UNITED
STATES
|
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SECURITIES
AND EXCHANGE COMMISSION
|
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Washington,
D.C. 20549
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_________________
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FORM
10-Q
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(Mark
One)
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[X]
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
||
For
the quarter ended December 28, 2007
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OR
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[ ]
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the transition period from _________________ to
_________________
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Commission
File No. 1-4850
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![]() |
COMPUTER
SCIENCES CORPORATION
(Exact
name of registrant as specified in its charter)
|
||
Nevada
|
95-2043126
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||
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
||
Incorporation
or Organization)
|
Identification
No.)
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2100
East Grand Avenue
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El
Segundo, California
|
90245
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||
(Address
of Principal Executive Offices)
|
(Zip
Code)
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||
Registrant's
Telephone Number, Including Area Code: (310) 615-0311
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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 a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition
of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act (Check one).
Large
accelerated filer
[X] Accelerated
filer
[ ] Non-accelerated
filer [ ]
|
|||
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12-b of the Exchange
Act). Yes [ ] No [X]
|
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158,698,789
shares of Common Stock, $1.00 par value, were outstanding on January 25,
2008.
|
PAGE
|
||
PART
I.
|
FINANCIAL
INFORMATION
|
|
Item
1.
|
Financial
Statements
|
|
Consolidated
Condensed Statements of Income, Third Quarter and Nine
Months Ended December 28, 2007 and December 29, 2006
|
1
|
|
Consolidated
Condensed Balance Sheets December
28, 2007 and March 30, 2007
|
2
|
|
Consolidated
Condensed Statements of Cash Flows, Nine
Months Ended December 28, 2007 and December 29, 2006, as
restated
|
3
|
|
Notes
to Consolidated Condensed Financial Statements
|
4
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial
Condition and Results of Operations
|
35
|
Item
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
52
|
Item
4.
|
Controls
and Procedures
|
53
|
PART
II.
|
OTHER
INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
55
|
Item
1A.
|
Risk
Factors
|
58
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
58
|
Item
6.
|
Exhibits
|
59
|
Third
Quarter Ended
|
Nine
Months Ended
|
|||||||||||||||
(In
millions except per-share amounts)
|
Dec.
28, 2007
|
Dec.
29, 2006
|
Dec.
28, 2007
|
Dec.
29, 2006
|
||||||||||||
As
Restated (1)
|
As
Restated (1)
|
|||||||||||||||
Revenues
|
$ | 4,160.0 | $ | 3,640.6 | $ | 12,015.1 | $ | 10,810.8 | ||||||||
Costs
of services (excludes depreciation and amortization)
|
3,301.6 | 2,901.0 | 9,653.5 | 8,674.0 | ||||||||||||
Selling,
general and administrative
|
240.2 | 227.9 | 721.9 | 682.0 | ||||||||||||
Depreciation
and amortization
|
307.1 | 262.0 | 878.3 | 789.2 | ||||||||||||
Interest
expense
|
51.1 | 56.3 | 129.1 | 160.2 | ||||||||||||
Interest
income
|
(7.5 | ) | (8.3 | ) | (25.8 | ) | (41.8 | ) | ||||||||
Special
items
|
17.5 | 42.0 | 92.4 | 279.9 | ||||||||||||
Other
income
|
(16.3 | ) | (14.5 | ) | (41.9 | ) | (27.2 | ) | ||||||||
Total
costs and expenses
|
3,893.7 | 3,466.4 | 11,407.5 | 10,516.3 | ||||||||||||
Income
before taxes
|
266.3 | 174.2 | 607.6 | 294.5 | ||||||||||||
Taxes
on income
|
87.3 | 60.7 | 244.7 | 151.4 | ||||||||||||
Net
income
|
$ | 179.0 | $ | 113.5 | $ | 362.9 | $ | 143.1 | ||||||||
Earnings
per share:
|
||||||||||||||||
Basic
|
$ | 1.07 | $ | 0.66 | $ | 2.12 | $ | 0.81 | ||||||||
Diluted
|
$ | 1.05 | $ | 0.65 | $ | 2.08 | $ | 0.79 |
(In
millions except shares)
|
Dec.
28, 2007
|
March
30, 2007
|
||||||
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 589.1 | $ | 1,050.1 | ||||
Receivables,
net
|
4,608.4 | 4,187.4 | ||||||
Prepaid
expenses and other current assets
|
1,793.6 | 1,464.0 | ||||||
Total
current assets
|
6,991.1 | 6,701.5 | ||||||
Property
and equipment, net
|
2,656.7 | 2,539.1 | ||||||
Outsourcing
contract costs, net
|
941.5 | 1,029.5 | ||||||
Software,
net
|
527.0 | 513.3 | ||||||
Goodwill
|
3,697.4 | 2,500.1 | ||||||
Other
assets
|
547.8 | 456.7 | ||||||
Total
assets
|
$ | 15,361.5 | $ | 13,740.2 | ||||
LIABILITIES
|
||||||||
Short-term
debt and current maturities of long-term debt
|
$ | 571.4 | $ | 93.7 | ||||
Accounts
payable
|
659.1 | 855.7 | ||||||
Accrued
payroll and related costs
|
820.7 | 732.5 | ||||||
Other
accrued expenses
|
1,759.3 | 2,014.1 | ||||||
Deferred
revenue
|
1,025.7 | 1,025.5 | ||||||
Income
taxes payable and deferred income taxes
|
210.2 | 934.6 | ||||||
Total
current liabilities
|
5,046.4 | 5,656.1 | ||||||
Long-term
debt, net
|
2,515.1 | 1,412.2 | ||||||
Income
tax liabilities and deferred income taxes
|
1,127.4 | |||||||
Other
long-term liabilities
|
1,121.4 | 1,131.9 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Common
stock, par value $1.00 per share; authorized 750,000,000 shares; issued
171,739,768 (2008) and 181,105,129 (2007)
|
171.7 | 181.1 | ||||||
Additional
paid-in capital
|
1,892.0 | 1,876.3 | ||||||
Earnings
retained for use in business
|
4,008.6 | 4,140.9 | ||||||
Accumulated
other comprehensive income (loss)
|
(150.3 | ) | (304.3 | ) | ||||
5,922.0 | 5,894.0 | |||||||
Less
common stock in treasury, at cost, 8,101,652 shares (2008) and 7,787,140
shares (2007)
|
(370.8 | ) | (354.0 | ) | ||||
Total
stockholders' equity
|
5,551.2 | 5,540.0 | ||||||
Total
liabilities and stockholders' equity
|
$ | 15,361.5 | $ | 13,740.2 |
Nine
Months Ended
|
||||||||
(In
millions)
|
Dec.
28, 2007
|
Dec.
29, 2006
|
||||||
As
Restated (1)
|
||||||||
Cash
flows from operating activities:
|
||||||||
Net
income
|
$ | 362.9 | $ | 143.1 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation,
amortization and other non-cash charges
|
994.3 | 908.1 | ||||||
Gain
on disposition
|
(6.3 | ) | (20.7 | ) | ||||
Changes
in assets and liabilities, net of effects of acquisitions:
|
||||||||
Increase
in assets
|
(639.1 | ) | (488.8 | ) | ||||
Decrease
in liabilities
|
(213.3 | ) | (4.5 | ) | ||||
Net
cash provided by operating activities
|
498.5 | 537.2 | ||||||
Investing
activities:
|
||||||||
Purchases
of property and equipment
|
(644.2 | ) | (550.6 | ) | ||||
Acquisitions,
net of cash acquired
|
(1,315.6 | ) | (131.3 | ) | ||||
Outsourcing
contracts
|
(87.7 | ) | (69.4 | ) | ||||
Software
|
(129.6 | ) | (114.1 | ) | ||||
Other
investing cash flows
|
18.0 | 227.1 | ||||||
Net
cash used in investing activities
|
(2,159.1 | ) | (638.3 | ) | ||||
Financing
activities:
|
||||||||
Borrowings
of commercial paper, net
|
205.1 | 497.4 | ||||||
Borrowings
under lines of credit
|
456.6 | 440.7 | ||||||
Repayments
on lines of credit
|
(472.2 | ) | (452.1 | ) | ||||
Principal
payments on capital leases and long-term debt
|
(29.3 | ) | (25.8 | ) | ||||
Proceeds
from debt issuance
|
1,400.0 | |||||||
Proceeds
from stock option and other common stock transactions
|
82.4 | 72.6 | ||||||
Excess
tax benefit from stock-based compensation
|
10.6 | 3.1 | ||||||
Repurchase
of common stock, net of settlement
|
(474.9 | ) | (1,000.0 | ) | ||||
Other
financing cash flows
|
1.8 | (2.3 | ) | |||||
Net
cash provided by (used in) financing activities
|
1,180.1 | (466.4 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
19.5 | 2.8 | ||||||
Net
decrease in cash and cash equivalents
|
(461.0 | ) | (564.7 | ) | ||||
Cash
and cash equivalents at beginning of year
|
1,050.1 | 1,290.7 | ||||||
Cash
and cash equivalents at end of period
|
$ | 589.1 | $ | 726.0 |
Three
Months Ended December 29, 2006
|
||||||||||||||||||||||||
Adjustments
|
||||||||||||||||||||||||
As
Reported
|
Revenue
Recognition
|
Income
Tax
|
Foreign
Currency
|
Other
|
As
Restated
|
|||||||||||||||||||
Revenues
|
$ | 3,636.9 | $ | 3.7 | $ | 3,640.6 | ||||||||||||||||||
Costs
of services (excludes depreciation and
amortization)
|
2,903.1 | $ | (2.1 | ) | 2,901.0 | |||||||||||||||||||
Selling,
general and administrative
|
227.9 | 227.9 | ||||||||||||||||||||||
Depreciation
and amortization
|
262.0 | 262.0 | ||||||||||||||||||||||
Interest
expense
|
38.4 | $ | 17.9 | 56.3 | ||||||||||||||||||||
Interest
income
|
(8.4 | ) | .1 | (8.3 | ) | |||||||||||||||||||
Special
items
|
42.0 | 42.0 | ||||||||||||||||||||||
Other
(income)/expense
|
$ | (16.4 | ) | 1.9 | (14.5 | ) | ||||||||||||||||||
Total
costs and expenses
|
3,465.0 | 18.0 | (16.4 | ) | (0.2 | ) | 3,466.4 | |||||||||||||||||
(Loss)
income before taxes
|
171.9 | 3.7 | (18.0 | ) | 16.4 | 0.2 | 174.2 | |||||||||||||||||
Taxes
on income
|
57.1 | 1.5 | (4.3 | ) | 6.4 | 60.7 | ||||||||||||||||||
Net
(loss) income
|
$ | 114.8 | $ | 2.2 | $ | (13.7 | ) | $ | 10.0 | $ | 0.2 | $ | 113.5 | |||||||||||
Earnings
per share:
|
||||||||||||||||||||||||
Basic
|
$ | 0.67 | $ | 0.01 | $ | (0.08 | ) | $ | 0.06 | $ | 0.66 | |||||||||||||
Diluted*
|
$ | 0.65 | $ | 0.01 | $ | (0.08 | ) | $ | 0.06 | $ | 0.65 |
Nine
Months Ended December 29, 2006
|
||||||||||||||||||||||||
Adjustments
|
||||||||||||||||||||||||
As
Reported
|
Revenue
Recognition
|
Income
Tax
|
Foreign
Currency
|
Other
|
As
Restated
|
|||||||||||||||||||
Revenues
|
$ | 10,798.3 | $ | 12.5 | $ | 10,810.8 | ||||||||||||||||||
Costs
of services (excludes depreciation and
amortization)
|
8,682.5 | $ | (8.5 | ) | 8,674.0 | |||||||||||||||||||
Selling,
general and administrative
|
682.0 | 682.0 | ||||||||||||||||||||||
Depreciation
and amortization
|
789.2 | 789.2 | ||||||||||||||||||||||
Interest
expense
|
107.4 | $ | 52.8 | 160.2 | ||||||||||||||||||||
Interest
income
|
(41.8 | ) | (41.8 | ) | ||||||||||||||||||||
Special
items
|
279.9 | 279.9 | ||||||||||||||||||||||
Other
(income)/expense
|
$ | (35.6 | ) | 8.4 | (27.2 | ) | ||||||||||||||||||
Total
costs and expenses
|
10,499.2 | 52.8 | (35.6 | ) | (0.1 | ) | 10,516.3 | |||||||||||||||||
(Loss)
income before taxes
|
299.1 | 12.5 | (52.8 | ) | 35.6 | 0.1 | 294.5 | |||||||||||||||||
Taxes
on income
|
146.1 | 4.9 | (13.6 | ) | 14.0 | 151.4 | ||||||||||||||||||
Net
(loss) income
|
$ | 153.0 | $ | 7.6 | $ | (39.2 | ) | $ | 21.6 | $ | 0.1 | $ | 143.1 | |||||||||||
Earnings
per share:
|
||||||||||||||||||||||||
Basic
|
$ | 0.86 | $ | 0.04 | $ | (0.22 | ) | $ | 0.12 | $ | 0.81 | |||||||||||||
Diluted*
|
$ | 0.85 | $ | 0.04 | $ | (0.22 | ) | $ | 0.12 | $ | 0.79 |
Nine
Months Ended
December
29, 2006
|
||||||||||||
As
Reported
|
Adjustments
|
As
Restated
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net income
|
$ | 153.0 | $ | (9.9 | ) | $ | 143.1 | |||||
Adjustments to reconcile net
income to net cash provided by operating activities:
|
||||||||||||
Depreciation and
amortization and other non-cash charges
|
906.6 | 1.5 | 908.1 | |||||||||
Gain on dispositions, net of
tax
|
(20.7 | ) | (20.7 | ) | ||||||||
Changes in assets and
liabilities, net of effects of acquisitions
and dispositions:
|
||||||||||||
Increase in
assets
|
(439.3 | ) | (49.5 | ) | (488.8 | ) | ||||||
Decrease in
liabilities
|
(62.4 | ) | 57.9 | (4.5 | ) | |||||||
Net cash provided by operating
activities
|
$ | 537.2 | $ | 537.2 |
Third
Quarter Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
As
Restated (1)
|
||||||||
Net
income
|
$ | 179.0 | $ | 113.5 | ||||
Common
share information:
|
||||||||
Average
common shares outstanding for basic EPS
|
166.826 | 172.362 | ||||||
Dilutive
effect of common stock equivalents
|
2.967 | 3.384 | ||||||
Shares
for diluted EPS
|
169.793 | 175.746 | ||||||
Basic
EPS
|
$ | 1.07 | $ | 0.66 | ||||
Diluted
EPS
|
$ | 1.05 | $ | 0.65 |
Nine
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
As
Restated (1)
|
||||||||
Net
income
|
$ | 362.9 | $ | 143.1 | ||||
Common
share information:
|
||||||||
Average
common shares outstanding for basic EPS
|
170.907 | 177.330 | ||||||
Dilutive
effect of common stock equivalents
|
3.333 | 3.543 | ||||||
Shares
for diluted EPS
|
174.240 | 180.873 | ||||||
Basic
EPS
|
$ | 2.12 | $ | 0.81 | ||||
Diluted
EPS
|
$ | 2.08 | $ | 0.79 |
·
|
The
Company completed its settlement discussions with the IRS subject to
administrative review with respect to the examination of fiscal years 1995
through 1999. The statute of limitations is expected to close
on these years in the second quarter of fiscal 2009. The nature
of the significant items subject to examination includes bad debt
deductions, property transactions, and
credits.
|
·
|
The
Company’s U.S. federal income tax returns for fiscal years 2000 and beyond
remain subject to examination by the IRS. The IRS commenced an examination
of fiscal years 2000 through 2004 federal income tax returns beginning in
fiscal year 2007, and the Company expects to reach a settlement by
December 31, 2008. Accordingly, the Company has agreed to
extend the statute of limitations for these tax years through December 31,
2008. The nature of the significant items subject to
examination include accounting methods, depreciation and amortization,
research credits, and international tax
issues.
|
·
|
In
the first quarter of fiscal year 2009 the Company may file applications
for changes in accounting methods with the IRS associated with certain
unrecognized tax benefits, which could result in a reduction of the
associated liabilities.
|
Three
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
Cost
of services
|
$ | 3.7 | $ | 3.4 | ||||
Selling,
general and administrative
|
8.6 | 10.8 | ||||||
Total
|
$ | 12.3 | $ | 14.2 | ||||
Total
net of tax
|
$ | 7.7 | $ | 9.4 |
Nine
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
Cost
of services
|
$ | 10.7 | $ | 10.9 | ||||
Selling,
general and administrative
|
26.6 | 36.0 | ||||||
Special
items
|
10.4 | |||||||
Total
|
$ | 47.7 | $ | 46.9 | ||||
Total
net of tax
|
$ | 29.7 | $ | 31.0 |
Nine
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
Risk-free
interest rate
|
4.66 | % | 4.84 | % | ||||
Expected
volatility
|
32 | % | 28 | % | ||||
Expected
lives
|
4.14
years
|
4.08
years
|
Nine
Months Ended December 28, 2007
|
||||||||||||||||
Number
of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
|||||||||||||
Outstanding
at March 30, 2007
|
17,060,082 | $ | 45.23 | 5.86 | $ | 140.2 | ||||||||||
Granted
|
3,421,966 | 55.21 | ||||||||||||||
Exercised
|
(2,046,336 | ) | 40.26 | |||||||||||||
Canceled/Forfeited
|
(414,273 | ) | 52.38 | |||||||||||||
Expired
|
(137,498 | ) | 55.43 | |||||||||||||
Outstanding
at December 28, 2007
|
17,883,941 | 47.43 | 5.99 | 92.1 | ||||||||||||
Vested
and expected to vest in the future at December 28, 2007
|
17,581,010 | 47.30 | 5.99 | 92.0 | ||||||||||||
Exercisable
at December 28, 2007
|
12,280,048 | 44.51 | 4.66 | 88.2 |
Nine
Months Ended December 28, 2007
|
||||||||
Number
of Shares
|
Weighted
Average Fair Value
|
|||||||
Outstanding
at March 30, 2007
|
1,143,017 | $ | 48.30 | |||||
Granted
|
193,212 | 54.99 | ||||||
Released/Redeemed
|
(594,025 | ) | 47.69 | |||||
Forfeited/Canceled
|
(44,206 | ) | 49.95 | |||||
Outstanding
at December 28, 2007
|
697,998 | 50.57 |
Nine
Months Ended December 28, 2007
|
||||||||
Number
of Shares
|
Weighted
Average Fair Value
|
|||||||
Outstanding
at March 30, 2007
|
73,321 | $ | 44.44 | |||||
Granted
|
19,300 | 50.61 | ||||||
Redeemed
|
(600 | ) | 37.81 | |||||
Forfeited/Canceled
|
||||||||
Outstanding
at December 28, 2007
|
92,021 | 45.78 |
Third
Quarter Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
Foreign
exchange gain
|
$ | (11.7 | ) | $ | (16.3 | ) | ||
Other
|
(4.6 | ) | 1.8 | |||||
Total
|
$ | (16.3 | ) | $ | (14.5 | ) |
Nine
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
Foreign
exchange gain
|
$ | (37.3 | ) | $ | (35.6 | ) | ||
Other
|
(4.6 | ) | 8.4 | |||||
Total
|
$ | (41.9 | ) | $ | (27.2 | ) |
Dec.
28, 2007
|
Mar.
30, 2007
|
|||||||
Property
and equipment
|
$ | 3,517.7 | $ | 3,073.8 |
Third
Quarter Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
As
Restated (1)
|
||||||||
Net
income
|
$ | 179.0 | $ | 113.5 | ||||
Foreign
currency translation adjustment
|
9.8 | 46.3 | ||||||
Unrealized
gain on available for sale securities
|
.1 | 1.3 | ||||||
Reclassification
adjustment for gains realized in net income
|
(2.2 | ) | - | |||||
Comprehensive
income
|
$ | 186.7 | $ | 161.1 | ||||
Nine
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
As
Restated (1)
|
||||||||
Net
income
|
$ | 362.9 | $ | 143.1 | ||||
Foreign
currency translation adjustment
|
151.2 | 163.2 | ||||||
Unfunded
pension adjustment
|
4.5 | (1.2 | ) | |||||
Unrealized
gain on available for sale securities
|
.5 | 1.5 | ||||||
Reclassification
adjustment for gains realized in net income
|
(2.2 | ) | (6.9 | ) | ||||
Comprehensive
income
|
$ | 516.9 | $ | 299.7 |
(1)
|
See
Note 1, "Basis of Presentation," in Notes to Consolidated Condensed
Financial Statements.
|
Global
Commercial
|
North
American Public Sector
|
Corporate
|
Total
|
|||||||||||||
Third
Quarter Ended, December 28, 2007
|
||||||||||||||||
Revenues
|
$ | 2,725.0 | $ | 1,435.0 | $ | 4,160.0 | ||||||||||
Earnings
(loss) before special items, other income, interest and
taxes
|
223.8 | 101.7 | $ | (14.4 | ) | 311.1 | ||||||||||
Assets
|
11,214.2 | 3,643.9 | 503.4 | 15,361.5 | ||||||||||||
Third
Quarter Ended, December 29, 2006 - As Restated (1)
|
||||||||||||||||
Revenues
|
2,319.8 | 1,320.8 | 3,640.6 | |||||||||||||
Earnings
(loss) before special items, other income, interest and taxes
(2)
|
183.1 | 89.3 | (22.7 | ) | 249.7 | |||||||||||
Assets
|
8,725.8 | 3,657.5 | 780.7 | 13,164.0 |
Global
Commercial
|
North
American Public Sector
|
Corporate
|
Total
|
|||||||||||||
Nine
Months Ended, December 28, 2007
|
||||||||||||||||
Revenues
|
$ | 7,709.4 | $ | 4,305.7 | $ | 12,015.1 | ||||||||||
Earnings
(loss) before special items, other income, interest and
taxes
|
541.5 | 263.2 | $ | (43.3 | ) | 761.4 | ||||||||||
Nine
Months Ended, December 29, 2006 - As Restated (1)
|
||||||||||||||||
Revenues
|
6,823.2 | 3,987.6 | 10,810.8 | |||||||||||||
Earnings
(loss) before special items, other income, interest and taxes
(2)
|
439.8 | 278.2 | (52.4 | ) | 665.6 |
(1)
|
See
Note 1, "Basis of Presentation," in Notes to Consolidated Condensed
Financial Statements.
|
(2)
|
Prior
period Earnings (loss) before special items, interest and taxes has been
reclassified to exclude other income (expense) related to certain items in
conformance with the current quarter
presentation.
|
Third
Quarter Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
As
Restated (1)
|
||||||||
Earnings
before special items, other income, interest and taxes
|
$ | 311.1 | $ | 249.7 | ||||
Interest
expense
|
(51.1 | ) | (56.3 | ) | ||||
Interest
income
|
7.5 | 8.3 | ||||||
Special
items
|
(17.5 | ) | (42.0 | ) | ||||
Other
income
|
16.3 | 14.5 | ||||||
Income
before taxes
|
$ | 266.3 | $ | 174.2 |
Nine
Months Ended
|
||||||||
Dec.
28, 2007
|
Dec.
29, 2006
|
|||||||
As
Restated (1)
|
||||||||
Earnings
before special items, other income, interest and taxes
|
$ | 761.4 | $ | 665.6 | ||||
Interest
expense
|
(129.1 | ) | (160.2 | ) | ||||
Interest
income
|
25.8 | 41.8 | ||||||
Special
items
|
(92.4 | ) | (279.9 | ) | ||||
Other
income
|
41.9 | 27.2 | ||||||
Income
before taxes
|
$ | 607.6 | $ | 294.5 |
Global
Commercial
|
North
American Public Sector
|
Total
|
||||||||||
Balance
as of March 30, 2007, As Restated (1)
|
$ | 1,854.3 | $ | 645.8 | $ | 2,500.1 | ||||||
Additions
(Adjustments)
|
1,129.8 | (.3 | ) | 1,129.5 | ||||||||
Foreign
currency translation
|
67.8 | 67.8 | ||||||||||
Transfers
|
(33.7 | ) | 33.7 | |||||||||
Balance
as of December 28, 2007
|
$ | 3,018.2 | $ | 679.2 | $ | 3,697.4 |
December
28, 2007
|
||||||||||||
Gross
Carrying
Value
|
Accumulated
Amortization
|
Net
|
||||||||||
Software
|
$ | 1,478.0 | $ | 951.0 | $ | 527.0 | ||||||
Outsourcing
contract costs
|
2,083.8 | 1,142.3 | 941.5 | |||||||||
Other
intangible assets
|
355.8 | 136.1 | 219.7 | |||||||||
Total
intangible assets
|
$ | 3,917.6 | $ | 2,229.4 | $ | 1,688.2 |
March
30, 2007
|
||||||||||||
Gross
Carrying
Value
|
Accumulated
Amortization
|
Net
|
||||||||||
Software
|
$ | 1,343.6 | $ | 830.3 | $ | 513.3 | ||||||
Outsourcing
contract costs
|
2,197.4 | 1,167.9 | 1,029.5 | |||||||||
Other
intangible assets
|
189.1 | 108.0 | 81.1 | |||||||||
Total
intangible assets
|
$ | 3,730.1 | $ | 2,106.2 | $ | 1,623.9 |
Liability
as
of
Sept.
28, 2007
|
Total
pre-tax
charges
recorded
3rd quarter
fiscal
2008
|
Less
Payments
|
Other(1)
|
Restructuring
liability
as of
Dec.
28, 2007
|
||||||||||||||||
Workforce
reductions
|
$ | 63.8 | $ | 12.7 | $ | (26.5 | ) | $ | .6 | $ | 50.6 | |||||||||
Other
|
38.3 | 4.8 | (7.1 | ) | (2.5 | ) | 33.5 | |||||||||||||
Total
|
$ | 102.1 | $ | 17.5 | $ | (33.6 | ) | $ | (1.9 | ) | $ | 84.1 |
Liability
as of
March
30, 2007
|
Total
pre-tax
charges
recorded
year-to-date
fiscal
2008
|
Less
Payments
|
Other(1)
|
Restructuring
liability
as of
Dec.
28, 2007
|
||||||||||||||||
Workforce
reductions
|
$ | 93.5 | $ | 53.0 | $ | (99.5 | ) | $ | 3.6 | $ | 50.6 | |||||||||
Other
|
$ | 38.8 | 17.0 | (22.4 | ) | .1 | 33.5 | |||||||||||||
Total
|
$ | 132.3 | $ | 70.0 | $ | (121.9 | ) | $ | 3.7 | $ | 84.1 |
(1)
|
Primarily
foreign currency translation
adjustments.
|
As
Reported
|
Pro
forma
|
|||||||||||||||
(In
millions except per-share amounts)
|
Third
Quarter Ended
|
Third
Quarter Ended
|
||||||||||||||
December
28, 2007
|
December
29, 2006
|
December
28, 2007
|
December
29, 2006
|
|||||||||||||
Revenue
|
$ | 4,160.0 | $ | 3,640.6 | $ | 4,160.0 | $ | 3,757.5 | ||||||||
Net
Income
|
$ | 179.0 | $ | 113.5 | $ | 179.6 | $ | 105.2 | ||||||||
Basic
Earnings Per Share
|
$ | 1.07 | $ | 0.66 | $ | 1.07 | $ | 0.61 | ||||||||
Fully
Diluted Earnings Per Share
|
$ | 1.05 | $ | 0.65 | $ | 1.05 | $ | 0.60 |
As
Reported
|
Pro
forma
|
|||||||||||||||
(In
millions except per-share amounts)
|
Nine
Months Ended
|
Nine
Months Ended
|
||||||||||||||
December
28, 2007
|
December
29, 2006
|
December
28, 2007
|
December
29, 2006
|
|||||||||||||
Revenue
|
$ | 12,015.1 | $ | 10,810.7 | $ | 12,134.7 | $ | 11,156.4 | ||||||||
Net
Income
|
$ | 362.9 | $ | 143.1 | $ | 343.6 | $ | 117.5 | ||||||||
Basic
Earnings Per Share
|
$ | 2.12 | $ | 0.81 | $ | 2.01 | $ | 0.67 | ||||||||
Fully
Diluted Earnings Per Share
|
$ | 2.08 | $ | 0.79 | $ | 1.97 | $ | 0.65 |
Acquisition
Integration Liabilities
|
Paid
as of December
28, 2007
|
Balance
Remaining at December 28, 2007
|
||||||||||
Facility
consolidations
|
$ | 4.4 | $ | (0.6 | ) | $ | 3.8 | |||||
Severance
payments
|
4.9 | (1.7 | ) | 3.2 | ||||||||
Other
|
0.1 | 0.1 | ||||||||||
Total
|
$ | 9.4 | $ | (2.3 | ) | $ | 7.1 |
Acquisition
Integration Liabilities
|
Paid
as of December 28, 2007
|
Balance
Remaining at December 28, 2007
|
||||||||||
Facility
consolidations
|
$ | 6.0 | $ | .1 | $ | 5.9 | ||||||
Other
|
.1 | .1 | ||||||||||
Total
|
$ | 6.1 | $ | .1 | $ | 6.0 |
Acquisition
Integration Liabilities
|
Paid
as of December 28, 2007
|
Balance
Remaining at December 28, 2007
|
||||||||||
Severance
payments
|
$ | 7.1 | $ | 7.1 | ||||||||
Facility
consolidations
|
66.7 | 59.9 | $ | 6.8 | ||||||||
Other
|
6.1 | 3.5 | 2.6 | |||||||||
Total
|
$ | 79.9 | $ | 70.5 | $ | 9.4 |
Three
Months Ended
|
||||||||||||||||
December
28, 2007
|
December
29, 2006
|
|||||||||||||||
Pensions
|
U.S.
Plans
|
Non-U.S.
Plans
|
U.S.
Plans
|
Non-U.S.
Plans
|
||||||||||||
Service
cost
|
$ | 29.9 | $ | 21.9 | $ | 32.1 | $ | 23.3 | ||||||||
Interest
cost
|
32.5 | 30.9 | 29.1 | 25.8 | ||||||||||||
Expected
return on assets
|
(38.2 | ) | (36.7 | ) | (33.4 | ) | (31.1 | ) | ||||||||
Amortization
of transition obligation
|
.3 | .3 | ||||||||||||||
Amortization
of prior service costs
|
(.2 | ) | .1 | .8 | .1 | |||||||||||
Amortization
of unrecognized net loss
|
3.7 | 5.5 | 4.1 | 3.4 | ||||||||||||
SFAS
No. 88 settlement/curtailment
|
.1 | .2 | ||||||||||||||
Special
termination benefit recognized
|
(.2 | ) | ||||||||||||||
Net
periodic pension cost
|
$ | 27.8 | $ | 22.2 | $ | 32.7 | $ | 21.6 |
Nine
Months Ended
|
||||||||||||||||
December
28, 2007
|
December
29, 2006
|
|||||||||||||||
Pensions
|
U.S.
Plans
|
Non-U.S.
Plans
|
U.S.
Plans
|
Non-U.S.
Plans
|
||||||||||||
Service
cost
|
$ | 89.7 | $ | 62.2 | $ | 96.3 | $ | 69.8 | ||||||||
Interest
cost
|
97.5 | 90.9 | 87.3 | 75.7 | ||||||||||||
Expected
return on assets
|
(114.6 | ) | (108.2 | ) | (100.2 | ) | (89.0 | ) | ||||||||
Amortization
of transition obligation
|
.9 | .9 | ||||||||||||||
Amortization
of prior service costs
|
.2 | .3 | 2.4 | .4 | ||||||||||||
Amortization
of unrecognized net loss
|
11.1 | 16.2 | 12.3 | 12.0 | ||||||||||||
SFAS
No. 88 settlement/curtailment
|
.1 | .6 | .7 | |||||||||||||
Special
termination benefit recognized
|
6.5 | |||||||||||||||
Net
periodic pension cost
|
$ | 84.0 | $ | 62.9 | $ | 98.1 | $ | 77.0 |
Three
Months Ended
|
||||||||||||||||
December
28, 2007
|
December
29, 2006
|
|||||||||||||||
Other
Postretirement Benefits
|
U.S.
Plans
|
Non-U.S.
Plans
|
U.S.
Plans
|
Non-U.S.
Plans
|
||||||||||||
Service
cost
|
$ | .6 | $ | .1 | $ | .6 | $ | .1 | ||||||||
Interest
cost
|
2.5 | .2 | 2.2 | .1 | ||||||||||||
Expected
return on assets
|
(1.7 | ) | (1.6 | ) | ||||||||||||
Amortization
of transition obligation
|
.4 | .4 | ||||||||||||||
Amortization
of prior service costs
|
.2 | .2 | ||||||||||||||
Amortization
of unrecognized net loss
|
1.0 | .9 | ||||||||||||||
Net
provision for postretirement benefits
|
$ | 3.0 | $ | .3 | $ | 2.7 | $ | .2 |
Nine
Months Ended
|
||||||||||||||||
December
28, 2007
|
December
29, 2006
|
|||||||||||||||
Other
Postretirement Benefits
|
U.S.
Plans
|
Non-U.S.
Plans
|
U.S.
Plans
|
Non-U.S.
Plans
|
||||||||||||
Service
cost
|
$ | 1.9 | $ | .3 | $ | 1.8 | $ | .3 | ||||||||
Interest
cost
|
7.4 | .4 | 6.6 | .3 | ||||||||||||
Expected
return on assets
|
(5.1 | ) | (4.8 | ) | ||||||||||||
Amortization
of transition obligation
|
1.2 | 1.2 | ||||||||||||||
Amortization
of prior service costs
|
.5 | .6 | ||||||||||||||
Amortization
of unrecognized net loss
|
3.1 | 2.7 | ||||||||||||||
Net
provision for postretirement benefits
|
$ | 9.0 | $ | .7 | $ | 8.1 | $ | .6 |
·
|
SFAS
160 requires that minority interests be reported as part of the equity
section in the consolidated financial statements versus the current
presentation as a liability or in the mezzanine section between
liabilities and equity.
|
·
|
SFAS
160 also requires that the consolidated income statement include net
income of both the parent and the noncontrolling interest and that the net
income amounts related to both the parent and the noncontrolling interest
be disclosed on the face of the consolidated income statement, currently
noncontrolling interest net income is reported as an expense or other
deduction to arrive at consolidated net income. SFAS No. 128,
“Earnings per
Share,” will be amended to clarify that earnings-per-share data
will continue to be calculated based on amounts attributable to the
parent.
|
·
|
SFAS
160 establishes a single method of accounting for changes in a parent’s
ownership interest by clarifying that the following transactions are
equity transactions if the parent’s controlling interest is
maintained: the parent purchases additional ownership interests
in its subsidiary; the parent sells ownership interests in its subsidiary;
the subsidiary reacquires some of its ownership interests; and if the
subsidiary issues additional ownership interests. Previous
practice allowed parent ownership changes to be either accounted for as
equity transactions or as transactions with gain or loss recognition in
the income statement.
|
·
|
SFAS
160 eliminates the requirement to apply purchase accounting to a parent’s
acquisition of noncontrolling
interests.
|
·
|
When
a parent deconsolidates a subsidiary due to loss of controlling financial
interest SFAS 160 requires that the parent recognize a gain or loss in net
income. Additionally, if a parent retains a noncontrolling
equity investment that investment is measured at fair market value and
used in the calculation of the gain or loss. Previous to this
Statement any retained investments were not remeasured before use in
calculating the gain or loss.
|
·
|
SFAS
141R defines the acquirer as the entity that obtains control of one or
more businesses in the business combination and establishes the
acquisition date as the date the acquirer obtains
control.
|
·
|
SFAS
141R requires the recognition of the assets acquired, liabilities assumed
and any noncontrolling interests in the acquiree at the acquisition date,
be measured at their fair values, replacing the cost allocation process
under the previous SFAS No. 141 whereby the cost of the acquisition was
allocated to the assets and liabilities based on their estimated fair
market values.
|
·
|
Acquisition
related costs which were once included in the purchase price of the
combination and included in the cost allocation mentioned above will now
under SFAS No. 141(R) be recognized separately from the business
combination.
|
·
|
Restructuring
costs will also be required to be recognized separately from the business
combination, versus the old method of recording them as a liability at the
time of the acquisition.
|
·
|
SFAS
141R requires assets, liabilities and noncontrolling interests acquired in
stages (step acquisition) to be recognized at the full amounts of the fair
market values. Under the old method the acquirer identified the
cost of each investment, the fair value of the underlying identifiable net
assets acquired, and the goodwill on each step which resulted in measuring
the assets and liabilities at a blend of historical costs and fair values
which provided less relevant and comparable
information.
|
·
|
SFAS
141R requires an acquirer to recognize assets acquired and liabilities
assumed arising from contractual contingencies as of the acquisition date,
measured at their acquisition date fair values. SFAS No. 141
permitted deferred recognition of preacquisition contingencies under the
recognition criteria for SFAS No. 5, “Accounting for
Contingencies.”
|
·
|
Noncontractual
contingencies should be treated the same way only if it is more likely
than not that they meet the definition of an asset or liability in FASB
Concepts Statement No. 6, “Elements of Financial
Statements.” If this criterion is not met at the
acquisition date, the acquirer would account for the contingency using
other applicable GAAP.
|
·
|
Subsequent
accounting for assets and liabilities arising from contingencies acquired
includes keeping that asset or liability at the acquisition date fair
market value until new information becomes available, at which time the
new information will be evaluated and the liability will be
measured at the higher of its acquisition date fair value or the amount
that would be recognized if applying SFAS No. 5 and the asset would be measured
at the lower of its acquisition date fair value or the best estimate of
its future settlement amount.
|
·
|
Goodwill
will be measured as a residual and recognized as of the acquisition date.
Goodwill will usually equal the excess of the consideration transferred
plus the fair value of the noncontrolling interest less the fair values
allocated to the identifiable assets and liabilities
acquired.
|
·
|
SFAS
141R improves the measurement of goodwill in that it requires the
recognition of contingent consideration at the acquisition date, measured
at fair value versus the old method of recognizing contingent
consideration when the contingency was resolved and consideration was
issued or became issuable.
|
·
|
SFAS
141R requires the excess of the fair value of the identifiable net assets
acquired over the consideration transferred plus noncontrolling interest
in the acquiree to be recognized in earnings as a
gain. Currently, negative goodwill is allocated as a pro rata
reduction of the amounts that otherwise would have been assigned to
particular assets acquired.
|
·
|
Third
quarter revenues as reported rose 14.3%, and 9.8% on a constant currency
basis.
|
·
|
Nine
months year-to-date revenue as reported increased 11.1%, and 7.7% on a
constant currency basis.
|
·
|
The
Company recorded a special pretax restructuring charge of $17.5 million
($9.9 million after tax or 6 cents per share) during the third quarter of
fiscal 2008 and a $42.0 million ($35.6 million after tax or 20 cents per
share) special pretax restructuring charge during the third quarter of
fiscal 2007.
|
·
|
For
the nine months year to date of fiscal 2008, the Company recorded a
special pretax restructuring charge of $70.0 million ($49.1 million after
tax or 28 cents per share) and a $22.4 million ($13.6 million after tax or
8 cents per share) special pretax charge related to the retirement of its
Chairman and Chief Executive Officer July 30, 2007. For the
nine months year to date of fiscal 2007, the Company recorded a special
pretax restructuring charge of $297.2 million ($247.4 million after tax or
$1.37 per share) and a gain of $18.3 million ($11.2 million after tax or 6
cents per share).
|
·
|
Net
income was $179.0 million compared to $113.5 million for the prior year
third quarter and $362.9 million compared to $143.1 million for the prior
year nine months year to date.
|
·
|
Earnings
per share were $1.05 cents and $2.08 compared to 65 cents and 79 cents for
the third quarter and nine months year to date for fiscal 2008 and 2007,
respectively.
|
·
|
Business
awards of $2.3 billion and $10.8 billion were announced for the quarter
and year-to-date, respectively.
|
·
|
DSO
of 100 days was up 1 day compared to the third quarter of fiscal 2007 and
decreased 2 days compared to the second quarter of fiscal
2008.
|
·
|
During
the third quarter and nine months year to date of fiscal 2008 the Company
acquired and retired approximately 5.9 million and 9.0 million shares for
approximately $320 million and $489 million, respectively, through plan
10b5-1 share repurchases. During the nine months year to date
of fiscal 2008 the Company also received and retired approximately 2.7
million shares as final settlement of the collared accelerated share
repurchase agreement entered into during July
2006.
|
·
|
Debt-to-total
capitalization ratio at quarter-end increased to 35.7% from 21.4% at
fiscal 2007 year-end.
|
·
|
ROI
for the last twelve months ended December 28, 2007 was approximately
10.4%.
|
·
|
Cash
provided by operating activities was $498.5 million for the nine months
year to date of fiscal 2008 versus cash provided of $537.2 million for the
fiscal 2007 comparable period. Cash used in investing
activities was $2.2 billion for the first nine months of fiscal 2008
compared to $638.3 million for fiscal 2007 comparable
period. Free cash outflow for the nine months year to date was
($374.2) million for fiscal 2008 compared to $(121.1) million for the
fiscal 2007 comparable period.(1)
|
|
|
(1)
|
The
following is a reconciliation of free cash flow to the most directly
comparable Generally Accepted Accounting Principle (GAAP) financial
measure:
|
Nine
Months Ended
|
||||||||
(In
millions)
|
Dec.
28, 2007
|
Dec.
29, 2006
|
||||||
Free
cash flow
|
$ | (374.2 | ) | $ | (121.1 | ) | ||
Net
cash used in investing activities
|
2,159.1 | 638.3 | ||||||
Proceeds
from redemption of preferred stock
|
126.5 | |||||||
Acquisitions
|
(1,315.6 | ) | (131.3 | ) | ||||
Capital
lease payments
|
29.2 | 24.8 | ||||||
Net
cash provided by (used in) operating activities
|
$ | 498.5 | $ | 537.2 |
|
-
|
Defense
Information Systems Agency ($613
million)
|
|
-
|
TrygVesta
($192 million)
|
|
-
|
National
Aeronautics and Space Administration ($113
million)
|
|
-
|
Other
U.S. Federal contracts not separately identified ($765
million)
|
Third
Quarter
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Percent
|
||||||||||||
As
Restated
|
||||||||||||||||
U.S.
Commercial
|
$ | 1,031.3 | $ | 924.8 | $ | 106.5 | 11.5 | % | ||||||||
Europe
|
1,239.3 | 1,026.9 | 212.4 | 20.7 | ||||||||||||
Other
International
|
454.4 | 368.1 | 86.3 | 23.4 | ||||||||||||
Global
Commercial
|
2,725.0 | 2,319.8 | 405.2 | 17.5 | ||||||||||||
North
American Public Sector
|
1,435.0 | 1,320.8 | 114.2 | 8.6 | ||||||||||||
Total
|
$ | 4,160.0 | $ | 3,640.6 | $ | 519.4 | 14.3 | % |
Nine
Months Year-to-Date
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Percent
|
||||||||||||
As
Restated
|
||||||||||||||||
U.S.
Commercial
|
$ | 2,977.1 | $ | 2,813.0 | $ | 164.1 | 5.8 | % | ||||||||
Europe
|
3,441.0 | 2,911.6 | 529.4 | 18.2 | ||||||||||||
Other
International
|
1,291.3 | 1,098.6 | 192.7 | 17.5 | ||||||||||||
Global
Commercial
|
7,709.4 | 6,823.2 | 886.2 | 13.0 | ||||||||||||
North
American Public Sector
|
4,305.7 | 3,987.6 | 318.1 | 8.0 | ||||||||||||
Total
|
$ | 12,015.1 | $ | 10,810.8 | $ | 1,204.3 | 11.1 | % |
Constant
Currency Growth
|
Approximate
Impact of Currency Fluctuations
|
Total
|
||||||||||
Third
Quarter
|
||||||||||||
U.S.
Commercial
|
11.5 | % | 11.5 | % | ||||||||
Europe
|
9.9 | 10.8 | 20.7 | |||||||||
Other
International
|
9.6 | 13.8 | 23.4 | |||||||||
Global
Commercial
|
10.5 | 7.0 | 17.5 | |||||||||
North
American Public Sector
|
8.6 | 8.6 | ||||||||||
Total
|
9.8 | 4.5 | 14.3 | % | ||||||||
Constant
Currency Growth
|
Approximate
Impact of Currency Fluctuations
|
Total
|
||||||||||
Nine
Months Year-to-Date
|
||||||||||||
U.S.
Commercial
|
5.8 | % | 5.8 | % | ||||||||
Europe
|
9.2 | 9.0 | 18.2 | |||||||||
Other
International
|
7.1 | 10.4 | 17.5 | |||||||||
Global
Commercial
|
7.5 | 5.5 | 13.0 | |||||||||
North
American Public Sector
|
8.0 | 8.0 | ||||||||||
Total
|
7.7 | 3.4 | 11.1 | % |
Third
Quarter
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Percent
|
||||||||||||
Department
of Defense
|
$ | 970.1 | $ | 881.3 | $ | 88.8 | 10.1 | % | ||||||||
Civil
agencies
|
419.6 | 393.8 | 25.8 | 6.6 | ||||||||||||
Other
(1)
|
45.3 | 45.7 | (.4 | ) | (.9 | ) | ||||||||||
Total
North American Public Sector
|
$ | 1,435.0 | $ | 1,320.8 | $ | 114.2 | 8.6 | % |
Nine
Months Year-to-Date
|
||||||||||||||||
(Dollars
in millions)
|
2008
|
2007
|
Change
|
Percent
|
||||||||||||
Department
of Defense
|
$ | 2,882.1 | $ | 2,643.9 | $ | 238.2 | 9.0 | % | ||||||||
Civil
agencies
|
1,292.3 | 1,225.3 | 67.0 | 5.5 | ||||||||||||
Other
(1)
|
131.3 | 118.4 | 12.9 | 10.9 | ||||||||||||
Total
North American Public Sector
|
$ | 4,305.7 | $ | 3,987.6 | $ | 318.1 | 8.0 | % |
(1)
|
Other
revenues consist of state and local government as well as commercial
contracts performed by the North American Public Sector reporting
segment.
|
Third
Quarter
|
||||||||||||||||||||
(Dollars
in millions)
|
Dollar
Amount
|
Percent
of Revenue
|
Percentage
Point Change
|
|||||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||
As
Restated (1)
|
As
Restated (1)
|
|||||||||||||||||||
Cost
of services(2)
|
$ | 3,301.6 | $ | 2,901.0 | 79.4 | % | 79.7 | % | (.3 | )% | ||||||||||
Selling,
general & administrative
|
240.2 | 227.9 | 5.8 | 6.2 | (.4 | ) | ||||||||||||||
Depreciation
and amortization
|
307.1 | 262.0 | 7.4 | 7.2 | .2 | |||||||||||||||
Special
items
|
17.5 | 42.0 | 0.4 | 1.2 | (.8 | ) | ||||||||||||||
Interest
expense, net
|
43.6 | 48.0 | 1.0 | 1.3 | (.3 | ) | ||||||||||||||
Other
(income)/expense
|
(16.3 | ) | (14.5 | ) | (.4 | ) | (.4 | ) | ||||||||||||
Total
|
$ | 3,893.7 | $ | 3,466.4 | 93.6 | % | 95.2 | % | (1.6 | )% |
Nine
Months Year-to-Date
|
||||||||||||||||||||
(Dollars
in millions)
|
Dollar
Amount
|
Percent
of Revenue
|
Percentage
Point Change
|
|||||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||||||
As
Restated (1)
|
As
Restated (1)
|
|||||||||||||||||||
Cost
of services(2)
|
$ | 9,653.5 | $ | 8,674.0 | 80.3 | % | 80.2 | % | .1 | % | ||||||||||
Selling,
general & administrative
|
721.9 | 682.0 | 6.0 | 6.3 | (.3 | ) | ||||||||||||||
Depreciation
and amortization
|
878.3 | 789.2 | 7.3 | 7.3 | ||||||||||||||||
Special
items
|
92.4 | 279.9 | .8 | 2.6 | (1.8 | ) | ||||||||||||||
Interest
expense, net
|
103.3 | 118.4 | .9 | 1.1 | (.2 | ) | ||||||||||||||
Other
(income)/expense
|
(41.9 | ) | (27.2 | ) | (.4 | ) | (.2 | ) | (.2 | ) | ||||||||||
Total
|
$ | 11,407.5 | $ | 10,516.3 | 94.9 | % | 97.3 | % | (2.4 | )% |
(1)
|
See
Note 1, "Restatement of Consolidated Condensed Financial Statements," in
Notes to Consolidated Condensed Financial
Statements.
|
(2)
|
Excludes
depreciation and amortization.
|
Liability
as
of
Sept.
28, 2007
|
Total
pre-tax
charges
recorded
3rd
quarter
fiscal
2008
|
Less
Payments
|
Other(1)
|
Restructuring
liability
as of
Dec.
28, 2007
|
||||||||||||||||
Workforce
reductions
|
$ | 63.8 | $ | 12.7 | $ | (26.5 | ) | $ | .6 | $ | 50.6 | |||||||||
Other
|
38.3 | 4.8 | (7.1 | ) | (2.5 | ) | 33.5 | |||||||||||||
Total
|
$ | 102.1 | $ | 17.5 | $ | (33.6 | ) | $ | (1.9 | ) | $ | 84.1 |
Liability
as of
March
30, 2007
|
Total
pre-tax
charges
recorded
year-to-date
fiscal
2008
|
Less
Payments
|
Other(1)
|
Restructuring
liability
as of
Dec.
28, 2007
|
||||||||||||||||
Workforce
reductions
|
$ | 93.5 | $ | 53.0 | $ | (99.5 | ) | $ | 3.6 | $ | 50.6 | |||||||||
Other
|
$ | 38.8 | 17.0 | (22.4 | ) | .1 | 33.5 | |||||||||||||
Total
|
$ | 132.3 | $ | 70.0 | $ | (121.9 | ) | $ | 3.7 | $ | 84.1 |
(1)
|
Primarily
foreign currency translation
adjustments.
|
Nine
Months Year-to-Date
|
||||||||
(In
millions)
|
Fiscal
2008
|
Fiscal
2007
|
||||||
Net
cash provided by operations
|
$ | 498.5 | $ | 537.2 | ||||
Net
cash used in investing
|
(2,159.1 | ) | (638.3 | ) | ||||
Net
cash (used in) provided by financing
|
1,180.1 | (466.4 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
19.5 | 2.8 | ||||||
Net
decrease in cash and cash equivalents
|
(461.0 | ) | (564.7 | ) | ||||
Cash
and cash equivalents at beginning of year
|
1,050.1 | 1,290.7 | ||||||
Cash
and cash equivalents at quarter end
|
$ | 589.1 | $ | 726.0 |
·
|
Cash
payments under the restructuring plan were $121.8 million during the first
nine months of fiscal 2008 compared to payments of $121 million; net of
$26 million from the sale of assets related to the restructuring, for the
prior year period.
|
·
|
Net
cash payments for taxes of $336.8 million during the first nine months of
fiscal 2008 compared to payments of $202.0 million for the prior year
period.
|
·
|
Receivables,
prepaid expenses and other current assets combined increased $750.6
million (includes $122.4 million from Covansys) for the nine months year
to date for fiscal 2008 compared to increases of $444.7 million in the
prior year period.
|
·
|
Accounts
payable, accrued expenses and accrued payroll decreased $363.2 million for
the nine months year to date of fiscal 2008 compared to an increase of
$106.0 million for the prior year period. Fiscal 2008 changes
include $72.1 million of additions to accounts payable, accrued expenses
and accrued payroll from Covansys.
|
·
|
Advanced
payments were unchanged for the nine months year to date of fiscal
2008.
|
·
|
The
Company completed its settlement discussions with the IRS subject to
administrative review in December 2007 with respect to the examination of
fiscal years 1995 through 1999. The statute of limitations is
expected to close on these years in the second quarter of fiscal
2009. The nature of the significant items subject to
examination includes bad debt deductions, property transactions and
credits.
|
·
|
The
Company’s U.S. federal income tax returns for fiscal years 2000 and beyond
remain subject to examination by the IRS. The IRS commenced an
examination of fiscal years 2000 through 2004 federal income tax returns
beginning in fiscal year 2007 and the Company expects to reach a
settlement by December 31, 2008. Accordingly, the Company has
agreed to extend the statute of limitations for these tax years through
December 31, 2008. The nature of the significant items, subject
to examination, include accounting methods, depreciation and amortization,
research credits, and international tax
issues.
|
·
|
In
the first quarter of fiscal 2009 the Company may file applications for
changes in accounting methods with the IRS associated with certain
unrecognized tax benefits, which could result in a reduction of the
associated liabilities.
|
(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.
|
(a)
|
None
|
|
(b)
Purchases of Equity Securities
|
Period
|
Total
Number of Shares Purchased (1)
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Number (or Approximate Dollar Value) of Shares that May Yet be
Purchased Under the Plans or Programs
|
September
29, 2007 to October 26, 2007
|
1,398,726
|
$57.30
|
1,395,993
|
$779,984,808
|
October
27, 2007 to November 23, 2007
|
1,763,854
|
$53.55
|
1,742,844
|
$686,450,447
|
November
24, 2007 to December 28, 2007
|
2,889,605
|
$51.66
|
2,830,587
|
$539,859,404
|
(1)
|
The
Company accepted 26,018 shares of its common stock in the second quarter
ended December 28, 2007 from employees in lieu of cash due to the Company
in connection with the exercise of stock options. Such shares
of common stock are stated at cost and held as treasury shares to be used
for general corporate purposes.
|
Item
6. Exhibits
|
|
Exhibit
Number
|
Description of Exhibit
|
2.1
|
Agreement
and Plan of Merger, dated as of April 25, 2007, by and among Computer
Sciences Corporation, Surfside Acquisition Corp. and Covansys Corporation
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated April 30, 2007)
|
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 November 1, 2007 (incorporated by reference
to Exhibit 3.3 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 28, 2007)
|
10.1
|
1998
Stock Incentive Plan(1)
(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)
|
10.2
|
2001
Stock Incentive Plan(1)
(incorporated by reference to Appendix B to the Company's Proxy Statement
for the Annual Meeting of Stockholders held on August 13,
2001)
|
10.3
|
Schedule
to the 2001 Stock Incentive Plan for United Kingdom personnel(1)
(incorporated by reference to Exhibit 10.12 to the Company's Annual Report
on form 10-K for the fiscal year ended April 2, 2004)
|
10.4
|
2004
Incentive Plan(1)
(incorporated by reference to Appendix B to the Company's Proxy Statement
for the Annual Meeting of Stockholders held on August 9,
2004)
|
10.5
|
2007
Employee Incentive Plan(1) (incorporated
by reference to Appendix B to the Company Proxy Statement for the Annual
Meeting of Stockholders held on July 30, 2007)
|
10.6
|
Form
of Stock Option Agreement for employees(1)
(incorporated by reference to Exhibit 10.5 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1,
2005)
|
10.7
|
Form
of Restricted Stock Agreements for employees(1)
(incorporated by reference to Exhibit 10.6 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1,
2005)
|
10.8
|
Form
of Restricted Stock Unit Agreements for employees(1)
(incorporated by reference to Exhibit 10.7 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended December 30,
2005)
|
10.9
|
Annual
Management Incentive Plan, effective April 2, 1983(1)
(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)
|
10.10
|
Form
FY2006 Annual Management Incentive Plan 1 Worksheet(1)
(incorporated by reference to Exhibit 10.8 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 1,
2005)
|
10.11
|
Supplemental
Executive Retirement Plan, amended and restated effective December 3,
2007(1)
(incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K dated December 4, 2007)
|
10.12
|
Supplemental
Executive Retirement Plan No. 2, effective December 3, 2007(1)
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated December 4, 2007)
|
10.13
|
Excess
Plan, effective December 3, 2007(1)
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated December 4, 2007)
|
10.14
|
Deferred
Compensation Plan, amended and restated effective December 3, 2007(1)
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K dated December 4, 2007)
|
10.15
|
Severance
Plan for Senior Management and Key Employees, amended and restated
effective October 28, 2007(1)
(incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K dated November 1, 2007)
|
10.16
|
Severance
Agreement with Van B. Honeycutt, effective February 2, 1998(1)
(incorporated by reference to Exhibit 10.14 to the Company’s Quarterly
Report on Form 10-Q for the fiscal quarter ended December 26,
1997)
|
10.17
|
Employment
Agreement with Van B. Honeycutt, effective May 1, 1999(1)
(incorporated by reference to Exhibit 10.18 to the Company’s Annual Report
on Form 10-K for the fiscal year ended April 2, 1999)
|
10.18
|
Amendment
of Employment Agreement with Van B. Honeycutt, effective February 3,
2003(1)
(incorporated by reference to Exhibit 10.18 to the Company’s Quarterly
Report on Form 10-Q for the quarter ended December 27,
2002)
|
10.19
|
Amendment
No. 2 to Employment Agreement with Van B. Honeycutt, effective December 5,
2005(1)
(incorporated by reference to Exhibit 10.4 to the Company’s Current Report
on Form 8-K dated December 6, 2005)
|
10.20
|
Retirement
Agreement with Van B. Honeycutt, effective May 21, 2007(1)
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated May 25, 2007)
|
10.21
|
Management
Agreement with Michael W. Laphen, effective September 10, 2007(1)
(incorporated by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K dated September 10, 2007)
|
10.22
|
Senior
Management and Key Employee Severance Agreement dated August 11, 2003,
with Michael W. Laphen(1)
(incorporated by reference to Exhibit 10.1 to the Company’s Current Report
on Form 8-K dated December 12, 2007)
|
10.23
|
Amendment
No. 1 to Senior Management and Key Employee Severance Agreement dated
December 10, 2007, with Michael W. Laphen(1)
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report
on Form 8-K dated December 12, 2007)
|
10.24
|
General
Release of Claims, effective January 30, 2008, with Michael E. Keane(1)
(incorporated by reference to Exhibit 10.1 to the Company's Current Reprt
on Form 8-K dated January 31, 2008)
|
10.25
|
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)
|
10.26
|
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)
|
10.27
|
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)
|
10.28
|
2006
Nonemployee Director Incentive Plan (incorporated by reference to Appendix
B to the Company’s Proxy Statement for the Annual Meeting of Stockholders
held on July 31, 2006
|
10.29
|
Form
of Restricted Stock Unit Agreement for directors (incorporated by
reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10-Q
for the fiscal quarter ended July 1, 2005)
|
10.30
|
Form
of Amendment to Restricted Stock Unit Agreement with directors
(incorporated by reference to Exhibit 10.5 to the Company’s Current Report
on Form 8-K dated December 6, 2005)
|
10.31
|
Rights
Agreement dated February 18, 1998, as amended and restated effective
August 4, 2006 (incorporated by reference to Exhibit 10.22 to the
Company’s Quarterly Report on Form 10-Q for the quarter ended June 30,
2006)
|
10.32
|
Credit
Agreement dated as of June 25, 2007 (incorporated by reference to Exhibit
10.26 to the Company’s Current Report on Form 8-K dated September 5,
2007)
|
10.33
|
Credit
Agreement dated as of July 12, 2007 (incorporated by reference
to Exhibit 10.27 to the Company’s Current Report on Form 8-K dated
September 5, 2007)
|
10.34
|
Accelerated
Share Repurchase Transaction – VWAP Pricing Agreement and Supplemental
confirmation dated June 29, 2006 between Goldman, Sachs & Co. and the
Company (2) (incorporated
by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form
10-Q for the quarter ended June 30, 2006)
|
10.35
|
Collared
Accelerated Share Repurchase Transaction Agreement and Supplemental
confirmation dated June 29, 2006 between Goldman, Sachs & Co. and the
Company(2)
(incorporated by reference to Exhibit 10.25 to the Company’s
Quarterly Report on Form 10-Q for the quarter ended June 30,
2006)
|
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
|
(1)Management
contract or compensatory plan or agreement
|
|
(2)Confidential
treatment has been requested pursuant to Rule 24b-2 under the Securities
Exchange Act of 1934, as amended, for portions of this exhibit that
contain confidential commercial and financial
information.
|
COMPUTER
SCIENCES CORPORATION
|
||
Date: February
6, 2008
|
By:
|
/s/Donald G.
DeBuck
|
Donald
G. DeBuck
|
||
Vice
President and Chief Financial Officer
|
||
Exhibit
31.1
|
|||
I,
Michael W. Laphen, certify that:
|
|||
1.
|
I
have reviewed this quarterly report on Form 10-Q of Computer Sciences
Corporation;
|
||
2.
|
Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
|
||
3.
|
Based
on my knowledge, the consolidated financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
|
||
4.
|
The
registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-15(e) and 15d - 15(e)) and internal
control over financial reporting (as defined in Exchange Act rules
13a-15(f) and 15-d-15(f)) for the registrant and we
have:
|
||
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
|
||
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
|
||
c)
|
Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluations; and
|
||
d)
|
Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's third fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
|
||
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):
|
||
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarized and report financial information ;
and
|
||
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
|
Date:
February 6, 2008
|
By:
|
/s/Michael W.
Laphen
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Michael
W. Laphen
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||
Chairman
and Chief Executive Officer
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Exhibit
31.2
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I,
Donald G. DeBuck, certify that:
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1.
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I
have reviewed this quarterly report on Form 10-Q of Computer Sciences
Corporation;
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2.
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Based
on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
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3.
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Based
on my knowledge, the consolidated financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;
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4.
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The
registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-15(e) and 15d - 15(e)) and internal
control over financial reporting (as defined in Exchange Act rules
13a-15(f) and 15-d-15(f)) for the registrant and we
have:
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a)
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Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
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b)
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Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
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c)
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Evaluated
the effectiveness of the registrant's disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluations; and
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d)
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Disclosed
in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's third fiscal
quarter that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting; and
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5.
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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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a)
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All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record,
process, summarized and report financial information ;
and
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b)
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Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls over financial reporting.
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Date:
February 6, 2008
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By:
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/s/Donald G.
DeBuck
|
Donald
G. DeBuck
|
||
Vice
President and Chief Financial
Officer
|
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(1)
|
the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 28, 2007 (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.
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Dated:
February 6, 2008
|
By:
|
/s/Michael W.
Laphen
|
Michael
W. Laphen
|
||
Chairman
and Chief Executive Officer
|
|
(1)
|
the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
December 28, 2007 (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.
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Dated:
February 6, 2008
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By:
|
/s/Donald G.
DeBuck
|
Donald
G. DeBuck
|
||
Vice
President and Chief Financial
Officer
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