Note 4-Out of Period Adjustments

As previously disclosed in fiscal 2011, the Company initiated an investigation into certain accounting errors in our MSS segment, primarily involving accounting irregularities in the Nordic region. Initially, the investigation was conducted by Company personnel, but outside Company counsel and forensic accountants retained by such counsel later assisted in the Company's investigation. On January 28, 2011, the Company was notified by the SEC's Division of Enforcement that it had commenced a formal civil investigation relating to these matters, which investigation has subsequently been expanded to other matters subsequently identified by the SEC, including matters specified in subpoenas issued to the Company from time to time by the SEC's Division of Enforcement as well as matters under investigation by the Audit Committee of the Board of Directors, as further described below. The Company is cooperating in the SEC's investigation.

On May 2, 2011, the Audit Committee commenced an independent investigation into the matters relating to the MSS segment and the Nordic region, matters identified by subpoenas issued by the SEC's Division of Enforcement, and certain other accounting matters identified by the Audit Committee and retained independent counsel to represent CSC on behalf of, and under the exclusive direction of, the Audit Committee in connection with such independent investigation. Independent counsel has retained forensic accountants to assist their work. Independent counsel also represents CSC on behalf of and under the exclusive direction of the Audit Committee in connection with the investigation by the SEC's Division of Enforcement.

Each of the Audit Committee's and the SEC's separate investigations have been expanded to encompass the Company's operations in Australia, and in the course of that investigation, accounting errors and irregularities have been identified. As a result, certain personnel in Australia have been reprimanded, suspended and/or terminated. These investigative activities are ongoing.

Each of the Audit Committee's and the SEC's separate investigations also have been expanded to encompass a review of (i) certain aspects of the Company's accounting practices within its Americas Outsourcing operation, and (ii) certain of the Company's contracts and related disclosures that involve the percentage of completion accounting method, including the Company's contract with NHS. These investigative activities are ongoing.

In the course of the review of the Americas Outsourcing accounting practices, accounting conventions used by the Company relating to intraperiod cost allocations were identified which have been determined to be unintentional accounting errors. The errors did not have an impact on a fiscal year basis. As a result of this review, the Company assessed other operating units for similar practices which existed in certain units but there was no material impact outside of a fiscal year.

Any out of period adjustments identified, including items that self corrected within a fiscal year, by the Company to date are hereinafter identified in this Note 4.

In addition, the SEC's Division of Corporation Finance has issued comment letters to the Company requesting, among other things, additional information regarding its previously disclosed adjustments in connection with the above-referenced accounting errors, the Company's conclusions relating to materiality of such adjustments, and the Company's analysis of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting. The Division of Corporation Finance's comment letter process is ongoing, and the Company is continuing to cooperate with that process.

The investigations being conducted by the Division of Enforcement and the Audit Committee as well as the review of our financial disclosures by the Division of Corporation Finance are continuing and could identify other accounting errors, irregularities or other areas of review. As a result, we have incurred and will continue to incur significant legal and accounting expenditures, and a significant amount of time of our senior management has been focused on these matters. We are unable to predict how long the Division of Enforcement's and Audit Committee's investigations will continue or whether, at the conclusion of its investigation, the SEC will seek to impose fines or take other actions against us. In addition, we are unable to predict the timing of the completion of the Division of Corporation Finance's review of our financial disclosures or the outcome of such review. Publicity surrounding the foregoing or any enforcement action as a result of the SEC's investigation, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition, results of operations or cash flows.

Fiscal 2012

During the third quarter and through the first nine months of fiscal 2012, the Company recorded various pre-tax adjustments, reducing income from continuing operations before taxes by $3 million and $31 million ($1 million and $23 million, net of tax), respectively, that should have been recorded in prior fiscal years. In addition, during the third quarter of fiscal 2012, the Company recorded $3 million of net pre-tax adjustments reducing income from continuing operations that should have been recorded in the first and second quarter of fiscal 2012 and had no impact on prior fiscal years. Of these adjustments, $21 million and $5 million related to the third quarter and for the first nine months of fiscal 2011, respectively. The Company also recorded a $3 million income tax benefit in the third quarter of fiscal 2012 attributable to the reversal of a deferred tax liability related to the goodwill impairment recorded in the second quarter of fiscal 2012.

Australia Adjustments:

Based upon the information developed to date, and the Company's assessment of the same, the Company has preliminarily identified and recorded during the third quarter and through the first nine months of fiscal 2012, $1 million and $20 million, respectively, of pre-tax adjustments reducing income from continuing operations relating to its operations in Australia. Such adjustments have been categorized as either intentional accounting irregularities (“intentional irregularities”) or other accounting errors (“other errors”). Other accounting errors include both unintentional errors and errors for which the categorization is unclear. The impact of the adjustments is attributable to the following prior fiscal years:

(Amounts in millions)	Increase/(Decrease) in Income Before Taxes
	FY08 & Prior			FY09			FY10			FY11			Total
Intentional irregularities	$	10		$	(7	)	$	(4	)	$	-		$	(1	)
Other errors		(5	)		(16	)		5			(3	)		(19	)
	$	5		$	(23	)	$	1		$	(3	)	$	(20	)

As noted above, the Audit Committee investigation is still ongoing and the categorization of the adjustments noted above is subject to change. Such categorization was provided to the Company through the independent investigation.

Nordic Region Adjustments:

The Nordic pre-tax adjustments impacting prior fiscal years both identified and recorded in the first nine months of fiscal 2012 totaled $10 million. In the third quarter of fiscal 2012, two adjustments were identified in the Nordic region. One adjustment was a $2 million pre-tax adjustment that should have been recognized in the second quarter of fiscal 2012 and was identified and recorded in the third quarter of fiscal 2012. This adjustment, which had no impact on prior fiscal years, reduced income from continuing operations in the third quarter of fiscal 2012 and was related to recognition of a forward loss on a software contract. The second Nordic adjustment identified in the third quarter of fiscal 2012 was a $2 million adjustment that was recorded by the Company in the second quarter of fiscal 2011. During the ongoing Nordic investigation, it was determined that this adjustment had not been disclosed in the Company's fiscal 2011 out of period adjustments. The adjustment was related to the inappropriate capitalization of operating costs and reduced income from continuing operations in the second quarter of fiscal 2011 but does not have an impact on fiscal 2012. The Nordic adjustments disclosed in the first quarter of fiscal 2012 included a $1 million error in the accounting for an operating lease attributable to fiscal 2010. The operating lease adjustment is a refinement of an error previously corrected and reported in fiscal 2011. The Company attributes the Nordic adjustments identified and/or recorded through the third quarter of fiscal 2012 to miscellaneous errors and not to any accounting irregularities or intentional misconduct other than the adjustment relating to the Nordic operating lease and the adjustment related to the inappropriate capitalization of operating costs, which the Company attributes to suspected intentional misconduct by certain former employees of our Nordic subsidiaries.

Other Adjustments:

The Company also identified certain out of period adjustments related to operations outside of the Nordics and Australia regions, which decreased income from continuing operations by $2 million and $1 million for the third quarter and for the first nine months, respectively, of fiscal 2012. In addition, $1 million of net pre-tax adjustments, reducing income from continuing operations related to operations outside of the Nordic region and Australia, were recorded in the third quarter of fiscal 2012 that should have been recorded in the first and second quarters of fiscal 2012 with no impact on prior fiscal years. These adjustments primarily included $7 million of costs associated with a termination settlement of a MSS outsourcing contract that should have been recognized in the second quarter of fiscal 2012. The termination settlement was reached in early November, 2011 just prior to the November 9, 2011 filing of the Company's Quarterly Report on Form 10-Q for the second quarter of fiscal 2012. Offsetting the termination settlement were two adjustments in operating units outside of MSS. These adjustments included a $2 million adjustment related to a correction of a foreign currency adjustment for the iSOFT acquisition related to the second quarter of fiscal 2012 and $4 million in adjustments noted by the Company in its assessment of accounting conventions relating to the intraperiod cost allocations mentioned above. The Company attributes these adjustments to miscellaneous errors and not to any accounting irregularities or intentional misconduct.

The pre-tax out of period adjustments recorded by the Company in the nine months ended December 30, 2011 are related to the following consolidated balance sheet line items as of December 30, 2011:

·	Property and equipment ($24 million decrease)

·	Prepaid expenses and other current assets ($4 million decrease)

·	Accounts receivable ($10 million decrease)

·	Accounts payable ($1 million decrease)

·	Accrued expenses and other current liabilities ($6 million decrease)

The impact of the consolidated Nordic, Australia and other out of period adjustments recorded in fiscal 2012 is immaterial to the consolidated results, financial position and cash flows for the third quarter of fiscal 2012, first nine months of fiscal 2012 and prior years. Consequently, the cumulative effect of these adjustments was recorded during fiscal 2012.

The select line items of the Consolidated Condensed Statement of Operations for the third quarter and nine months ended December 30, 2011, impacted by the Nordic, Australia, and other out of period adjustments (under the rollover method) are shown below. Certain adjustments reflected below only impacted quarters within the annual period.

	Quarter ended December 30, 2011
(Amounts in millions, except per share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	3,764		$	8		$	3,772
Costs of services (excludes depreciation and amortization, contract charge and settlement charge)		3,237			(13	)		3,224
Selling, general and administrative		275			3			278
Depreciation and amortization		302			6			308
Interest expense		43			-			43
Other (income) expense		12			6			18
Income from continuing operations before taxes		(1,438	)		6			(1,432	)
Taxes on income		(45	)		5			(40	)
Income from continuing operations		(1,393	)		1			(1,392	)
Income from discontinued operations, net of taxes		2			-			2
Net income attributable to CSC common shareholders		(1,390	)		1			(1,389	)
EPS – Diluted
Continuing operations	$	(8.97	)	$	0.01		$	(8.96	)
Discontinued operations		0.01			-			0.01
Total	$	(8.96	)	$	0.01		$	(8.95	)

	Nine months ended December 30, 2011
(Amounts in millions, except per share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	11,763		$	17		$	11,780
Costs of services (excludes depreciation and amortization, contract charge and settlement charge)		9,885			(14	)		9,871
Selling, general and administrative		846			1			847
Depreciation and amortization		870			(2	)		868
Interest expense		131			(3	)		128
Other (income) expense		1			4			5
Income from continuing operations before taxes		(4,191	)		31			(4,160	)
Taxes on income		(118	)		8			(110	)
Income from continuing operations		(4,073	)		23			(4,050	)
Income from discontinued operations, net of taxes		1			-			1
Net income attributable to CSC common shareholders		(4,084	)		23			(4,061	)
EPS – Diluted
Continuing operations	$	(26.36	)	$	0.15		$	(26.21	)
Discontinued operations		0.01			-			0.01
Total	$	(26.35	)	$	0.15		$	(26.20	)

Effect of Adjustments on Prior Year Financial Statements

During fiscal 2011, the Company recorded various pre-tax adjustments reducing income from continuing operations before taxes that should have been recorded in prior fiscal years. The aggregate adjustments recorded in fiscal 2011 reduced income from continuing operations before taxes by $51 million ($34 million, net of taxes). The total out of period adjustments reported in fiscal 2011 were comprised of $91 million of charges reducing income from continuing operations before taxes originating out of the Company's MSS operations in the Nordic region, and $40 million of adjustments increasing income from continuing operations before taxes, principally out of other MSS businesses with $36 million of the $40 million within MSS. The Company also recorded out of period income tax benefits during fiscal 2011 of $17 million, consisting of $12 million of income tax benefits related to the net out of period adjustments and $5 million of unrelated tax benefit adjustments.

During the third quarter and nine months ended December 31, 2010, based on information then known by the Company, the Company recorded certain pre-tax adjustments reducing income from continuing operations before taxes by $21 million ($11 million, net of taxes) and $55 million ($23 million, net of taxes), respectively, that should have been recorded in prior fiscal years. As discussed below, these recorded adjustments comprised $25 million and $85 million for the third quarter and nine months ended December 31, 2010, respectively, of charges reducing income from continuing operations before taxes originating out of the Company's MSS operations in the Nordic region, and $4 million and $30 million, respectively, of adjustments increasing income from continuing operations before taxes, principally out of other MSS businesses with all of the $4 million and $26 million of the $30 million for the third quarter and nine months ended December 31, 2010, respectively, within MSS. These adjustments reduced MSS operating income (a non-GAAP measure) by $20 million and $58 million for the third quarter and nine months ended December 31, 2010, respectively, as discussed in Note 13, Segment Information. The Company also recorded out of period income tax benefits in the third quarter and nine months ended December 31, 2010 of $10 million and $32 million, respectively, consisting of $4 million and $12 million of income tax benefits related to the net out of period adjustments and $6 million and $20 million of unrelated income tax benefit adjustments, respectively. These out of period recorded adjustments are primarily attributable to fiscal 2010.

The cumulative roll over impact of the out of period recorded adjustments, including those identified in fiscal 2012, is attributable to the following prior fiscal years:

	Increase/(Decrease)
(Amounts in millions)	Income from continuing operations before taxes			Taxes on income			Net income attributable to CSC common shareholders
Fiscal 2011	$	44		$	14		$	30
Fiscal 2010		(50	)		(18	)		(32	)
Fiscal 2009		(28	)		(7	)		(21	)
Prior fiscal years		3			3			-

Nordic Region Adjustments:

As part of closing the Company's financial statements for the third quarter and nine months ended December 31, 2010, management identified and recorded pre-tax out of period charges totaling $25 million and $85 million, respectively, in its Nordic operations. Based upon the Company's investigation, which extended into the fourth quarter of fiscal 2011, review of the underlying documentation for certain transactions and balances, review of contract documentation and discussions with Nordic personnel, the Company attributes the majority of the adjustments in the third quarter of fiscal 2011 and additional adjustments during the remainder of fiscal 2011 to accounting irregularities arising from suspected intentional misconduct by certain former employees in our Danish subsidiaries.

Other Adjustments:

During the third quarter and nine months ended December 31, 2010, the Company also identified pre-tax out of period adjustments of $4 million and $30 million, respectively, that increased income from continuing operations before taxes, of which $4 million and $26 million, respectively, relates to other MSS operations.

The remaining $4 million of pre-tax out of period adjustments during the nine months ended December 31, 2010 consist of a reduction of other accrued expenses related to non-MSS segments from an adjustment to corporate general and administrative expense. The Company also identified $6 million and $20 million of net out of period adjustments related to income tax benefits associated with complex tax positions in the third quarter and nine months ended December 31, 2010.

The following table summarizes the cumulative effect on net income attributable to CSC common shareholders of the consolidated out of period adjustments recorded during fiscal 2011 and 2012 (in millions). Certain adjustments reflected below only impacted quarters within the annual period:

(Amounts in millions)	Quarter Ended December 31, 2010			Nine Months Ended December 31, 2010
Operating costs inappropriately capitalized	$	8		$	61
Misapplication of US GAAP		7			13
Miscellaneous errors		9			10
Total Nordic adjustments		24			84
Operating costs inappropriately capitalized		(1	)		(2	)
Misapplication of US GAAP		4			3
Miscellaneous errors		(2	)		(1	)
Total Australia adjustments		1			0
Other adjustments		(25	)		(33	)
Effect on income from continuing operations before taxes		-			51
Income tax benefit		3			(10	)
Other income tax adjustments		(6	)		(20	)
Effect on net income attributable to CSC common shareholders	$	(3	)	$	21

The out of period adjustments through the nine months ended December 31, 2010 for inappropriately capitalized costs are related to the following consolidated balance sheet line items:

·	Outsourcing contract costs ($12 million decrease)

·	Prepaid expenses and other current assets ($35 million decrease)

·	Accounts receivable and other current assets ($5 million decrease)

·	Property and equipment ($7 million decrease)

The net impact of the out of period adjustments was immaterial to the consolidated results, financial position and cash flows for the third quarter of fiscal 2011. Consequently, the cumulative effect of these adjustments was recorded during the third quarter of fiscal 2011.

The select line items of the Consolidated Condensed Statement of Operations for the third quarter and nine months ended December 31, 2010, impacted by the out of period adjustments, including those identified in fiscal 2012 (under the rollover method) are shown below. Adjustments include unrecorded items which have not been recorded due to self-correction in a subsequent period. Certain adjustments reflected below only impacted quarters within the annual period.

	Quarter ended December 31, 2010
(Amounts in millions, except per share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	3,995		$	7		$	4,002
Costs of services (excludes depreciation and amortization, contract charge and settlement charge)		3,221			8			3,229
Selling, general and administrative		242			1			243
Depreciation and amortization		269			(1	)		268
Interest expense		43			(1	)		42
Other (income) expense		(2	)		-			(2	)
Income from continuing operations before taxes		230			-			230
Taxes on income		(14	)		3			(11	)
Income from continuing operations		244			(3	)		241
Income from discontinued operations, net of taxes		(1	)		-			(1	)
Net income attributable to CSC common shareholders		242			(3	)		239
EPS – Diluted
Continuing operations	$	1.55		$	(0.02	)	$	1.53
Discontinued operations		(0.01	)		-			(0.01	)
Total	$	1.54		$	(0.02	)	$	1.52

	Nine months ended December 31, 2010
(Amounts in millions, except per share amounts)	As Reported			Adjustments Increase/ (Decrease)			Amount Adjusted for Removal of Errors
Revenue	$	11,840		$	33		$	11,873
Costs of services (excludes depreciation and amortization, contract charge and settlement charge)		9,539			(14	)		9,525
Selling, general and administrative		731			-			731
Depreciation and amortization		797			(3	)		794
Interest expense		126			(1	)		125
Other (income) expense		(14	)		-			(14	)
Income from continuing operations before taxes		686			51			737
Taxes on income		123			30			153
Income from continuing operations		563			21			584
Income from discontinued operations, net of taxes		21			-			21
Net income attributable to CSC common shareholders		569			21			590
EPS – Diluted
Continuing operations	$	3.51		$	0.13		$	3.64
Discontinued operations		0.13			-			0.13
Total	$	3.64		$	0.13		$	3.77