2,604.3 |
|
2,142.5 |
|
24 |
|
26 |
Other International |
891.2 |
|
857.0 |
|
9 |
|
10 |
Total |
6,311.5 |
|
5,914.8 |
|
59 |
|
71 |
|
|
|
|
|
|
|
|
U.S. federal government: |
|
|
|
|
|
|
|
Department of Defense |
2,829.3 |
|
1,386.4 |
|
26 |
|
17 |
Civil agencies |
1,626.4 |
|
966.2 |
|
15 |
|
12 |
Total |
4,455.7 |
|
2,352.6 |
|
41 |
|
29 |
Total Revenues |
$10,767.2 |
|
$8,267.4 |
|
100% |
|
100% |
Note: The table presents revenue by market sector, which differs from revenue by reportable segment as disclosed in the Form 10-Q.