10-K 1 csc328201410-k.htm 10-K CSC 3.28.2014 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 2014

OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File No.: 1-4850

COMPUTER SCIENCES CORPORATION
 
(Exact name of Registrant as specified in its charter)
 
Nevada
95-2043126
(State of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
3170 Fairview Park Drive
 
Falls Church, Virginia
22042
(Address of principal executive offices)
(zip code)
 
 
Registrant's telephone number, including area code: (703) 876-1000
Securities registered pursuant to Section 12(b) of the Act:
 
 
Title of each class:
Name of each exchange on which registered
Common Stock, $1.00 par value per share
New York Stock Exchange
Preferred Stock Purchase Rights
 
 
 
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     x Yes  o No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      o Yes  x   No  
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.  x Yes  o   No  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes  o   No     
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer or a smaller reporting company.
Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o Yes  x   No

As of September 27, 2013, the aggregate market value of stock held by non-affiliates of the Registrant was approximately $7,615,698,240.
There were 144,870,144 shares of the Registrant’s common stock outstanding as of April 25, 2014.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement for its 2014 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 28, 2014, are incorporated by reference into Part III hereof.



TABLE OF CONTENTS

Item
 
 
Page
 
 
 
 
 
 
 
1.
 
1A.
 
1B.
 
2.
 
3.
 
4.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
5.
 
6.
 
7.
 
7A.
 
8.
 
9.
 
9A.
 
9B.
 
 
 
 
 
 
 
 
 
 
 
 
10.
 
11.
 
12.
 
13.
 
14.
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
15.
 




PART I

Item 1.
Business

INTRODUCTION AND HISTORY


General

Computer Sciences Corporation (CSC or the Company), incorporated in the state of Nevada, is a global provider of information technology (IT) and professional services and solutions. Since the Company was founded in 1959, CSC has helped its clients develop and integrate their IT assets in support of operational efficiency, new growth initiatives and other business objectives. CSC's clients include commercial enterprises and the U.S. federal government, as well as state, local and non-U.S. government agencies. The Company’s 79,000 employees serve approximately 2,500 clients in more than 70 countries.

The Company's mission is to enable superior returns on our client's technology investments through best-in-class industry solutions, domain expertise and global scale. CSC generally does not operate through exclusive agreements with hardware or software providers and believes this independence enables the Company to better identify and manage solutions specifically tailored to each client’s needs.

The Company’s strategy is to become a leader in next-generation IT services which include applications modernization, cloud infrastructure, cyber security, big data and mobility. Current and prospective clients are changing how they buy and consume IT services. Clients are looking for greater operational agility from their IT services and they are looking to benefit from the insights provided by mobility, social media, and big data analytics. At the same time, they continue to seek significant cost reductions by migrating from traditional IT infrastructure to the cloud.

This change in client preferences is creating a market opportunity for CSC. The Company is responding by assembling key assets and forming strategic partnerships with technology leaders. CSC has built a highly secure, flexible, private cloud infrastructure offering, BizCloud, for our enterprise as well as our government clients.

CSC also entered into a global alliance with AT&T to merge the Company’s cloud infrastructure, specialized consulting and applications expertise with AT&T’s highly-secure network and cloud infrastructure platform to help global businesses move more quickly to the cloud. This alliance helps to reduce capital intensity and creates the global scale necessary to run modernized application workloads. CSC acquired one of the leading providers of enterprise cloud management software, ServiceMesh, to facilitate the orchestration of enterprise applications across multi-vendor hybrid clouds including, Amazon Web Services, VMware and Microsoft. Additionally, ServiceMesh provides our clients with the advanced capabilities such as tiered services levels, different levels of security, self-service options, governance, policy and real time monitoring. CSC is also creating a Cloud Center of Excellence using services from Amazon, to accelerate the development of cloud solutions for enterprise and public sector customers.

CSC’s strategic partnership with HCL Technologies aims to create a world-class applications modernization delivery network. The Company expects to offer our commercial customers a global footprint of delivery capabilities for modernizing their legacy applications and moving them to the cloud. HCL and CSC will also jointly create a Banking Center of Excellence to accelerate and expand our core banking and card services solutions by leveraging our global banking expertise which includes CSC’s Hogan and Celeriti offerings.

The Company completed two divestitures in fiscal 2014 and four divestitures in fiscal 2013. The Company also continued to improve its cost structure through a $570 million cost takeout program during fiscal 2014. The Company's cost takeout program is focused on four areas: 1) supply chain and procurement savings, 2) workforce optimization, 3) enterprise overhead reduction, and 4) contract management discipline.

CSC is making investments in sales, tools and offerings as it prepares to win business from next-generation services. In fiscal 2014, the Company increased its sales force and invested in a new global order entry system, Salesforce.com. The Company is also investing in next-generation offerings such as storage-as-a-service, CSC MyWorkstyle, MachinEdge, AppSEC on Demand, CSC Big Data as-a-Service, ClimatEdge for General Insurance, and Continuous Monitoring and Advanced Persistent Threat offerings.

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CSC's service contracts are of various duration, scope and terms and conditions. CSC's contracts typically contain provisions by which customers may terminate the contract prior to completion, though such instances are infrequent due to the differentiated services provided, complex transition of personnel, assets, methodologies and processes involved. If a contract is terminated early for convenience, the Company seeks to recover tangible assets, investments and other intangible assets through stated contract terms or negotiation. If a contract is terminated early due to CSC's default, the Company may have additional liability and also its ability to compete for future business could be adversely impacted. The U.S. federal government may terminate almost all of CSC's government contracts and subcontracts either at its convenience or for default based on factors set forth in the Federal Acquisition Regulation. Upon termination for convenience of a fixed-price type contract, our U.S. federal government contracts normally entitle us to receive the purchase price for delivered items, reimbursement for contractual commitments and allowable costs for work-in-process, and a reasonable allowance for profit, although there can also be financial impact resulting from the negotiated contract settlement. Upon termination for convenience of a U.S. federal government cost reimbursable or time and material contract, we normally are entitled to reimbursement of allowable costs plus a fee. Allowable costs generally include the cost to terminate agreements with suppliers and subcontractors. The amount of the fee recovered, if any, generally is related to the portion of the work completed prior to termination and is determined by negotiation. See Risk Factor number 19 under Item 1A "Risk Factors" in this Annual Report for further discussion.

Services and Sectors

During fiscal 2014, the Company continued to make numerous organizational and operational changes to align the company's leadership, assets, and operating model with its strategy associated with the next-generation IT services and solutions. The new operating model facilitates the execution of CSC's strategy through the effective development, sales and support of a portfolio of next-generation offerings for commercial and government clients. The Company has also entered into a series of strategic partnerships designed to enhance its offerings and scale its business. The redesigned operating model, which came into effect at the beginning of fiscal 2014, resulted in a change to the Company's reportable segments for fiscal 2014 and going forward.

The Company's new reportable segments are Global Business Services (GBS), Global Infrastructure Services (GIS), and North American Public Sector (NPS). Geographically, CSC has significant operations throughout North America, Europe, Asia and Australia. Segment and geographic information are included in Note 19 to the Consolidated Financial Statements for the year ended March 28, 2014. For a discussion of risks associated with our foreign operations, see Risk Factor number 16 under Item 1A "Risk Factors".

GBS

GBS provides innovative technology solutions including consulting, applications services, and software, which address key business challenges within the customer’s industry. GBS strives to help clients understand and exploit industry trends of IT modernization and virtualization of the IT portfolio (hardware, software, networking, storage and computing assets). GBS has three primary growth engines: end-to-end applications services; consulting services; and industry aligned next-generation software and solutions. Applications Services optimize and modernize clients' business and technical environments, enabling clients to capitalize on emerging services such as cloud, mobility, and big data within new commercial models such as the "as a Service" and digital economies. The consulting business helps organizations innovate, transform, and create sustainable competitive advantage through a combination of industry, business process, technology, systems integration and change management expertise. The industry software & solutions unit’s vertically-aligned software solutions and process-based intellectual property power mission-critical transaction engines in insurance, banking, healthcare and life sciences, manufacturing and a host of diversified industries. Key competitive differentiators for GBS include its global scale, solution objectivity, depth of industry expertise, strong partnerships, vendor and product independence and end-to-end solutions and capabilities. Changing business issues such as globalization, fast-developing economies, government regulation, and growing concerns around risk, security, and compliance drive demand for these GBS offerings.

GIS


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GIS provides managed and virtual desktop solutions, unified communications and collaboration services, data center management, cyber security, compute and managed storage solutions to commercial clients globally. GIS also delivers CSC's next-generation Cloud offerings, including Infrastructure as a Service (IaaS), private Cloud solutions, CloudMail and Storage as a Service (SaaS). GIS provides a portfolio of standard offerings that have predictable outcomes and measurable results while reducing business risk and operational costs for clients. To provide clients with differentiated offerings, GIS maintains a select number of key alliance partners to make investments in developing unique offerings and go-to market strategies. This collaboration helps CSC determine the best technology, road map and opportunities to differentiate solutions, expand market reach, augment capabilities, and jointly deliver impactful solutions. GIS seeks to capitalize on the emerging market trend and rebundled IT portfolio on virtualized infrastructure.

NPS

NPS delivers IT, mission, and operations-related services to the Department of Defense, civil agencies of the U.S. federal government, as well as other foreign, state and local government agencies. Commensurate with the Company's strategy, NPS is leveraging our commercial best practices and next-generation technologies to bring scalable and more cost-effective IT solutions to government agencies that are seeking efficiency through innovation. This approach is designed to yield lower implementation and operational costs as well as a higher standard of delivery excellence. Demand for NPS offerings are driven by evolving government priorities such as: 1) migration to next-generation IT solutions, which include hybrid cloud infrastructure, application modernization and orchestration, 2) mission intelligence driven by big data solutions, 3) health IT and informatics, and 4) cyber security.

During the last three fiscal years, the Company’s revenue mix by line of business was as follows:
 
2014
 
2013
 
2012
Global Business Services
34
 %
 
35
 %
 
34
 %
Global Infrastructure Services
35

 
33

 
33

North American Public Sector
32
 %
 
33
 %
 
34
 %
Subtotal
101

 
101

 
101

Corporate and Eliminations
(1
)
 
(1
)
 
(1
)
Total Revenues
100
 %
 
100
 %
 
100
 %

Fiscal 2014 Overview

CSC improved profit margins, earnings per share (EPS) and free cash flow during 2014. Total revenue of $12,998 million decreased by 8.4% year over year, reflecting a slowdown in public sector activity, the divestiture of CSC's Australian IT staffing business in January 2013, and certain headwinds in its commercial business, such as the repositioning of its consulting business impact of restructured contracts, and price-downs. The Company continued to benefit from its cost takeout initiatives as demonstrated by the increase in EBIT margins from 4.3% to 8.0%.

Overall market demand for IT services remained healthy in fiscal 2014 as organizations sought to use technology to improve enterprise efficiency, agility and productivity. The Company expanded its sales force and invested in sales tools, next-generation offerings, internal systems and employees during fiscal 2014. There were improved bookings for GIS and GBS in the second half of the year. During fiscal 2014, GBS contract awards decreased to $6.1 billion from $7.7 billion in the prior year. Total contract value (TCV) within GIS increased from $3.2 billion to $4.1 billion. In the GBS and GIS segments, the Company is participating in the general industry trend of smaller contract awards of $100 million or less, and a decline in the number and total value of large contract awards valued at more than $100 million.

During fiscal 2014, NPS had contract awards of $4.3 billion, an improvement when compared with fiscal 2013 awards of $3.2 billion, primarily due to the signing of one large recompete contract during the second quarter of 2014. NPS awards continue to reflect the uncertainty of Federal budgets and the impact of sequestration. As a result, large program awards are delayed and government customers are shifting to smaller and shorter term contracts. New business contributed $8.2 billion and $8.9 billion to the TCV of fiscal 2014 and 2013 contract awards, respectively. The TCV of renewals and recompetes was $6.3 billion and $5.2 billion, during fiscal 2014 and fiscal 2013, respectively.


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Acquisitions and Divestitures

Acquisitions

During the third quarter of fiscal 2014, CSC acquired ServiceMesh Inc., a privately-held enterprise cloud services management company, headquartered in Santa Monica, California, with operations in the United States, Australia and the United Kingdom, for a total purchase consideration of $282 million. The acquisition enhances CSC's ability to help its clients migrate their applications into Cloud computing environments and to automate the deployment and management of enterprise applications and platforms across private, public and hybrid cloud environments. ServiceMesh is now a component of the Company's GIS segment.

Additionally, during the second quarter of fiscal 2014, CSC acquired Infochimps, Inc., a privately-held company, in an all-cash transaction for $27 million. The acquisition complements CSC’s existing Big Data business by providing a flexible, scalable, platform-as-a-service offering, and is associated to the Company's GBS segment.

During fiscal 2013, CSC acquired 42Six Solutions, LLC (42Six) for $35 million in an all cash transaction. 42Six, a software development company specializing in providing analytics and applications software products and services for the U.S. government intelligence community and the Department of Defense, was acquired primarily to enhance CSC's Big Data offerings. This acquisition is related to the Company's NPS segment.

During fiscal 2012, CSC acquired iSOFT Group Limited (iSOFT), an Australian public company, for cash consideration of $200 million and the assumption of debt of $315 million, of which $298 million was repaid immediately after the acquisition. The acquisition is related to the Company's GBS segment. The acquisition complements and strengthens CSC's software products, healthcare integration and services portfolio, and its healthcare research and development capabilities, as iSOFT provides advanced application solutions across both the public and private sectors.

In addition, CSC acquired three privately-held companies for an aggregate purchase price of $201 million during fiscal 2012, the largest being the acquisition of AppLabs for $171 million in CSC's GBS segment, and the other two acquisitions in the NPS and GBS segments. The AppLabs acquisition enhanced the Company's capabilities in application testing services and complements CSC's expertise in financial services, healthcare, manufacturing, chemical, energy, and natural resources and technology and consumer markets. The acquisitions in the NPS and GBS segments enhanced the Company's offerings in the healthcare IT and financial services industries.

Divestitures

During fiscal 2014 and 2013, the Company divested certain non-core businesses as a part of its service portfolio optimization initiative to focus on the next-generation technology services. Certain of the divestitures met the criteria of discontinued operations presentation, and consequently, their historical results have been presented as discontinued operations in the Company's Consolidated Statement of Operations.

In September 2013, CSC committed to a plan to sell a small software business, a part of the GBS segment's Industry Software & Solutions group (GBS-IS&S). CSC is actively marketing this business for sale and expects the divestiture to be completed during the first half of fiscal 2015. On July 19, 2013, CSC completed the sale of its base operations, aviation and ranges services business unit, Applied Technology Division (ATD) within its NPS Segment, to a strategic investor for cash consideration of $178 million plus a net working capital adjustment receivable of $6 million. The pre-tax gain on disposal was $65 million, representing the excess of the sale price over the carrying value of the net assets of the divested business, less transaction costs of $5 million. On May 21, 2013, CSC completed the divestiture of its flood insurance-related business process outsourcing practice (flood insurance BPO), within CSC's GBS segment, to a financial investor for cash consideration of $43 million plus a net working capital adjustment of $4 million. The pre-tax gain on disposal was $25 million, representing the excess of the net proceeds over the carrying value of the net assets of the divested business and the related transaction costs.

During the third quarter of fiscal 2013, CSC completed the divestiture of its U.S. based credit services business for cash proceeds of $1.0 billion, and its Italian consulting and system integration business for a cash payment of $35 million. During the fourth quarter of fiscal 2013, CSC also completed the divestiture of one of its enterprise systems integration

4


businesses based in Singapore and Malaysia for consideration of approximately $103 million. This business was primarily involved in the reselling of enterprise hardware and software and providing the related maintenance services. All of these businesses were primarily a part of the Company's GBS segment.

Also, during the fourth quarter of fiscal 2013, the Company divested its Australian information technology staffing unit, Paxus, for cash consideration of $79 million. Due to CSC's ongoing business involvement with Paxus, this divestiture did not qualify to be presented as discontinued operations, and therefore its results are included in continuing operations.

For further discussion of these acquisitions and divestitures, see Notes 3 and 4 to the Consolidated Financial Statements.

Competition

The IT and professional services markets in which CSC competes are not dominated by a single company or a small number of companies. A substantial number of companies offer services that overlap and are competitive with those offered by the Company. Some of these are large industrial firms, including computer manufacturers and major aerospace firms that may have greater financial resources than CSC and, in some cases, may have greater capacity to perform services similar to those provided by the Company. In addition, the increased importance of offshore labor centers has brought a number of foreign-based firms into competition with CSC. Offshore IT outsourcers selling directly to end-users have captured an increasing share of awards as they compete directly with U.S. domestic suppliers of these services. The Company continues to increase resources in offshore locations to mitigate this market development.

More recently, the accelerating demand for multi-tenant infrastructure services, commonly referred to as Cloud Computing offerings, is continuing to alter the landscape of competition. New entrants to our markets are offering service models that change the decision criteria and contracting expectations of our target market. Amazon Web Services, for example, has emerged as a strong competitor in cloud computing, and other major competitors in this area include large and well-funded technology companies that are increasingly using social, mobile, analytics and cloud technologies to create agile new business models. Smaller and more nimble companies also continue to enter and disrupt markets with innovations in cloud and other areas and could emerge as significant competitors to CSC.

The Company has responded to these changing market conditions with new capabilities, partnerships and offerings that are intended to position CSC favorably in the high-growth markets for next-generation IT services and solutions. CSC’s acquisition of ServiceMesh, for example, allows the Company to deliver new offerings with partners like VMware and Microsoft and to integrate with other cloud computing providers. The addition of big data service provider Infochimps allows for advanced analytics delivered as a service to customers. The Company’s new strategic partnerships with AT&T and HCL Technologies similarly enable expanded cloud, applications modernization and other next-generation technology services.

CSC’s ability to obtain business is dependent upon its ability to offer better strategic concepts and technical solutions, better value, a quicker response, more flexibility, better quality, a higher level of experience, or a combination of these factors. In the opinion of the Company’s management, CSC’s lines of business are positioned to compete effectively in the GBS, GIS and NPS markets based on its technology and systems expertise and large project management skills. It is also management’s opinion that CSC’s competitive position is enhanced by the full spectrum of IT and professional services it provides, including consulting and software and systems design, implementation and integration, IT and business process outsourcing and technical services, delivered to a broad commercial and government customer base.


5


EMPLOYEES

The Company has offices worldwide, and as of March 28, 2014, had approximately 79,000 employees. The services provided by CSC require proficiency in many fields, such as computer sciences, programming, telecommunications networks, mathematics, physics, engineering, astronomy, geology, operations, research, finance, economics, statistics and business administration.

U.S. SECURITIES AND EXCHANGE COMMISSION REPORTS

All of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, and other materials required to be filed with or furnished to the U.S. Securities and Exchange Commission (SEC), are available free of charge through the Company’s Internet website, www.csc.com, or through the CSC Investor Relations Office at 1-800-542-3070. The content on any website referred to in this Annual Report on Form 10-K is not incorporated by reference into this report, unless expressly noted otherwise. As soon as reasonably practical after the Company has electronically filed such material with or furnished it to the SEC, these items can be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Periodic reports, proxy statements, information statements, and other information filed with or furnished by the Company to the SEC are available on the SEC’s website, www.sec.gov, or by calling the SEC at 1-800-SEC-0330 (1-800-732-0330).

FORWARD-LOOKING AND CAUTIONARY STATEMENTS

All statements and assumptions contained in this Annual Report 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 CSC’s financial condition, results of operations, cash flows, business strategies, operating efficiencies or synergies, competitive position, growth opportunities, plans and objectives of management, and other matters. Such statements are subject to numerous assumptions, risks, uncertainties and other factors, many of which are outside of CSC’s control, which could cause actual results to differ materially from the results described in such statements. These factors include without limitation those listed below under Item 1A. "Risk Factors."

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

Item 1A.
Risk Factors

Past performance may not be a reliable indicator of future financial performance. Future performance and historical trends may be adversely affected by the following factors, as well as other variables, and should not be relied upon to project future period results.

1.
Our business may be adversely impacted as a result of changes in demand, both globally and in individual market segments, for consulting, industry software & solutions, application services and next-generation cloud offerings. In addition, worldwide economic weakness and uncertainty could adversely affect our revenue and expenses.

Current weakness in worldwide economic conditions and political uncertainty may adversely impact our customers' demand for our services in the markets in which we compete, including our customers' demand for consulting, industry software & solutions, application services and next-generation cloud offerings and other IT services. Our government customers' demand may also be affected by budgetary and political uncertainties, changing priorities, military conflicts and other events.

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2.
We are the subject of an ongoing SEC investigation and related Wells notice process as well as an SEC comment letter process, which could divert management's focus, result in substantial investigation expenses, monetary fines, and other possible remedies and have an adverse impact on our reputation and financial condition and results of operations.

On May 2, 2011, the Audit Committee commenced its investigation into certain accounting errors and irregularities, primarily in our Nordic region and in our operations in Australia. This investigation also reviewed certain aspects of our accounting practices within our Americas Outsourcing operation and certain of our contracts that involve the percentage-of-completion accounting method, including our contract with the U.K. National Health Service (NHS). As a result of this investigation, we have recorded certain out of period adjustments to our historical financial statements and taken certain remedial measures.
 
The SEC's Division of Enforcement is conducting its own investigation into the foregoing areas as well as certain related disclosure matters. The Audit Committee determined in August 2012 that its independent investigation was complete and instructed its independent counsel to cooperate with the SEC's Division of Enforcement by completing production of documents and providing any further information requested by the SEC's Division of Enforcement.

In addition to the matters noted above, the SEC's Division of Enforcement is continuing its investigation involving its concerns with certain of the Company's prior disclosures and accounting determinations with respect to the Company's contract with the NHS and the possible impact of such matters on the Company's financial statements for years prior to the Company's current fiscal year. The Company and the Audit Committee and its independent counsel are continuing to respond to SEC questions and to cooperate with the SEC's Division of Enforcement in its investigation of prior disclosures and accounting determinations with respect to the Company's contract with the NHS. The SEC's investigative activities are ongoing.

In addition, the SEC's Division of Corporation Finance has issued comment letters to the Company requesting, among other things, additional information regarding the Company's previously disclosed accounting adjustments, the Company's conclusions regarding the 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 SEC's Division of Corporation Finance's comment letter process is ongoing, and the Company is continuing to cooperate with that process.

The investigation being conducted by the SEC's Division of Enforcement and the review of our financial disclosures by the SEC's Division of Corporation Finance are continuing and could identify other accounting errors, irregularities and other areas of review. As a result, we have incurred and may continue to incur significant legal and accounting expenditures. As the Company previously disclosed, certain of its non-U.S. employees and certain of its former employees, including certain former executives in the United States, have received Wells notices from the SEC’s Division of Enforcement in connection with its ongoing investigation of the Company. The Company received a Wells notice from the SEC’s Division of Enforcement on December 11, 2013. A Wells notice is not a formal allegation or a finding of wrongdoing; it is a preliminary determination by the SEC Enforcement Staff to recommend that the Commission file a civil enforcement action or administrative proceeding against the recipient. Under SEC procedures, a recipient of a Wells notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the Commission that such an action should not be brought. The Company has been availing itself of the Wells process by making a Wells submission to explain its views concerning such matters, which are aided by its Audit Committee's independent investigation and certain expert opinions of outside professionals. The Company made such a submission on January 14, 2014 and a supplemental submission on April 9, 2014. The Company, through outside counsel, has been in continuing discussions with the SEC Enforcement Staff concerning a potential resolution of the staff’s investigation involving the Company. However, to date those discussions have not resulted in a resolution. The Company is unable to estimate with confidence or certainty how long the SEC process will last or its ultimate outcome, including whether the Company will reach a settlement with the SEC and, if so, the amount of any related monetary fine and other possible remedies. In addition, we are unable to predict the timing of the completion of the SEC's 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

7


resolved favorably for us, could have an adverse impact on our reputation, business, financial condition, results of operations or cash flows.

See Note 2 to the Consolidated Financial Statements for a discussion of these investigations and adjustments.

3.
On October 4, 2013, we entered into a binding revised project agreement (RPA) with the NHS, which consolidates the three regional contracts which comprised the Company's NHS contract into a single agreement. Under the RPA, the NHS is not subject to any trust volume commitment for Lorenzo products and the Company has agreed to non-exclusive deployment rights for all products and services in those regions in which it previously enjoyed exclusivity. The RPA effected certain changes with respect to the Companys non-Lorenzo products.

CSC and the NHS are parties to a contract under which the Company is developing and deploying an integrated electronic patient records system. On August 31, 2012, after a series of negotiations, CSC and NHS entered into an interim agreement contract change note (IACCN), which was approved by all required U.K. government officials, and which amended the terms of the parties' then current contract. On March 28, 2013, the Company and the NHS signed a letter agreement that modified certain financial terms of the IACCN. On October 4, 2013, the Company and NHS finalized a full restatement of the contract through the RPA. The RPA embodies and incorporates the principal terms of the IACCN and the letter agreement, makes certain other changes with respect the Companys non-Lorenzo product deployments and consolidates the three regional contracts which comprised the Company's NHS contract into a single agreement. The RPA has been approved by all required U.K. government officials.

Under terms first agreed in the IACCN (and as now embodied in the RPA), the NHS is not subject to any trust volume commitment for Lorenzo, and the Company has agreed to non-exclusive deployment rights for all products and services in those regions in which it previously enjoyed exclusivity. As a result, the individual trusts can choose third-party software vendors other than CSC to provide a software solution. CSC and the NHS have also agreed to a streamlined approach for trusts which wish to take the Lorenzo products within the NME regions to obtain central funding, subject to business case justification and overall availability of such funding, from the U.K. Department of Health for implementation of the Lorenzo products. In addition, CSC may offer the Lorenzo solution throughout the rest of England where trusts select CSC's solutions through a separate competitive process.

The RPA reflects certain terms not included in the IACCN relating to the Company’s continued deployment of non-Lorenzo products and services, including that the NHS will no longer be subject to commitments to purchase additional volumes of non-Lorenzo products and will instead have a committed repurposed fund of the same value which the NHS may use to purchase a wide range of services and solutions from CSC under the RPA other than new deployments of Lorenzo products. Further, the RPA also provides that the NHS may, subject to certain notice requirements and to the payment of certain decommissioning fees to CSC, require that certain services and service modules be removed, or decommissioned, from the scope of the contract and that the related service charges be adjusted accordingly. The NHS’s right to decommission services does not apply to Lorenzo services deployed after the October 4, 2013 RPA effective date or to ambulance services. The basis for decommissioning shall be either the complete closure of an NHS trust (or other NHS service recipient) or the cessation of relevant clinical services by a trust (or other NHS service recipient) (a “natural decommissioning”), or an NHS trust (or other NHS service recipient) determining that it no longer requires a particular service for any other reason (a “voluntary decommissioning”). The NHS’s ability to effect voluntary decommissioning is subject to certain aggregate life of contract monetary limits.

See Note 21 to the Consolidated Financial Statements for further discussion concerning the foregoing matters.

4.
Contracts with the U.S. federal government and related agencies account for a significant portion of our revenue and earnings.

Our NPS segment generated approximately 32% of our revenue for fiscal 2014, primarily from sales to the U.S. federal government. Consequently, we closely monitor federal budget, legislative and contracting trends and activities and continually examine our strategies to take these into consideration. The U.S. federal government continues to face significant fiscal and economic challenges such as financial deficits and the debt ceiling limit. The Administration and Congress make decisions in a constrained fiscal environment largely imposed by the

8


Budget Control Act of 2011 (Budget Act). The Budget Act established limits on discretionary spending that began with U.S. federal government fiscal year (GFY) 2012 (a U.S. federal government fiscal year starts on October 1 and ends on September 30). The Bipartisan Budget Act of 2013 (BBA) that was signed into law on December 26, 2013 did not significantly alter the spending constraints established by the Budget Act. The BBA is significant, however, in that it represents the first bipartisan budget passed by a divided Congress in 27 years and eliminates the need for Congress to pass another budget until September 2015.

The Budget Act provided for additional automatic spending reductions known as sequestration, which went into effect on March 1, 2013, and further reduce planned government spending. The BBA extended the sequestration into GFY 2023. While the defense budget sustained the largest single reduction, civil agencies and programs also were impacted significantly by sequestration cuts. In light of the Budget Act, the BBA and other deficit reduction pressures, it is likely that discretionary spending by the federal government will remain constrained for a number of years. As a result of sequestration, our U.S. federal government customers are more cautious with contract awards and spending, resulting in longer procurement cycles, smaller award values and an inclination towards extension of existing customer contracts, and we expect this behavior to continue. We are continuously reviewing our operations in an attempt to identify those programs that could be at risk so that we can make appropriate contingency plans. While we have experienced reduced funding on some of our programs, and may see further reductions, we do not expect the cancellation of any of our major programs.

The U.S. federal government has established a limit on the level of federal debt that the U.S. federal government can have outstanding, often referred to as the debt ceiling. On February 15, 2014 legislation was signed that suspends the U.S. debt limit ceiling through March 2015. Although Congress and the President have reached agreement to suspend the U.S. federal government’s debt ceiling until March 2015, significant long-term issues remain with respect to federal budgetary and spending matters and these current resolutions only have temporary effect. Any future changes to the fiscal policies of the U.S. federal government may decrease overall government funding, result in delays in the procurement of our products and services due to lack of funding, cause the U.S. federal government and government agencies to reduce their purchases under existing contracts, or cause them to exercise their rights to terminate contracts at-will or to abstain from exercising options to renew contracts, any of which would have an adverse effect on our business, financial condition, results of operations and/or cash flows.

5.
Our ability to continue to develop and expand our service offerings to address emerging business demands and technological trends will impact our future growth. If we are not successful in meeting these business challenges, our results of operations and cash flows will be materially and adversely affected.

Our ability to implement solutions for our customers incorporating new developments and improvements in technology which translate into productivity improvements for our customers and to develop service offerings that meet current and prospective customers' needs are critical to our success. The markets we serve are highly competitive. Our competitors may develop solutions or services that make our offerings obsolete. Our ability to develop and implement up to date solutions utilizing new technologies which meet evolving customer needs in cloud, consulting, industry software and solutions and application services markets will impact our future revenue growth and earnings.

6.
Our primary markets, consulting, industry software and solutions, application services, and next-generation cloud, are highly competitive markets. If we are unable to compete in these highly competitive markets, our results of operations will be materially and adversely affected.

Our competitors include large, technically competent and well capitalized companies, some of which have emerged as a result of industry consolidation, as well as “pure play” companies that have a single product focus. The competition created by these companies may place downward pressure on operating margins in our industry, particularly for technology outsourcing contract extensions or renewals. As a result, we may not be able to maintain our current operating margins, or achieve favorable operating margins, for technology outsourcing contracts extended or renewed in the future.

Any reductions in margins will require that we effectively manage our cost structure. If we fail to effectively manage our cost structure during periods with declining margins, our results of operations will be adversely affected.

9



7.
Our ability to raise additional capital for future needs will impact our ability to compete in the markets we serve.    

Our credit ratings are based upon information furnished by us or obtained by a rating agency from its own sources and are subject to revision, suspension or withdrawal by one or more rating agencies at any time. Rating agencies may review the ratings assigned to us due to developments that are beyond our control, including as a result of new standards requiring the agencies to reassess rating practices and methodologies.

If changes in our credit ratings were to occur, it could result in higher interest costs under certain of our credit facilities. It would also cause our future borrowing costs to increase and limit our access to capital markets. Any downgrades could negatively impact the perception of the Company by lenders and other third parties. In addition, certain of the Company's major contracts provide customers with a right of termination in certain circumstances in the event of a rating downgrade below investment grade.

8.
Achieving our growth objectives may prove unsuccessful. We may be unable to identify future attractive acquisitions and strategic partnerships, which may adversely affect our growth. In addition, our ability to consummate or integrate acquisitions we consummate and implement our strategic partnerships may materially and adversely affect our profitability if we fail to achieve anticipated revenue improvements and cost reductions.

We intend to identify strategic acquisitions that will allow us to expand our operations. However, we may be unable to identify attractive candidates or complete acquisitions on terms favorable to us. In addition, our ability to successfully integrate the operations we acquire and leverage these operations to generate revenue and earnings growth will significantly impact future revenue and earnings as well as investor returns. Integrating acquired operations is a significant challenge and there is no assurance that the Company will be able to manage such integrations successfully. Failure to successfully integrate acquired operations may adversely affect our cost structure, thereby reducing our margins and return on investment.

We have also entered into, and intend to identify and enter into additional strategic partnerships with other industry participants that will allow us to expand our business. However, we may be unable to identify attractive strategic partnership candidates or complete such partnerships on terms favorable to us. In addition, if we are unable to successfully implement our partnership strategies or our strategic partners do not fulfill their obligations or otherwise prove advantageous to our business, our investments in such partnerships and our anticipated business expansion could be adversely affected.

9.
We could suffer additional losses due to asset impairment charges.

We test our goodwill for impairment during the second quarter of every year, and on an interim date should events or changes in circumstances indicate the carrying value of goodwill may not be recoverable in accordance with ASC 350 "Goodwill and Other Intangible Assets". If the fair value of a reporting unit is revised downward due to declines in business performance or other factors, an impairment under ASC 350 could result and a non-cash charge could be required.

We also test certain equipment and deferred cost balances associated with contracts when the contract is materially underperforming or is expected to materially underperform in the future, as compared to the original bid model or budget. If the projected cash flows of a particular contract are not adequate to recover the unamortized cost balance of the asset group, the balance is adjusted in the tested period based on the contract's fair value. Either of these impairments could materially affect our reported net earnings.

10.
If our customers experience financial difficulties or request out-of-scope work, we may not be able to collect our receivables, which would materially and adversely affect our profitability.

Over the course of a long-term contract, our customers' financial condition may change such that their ability to pay their obligations, and our ability to collect our fees for services rendered, is adversely affected. Additionally, we may perform work for the U.S. federal government and state governments, with respect to which we must file requests for equitable adjustment or claims with the proper agency to seek recovery in whole or in part, for out-of-scope work directed or caused by the government customer in support of its critical missions. While we may resort to other methods to pursue our claims or collect our receivables, these methods are expensive and time

10


consuming and successful collection is not guaranteed. Failure to collect our receivables or prevail on our claims would have an adverse affect on our profitability.

11.
If we are unable to accurately estimate the cost of services and the time line for completion of contracts, the profitability of our contracts may be materially and adversely affected.

Our commercial and federal government contracts are typically awarded on a competitive basis. Our bids are based upon, among other items, the cost to provide the services. To generate an acceptable return on our investment in these contracts, we must be able to accurately estimate our costs to provide the services required by the contract and to complete the contracts in a timely manner. In addition, revenues from some of our contracts are recognized using the percentage-of-completion method, which requires estimates of total costs at completion, fees earned on the contract, or both. This estimation process, particularly due to the technical nature of the services being performed and the long-term nature of certain contracts, is complex and involves significant judgment. Adjustments to original estimates are often required as work progresses, experience is gained and additional information becomes known, even though the scope of the work required under the contract may not change. If we fail to accurately estimate our costs or the time required to complete a contract, the profitability of our contracts may be materially and adversely affected.

12.
We are defendants in pending litigation that may have a material and adverse impact on our profitability.

As noted in Part I, Item 3, Legal Proceedings and Note 23 to the Consolidated Financial Statements, we are currently party to a number of disputes which involve or may involve litigation. We are not able to predict the ultimate outcome of these disputes or the actual impact of these matters on our profitability. If we agree to settle these matters or judgments are secured against us, we may incur liabilities which may have a material and adverse impact on our liquidity and earnings.

13.
Our contracts with U.S. government agencies are subject to regulations, audits and cost adjustments by the U.S. government, which could materially and adversely affect our operations.

We are engaged in providing services under contracts with U.S. government agencies. These contracts are subject to extensive legal and regulatory requirements and, from time to time, such agencies audit or investigate whether our operations are being conducted in accordance with these requirements. These audits or investigations may include a review of our performance on contracts, pricing practices, cost structure and compliance with applicable laws and regulations. U.S. government audits or investigations of us, 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 us, or could lead to suspension or debarment from future U.S. government contracting. In addition, we could suffer serious reputational harm. If any of these should occur, our reputation may be adversely impacted and our relationship with the agencies we work with may be damaged, resulting in a material and adverse effect on our profitability.

14.
Our ability to provide our customers with competitive services is dependent on our ability to attract and retain qualified personnel.

Our ability to grow and provide our customers with competitive services is partially dependent on our ability to attract and retain highly motivated people with the skills necessary to serve our customers. As we noted above, the markets we serve are highly competitive and competition for skilled employees in the technology outsourcing and consulting and systems integration markets is intense for both on-shore and offshore locales. The loss of personnel could impair our ability to perform under certain of our contracts, which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

15.
Our ability to perform services for certain of our government clients is dependent on our ability to maintain necessary security clearances.

Select U.S. and non-U.S. government clients require CSC to maintain security clearances for certain of our facilities used in the performance of classified contracts. Employees who perform under certain government contracts are required to possess appropriate personnel security clearances for access to classified information granted by the respective government. The competition for qualified personnel who possess security clearance is

11


very strong in certain public sector markets. In the event that a government customer were to revoke the facility and/or personnel clearances of all or substantially all of the employees performing work under a classified contract, such revocation could be grounds for termination of the contract by the government customer. Similarly, if the Company is unable to hire sufficient qualified and cleared personnel to meet contractual commitments, a contract could be terminated for non-performance. Under either circumstance, such termination, depending on the contract value, could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

16.
Our international operations are exposed to risks, including fluctuations in exchange rates, which may be beyond our control.

For fiscal 2014, approximately 40.2% of our recognized revenues were denominated in currencies other than the U.S. dollar. The exposure to currencies other than the U.S. dollar may impact our results as they are expressed in U.S. dollars. In particular, the uncertainty with respect to the ability of certain European countries to continue to service their sovereign debt obligations and the related European financial restructuring efforts may cause the value of the euro to fluctuate. Currency variations also contribute to variations in sales of products and services in impacted jurisdictions. For example, in the event that one or more European countries were to replace the euro with another currency, sales in that country or in Europe generally may be adversely affected until stable exchange rates are established. While currency risk, including exposure to fluctuations in currency exchange rates, is partially mitigated largely by matching costs with revenues in a given currency, our exposure to fluctuations in other currencies against the U.S. dollar increases as revenue in currencies other than the U.S. dollar increase and as more of the services we provide are shifted to lower cost regions of the world. We believe that the percentage of our revenue denominated in currencies other than the U.S. dollar will continue to represent a significant portion of our revenue. Also, we believe that our ability to match revenue and expenses in a given currency will decrease as more work is performed at offshore locations.

We operate in approximately seventy countries and our operations in these countries are subject to the local legal and political environments. Our operations are subject to, among other things, employment, tax, statutory reporting, trade restriction and other regulations. Notwithstanding our best efforts, we may not be in compliance with all regulations in the countries in which we operate and may be subject to penalties and/or fines as a result. These penalties or fines may materially and adversely impact our profitability.

17.
We may be exposed to negative publicity and other potential risks if we are unable to maintain effective internal controls over financial reporting.

We are required under the Sarbanes-Oxley Act of 2002 to include a report of management on the Company's internal controls that contains an assessment by management of the effectiveness of our internal control over financial reporting. In addition, the public accounting firm auditing our financial statements must report on the effectiveness of our internal control over financial reporting. If we are unable to conclude that we have effective internal control over financial reporting or, if our independent registered public accounting firm is unable to provide us with an unqualified report as to the effectiveness of our internal control over financial reporting as of each fiscal year end, we may be exposed to negative publicity. The resulting negative publicity may materially and adversely affect our business and stock price.

18.
In the course of providing services to customers, we may inadvertently infringe on the intellectual property rights of others and be exposed to claims for damages.

The solutions we provide to our customers may inadvertently infringe on the intellectual property rights of third parties resulting in claims for damages against us or our customers. Our contracts generally indemnify our clients from claims for intellectual property infringement for the services and equipment we provide under our contracts. The expense and time of defending against these claims may have a material and adverse impact on our profitability. Additionally, the publicity we may receive as a result of infringing intellectual property rights may damage our reputation and adversely impact our ability to develop new business.


12


19.
Our contracts generally contain provisions under which a customer may terminate the contract prior to completion. Early contract terminations may materially and adversely affect our revenues and profitability.

Our contracts typically contain provisions by which customers may terminate the contract prior to completion of the term of the contract. These contracts generally allow the customer to terminate the contract for convenience upon providing written notice. If a contract is terminated for convenience, we seek, either by defined contract schedules or through negotiations, recovery of our property, plant, equipment, outsourcing costs, investments, and other intangibles. However, there is no assurance we will be able to fully recover our investments. We may not be able to replace the revenue and earnings from these contracts in the short-term. In the long-term, our reputation may be harmed by the publicity generated from contract terminations.

The U.S. federal government may terminate our government contracts either at its convenience or for default based on factors set forth in the Federal Acquisition Regulation. Similarly, where we are a subcontractor to a prime contractor with the U.S. federal government, termination of the prime contract typically will lead to termination of our subcontract. Upon termination for convenience of a fixed-price type contract, our U.S. federal government contracts normally entitle us to receive the purchase price for delivered items, reimbursement for contractual commitments and allowable costs for work-in-process, and a reasonable allowance for profit, although there can also be financial impact resulting from the negotiated contract settlement.

Upon termination for convenience of a U.S. federal government cost reimbursable or time and material contract, we normally are entitled to reimbursement of allowable costs plus a fee. Allowable costs generally include the cost to terminate agreements with suppliers and subcontractors. The amount of the fee recovered, if any, generally is related to the portion of the work completed prior to termination and is determined by negotiation.

A termination arising out of our default may expose us to liability and have a material adverse effect on our ability to compete for future contracts and orders.

In addition, certain of our U.S. federal government contracts span one or more base years and multiple option years. The U.S. federal government generally has the right not to exercise option periods and may not exercise an option period for various reasons, effectively terminating the contract when the period of performance expires. Any decision by the U.S. federal government not to exercise an option or to terminate a major contract could adversely impact our revenue, profitability and financial condition. There have been no U.S. federal government terminations or renegotiations that materially impacted the Company's consolidated financial position, results of operations or cash flows in fiscal years 2014, 2013 and 2012.

20.
Our ability to compete in certain markets we serve is dependent on our ability to continue to expand our capacity in certain offshore locations. However, as our presence in these locations increases, we are exposed to risks inherent to these locations which may adversely impact our revenue and profitability.

A significant portion of our application outsourcing and software development activities have been shifted to India, and we plan to continue to expand our presence there and in other lower cost locations. As such, we are exposed to the risks inherent to operating in India including (1) a highly competitive labor market for skilled workers which may result in significant increases in labor costs as well as shortages of qualified workers in the future, and (2) the possibility that the U.S. federal government or the European Union may enact legislation that provides significant disincentives for customers to locate certain of their operations offshore which would reduce the demand for the services we provide in India and may adversely impact our cost structure and profitability. In addition, India has experienced civil unrest and acts of terrorism and has been involved in confrontations with Pakistan. If India continues to experience this civil unrest or if its conflicts with Pakistan escalate, our operations in India could be adversely affected.

The Foreign Corrupt Practices Act (FCPA) and similar anti-bribery laws in other jurisdictions prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We pursue opportunities in certain parts of the world that experience government corruption, and in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. Our internal policies mandate compliance with all applicable anti-bribery laws. We require our partners, subcontractors, agents and others who work for us or on our behalf to comply with the FCPA and other anti-bribery laws. There is no assurance that our policies or procedures will protect us against liability under the FCPA

13


or other laws for actions taken by our agents, employees and intermediaries. If we are found to be liable for FCPA violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from severe criminal or civil penalties or other sanctions, which could have a material adverse effect on our reputation, business, results of operations or cash flows. In addition, detecting, investigating and resolving actual or alleged violations of the FCPA or other anti-bribery violations is expensive and could consume significant time and attention of our senior management.

21.
Our performance on contracts, including those on which we have partnered with third parties, may be adversely affected if we or the third parties fail to deliver on commitments.

Our contracts are increasingly complex and, in some instances, require that we partner with other parties, including software and hardware vendors, to provide the complex solutions required by our customers. Our ability to deliver the solutions and provide the services required by our customers is dependent on our and our partners' ability to meet our customers' delivery schedules. If we or our partners fail to deliver services or products on time, our ability to complete the contract may be adversely affected, which may have a material and adverse impact on our revenue and profitability.

22.
Security breaches or service interruptions could expose us to liability or impair our reputation, which could cause significant financial loss.

As a provider of information technology services to private and public sector customers operating in a number of regulated industries and countries, we handle sensitive data of our clients, including personal information and information relating to sensitive government functions. We rely on internal and external information and technological systems to manage our operations and are exposed to risk of loss resulting from breaches in the security or other failures of these systems. We collect and store certain personal and financial information from customers and employees. Security breaches could expose us to a risk of loss of this information, regulatory scrutiny, actions and penalties, extensive contractual liability litigation, reputational harm, and a loss of confidence that could potentially have an adverse impact on future business with current and potential customers.

We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure online transmission of confidential information from customers and employees. Advances in computer capabilities, new discoveries in the field of cryptography or other events or developments may result in a compromise or breach of the algorithms that we use to protect sensitive customer transaction data. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruption in our operations. We may be required to expend capital and other resources to protect against such security breaches or cyber attacks or to alleviate problems caused by such breaches or attacks. Our security measures are designed to protect against security breaches and cyber attacks, but our failure to prevent such security breaches and cyber attacks could subject us to liability, decrease our profitability and damage our reputation.

Increasing data privacy and information security obligations could impose additional regulatory pressures on our customers’ businesses, and indirectly, on our operations. In response, some of our customers have sought, and may continue to seek, to contractually impose certain strict data privacy and information security obligations on us and some of our customer contracts may not contractually limit our liability for the loss of confidential information. If we are unable to adequately address these concerns, our business and results of operations could suffer. Compliance with new privacy and security laws, requirements and regulations, where required or undertaken by us, may result in cost increases due to potential systems changes, the development of additional administrative processes and increased enforcement actions and fines and penalties. While we strive to comply with all applicable data protection laws and regulations as well as our own posted privacy policies, any failure or perceived failure to comply or any misappropriation, loss or other unauthorized disclosure of sensitive or confidential information may result in proceedings or actions against us by government or other entities, private lawsuits against us such as class actions or the loss of customers, which could potentially have an adverse effect on our business, reputation and results of operations.


14


23.
Changes in the Company's tax rates could affect our future results.

Our future effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets and liabilities, or by changes in tax laws or their interpretation. We are subject to the continuous examination of its income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for taxes. There can be no assurance that the outcomes from these examinations will not have a material adverse effect on our financial condition and operating results.

24.
We may be adversely affected by disruptions in the credit markets, including disruptions that reduce our customers' access to credit and increase the costs to our customers of obtaining credit.

The credit markets have historically been volatile and therefore it is not possible for the Company to predict the ability of our clients and customers to access short-term financing and other forms of capital. If a disruption in the credit markets were to occur, it could also pose a risk to our business if customers and suppliers are unable to obtain financing to meet payment or delivery obligations to the Company. In addition, customers may decide to downsize, defer or cancel contracts which could negatively affect our revenue.

25.
Our hedging program is subject to counterparty default risk.

We enter into foreign currency forward contracts and options and interest rate swaps with a number of counterparties. As of March 28, 2014, we had outstanding foreign currency forward contracts with a notional value of $816 million, outstanding option contracts with a notional value of $81 million, and interest rate swap transactions of $275 million. As a result, we are subject to the risk that the counterparty to one or more of these contracts defaults on its performance under the contract. During an economic downturn, the counterparty's financial condition may deteriorate rapidly and with little notice and we may be unable to take action to protect our exposure. In the event of a counterparty default, we could incur significant losses, which may harm our business and financial condition. In the event that one or more of our counterparties becomes insolvent or files for bankruptcy, our ability to eventually recover any losses suffered as a result of that counterparty's default may be limited by the liquidity of the counterparty.

26.
We derive significant revenue and profit from contracts awarded through competitive bidding processes, which can impose substantial costs on us, and we will not achieve revenue and profit objectives if we fail to bid on such projects effectively.

We derive significant revenue and profit from government contracts that are awarded through competitive bidding processes. We expect that most of the government business we seek in the foreseeable future will be awarded through competitive bidding. Competitive bidding imposes substantial costs and presents a number of risks, including:

the substantial cost and managerial time and effort that we spend to prepare bids and proposals for contracts that may or may not be awarded to us;
the need to estimate accurately the resources and costs that will be required to service any contracts we are awarded, sometimes in advance of the final determination of their full scope and design; 
the expense and delay that may arise if our competitors protest or challenge awards made to us pursuant to competitive bidding, and the risk that such protests or challenges could result in the requirement to resubmit bids, and in the termination, reduction, or modification of the awarded contracts; and
the opportunity cost of not bidding on and winning other contracts we might otherwise pursue.

Within our NPS segment, we are also seeing an increasing number of bid protests from unsuccessful bidders on new program awards. Bid protests could result in litigation expenses to the company, contract modifications or the award decision being overturned and loss of the contract award. Even where a bid protest does not result in the loss of an award, the resolution can extend the time until the contract activity can begin, and delay earnings.


15


27.
Catastrophic events or climate conditions may disrupt our business.

The Company and its customers are subject to various federal, state, local and foreign government requirements relating to the protection of the environment. Our revenues and results of operations may be adversely affected by the passage of climate change and other environmental legislation and regulations. For example, new legislation or regulations may result in increased costs directly relating to our compliance or indirectly to the extent that such requirements increase prices charged to us by vendors because of increased compliance costs. At this point, we are unable to determine the impact that climate change and other environmental legislation and regulations could have on our overall business.

Item 1B.
Unresolved Staff Comments

On February 11, 2011, the Company received a letter from the Staff of the SEC's Division of Corporation Finance as part of its review of the Company's Form 10-Q for the fiscal quarter ended October 1, 2010 and Form 10-Q for the fiscal quarter ended December 31, 2010. The Company responded to that letter, which has been followed by a series of new letters with additional comments from the Staff on subsequent filings. The Company has responded to each of these letters with supplemental information and analyses to address the comments from the Staff. The Staff's comments have focused on a number of issues and have requested, among other things, additional information regarding the Company's previously disclosed accounting adjustments, the Company's conclusions regarding the 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. As of the date of this annual report, the Company has not received confirmation from the Staff that its review process is complete. The Company intends to continue to work with the Staff and respond to any remaining comments. See Risk Factor number 2 under Item 1A. "Risk Factors" in this Annual Report.

On August 23, 2012, the Company received a letter from the Staff of the SEC's Division of Corporation Finance as part of its review of the Company's Form 10-K for the fiscal year ended March 30, 2012. The Staff requested additional information and provided comments related to our acquisition of iSOFT Group Limited, revenue recognition policies and litigation matters. The Company responded to that letter on September 7, 2012 and September 19, 2012 and believes that it has addressed the Staff's comments. As of the date of this annual report, the Company has not received confirmation from the Staff that its review process is complete. The Company intends to continue to work with the Staff and respond to any remaining comments.

On July 30, 2013, the Company received a letter from the Staff of the SEC's Division of Corporation Finance as part of its review of the Company's Form 10-K for the fiscal year ended March 29, 2013. The Staff requested additional information and provided comments related to CSC's risk factors, critical accounting estimates, revenue recognition policies and litigation matters. The Company responded to that letter on August 26, 2013. On October 2, 2013, the Company received a follow-up letter from the Staff on our revenue recognition policies. The Company responded to that letter and believes that it has addressed the Staff's comments. As of the date of this annual report, the Company has not received confirmation from the Staff that its review process is complete. The Company intends to continue to work with the Staff and respond to any remaining comments.


16


Item 2.
Properties

Following is a summary of properties owned and leased by CSC or its subsidiaries as of March 28, 2014:
Properties Owned
 
Approximate
Square Footage
 
General Usage
Blythewood, South Carolina
 
456,000

 
Computer and General Office
Falls Church, Virginia
 
401,000

 
General Office
Copenhagen, Denmark
 
368,000

 
Computer and General Office
Aldershot, United Kingdom
 
211,000

 
General Office
Newark, Delaware
 
176,000

 
Computer and General Office
Chennai, India
 
159,000

 
General Office
Daleville, Alabama
 
150,000

 
General Office
Norwich, Connecticut
 
144,000

 
Computer and General Office
Petaling Jaya, Malaysia
 
126,000

 
Computer and General Office
Meriden, Connecticut
 
118,000

 
Computer and General Office
Maidstone, United Kingdom
 
79,000

 
Computer and General Office
Jacksonville, Illinois
 
60,000

 
General Office
Chesterfield, United Kingdom
 
51,000

 
General Office
Singapore, Singapore
 
46,000

 
General Office
Tunbridge Wells, United Kingdom
 
43,000

 
Computer and General Office
Sterling, Virginia
 
41,000

 
General Office
Various other U.S. and foreign locations
 
93,000

 
General Office

Properties Leased
 
Approximate
Square Footage
 
General Usage
India
 
2,056,000

 
General Office
Washington, D.C. area
 
1,701,000

 
Computer and General Office
Germany
 
624,000

 
General Office
Australia & other Pacific Rim locations
 
582,000

 
Computer and General Office
United Kingdom
 
382,000

 
Computer and General Office
Texas
 
368,000

 
Computer and General Office
Denmark
 
350,000

 
General Office
North Carolina
 
318,000

 
General Office
France
 
239,000

 
General Office
New York
 
232,000

 
General Office
New Jersey
 
222,000

 
General Office
Connecticut
 
173,000

 
Computer and General Office
Spain
 
155,000

 
General Office
Illinois
 
150,000

 
General Office
Alabama
 
148,000

 
General Office
Sweden
 
146,000

 
General Office
Delaware
 
134,000

 
General Office
California
 
128,000

 
General Office
Canada
 
118,000

 
General Office
China
 
105,000

 
General Office
Bulgaria
 
101,000

 
General Office
Various other U.S. and foreign locations
 
1,379,000

 
Computer and General Office

Upon expiration of its leases, the Company expects to obtain renewals or to lease alternative space. Lease expiration dates range from fiscal 2015 through 2030. We believe that all of the properties are well-maintained, suitable and adequate to meet current and anticipated requirements.


17


Item 3.
Legal Proceedings

The information required by this Item is set forth in Note 23, Commitments & Contingencies of the Notes to the Consolidated Financial Statements under the caption “Contingencies”, contained in Part II - Item 8 of this filing. Such information is incorporated herein by reference and made a part hereof.

Item 4.
Mine Safety Disclosures

Not applicable.

Executive Officers of the Registrant

Name
 
Age
 
Year First
Elected as
an Officer
 
Term as an
Officer
 
Position Held With the Registrant as of the filing date
 
Family
Relationship
J. Michael Lawrie
 
60
 
2012
 
Indefinite
 
President and Chief Executive Officer
 
None
Paul N. Saleh
 
57
 
2012
 
Indefinite
 
Executive Vice President and Chief Financial Officer
 
None
Romil Bahl
 
45
 
2014
 
Indefinite
 
Executive Vice President and General Manager, Global Industries
 
None
Gary M. Budzinski
 
57
 
2012
 
Indefinite
 
Executive Vice President and General Manager, Global Infrastructure Services
 
None
Thomas R. Colan
 
58
 
2012
 
Indefinite
 
Vice President and Controller
 
None
William L. Deckelman, Jr.
 
56
 
2008
 
Indefinite
 
Executive Vice President and General Counsel
 
None
Donna Lesch
 
54
 
2014
 
Indefinite
 
Executive Vice President and Chief Human Resources Officer
 
None
John P. Maguire
 
53
 
2013
 
Indefinite
 
Executive Vice President and General Manager for Global Sales and Marketing and Regional Operations
 
None
James R. Smith
 
47
 
2013
 
Indefinite
 
Executive Vice President and General Manager, Global Business Services
 
None
David W. Zolet
 
53
 
2012
 
Indefinite
 
Executive Vice President and General Manager, North American Public Sector
 
None

Business Experience of Executive Officers

J. Michael Lawrie joined CSC as President and Chief Executive Officer on March 19, 2012 and as a member of its Board of Directors in February 2012. Prior to joining CSC, he served as the Chief Executive Officer of UK-based Misys plc, a leading global IT solutions provider to the financial services industry, from November 2006 to March 2012. Mr. Lawrie also served as the Executive Chairman of Allscripts-Misys Healthcare Solutions, Inc., from October 2008 to August 2010. From 2005 to 2006, Mr. Lawrie was a general partner with ValueAct Capital, a San Francisco-based private investment firm. He also served as Chief Executive Officer of Siebel Systems, Inc., an international software and solutions company, from 2004 to 2005. Mr. Lawrie also spent 27 years with IBM where he rose to Senior Vice President and Group Executive, responsible for sales and distribution of all IBM products and services worldwide. From 1998 to 2001, Mr. Lawrie was General Manager for IBM's business in Europe, the Middle East and Africa, which included operations in 124 countries and 90,000 employees. Prior to that, Mr. Lawrie served as General Manager of Industries for IBM's business operations in Asia Pacific, based in Tokyo. Mr. Lawrie is currently the lead independent, non-executive Director of Juniper Networks, Inc. and is also a Trustee of Drexel University, Philadelphia.

Paul N. Saleh joined CSC as Vice President and Chief Financial Officer on May 23, 2012. His current CSC job title is Executive Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Saleh served as the Chief Financial Officer of Gannett Co. from 2010 to 2012. Prior to his tenure at Gannett Co., from 2008 to 2010, Mr. Saleh was a Managing Partner at Menza Partners, an operational and financial advisory group focusing on media, telecommunications, and technology industries.  Prior to that, he served as Chief Financial Officer of Sprint Nextel Communications from 2001 to 2007 and as Interim Chief Executive Officer of Sprint Nextel until 2008.  He served as Senior Vice President and Chief Financial Officer of Walt Disney International where he also held various other senior positions from 1997 to 2001. 

Romil Bahl is currently the Executive Vice President and General Manager, Global Industries. Prior to joining CSC, Mr. Bahl was President and Chief Executive Officer of PRGX Global, a provider of business analytics and recovery audit

18


services, from 2009 to 2013. Prior to his tenure at PRGX, Mr. Bahl led the systems integration business unit of Infosys and was a co-founder of the company’s business consulting subsidiary in the U.S., where he led the industry practices and the go-to-market services portfolio from 2004 to 2009. Prior to that, he also served as head of Global Consulting Services at EDS and the European Strategic Technology Practice A.T. Kearney from 1995 to 2004.

Gary M. Budzinski is currently the Executive Vice President and General Manager, Global Infrastructure Services. Prior to joining CSC, Mr. Budzinski was CEO and Founder of Integrity Innovation International, LLC, a private IT consulting firm from 2011 to 2012. Prior to that, he was Senior Vice President and General Manager at Hewlett Packard's Technology Services business unit from 2005 to 2011.

Thomas R. Colan was appointed Vice President, Controller and Principal Accounting Officer in August, 2012. Prior to joining the Company, Mr. Colan served as Executive Vice President and Chief Accounting Officer at Discovery Communications from 2008 to 2012. Prior to his tenure at Discovery Communications, Mr. Colan served as Senior Vice President, Controller and Treasurer at AOL Online/Time Warner. Prior to that, he held various financial leadership positions at GTE, Planning Research Corporation and Coopers & Lybrand.

William L. Deckelman, Jr. is Executive Vice President and General Counsel. Mr. Deckelman joined CSC in January 2008 and served as Vice President, General Counsel and Secretary from 2008 to 2012. Prior to joining CSC, Mr. Deckelman served as Executive Vice President and General Counsel of Affiliated Computer Services Inc., since March 2000, and served as a director from 2000 to 2003, holding various executive positions there since 1989.

Donna Lesch is the Executive Vice President and Chief Human Resources Officer. She joined CSC in February 2014. Prior to joining CSC, she served as Associate Principal for Change Logic, a management consulting firm from 2011 to 2014. Prior to that, she served as Executive Vice President, Human Resources for Knowledge Universe from 2007 to 2011. Prior to that, she served in senior Human Resources positions for ACC Capital, Westcorp and American Savings Bank.
  
John P. Maguire was appointed Executive Vice President and General Manager, Global Sales & Marketing and Regional Operations in May 2013. Prior to joining the Company, Mr. Maguire served as Senior Vice President at Hewlett-Packard from 2011 to 2013. Prior to that, he served as Managing Partner at Accenture from 2002 to 2011. Prior to that he served as Vice President at IBM from 1984 to 2002.

James R. Smith is the Executive Vice President and General Manager, Global Business Services. He joined CSC in August 2013. Prior to joining CSC, Mr. Smith served as Chief Executive Officer of Motricity, a provider of cloud-based mobile enterprise and analytics solutions from 2009 to 2012. Prior to that, he held various executive leadership positions at Avaya from 2001 to 2008. Prior to that, he was an Associate Partner at Accenture.

David W. Zolet is Executive Vice President and General Manager, North American Public Sector in June 2012. Mr. Zolet joined CSC as Vice President of Business Development in the North American Public Sector in July 2010 and was promoted to President, North American Public Sector in June 2012. Prior to his tenure at the Company, from 2009 to 2012, Mr. Zolet was a Vice President of Public Sector Systems Integration at IBM. Prior to that, he held various senior positions at Northrop Grumman Corporation.

PART II

Item 5.
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

(a)
Holders

Common stock of Computer Sciences Corporation is listed and traded on the New York Stock Exchange under the ticker symbol “CSC.”

As of April 25, 2014, the number of registered shareholders of Computer Sciences Corporation’s common stock was 6,061. The table shows the high and low sales prices of the Company’s common stock as reported on the composite tape of the New York Stock Exchange for each quarter during the last two fiscal years.

19


 
 
2014
 
2013
Fiscal Quarter
 
High
 
Low
 
High
 
Low
1st
 
$
50.26

 
$
42.43

 
$
30.28

 
$
23.10

2nd
 
54.80

 
43.99

 
34.74

 
22.19

3rd
 
55.91

 
46.80

 
40.63

 
30.15

4th
 
64.10

 
52.92

 
50.59

 
39.02


Cash dividends declared on our common stock for each quarter of fiscal 2014 and fiscal 2013 are included in Selected Quarterly Financial Data (Unaudited) of this Annual Report on Form 10-K. We expect to return excess cash flow to our stockholders from time to time through our common stock repurchase program described below or the payment of dividends. However, there can be no assurance that share repurchases will occur or future dividends will be declared or paid. Our share repurchase program and the declaration and payment of future dividends, the amount of any such share repurchases or dividends, and the establishment of record and payment dates for dividends, if any, are subject to final determination by our Board of Directors after review of our current strategy and financial performance and position, among other things.

(b) Purchases of Equity Securities

The following table provides information on a monthly basis for the fourth quarter ended March 28, 2014 with respect to the Company’s purchase 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 (2)
 
Approximate
Dollar Value
of Shares that
May Yet be Purchased
Under the Plans or Programs (2)
December 28, 2013 to January 24, 2014
 
448,592
 
$55.73
 
448,570
 
$251,135,275
January 25, 2014 to February 21, 2014
 
805,589
 
$60.47
 
795,882
 
$202,986,462
February 22, 2014 to March 28, 2014
 
1,310,265
 
$62.45
 
1,249,900
 
$124,860,304

(1) 
The Company accepted 40,087 shares of common stock in the quarter ended March 28, 2014 tendered by employees in lieu of cash due to the Company in connection with the exercise of stock options. The Company accepted 30,007 shares of its common stock in the quarter ended March 28, 2014 from employees in lieu of cash due to the Company in connection with the issuance of shares of common stock related to vested RSUs. Such shares of common stock are stated at cost and held as treasury shares.

(2) 
On December 13, 2010, the Company publicly announced that its Board of Directors approved a share repurchase program authorizing up to $1 billion in repurchases of shares of the Company’s outstanding common stock. CSC is implementing the program through purchases made in open market transactions in compliance with SEC Rule 10b-18, subject to market conditions, and applicable state and federal legal requirements. Share repurchases will be funded with available cash. The timing, volume, and nature of share repurchases will be at the discretion of management, and may be suspended or discontinued at any time. CSC’s Board of Directors has not established an end date for the new repurchase program. The Company repurchased 2,494,352 shares of its common stock in the fiscal quarter ended March 28, 2014 under the share repurchase program.


20


(c) Performance Graph

The following graph compares the cumulative total return on CSC common stock during the last five fiscal years with the cumulative total return on the Standard & Poor’s 500 Stock Index and the S&P North American Technology Services Index.

CSC Total Shareholder Return
(Period Ended March 28, 2014)



Indexed Return Chart (2009 = 100)
 
Return 2010
 
Return 2011
 
Return 2012
 
Return 2013
 
Return 2014
 
CAGR
CSC common stock
35.12
%
 
-7.61
 %
 
-37.74
 %
 
68.31
%
 
24.35
%
 
10.22
%
S&P 500 Index
42.85
%
 
15.36
 %
 
8.00
 %
 
13.96
%
 
20.88
%
 
19.64
%
S&P North American Technology Services Index
37.63
%
 
18.49
 %
 
15.36
 %
 
18.02
%
 
22.38
%
 
22.13
%

Assumes $100 invested on April 3, 2009, in CSC common stock, the S&P 500 Index, and the S&P North American Technology Services Index, formerly the Goldman Sachs Technology Services Index. Indexed amounts and return percentages follow CSC fiscal years.

(d) Equity Compensation Plans

See Item 12 of this Annual Report on Form 10-K for information regarding our equity compensation plans.


21


Item 6.
Selected Financial Data

COMPUTER SCIENCES CORPORATION

 
 
Five Year Review
Amounts in millions, except per share amounts
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
 
April 1, 2011
 
April 2, 2010
Total assets
 
$
11,389

 
$
11,251

 
$
11,189

 
$
16,120

 
$
16,455

Debt
 
 
 
 
 
 
 
 
 
 
Long-term, net of current maturities
 
2,207

 
2,498

 
1,486

 
2,409

 
3,669

Short-term
 
444

 

 
43

 
29

 
21

Current maturities
 
237

 
234

 
1,211

 
141

 
54

Total
 
2,888

 
2,732

 
2,740

 
2,579

 
3,744

Stockholders’ equity
 
3,944

 
3,160

 
2,834

 
7,560

 
6,508

Debt to total capitalization
 
42.3
%
 
46.4
%
 
49.2
%
 
25.4
%
 
36.5
%


 
 
Five Year Review
 
 
Fiscal Year
Amounts in millions, except per-share amount
 
2014(5)
 
2013(1)(5)
 
2012(1)(5)
 
2011(1)(5)
 
2010(1)(5)
Revenues
 
$
12,998

 
$
14,195

 
$
14,476

 
$
14,597

 
$
14,537

Costs of services (excludes depreciation and amortization, contract charge, settlement charge and restructuring costs of $70 (2014), $238 (2013) and $137 (2012))
 
9,567

 
11,100

 
12,181

 
11,653

 
11,389

Costs of services – specified contract charge (excludes amount charged to revenue of $204)(2)
 

 

 
1,281

 

 

Costs of services – settlement charge (excludes amount charged to revenue of $42)(3)
 

 

 
227

 

 

Restructuring costs
 
76

 
264

 
140

 

 

Goodwill impairment(4)
 

 

 
2,745

 

 

Income (loss) from continuing operations before taxes
 
910

 
449

 
(4,487
)
 
827

 
881

Taxes on income (benefit)
 
289

 
(49
)
 
(96
)
 
194

 
135

Income (loss) from continuing operations, net of taxes
 
621

 
498

 
(4,391
)
 
633

 
746

Income (loss) from discontinued operations, net of taxes
 
69

 
481

 
166

 
126

 
88

Net income (loss) attributable to CSC common shareholders
 
$
674

 
$
961

 
$
(4,242
)
 
$
740

 
$
817

Earnings (loss) per common share:
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
4.09

 
$
3.11

 
$
(28.44
)
 
$
3.97

 
$
4.80

Discontinued operations
 
0.47

 
3.11

 
1.07

 
0.82
 
0.56

 
 
$
4.56

 
$
6.22

 
$
(27.37
)
 
$
4.79

 
$
5.36

Diluted:
 
 
 
 
 
 
 
 
 
 
Continuing operations
 
$
4.01

 
$
3.09

 
$
(28.44
)
 
$
3.93

 
$
4.73

Discontinued operations
 
0.46

 
3.09

 
1.07

 
0.80
 
0.55

 
 
$
4.47

 
$
6.18

 
$
(27.37
)
 
$
4.73

 
$
5.28

 
 
 
 
 
 
 
 
 
 
 
Cash dividend per common share(6)
 
$
0.80

 
$
0.80

 
$
0.80

 
$
0.70

 
$


(1) 
Fiscal 2013 and prior year amounts have been recast to present discontinued operations for divestments of two businesses in fiscal 2014, and a business that CSC has committed to a plan to sell in fiscal 2014 and is expected to sell in fiscal 2015.
(2) 
Fiscal 2012 specified contract charge related to the Company’s contract with the U.K. National Health Service. See Note 21 of the Consolidated Financial Statements.
(3) 
Fiscal 2012 settlement charge related to the contract settlement with the federal government. See Note 22 of the Consolidated Financial Statements.
(4) 
Fiscal 2012 goodwill impairment charge related to GIS segment and two of the reporting units in the GBS segment. See Note 11 of the Consolidated Financial Statements.
(5) 
The Company recorded various out of period adjustments in fiscal 2014, 2013, 2012, 2011 and 2010 that should have been recorded in prior fiscal years. See Note 2 of the Consolidated Financial Statements.
(6) 
In fiscal 2011, the Company implemented a regular quarterly dividend.

22


Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

The following discussion and analysis provides information management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of the Company. This discussion should be read in conjunction with the Company's consolidated financial statements and associated notes as of and for the year ended March 28, 2014.

There are three primary objectives of this discussion:

1.
Provide a narrative on the consolidated financial statements, as presented through the eyes of management;
2.
Enhance the disclosures in the consolidated financial statements and footnotes by providing context within which the consolidated financial statements should be analyzed; and
3.
Provide information to assist the reader in ascertaining the predictive value of the reported financial results.

To achieve these objectives, the management discussion and analysis is presented in the following sections:

Overview - includes a description of the Company's business, how it earns revenue and generates cash, as well as a discussion of economic and industry factors, key business drivers, key performance indicators and fiscal 2014
highlights.

Results of Operations - discusses year-over-year changes to operating results for fiscal 2012 through fiscal 2014, describing the factors affecting revenue on a consolidated and reportable segment basis, including new contracts, acquisitions and divestitures and currency impacts, and also describing the factors affecting changes in the Company's major cost and expense categories.

Financial Condition - discusses causes of changes in cash flows and describes the Company's liquidity and available capital resources.

Critical Accounting Estimates - discusses the significant accounting policies that require critical judgments and estimates.

Overview

CSC is a global leader of information technology (IT) and professional services and solutions. The Company's mission is to enable superior returns on our client's technology investments through best-in-class industry solutions, domain expertise and global scale.

During fiscal 2014, the Company continued to focus on its strategy on leading the next-generation of IT services and solutions. CSC has undertaken numerous organizational and operational changes to align the company's leadership, assets, and operating model with this strategy. The new operating model supports the execution of CSC's strategy by facilitating the effective development, sales and support of a portfolio of next-generation offerings for commercial and government clients. The redesigned operating model, which came into effect at the beginning of fiscal 2014, resulted in a change to the Company's reportable segments for fiscal 2014 and going forward.

The Company’s new reportable segments are as follows:

Global Business Services (GBS) – GBS provides innovative, high-value technology solutions including consulting, applications services, and software, which address key business challenges within the customer’s industry. GBS strives to help clients understand and exploit industry trends of IT modernization and virtualization of the IT portfolio ( hardware, software, networking, storage and computing assets). GBS has three primary growth engines: end-to-end applications services; value-driven consulting services; and industry aligned next-generation software and solutions. Applications Services optimize and modernize clients' business and technical environments, enabling clients to capitalize on emerging services such as cloud, mobility, and big data within new commercial models such as the "as a Service" and digital economies. The consulting business helps organizations innovate, transform, and create sustainable competitive advantage through a combination of

23


industry, business process, technology, systems integration and change management expertise. The industry software & solutions unit’s vertically-aligned software solutions and process-based intellectual property power mission-critical transaction engines in insurance, banking, healthcare and life sciences, manufacturing and a host of diversified industries. Key competitive differentiators for GBS include its global scale, solution objectivity, depth of industry expertise, strong partnerships, vendor and product independence and end-to-end solutions and capabilities. Changing business issues such as globalization, fast-developing economies, government regulation, and growing concerns around risk, security, and compliance drive demand for these GBS offerings.

Global Infrastructure Services (GIS) – GIS provides managed and virtual desktop solutions, unified communications and collaboration services, data center management, cyber security, compute and managed storage solutions to commercial clients globally. GIS also delivers CSC's next-generation Cloud offerings, including Infrastructure as a Service (IaaS), private Cloud solutions, CloudMail and Storage as a Service (SaaS). GIS provides a rich portfolio of standard offerings that have predictable outcomes and measurable results while reducing business risk and operational costs for clients. To provide clients with uniquely differentiated offerings, GIS maintains a select number of key alliance partners to make investments in developing unique offerings and go-to market strategies. This collaboration helps CSC determine the best technology, road map and opportunities to differentiate solutions, expand market reach, augment capabilities, and jointly deliver impactful solutions. GIS seeks to capitalize on the emerging market trend and rebundled IT portfolio on virtualized infrastructure.

North American Public Sector (NPS) – NPS delivers IT, mission, and operations-related services to the Department of Defense, civil agencies of the U.S. federal government, as well as other foreign, state and local government agencies. Commensurate with the Company's strategy, NPS is leveraging our commercial best practices and next-generation technologies to bring scalable and more cost-effective IT solutions to government agencies that are seeking efficiency through innovation. This approach is designed to yield lower implementation and operational costs as well as a higher standard of delivery excellence. Demand for NPS offerings are driven by evolving government priorities such as: 1) migration to next-generation IT solutions, which includes hybrid cloud infrastructure, application modernization and orchestration, 2) mission intelligence driven by big data solutions, 3) health IT and informatics, and 4) cyber security.

To conform to the new reportable segments, CSC filed a Form 8-K on February 7, 2014 to recast prior period segment information presented in its Form 10-K for the fiscal year ended March 29, 2013. For additional information regarding our business segments, see Note 19 of the Consolidated Financial Statements.

Economic and Industry Factors

The Company's results of operations are impacted by economic conditions generally, including macroeconomic conditions. CSC monitors the macroeconomic conditions, the credit market conditions, and levels of business confidence, and assesses their potential impact on its customers' and its own business. A severe and/or prolonged economic downturn could adversely affect the financial condition and the levels of business activities in the industries and geographies in which CSC operates. This may reduce demand for CSC's services or depress pricing of those services and have a material adverse effect on its new contract bookings and results of operations. Particularly in light of recent economic uncertainty, CSC continues to monitor its costs closely in order to respond to changing conditions and to manage any impact to its results of operations.

The Company's results of operations are also affected by levels of business activity and rates of change in the industries it serves, as well as by the pace of technological change and the type and level of technology spending by its clients. The ability to identify and capitalize on these markets and technological changes early in their cycles is a key driver of CSC's performance.

Revenues are driven by the Company's ability to secure new contracts and to deliver solutions and services that add value to its clients. CSC's ability to add value to clients, and therefore generate revenues, depends in part on its ability to deliver market-leading service offerings and to deploy skilled teams of professionals quickly and on a global basis.

The GBS and GIS segment markets are affected by various economic and industry factors. The economic environment in the regions CSC serves will impact customers' decisions for discretionary spending on IT projects. CSC is in a highly competitive industry which exerts downward pressure on pricing and requires companies to continually seek ways to differentiate themselves through several factors, including service offerings and flexibility. Management monitors industry

24


factors including relative market shares, growth rates, billing rates, staff utilization rates and margins as well as macroeconomic indicators such as interest rates, inflation rates and foreign currency rates.

Outsourcing contracts are typically long-term relationships. Long-term, complex outsourcing contracts, including their consulting components, require ongoing review of the terms and scope of work in order to meet clients' evolving business needs and performance expectations.

More recently, the Company has rationalized its service offerings and implemented a strategy of selling defined solutions that require less customization and benefit from leveraged delivery at scale. Such solutions include our portfolio of Cloud-based Infrastructure-as-a-Service offerings, managed applications services and a range of discrete offerings for computing, storage, mobility and networking services.

The NPS segment market is also highly competitive and has unique characteristics. All U.S. federal government contracts and subcontracts may be modified, curtailed or terminated at the convenience of the federal government if program requirements or budgetary constraints change. In the event that a contract is terminated for convenience, the Company generally is reimbursed for its allowable costs through the date of termination and is paid a proportionate amount of the stipulated profit or fee attributable to the work performed. Shifting priorities of the U.S. federal government can also impact the future of projects. Management monitors government priorities and industry factors through numerous industry and government publications and forecasts, legislative activity, budgeting and appropriation processes and by participating in industry professional associations.

The U.S. federal government may terminate almost all of CSC's government contracts and subcontracts either at its convenience or for default based on factors set forth in the Federal Acquisition Regulation. Upon termination for convenience of a fixed-price type contract, our U.S. federal government contracts normally entitle us to receive the purchase price for delivered items, reimbursement for contractual commitments and allowable costs for work-in-process, and a reasonable allowance for profit, although there can also be financial impact resulting from the negotiated contract settlement. Upon termination for convenience of a U.S. federal government cost reimbursable or time and material contract, we normally are entitled to reimbursement of allowable costs plus a fee. Allowable costs generally include the cost to terminate agreements with suppliers and subcontractors. The amount of the fee recovered, if any, generally is related to the portion of the work completed prior to termination and is determined by negotiation. See Risk Factor number 19 under Item 1A "Risk Factors" in this Annual Report for further discussion.

Business Drivers

Revenue in all three lines of business is generated by providing services on a variety of contract types lasting from less than six months to ten years or more. Factors affecting revenue include the Company's ability to successfully:
bid on and win new contract awards,
satisfy existing customers and obtain add-on business and win contract recompetes,
compete on services offered, delivery models offered, technical ability and innovation, quality, flexibility, global reach, experience, and results created, and
identify and integrate acquisitions and leverage them to generate new revenues.

Earnings are impacted by the above revenue factors and, in addition, the Company's ability to:
control costs, particularly labor costs, subcontractor expenses and overhead costs including healthcare, pension and general and administrative costs,
anticipate talent needs to avoid staff shortages or excesses,
accurately estimate various factors incorporated in contract bids and proposals,
develop offshore capabilities and migrate compatible service offerings offshore, and
manage foreign currency fluctuations related to international operations.

Cash flows are affected by the above earnings factors and, in addition, by the following factors:
timely management of receivables and payables,
investment opportunities available, particularly related to business acquisitions, dispositions and large outsourcing contracts,
tax obligations, and
the ability to efficiently manage capital deployed for outsourcing contracts, software, and property, plant and equipment.

25


Key Performance Indicators

The Company manages and assesses the performance of its business through various means, with the primary financial measures including new contract wins, revenue, operating margins, and free cash flow.

New contract wins: In addition to being a primary driver of future revenue, new contract wins also provide management an assessment of the Company's ability to compete. The total level of wins tends to fluctuate from year to year depending on the timing of new or recompeted contracts, as well as numerous external factors.

Revenue: Revenue is a product of contracts won in prior periods, known as backlog, and work secured in the current year. Year-over-year revenues tend to vary less than new contract wins, and reflect performance on both new and existing contracts. Foreign currency fluctuations also impact revenue.

Operating margins: Operating margins reflect the Company's performance on contracts and ability to control costs. While the ratios of various cost elements as a percentage of revenue can shift as a result of changes in the mix of businesses with different cost profiles, a focus on maintaining and improving overall margins leads to improved efficiencies and profitability. Although the majority of the Company's costs are denominated in the same currency as revenues, increased use of offshore support also exposes CSC to additional margin fluctuations.

Free cash flow: Primary drivers of the Company's free cash flow are earnings provided by the Company's operations and the use of capital to generate those earnings. Also contributing to short-term cash flow results are movements in current asset and liability balances.


26


Fiscal 2014 Highlights

The key operating results for fiscal 2014 include:

Revenues decreased $1,197 million, or 8.4%, to $12,998 million compared to fiscal 2013. On a constant currency basis(1), revenues decreased $1,164 million or 8.2%.

Operating income(2) increased to $1,322 million as compared to $878 million in fiscal 2013. The operating income margins increased to 10.2% from 6.2% in fiscal 2013.

Earnings before interest and taxes(3) (EBIT) increased to $1,041 million as compared to $610 million in fiscal 2013. The EBIT margin increased to 8.0% from 4.3% in fiscal 2013.

Income from continuing operations before taxes was $910 million, compared to $449 million in fiscal 2013.

Income from discontinued operations, net of taxes was $69 million, compared to $481 million in fiscal 2013.

Net income attributable to CSC common shareholders was $674 million, compared to $961 million in fiscal 2013.

 
(1)
Selected references are made on a “constant currency basis” so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby providing comparisons of operating performance from period to period. Financial results on a “constant currency basis” are calculated by translating current period activity into U.S. dollars using the comparable prior period’s currency conversion rates. This approach is used for all results where the functional currency is not the U.S. dollar.

(2)
Operating income is a non-U.S. Generally Accepted Accounting Principle (GAAP) measure used by management to assess performance of the Company's segments and on a consolidated basis. The Company’s definition of such measure may differ from other companies. We define operating income as revenue less costs of services, depreciation and amortization expense, and segment general and administrative (G&A) expense, excluding corporate G&A. Management compensates for the limitations of this non-GAAP measure by also reviewing income (loss) from continuing operations before taxes, which includes costs excluded from the operating income definition such as goodwill impairment, corporate G&A, interest and other income. A reconciliation of consolidated operating (loss) income to (loss) income from continuing operations before taxes is as follows:
 
 
Twelve Months Ended
(Amounts in millions)
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
Operating (loss) income
 
$
1,322

 
$
878

 
$
(1,383
)
Corporate G&A
 
(263
)
 
(293
)
 
(219
)
Interest expense
 
(147
)
 
(183
)
 
(174
)
Interest Income
 
16

 
22

 
38

Goodwill impairment
 

 

 
(2,745
)
Other income, net
 
(18
)
 
25

 
(4
)
Income (loss) from continuing operations before taxes
 
$
910

 
$
449

 
$
(4,487
)

(3) 
EBIT is a non-U.S. GAAP measure that provides useful information to investors regarding the Company's results of operations as it provides another measure of the Company's profitability, and is considered an important measure by financial analysts covering CSC and its peers. The Company’s definition of such measure may differ from other companies. We define EBIT as revenue less costs of services, selling, general and administrative expenses, depreciation and amortization, goodwill impairment, restructuring costs, and other income (expense). EBIT margin is defined as EBIT as a percentage of revenue. A reconciliation of EBIT to net income from continuing operations is as follows:
 
 
Twelve Months Ended
(Amounts in millions)
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
Earnings (loss) before interest and taxes
 
$
1,041

 
$
610

 
$
(4,351
)
Interest expense
 
(147
)
 
(183
)
 
(174
)
Interest income
 
16

 
22

 
38

Taxes on income
 
(289
)
 
49

 
96

Income (loss) from continuing operations
 
$
621

 
$
498

 
$
(4,391
)

27



Diluted earnings per share (EPS) from continuing operations was $4.01 as compared to $3.09 in the prior year.

Diluted EPS from discontinued operations was $0.46 as compared to $3.09 in the prior year.

In fiscal 2014, the Company recorded restructuring costs of $76 million, of which $46 million related to GBS, $28 million to GIS, and $2 million to NPS. In fiscal 2013, the Company recorded restructuring costs of $264 million, of which $87 million was related to GBS, $142 million to GIS, $13 million to NPS and $22 million to Corporate.

The Company announced contract awards(4)(5) of $14.5 billion, including GBS segment awards of $6.1 billion, GIS segment awards of $4.1 billion, and NPS segment awards of $4.3 billion.

Total backlog(6) at the end of fiscal 2014 was $30.1 billion, a decrease of $1.7 billion as compared to the backlog at the end of fiscal 2013 of $31.8 billion. Of the total $30.1 billion backlog, $8.2 billion is expected to be realized as revenue in fiscal 2015, and $9.5 billion is not yet funded.

Days Sales Outstanding (DSO)(7) was 73 days at March 28, 2014, an improvement from 77 days at March 29, 2013.

Debt-to-total capitalization ratio(8) was 42.3% at the end of fiscal 2014, a decrease of 4.1 percentage points from 46.4% at the end of fiscal 2013.

Cash provided by operating activities was $1,560 million, as compared to $1,119 million during fiscal 2013.

Cash used in investing activities was $566 million, as compared to cash provided of $456 million during fiscal 2013.

Cash used in financing activities was $599 million, as compared to $589 million during fiscal 2013.

Free cash flow(9) was $689 million, as compared to $264 million in fiscal 2013.


 
(4) 
The Company deployed a new global order input system at the beginning of fiscal 2014 to enhance "lead-to-order" management. This new system permits better and more comprehensive tracking of awards, and enabled the implementation of a revised methodology for reporting new bookings. Fiscal 2013 awards have been recast to be consistent for comparison purposes.

(5) 
Business awards for GIS are estimated at the time of contract signing based on then existing projections of service volumes and currency exchange rates, and include option years. Effective fiscal 2014, GBS' policy of tracking awards was made consistent with the existing GIS policy. For NPS, announced award values for competitive indefinite delivery and indefinite quantity (IDIQ) awards represent the expected contract value at the time a task order is awarded under the contract. Announced values for non-competitive IDIQ awards represent management’s estimate at the award date. CSC's business awards, for all periods presented, have been recast to exclude the awards relating to businesses that have been sold.

(6) 
Backlog represents total estimated contract value of predominantly long-term contracts, based on customer commitments that the Company believes to be firm. Backlog value is based on contract commitments, management’s judgment and assumptions about volume of services, availability of customer funding and other factors. Backlog estimates for government contracts include both the funded and unfunded portions and all of the option periods. Backlog estimates are subject to change and may be affected by factors including modifications of contracts and foreign currency movements. CSC's backlog, for all periods presented, have been recast to exclude the backlog relating to discontinued operations.

(7) 
DSO is calculated as total receivables at the fiscal period end divided by revenue-per-day. Revenue-per-day equals total revenues divided by the number of days in the fiscal period. Total receivables includes unbilled receivables but excludes tax receivables and long-term receivables.

(8) 
Debt-to-total capitalization ratio is defined as total current and long-term debt divided by total debt and equity, including noncontrolling interest.
 
(9) 
Free cash flow is a non-GAAP measure and the Company's definition of such measure may differ from that used by other companies. We define free cash flow as equal to the sum of (1) operating cash flows, (2) investing cash flows, excluding business acquisitions, dispositions and investments (including short-term investments and purchase or sale of available for sale securities) and (3) payments on capital leases and other long-term asset financings.

CSC’s free cash flow measure does not distinguish operating cash flows from investing cash flows as they are required to be presented in accordance with GAAP, and should not be considered a substitute for operating and investing cash flows as determined in accordance with

28


GAAP. Free cash flow is one of the factors CSC management uses in reviewing the overall performance of the business. Management compensates for the limitations of this non-GAAP measure by also reviewing the GAAP measures of operating, investing and financing cash flows as well as debt levels measured by the debt-to-total capitalization ratio.

A reconciliation of free cash flow to the most directly comparable GAAP financial measure is presented below:
 
 
Twelve Months Ended
(Amounts in millions)
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
Net cash provided by operating activities
 
$
1,560

 
$
1,119

 
$
1,176

Net cash (used in) provided by investing activities
 
(566
)
 
456

 
(1,308
)
Acquisitions, net of cash acquired
 
190

 
34

 
374

Business dispositions
 
(248
)
 
(1,108
)
 
(2
)
Short-term investments
 
(5
)
 

 
(4
)
Payments on capital leases and other long-term asset financings
 
(242
)
 
(237
)
 
(177
)
Free cash flow
 
$
689

 
$
264

 
$
59


Results of Operations
 
Revenues

Revenues for the GBS, GIS, and NPS segments for fiscal 2014, 2013, and 2012 are as follows:
 
 
Twelve Months Ended
 
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
(Amounts in millions)
 
Amount
 
Percent
Change
 
Amount
 
Percent
Change
 
Amount
GBS
 
$
4,414

 
(10.2
)%
 
$
4,917

 
0.8
 %
 
$
4,877

GIS
 
4,613

 
(2.7
)
 
4,743

 
(2.0
)
 
4,840

NPS
 
4,099

 
(12.1
)
 
4,662

 
(4.5
)
 
4,880

Corporate
 
12

 
 
 
13

 


 
13

Subtotal
 
13,138

 
(8.4
)
 
14,335

 
(1.9
)
 
14,610

Eliminations
 
(140
)
 
 
 
(140
)
 


 
(134
)
Total Revenue
 
$
12,998

 
(8.4
)%
 
$
14,195

 
(1.9
)%
 
$
14,476


The major factors affecting the percent change in revenues are presented as follows:

Twelve Months Ended
March 28, 2014 vs. March 29, 2013
 
Acquisitions
 
Approximate
Impact of
Currency
Fluctuations
 
Net Internal
Growth (Decline)
 
Total
GBS
 
%
 

 
(10.2
)%
 
(10.2
)%
GIS
 
0.4

 
(0.5
)%
 
(2.6
)
 
(2.7
)
NPS
 
0.1
%
 
(0.1
)
 
(12.1
)
 
(12.1
)
Cumulative Net Percentage
 
0.2
%
 
(0.2
)%
 
(8.4
)%
 
(8.4
)%

Twelve Months Ended
March 29, 2013 vs. March 30, 2012
 
Acquisitions
 
Approximate
Impact of
Currency Fluctuations
 
Net Internal
Growth (Decline)
 
Total
GBS
 
2.3
%
 
(2.5
)%
 
1.0
 %
 
0.8
 %
GIS
 

 
(1.9
)
 
(0.1
)
 
(2.0
)
NPS
 
0.5

 

 
(5.0
)
 
(4.5
)
Cumulative Net Percentage
 
1.0
%
 
(1.5
)%
 
(1.4
)%
 
(1.9
)%

29



The Company's fiscal 2014 revenue decreased $1,197 million as compared to fiscal 2013. This decrease was primarily due to a reduction in net internal revenue of $1,188 million and the adverse impact of foreign currency movement of $33 million, partially offset by $24 million of revenue from acquisitions.

The Company's fiscal 2013 revenue decreased $281 million as compared to fiscal 2012. This decrease was primarily due to a reduction in net internal revenue of $205 million and the adverse impact of foreign currency movement of $217 million, partially offset by $141 million of revenue from acquisitions.

Global Business Services
 
Fiscal 2014

GBS segment revenue decreased $503 million, or 10.2%, as compared to fiscal 2013. In constant currency, revenue decreased $502 million or 10.2%.

GBS revenue was unfavorably impacted by certain fiscal 2013 revenues that did not recur in fiscal 2014. These principally included revenues from the fiscal 2013 divestiture of the Company's Australian information technology staffing business unit (Paxus) of $216 million (see Note 4 to the Consolidated Financial Statements) and $55 million of milestone revenue realized on the NHS contract during the first quarter of fiscal 2013. In addition, fiscal 2014 GBS revenue was adversely impacted by adjustments of $23 million on certain contracts within the industry software and solutions (IS&S) group and net year-over-year adverse revenue adjustments of $19 million on contracts accounted for under the percentage-of-completion method.

Excluding the effect of the items mentioned above, GBS fiscal 2014 revenue decreased $190 million, or 3.9%, over the prior year. Of the total revenue decrease, $356 million was attributable primarily to GBS' efforts to reposition its consulting business to a partner-led model, and continuing challenging economic conditions and associated business performance, primarily in Australia and in the Central Europe regions. These revenue decreases were partially offset by $157 million of revenue growth on certain existing and new contracts.

During fiscal 2014, GBS had contract awards of $6.1 billion compared to $7.7 billion in fiscal 2013. The fiscal 2014 amount included $1.8 billion of renewals and recompetes, as compared to $2.6 billion in fiscal 2013.

Fiscal 2013

GBS segment revenue increased $40 million, or 0.8%, as compared to fiscal 2012. In constant currency, revenue decreased $163 million, or 3.3%. The twelve-month revenue growth was unfavorably impacted by foreign currency movement in the U.S. dollar of $123 million, or 2.5%, primarily against the euro, the Brazilian real, the British pound and the Australian dollar.

The fiscal 2013 acquisition of iSOFT and AppLabs and the other fiscal 2012 acquisitions provided $115 million, or 2.3%, of the year-over-year revenue increase. Excluding the effect of foreign currency movements and acquisitions, GBS fiscal 2013 revenue decreased $48 million, or 1.0%, compared to the prior year. The increase in GBS net internal revenue includes the impact of the fiscal 2012 adverse revenue adjustment of $204 million associated with the NHS contract charge, which did not recur in fiscal 2013. Excluding the adverse NHS contract revenue charge, GBS fiscal 2013 net internal decreased $156 million or 3.1%.

The decrease in GBS net internal revenue for fiscal 2013, excluding the impact of the adverse fiscal 2012 NHS revenue adjustment, was due to revenue decreases primarily in its applications and consulting businesses, partially offset by increases within its industry software and solutions (IS&S) business.

The year-over-year revenue decrease from the applications business of $191 million comprised mainly a $94 million decline in the Australian staffing business, and a combination of productivity linked savings passed back to the customers in terms of lower rates and exiting from low margin accounts. The decline in the Australian staffing business was due to a combination of a slowdown in its business, prior to its sale, from reduced demand from certain of its key customers, and its sale on January 25, 2013. The revenue decrease of $28 million in the consulting business was due to lower fee rates and utilization on contracts within the European region. The revenue increase within the IS&S business, excluding the

30


impact of the fiscal 2012 NHS contract charge, was $62 million and was primarily due to revenue increases on the NHS contract, excluding the impact of the fiscal 2012 contract charge, which resulted from realizing revenue on a key milestone associated with the Lorenzo Care Management software, deployment of the software at three NHS trust sites, and revenue indexation for fiscal 2013.

GBS revenue increase included $65 million of net favorable adjustments on contracts accounted for under the percentage-of-completion method. Fiscal 2013 revenue included favorable adjustments of $17 million as compared to fiscal 2012 revenue that included adverse adjustments of $48 million.

GBS year-over-year revenue trend was also favorably impacted by $39 million of out of period adjustments. Fiscal 2013 revenue included $13 million of adverse out of period adjustments, whereas fiscal 2012 included $52 million of adverse adjustments (see Notes 2 and 19 to the Consolidated Financial Statements).

During fiscal 2013, GBS had contract awards of $7.7 billion compared to $5.8 billion in fiscal 2012. The fiscal 2013 amount included $2.6 billion of recompetes, as compared to recompetes of $1.3 billion fiscal 2012.

Global Infrastructure Services

Fiscal 2014

GIS segment revenue decreased $130 million, or 2.7%, as compared to fiscal 2013. In constant currency, revenue decreased $102 million, or 2.2%. The unfavorable foreign currency impact was primarily due to unfavorable movement in the U.S. dollar against the Australian dollar, Canadian dollar, and Japanese yen, partially offset by favorable movement in the U.S. dollar against the euro, Danish kroner, and the British pound.

The fiscal 2014 acquisition of ServiceMesh, Inc. provided revenue of $18 million, or 0.4%. Excluding the effect of foreign currency movements and acquisitions, GIS fiscal 2014 revenue decreased $120 million, or 2.6%, compared to the prior year.

The decrease in GIS' net internal revenue for fiscal 2014 of $120 million was primarily a result of reduced revenue of $97 million from contracts that terminated or concluded, reduced revenue of $176 million due to price-downs and restructured contracts. Partially offsetting these decreases was increased net revenue of $153 million from existing contracts.

During fiscal 2014, GIS had contract awards with a total value of $4.1 billion compared to $3.2 billion during fiscal 2013. The fiscal 2014 contract awards included $2.3 billion due to renewals and recompetes, as compared to $1.6 billion of renewals and recompetes in fiscal 2013. One of the industry trends is a shift toward smaller contract awards. The Company is participating in this trend and is winning a higher volume of smaller value deals and a reduced volume of larger deals, which is driving the year-over-year trend in new contract awards.

Fiscal 2013

GIS segment revenue decreased $97 million, or 2.0%, as compared to fiscal 2012. In constant currency, revenue decreased $3 million, or 0.1%. The unfavorable foreign currency impact was primarily due to the movement in the U.S. dollar against the euro, the Danish kroner, and the British pound.

The decrease in GIS' net internal revenue for fiscal 2013 of $3 million was due to reduced revenue of $184 million from contracts that terminated or concluded and reduced revenue of $87 million from existing contracts primarily due to lower pass-through revenue, mostly offset by $268 million of increased revenue from new client engagements acquired in fiscal 2013 or late in fiscal 2012.

The year-over-year change in revenue was favorably impacted by adjustments of $5 million related to contracts accounted for under the percentage-of-completion method, and $28 million of other fiscal 2013 favorable revenue adjustments relating primarily to contract settlements with certain customers.

During fiscal 2013, GIS had contract awards with a total value of $3.2 billion as compared to $8 billion during fiscal 2012. These amounts included $1.6 billion and $4.2 billion of recompetes, respectively. Additionally, the decrease in awards was

31


mainly due to the Company being more selective in its bid and proposal activity, and the awards that were bid on being of shorter duration and, thus, lower total contract value.

North American Public Sector

The Company’s NPS Sector segment revenues were derived from the following sources:
 
 
Twelve Months Ended
 
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
Dollars in millions
 
Amount
 
Percent
Change
 
Amount
 
Percent
Change
 
Amount
Department of Defense(1)(2)
 
$
2,401

 
(15.7
)%
 
$
2,848

 
(7.3
)%
 
$
3,071

Civil agencies(1)(2)
 
1,497

 
(6.4
)
 
1,600

 
1.8

 
1,571

Other (1)(3)
 
201

 
(6.1
)
 
214

 
(10.1
)
 
238

Total
 
$
4,099

 
(12.1
)%
 
$
4,662

 
(4.5
)%
 
$
4,880


(1) 
Certain fiscal 2013 and 2012 amounts were reclassified from Department of Defense to Civil Agencies and Other to conform to current year presentation.
(2) 
NPS revenues for fiscal 2013 and 2012 have been adjusted from amounts previously reported to remove the revenue of the discontinued operation. See Note 4 to the Consolidated Financial Statements.
(3) 
Other revenues consist of foreign, state and local government work as well as commercial contracts performed by the NPS segment.

Fiscal 2014

NPS segment revenue decreased $563 million, or 12.1%, as compared to fiscal 2013. This decline was primarily due to revenue decreases on Department of Defense (DOD) and Civil Agencies (Civil) contracts, of $447 million, or 15.7%, and $103 million, or 6.4%, respectively.

The revenue decreases on DOD contracts comprised of reduced revenue of $169 million on certain contracts with the National Security Agency (NSA), Defense Information Systems Agency (DISA), and other DOD agencies that either had concluded or were winding down. Revenue decreases of $345 million were attributable to a net reduction in tasking on existing contracts, primarily with the U.S. Army, Missile Defense Agency, U.S. Navy and other DOD agencies and were partially offset by net favorable revenue adjustments of $18 million on contracts accounted for under the percentage-of-completion method. These revenue decreases were further offset by increased revenue of $52 million on new contracts with the NSA and the Defense Intelligence Agency (DIA).

Revenue decrease on contracts with Civil Agencies was due to a reduction in scope and tasking on existing contracts of $88 million, primarily on contracts with the Internal Revenue Service, the Department of State and the Department of Health and Human Services (DHHS), and reduced revenue of $91 million due to programs winding down or ending with the Department of Energy, NASA, DHHS, Department of Labor and the Environmental Protection Agency (EPA). These revenue decreases were partially offset by new tasking on existing contracts of $41 million on contracts primarily with the Department of Homeland Security (DHS) and the Department of Transportation and net favorable adjustments of $37 million on contracts accounted for under the percentage-of-completion method primarily with DHS and the Department of State.

While NPS continues to experience reduced contract scopes and reduced tasking, CSC is hopeful that the recent U.S. federal government budget agreement will facilitate rapid decisions and result in an improved procurement environment for our differentiated next-generation offerings.

NPS won contracts of $4.3 billion during fiscal 2014 compared to $3.2 billion during fiscal 2013. These amounts included $2.2 billion and $1.0 billion of renewals, respectively.

Fiscal 2013

NPS segment revenue for fiscal 2013 decreased $218 million, or 4.5%, as compared to fiscal 2012. This decline was mainly due to decreases on its DOD and Civil contracts of $223 million, or 7.3%, and $29 million, or 1.8%, respectively.


32


The revenue decrease on DOD contracts was comprised of reduced revenue of $96 million on certain contracts with the U.S. Air Force and other DOD agencies that either had concluded or were winding down, and reduced revenue of $65 million due to a net reduction in tasking on existing contracts, primarily with the U.S. Army and the U.S. Navy. The year-over-year revenue trend, however, benefited from the fiscal 2012 adverse adjustment to revenue of $42 million resulting from the settlement on a contract with the U.S. Army, which did not recur.

The revenue decrease on contracts with Civil was primarily due to a net reduction in scope and tasking on existing contracts of $103 million, primarily on contracts with NASA and other Civilian agencies, and reduced revenue of $92 million due to the programs winding down or ending with the Department of State, Department of Commerce, Department of Labor and the Environmental Protection Agency (EPA), along with reduced revenue due to timing of certain contractual milestones of $12 million. These revenue decreases were partially offset by increased revenue of $97 million on contracts with the Department of State and Department of Homeland Security (DHS), which fully ramped up in fiscal 2013.

NPS revenue trend benefited $34 million from adjustments recorded on contracts accounted for under the percentage-of-completion method. Fiscal 2013 had net favorable adjustments of $5 million as compared to $29 million of net adverse adjustments in fiscal 2012.

NPS won new contracts of $3.2 billion during fiscal 2013 as compared to $5.6 billion during fiscal 2012. These amounts included $1.0 billion and $1.4 billion of renewals and recompetes, respectively. The decrease was due to two large awards that occurred in fiscal 2012.

Costs and Expenses

The Company’s total costs and expenses were as follows:
 
 
Twelve Months Ended
 
Percentage of Revenue
Dollars in millions
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
 
2014
 
2013
 
2012
Costs of services (excludes depreciation and amortization, contract charge, settlement charge, and restructuring costs of $70 (2014), $238 (2013), and $137 (2012))
 
$
9,567

 
$
11,100

 
$
12,181

 
73.7
%
 
78.2
 %
 
84.1
%
Costs of services - specified contract charge (excludes amount charged to revenue of $204)
 

 

 
1,281

 

 

 
8.8

Costs of services - settlement charge (excludes amount charged to revenue of $42)
 

 

 
227

 

 

 
1.6

Selling, general and administrative (excludes restructuring costs of $6 (2014), $26 (2013), and $3 (2012))
 
1,278

 
1,176

 
1,108

 
9.8

 
8.3

 
7.7

Depreciation and amortization
 
1,018

 
1,070

 
1,141

 
7.8

 
7.5

 
7.9

Restructuring costs
 
76

 
264

 
140

 
0.6

 
1.9

 
1.0

Goodwill impairment
 

 

 
2,745

 

 

 
19.0

Interest expense, net
 
131

 
161

 
136

 
1.0

 
1.1

 
0.9

Other expense (income), net
 
18

 
(25
)
 
4

 
0.1

 
(0.2
)
 

Total
 
$
12,088

 
$
13,746

 
$
18,963

 
93.0
%
 
96.8
 %
 
131.0
%

33


Costs of Services

Fiscal 2014

Costs of services (COS), excluding depreciation and amortization and restructuring charges, as a percentage of revenue decreased to 73.7% for fiscal 2014 from 78.2% for fiscal 2013. Overall, the fiscal 2014 COS ratio for the Company was favorably impacted by lower headcount resulting from management's restructuring efforts that were directed to align resources to support business needs, including the assessment of management span of control and layers. Lower year-over-year total compensation and overall reduced spending also impacted the COS ratio favorably. In addition, the COS ratio was favorably impacted by certain commercial account management previously engaged in the contract delivery activities (which rolled up under COS) in fiscal 2013, being redirected to focus on sales activities in fiscal 2014.

The GBS ratio for fiscal 2014 benefited from year-over year net favorable cost impact of $50 million, partially offset by net adverse revenue impact of $19 million, due to adjustments on contracts accounted under the percentage-of-completion method.

The GIS COS ratio for fiscal 2014 benefited from the continuing focus on delivery on certain key contracts resulted in better margins including reduced start-up issues on new contracts. This reduction is mainly driven by ongoing operational improvements on focus accounts, the positive effects of restructuring taken over previous periods and the continued focus on cost reductions driven by standardization of products and processes.

The NPS COS ratio for fiscal 2014 benefited from year-over-year net favorable revenue impact of $50 million, partially offset by year-over year net adverse cost impact of $23 million, due to adjustments on contracts accounted under the percentage-of-completion method. Included in the adverse costs adjustments was a favorable cost adjustment in the third quarter of fiscal 2013 of $34 million from a contract settlement with the U.S. government, which did not recur in fiscal 2014.

Fiscal 2013

COS, excluding the specified contract charge, the settlement charge, and the restructuring charges noted above, as a percentage of revenue decreased to 78.2% for fiscal 2013 from 84.1% for fiscal 2012. The year-over-year COS trend was favorably impacted by out of period adjustments of $33 million, which was comprised of $6 million of favorable fiscal 2013 out of period adjustments and $27 million of adverse fiscal 2012 out of period adjustments which did not repeat in fiscal 2013 (see Note 2 to the Consolidated Financial Statements).

The lower GBS COS ratio for fiscal 2013 was primarily due to the fiscal 2012 adverse revenue adjustment of $204 million associated with a contract with the NHS. In addition, the GBS COS ratio was favorably impacted by lower costs within GBS' consulting services due to staff reductions and adversely impacted by a higher COS ratio in the financial services group due to lower revenue. The GBS COS ratio also benefited from by net favorable year-over-year COS and revenue adjustments on contracts accounted for under the percentage-of-completion method, of $48 million and $65 million, respectively.

The lower GIS COS ratio for fiscal 2013 was primarily due to year-over-year operational improvements on contracts which had performance issues in fiscal 2012. The operational improvements were a result of continued focus on troubled accounts, greater focus on cost take out by standardization of products and processes including diagnostics and re-engineering and greater focus on delivery. This year-over-year improvement was illustrated by reduced year-over-year adverse impact of asset impairments of $138 million, net favorable year-over-year adjustments to COS and revenue on contracts accounted for under the percentage-of-completion method of $2 million and $5 million, respectively, and reduced year-over-year impact of transition cost overruns of $16 million. The COS also benefited from operational efficiencies resulting from the implementation of the turnaround strategy, such as improved cost controls, headcount reductions through restructuring, centralized procurement, better discipline around contract management, rationalized organizational spans and layers, and reduced enterprise overhead. These efficiencies are partially offset by costs related to start-up issues on certain new contracts.

The fiscal 2013 NPS COS ratio decreased primarily due to a net favorable year-over-year adjustment to COS of $97 million on contracts accounted for under the percentage-of-completion method. Fiscal 2013 revenue included $54 million of favorable adjustments as compared to fiscal 2012, which had $43 million of adverse adjustments. Of the $97 million,

34


$94 million related to three contracts, one each with the Department of Labor, U.S. Air Force and the State of North Carolina. The NPS COS ratio also benefited from a $42 million adverse fiscal 2012 revenue adjustment resulting from a contract settlement with the U.S. government that did not recur, and $34 million year-over-year net favorable revenue adjustment on contracts accounted for under the percentage-of-completion method.

Costs of Services – Settlement Charge

During the second quarter of fiscal 2012, the Company reached a settlement agreement with the U.S. government relating to its contract claims asserted under the Contract Disputes Act of 1978 (CDA). Under the terms of the settlement, the Company received $277 million in cash and a five-year extension (four base years plus one option year) with an estimated total contract value of $1 billion to continue to support and expand the capabilities of the systems covered by the original contract scheduled to expire in December 2011. In December 2011, the Company signed the contract modification based on the terms described above. As a result of the settlement, the Company recorded a pre-tax charge of $269 million during the second quarter of fiscal 2012 to write down its claim related assets (claim related unbilled receivables of $379 million and deferred costs of $227 million) to reflect the cash received of $277 million, the estimated fair value of the contract extension of $45 million, and previously unapplied payments of $15 million. Of the pre-tax charge of $269 million, $42 million was recorded as a reduction of revenue and $227 million as a separately itemized charge to cost of services. The fair value of the contract extension was recorded as a contract asset and will be amortized as a reduction of revenue over the four year fixed contract term in proportion to the expected revenues or a straight line basis, whichever is greater. The contract extension contained a Requirements portion and an Indefinite Quantity portion (and is not subject to any minimum values). See Note 22 to the Consolidated Financial Statements for further discussion.

Selling, General and Administrative

Fiscal 2014

Selling, general and administrative (SG&A) expense, excluding the restructuring charges, as a percentage of revenue increased to 9.8% for fiscal 2014 from 8.3% for fiscal 2013. The fiscal 2014 increase was primarily due to management's decision to expand market coverage through a larger dedicated global commercial sales force in line with the overall business strategy surrounding next-generation IT services. As per this strategy, certain account-focused executives in the commercial space, who were previously engaged in the contract delivery activities which rolled up under COS in fiscal 2013, were redirected to focus on sales activities in fiscal 2014. In addition, the Company made new investments in its commercial sales force by making incremental hires of sales personnel. In addition, the SG&A ratio increased due to increased investments in the next-generation offerings. Separately, 0.7% points of the increase in the SG&A ratio was due to reduced fiscal 2014 revenues.

Offsetting the increases in the SG&A ratio described above were benefits from the reduced amount of contingent consideration payable in connection with the ServiceMesh acquisition; total lower compensation expense, excluding the impact of restructuring actions and the sales personnel mentioned above; and reduced bid and proposal spend by NPS.

During the fourth quarter of fiscal 2014, the Company finalized the amount of contingent consideration payable for the ServiceMesh, Inc. acquisition at $98 million. This amount was $21 million lower than the $119 million amount accrued at the end of the third quarter, primarily due to the deferral of revenues related to certain software license sales to periods beyond the specified earn-out measurement period (see Note 3 to the Consolidated Financial Statements). This gain of $21 million was recorded as an offset to general & administrative expenses, which benefited the SG&A ratio.

Corporate general and administrative expenses for fiscal 2014 were $263 million, as compared to $293 million for 2013. The reduction in corporate general and administrative expenses was primarily due to lower net expense on legal settlement, legal expenses on shareholder derivative lawsuits, and legal expenses on SEC investigation of $65 million, partially offset by higher costs associated with the Company's financial transformation project of $19 million, higher stock-based compensation of $16 million.

Fiscal 2013

SG&A expense, excluding the restructuring charges, as a percentage of revenue increased to 8.3% for fiscal 2013 from 7.7% for fiscal 2012. The fiscal 2013 increase was primarily driven by an increase in corporate G&A costs and a higher GIS ratio, partially offset by decreases in NPS and GBS ratios.

35



The higher GIS ratio was primarily due to the reclassification of $17 million of costs from COS to SG&A in fiscal 2013. In addition, there were higher costs in fiscal 2013 associated with the remediation efforts of investigation findings (see Note 2 of the Consolidated Financial Statements).

The lower GBS ratio was primarily due to the fiscal 2012 adverse revenue adjustment of $204 million associated with a contract with the NHS. The lower ratio was also attributable to a lower run rate within GBS-IS&S due to cost take out activity, including back office integration, and fiscal 2012 acquisition and transition costs of $10 million related to the acquisition of iSOFT, which did not repeat in fiscal 2013.

The lower NPS ratio was primarily due to the cost reduction initiatives and lower bid and proposal costs due to delays in government procurements, fewer opportunities and more selectivity in the bid process towards higher margin targets.

Corporate G&A for fiscal 2013 was $293 million and increased $74 million as compared to the prior year. The higher fiscal 2013 expense was primarily due to accrual of $97.5 million on account of the settlement of the consolidated shareholder securities class action lawsuit (see Note 23 to the Consolidated Financial Statements). This amount was partially offset by $45 million that was recoverable under the Company's corporate insurance policies. In addition, the fiscal 2013 increase was also due to higher professional fees of $20 million primarily associated with the Company's financial transformation, higher internal audit fees of $10 million, and higher stock-based compensation and bonus expense. Partially offsetting the increases in the Corporate G&A was net reduced legal fees associated with the SEC investigation and class action lawsuits due to $45 million of insurance claims that offset the fiscal 2013 legal expenses of $78 million.

Goodwill Impairment

The Company recorded no goodwill impairment for fiscal years 2014 and 2013, but recorded a goodwill impairment charge for $2,745 million for fiscal year 2012.

During fiscal 2014, in addition to its annual goodwill impairment test, the Company conducted interim goodwill impairment assessments at the beginning of the first quarter due to the segment change; during the first quarter, associated with the sale of GBS' flood insurance BPS business; during the second quarter, associated with the sale of NPS' disposal of ATD; and at the end of fiscal 2014. Based on all of these tests, the Company determined that none of its reporting units had an impairment of goodwill and the fair values of all of CSC's reporting units were substantially in excess of their carrying values.

Similarly, during fiscal 2013, in addition to its annual goodwill impairment test, the Company conducted an interim goodwill impairment test during the third quarter associated with GBS' divestiture of its credit services business; and at the end of fiscal 2013. Based on all of these tests, the Company determined that none of its reporting units had an impairment of goodwill and the fair values of all of CSC's reporting units were substantially in excess of their carrying values.

During fiscal 2012, based on the Company's annual goodwill impairment analysis performed at the beginning of the second quarter, it was concluded that fair value was below carrying value for three reporting units: GIS, GBS-Consulting and GBS-IS&S. Management believed that the decline in the estimated fair values of these reporting units was a result of several factors, including uncertainty about the Company's overall value as reflected in CSC's stock price decline over the first half of fiscal 2012, overall decline in the broader stock market as indicated by reduced performance metric multiples at comparable public companies, and decline in forecasted operating performance of these reporting units. During the second quarter of fiscal 2012, the Company recorded its best estimated goodwill impairment charge of $2,685 million, of which $2,074 million related to the GIS reporting unit, $453 million related to the GBS-Consulting reporting unit, and $158 million related to the GBS-IS&S reporting unit. The Company completed its annual impairment test during the third quarter, and recorded an adjustment that reduced the impairment loss recorded in the second quarter by $3 million, to $2,682 million.

At the end of the third quarter of fiscal 2013, CSC determined that the GBS-IS&S reporting unit had several indicators, including the loss of a significant customer, failure to win major bids for new business, developments on the NHS contract and reduction in forecasted earnings, to trigger an interim impairment test. There were no triggering events for the remaining reporting units with goodwill. Based on an interim goodwill impairment test, the Company recorded an additional goodwill impairment charge of $63 million.


36


At the end of fiscal 2013, based on a qualitative assessment, the Company concluded that there were no impairment triggers present and there was no need for an interim impairment test, and the fair values of all of CSC's reporting units were substantially in excess of their carrying values.

Any adverse change in the business climate or in CSC's operating results could cause to perform additional interim goodwill impairment analyses, prior to the next annual test, which may result in impairment charges.

Depreciation and Amortization

Fiscal 2014

Depreciation and amortization (D&A) as a percentage of revenue increased to 7.8% for fiscal 2014 from 7.5% for fiscal 2013, primarily due to decreased revenues.

Fiscal 2013

D&A as a percentage of revenue decreased to 7.5% for fiscal 2013 from 7.9% for fiscal 2012. The decrease in the fiscal 2013 ratio was driven by decreases in the GIS and GBS segments.

The lower GIS ratio was due to reduced D&A expense as a result of significant impairments of fixed and intangible assets recorded in fiscal 2012, as well as a reduction in capital expenditures in fiscal 2013. The lower GBS ratio was due to the fiscal 2012 adverse revenue adjustment of $204 million associated with the NHS contract, as well due to lower depreciation expense due to certain data center assets associated with the NHS contract coming to the end of their useful lives.

Restructuring Costs

During fiscal 2014, the Company continued its efforts to reduce costs, and therefore engaged in additional workforce and facilities related restructuring, under an overall restructuring plan that first commenced during the fourth quarter of fiscal 2012 (the "Fiscal 2013 Plan").

The fiscal 2014 and fiscal 2013 actions related primarily to reducing headcount in order to align resources to support business needs, including assessment of management span of control and layers, and to further increase the use of lower cost off-shore resources. In contrast, the fiscal 2012 restructuring efforts (the "Fiscal 2012 Plan") were designed primarily to address excess capacity issues and alignment of workforce with current business needs, primarily in the former MSS segment operations in Europe (see Note 20 to the Consolidated Financial Statements).

Total restructuring costs recorded during fiscal 2014, 2013, and 2012 were $76 million, $264 million, and $140 million, respectively. The amounts recorded in fiscal 2014, 2013, and 2012 included $22 million, $22 million and $20 million, respectively, of pension benefit augmentations that were due to certain employees in accordance with legal or contractual obligations and which will be paid out over several years as part of normal pension distributions.

The total fiscal 2014 restructuring costs of $76 million comprised $74 million under the Fiscal 2013 Plan and $2 million under the Fiscal 2012 Plan. The total fiscal 2013 restructuring costs of $264 million comprised $233 million under the Fiscal 2013 Plan and $31 million under the Fiscal 2012 Plan, as compared to total fiscal 2012 restructuring costs of $140 million, all under the Fiscal 2012 Plan.

Income from Discontinued Operations

During fiscal 2014 and 2013, the Company divested certain non-core businesses as a part of its service portfolio optimization initiative to focus on the next-generation technology services. Fiscal 2014 divestitures included, one business divested from within the NPS segment and one business from within the GBS segment. In addition, the Company committed to a plan to sell another business within the GBS segment, which is held-for-sale at the end of fiscal 2014. Fiscal 2013 divestitures included three businesses divested from within the GBS segment. All the fiscal 2014 and fiscal 2013 divestitures have been presented separately as discontinued operations in the Consolidated Statement of Operations, and the prior years' results have been recast to reflect the divested businesses.


37


The fiscal 2014 income from discontinued operations, net of taxes was $69 million, and included $74 million of gain on disposition, net of taxes from the sale of the businesses. The fiscal 2013 income from discontinued operations, net of taxes was $481 million, and included $417 million gain on disposition, net of taxes. The fiscal 2012 income from discontinued operations, net of taxes was $166 million and included $1 million of gain on disposition, net of taxes (see Note 4 to the Consolidated Financial Statements).

Interest Expense and Interest Income

Fiscal 2014

Interest expense of $147 million in fiscal 2014 decreased $36 million compared to $183 million in fiscal 2013. The lower interest expense was primarily due to lower interest rates on the term notes and credit facility issued during the third quarter of fiscal 2013, replacing the higher rate term notes which were redeemed during the fourth quarter of fiscal 2013. Interest income of $16 million in fiscal 2014 decreased $6 million compared to $22 million in fiscal 2013 due to lower cash balances in jurisdictions with higher interest rates.

Fiscal 2013

Interest expense of $183 million in fiscal 2013 increased $9 million compared to fiscal 2012. The higher interest expense was primarily due to the loss of $19 million associated with the early redemption of the 5.50% and 5.00% Senior Notes due 2013, partially offset by lower interest expense associated with the issuances of new Senior Notes (see Note 13 of the Consolidated Financial Statements). Interest income decreased $16 million to $22 million in fiscal 2013 primarily due to reduced average cash balances outside the U.S., primarily in India, where both the rate of interest and average cash balances are typically higher than other non-U.S. jurisdictions.

Other (Income) Expense, Net

The components of other (income) expense, net for fiscal 2014, fiscal 2013, and fiscal 2012 are:
 
 
Twelve Months Ended
(Amounts in millions)
 
March 28, 2014
 
March 29, 2013
 
March 30, 2012
Foreign currency loss (gain)
 
$
15

 
$
17

 
$
4

Other losses (gains)
 
3

 
(42
)
 

Total
 
$
18

 
$
(25
)
 
$
4


Fiscal 2014

The foreign currency loss decreased by $2 million due to currency rate movements which favorably impacted the Company's hedging program. Reduction in other gains is primarily due to fiscal 2013 gains on the sale of Paxus that did not recur in fiscal 2014.

Fiscal 2013

The foreign currency loss increased $13 million primarily due to movement in the U.S. dollar primarily versus the Indian rupee, which caused a year-over-year increase in mark-to-market charge of $12 million. The other gains were primarily comprised of the $38 million gain on the sale of Paxus, the Australian staffing business.

Taxes

The Company's effective tax rate (ETR) on (loss) income from continuing operations for fiscal years 2014, 2013, and 2012 was 31.8%, (10.9)%, and (2.1)%, respectively. As a global enterprise, our ETR is affected by many factors, including our global mix of earnings, the extent to which those global earnings are indefinitely reinvested outside the U.S., legislation, acquisitions, dispositions, and tax characteristics of our income. Our tax returns are routinely audited and settlements of issues raised in these audits sometimes affect our tax provisions. A reconciliation of the differences

38


between the U.S. federal statutory rate and the ETR, as well as other information about our income tax provision, is provided in Note 12 to the Consolidated Financial Statements. For the tax impact of discontinued operations, see Note 4 to the Consolidated Financial Statements.

In fiscal 2014, the ETR was primarily driven by:

The Company recorded a tax expense of $10 million related to the previous restructuring of an operating subsidiary. This expense increased the ETR by 1.1%.
A net increase in uncertain tax positions across various jurisdictions of $36 million which increased the ETR by 4.1%. The primary drivers of this increase in tax expense were related to various tax issues including transfer pricing and foreign exchange losses.
A decrease in the valuation allowance determined on a tax jurisdictional basis due to a shift in the global mix of income which decreased tax expense and the ETR by $35 million and 3.8%, respectively
Local income on investment recoveries in certain jurisdictions (i) decreased the valuation allowance and the ETR by $90.6 million and 10.0%, respectively, and (ii) increased the foreign rate differential and ETR by $90.6 million and by 10.0%, respectively.

In fiscal 2013, the ETR was primarily driven by:

The Company executed an internal restructuring whereby a significant operating subsidiary was recapitalized. Certain securities issued pursuant to the recapitalization were subsequently sold to a third party. The sale resulted in the recognition of a capital loss of approximately $640 million, which reduced tax expense and the ETR by $248 million and 55.2%, respectively.
A valuation allowance recorded for certain of the Company's German subsidiaries related to net operating losses and other net deferred tax assets. The impact to tax expense and the ETR was an increase of $77 million and 17.2%, respectively.
An increase in the valuation allowance determined on a tax jurisdictional basis due to several factors including: (i) a shift in the global mix of income which increased tax expense and the ETR by $27.6 million and 6.1%, respectively (ii) capital gains from the sale of certain other assets which decreased tax expense and the ETR by $11.5 million and 2.6%, respectively and (iii) state capital losses and credits not expected to be fully utilized within the carryforward period which increased tax expense and the ETR by $29.6 million and 6.6%, respectively.
Local losses on investment write-downs in certain jurisdictions (i) increased the valuation allowance and the ETR by $240.5 million and 53.5%, respectively, and (ii) decreased the foreign rate differential and ETR by $240.5 million and 53.5%, respectively.

As of March 28, 2014, in accordance with ASC 740, "Income Taxes," the Company’s liability for uncertain tax positions was $250 million, including interest of $27 million, penalties of $19 million, and net of tax attributes of $47 million. During the year ended March 28, 2014, the Company had a net reduction in interest of $11 million ($7 million net of tax) and accrued penalties of $2 million.

Significant management judgment is required in determining the Company's provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets. A valuation allowance has been recorded against deferred tax assets of approximately $1,053 million as of March 28, 2014 due to uncertainties related to the ability to utilize these assets. The valuation allowance is based on historical earnings, estimates of taxable income by jurisdiction and the period over which the deferred tax assets will be recoverable. Valuation allowances are evaluated periodically and will be subject to change in each future reporting period as a result of changes in various factors. Based on recent earnings in certain jurisdictions there is a reasonable possibility that, within the next year, sufficient positive evidence may become available to reach a conclusion that a portion of the valuation allowance will no longer be needed. As such, the Company may release a significant portion of its valuation allowance against its deferred tax assets within the next 12 months. This release would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period such release is recorded. Any such adjustment could materially impact the Company's financial position and results of operations.

In May 2013, Finance Bill 2013 received the assent of the President of India and has been enacted as the Finance Act 2013. There are various provisions in the Finance Act, including a tax on the buy-back of shares and an increase in the dividend distribution tax from 16.22% to 16.99%. The Company uses the lower undistributed tax rate to measure deferred taxes on inside basis differences, including undistributed earnings, of our India operations as these earnings are

39


permanently reinvested. While the Company has no plans to do so, events may occur in the future that could effectively force management to change its intent not to repatriate our India earnings. If the Company changes its intent and repatriates such earnings, a dividend distribution tax will be incurred for distributions from India. These additional taxes will be recorded as tax expense in the period in which the dividend is declared.

The Finance Act of 2012 (the Finance Act) was signed into law in India on May 28th, 2012. The Act provides for the taxation of indirect foreign investment in India, including on a retroactive basis. The Finance Act overrides the Vodafone NL ruling by the Supreme Court of India which held that the Indian Tax Authorities cannot assess capital gains taxes on the sale of shares of non-Indian companies that indirectly own shares in an Indian company. The retroactive nature of these changes in law has been strongly criticized. The Finance Act has been challenged in the Indian courts. However, there is no assurance that such a challenge will be successful. CSC has engaged in the purchase of shares of foreign companies that indirectly own shares of an Indian company and internal reorganizations. The Indian tax authorities may seek to apply the provisions of the Finance Act to these prior transactions and seek to tax CSC directly or as a withholding agent or representative assessee of the sellers involved in prior acquisitions. The Company believes that the Finance Act does not apply to these prior acquisitions and that it has strong defenses against any claims that might be raised by the Indian tax authorities.

Earnings (Loss) Per Share and Share Base

Fiscal 2014

Earnings (loss) per share (EPS), on a diluted basis, decreased $1.71 to $4.47 in fiscal 2014. This decrease in total diluted EPS was comprised of an increase in EPS from continuing operations of $0.92, more than offset by a decrease in EPS from discontinued operations of $2.63. The $1.71 decrease in total EPS included a $0.14 benefit due to decrease in the weighted average shares outstanding.

The increase in income from continuing operations was primarily a result of the Company's fiscal 2013 cost reduction initiatives, partially offset by an increase in tax expense due to the change in global mix of income and change in valuation allowances. The decrease in income from discontinued operations was due to the gain on disposition, net of taxes, of $417 million recorded in fiscal 2013, that did not repeat in fiscal 2014.
 
Fiscal 2013

Diluted EPS for fiscal 2013 increased $33.55 to $6.18 from $(27.37) in fiscal 2012. This increase in total diluted EPS was comprised of increase in EPS from continuing operations of $31.53 and increase in EPS from discontinued operations of $2.02.

The increase in EPS from continuing operations was primarily due to the adverse fiscal 2012 charges not recurring in fiscal 2013. These fiscal 2012 charges included goodwill impairment of $2,745 million (see Note 11 to the Consolidated Financial Statements), the NHS contract related charge of $1,485 million (see Note 21 to the Consolidated Financial Statements), the settlement charge of $269 million resulting from settlement of claims with the federal government (see Note 22 to the Consolidated Financial Statements) and reduced impact of net adjustments on contracts accounted for under the percentage-of-completion method (see Note 1 to the Consolidated Financial Statements) and asset impairments (see Note 10 to the Consolidated Financial Statements).

The increase in EPS from discontinued operations was primarily due to the gain, net of taxes of $417 million on the disposition of the U.S. based credit services business and enterprise systems integration business in Malaysia and Singapore (see Note 4 to the Consolidated Financial Statements).


40


Investigations and Out of Period Adjustments
   
Summary of Audit Committee and SEC Investigations Related to the Out of Period Adjustments

As previously disclosed, the Company initiated an investigation into out of period adjustments resulting from certain accounting errors in its former Managed Services Sector (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 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, 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 former 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 retained forensic accountants to assist with 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.

The Audit Committee’s investigation was expanded to encompass (i) the Company’s operations in Australia, (ii) certain aspects of the Company’s accounting practices within its Americas Outsourcing operation, and (iii) certain of the Company’s accounting practices that involve the percentage-of-completion accounting method, including the Company’s contract with the U.K. National Health Service (NHS). In the course of the Audit Committee's expanded investigation, accounting errors and irregularities were identified. As a result, certain personnel have been reprimanded, suspended, terminated and/or have resigned. The Audit Committee determined in August 2012 that its independent investigation was complete. The Audit Committee instructed its independent counsel to cooperate with the SEC's Division of Enforcement by completing production of documents and providing any further information requested by the SEC's Division of Enforcement.

In addition to the matters noted above, the SEC's Division of Enforcement is continuing its investigation involving its concerns with certain of the Company's prior disclosures and accounting determinations with respect to the Company's contract with the NHS and the possible impact of such matters on the Company's financial statements for years prior to the Company's current fiscal year. The Company and the Audit Committee and its independent counsel are continuing to respond to SEC questions and to cooperate with the SEC's Division of Enforcement in its investigation of prior disclosures and accounting determinations with respect to the Company's contract with the NHS. The SEC's investigative activities are ongoing.

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 the 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 SEC's Division of Corporation Finance's comment letter process is ongoing, and the Company is continuing to cooperate with that process.

The investigation being conducted by the SEC's Division of Enforcement and the review of the Company's financial disclosures by the SEC's 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 may continue to incur significant legal and accounting expenditures. As the Company previously disclosed, certain of its non-U.S. employees and certain of its former employees, including certain former executives in the United States, have received Wells notices from the SEC’s Division of Enforcement in connection with its ongoing investigation of the Company. The Company received a Wells notice from the SEC’s Division of Enforcement on December 11, 2013. A Wells notice is not a formal allegation or a finding of wrongdoing; it is a preliminary determination by the SEC Enforcement Staff to recommend that the Commission file a civil enforcement action or administrative proceeding against the recipient. Under SEC procedures, a recipient of a Wells notice has an opportunity to respond in the form of a Wells submission that seeks to persuade the Commission that

41


such an action should not be brought. The Company has been availing itself of the Wells process by making a Wells submission to explain its views concerning such matters, which are aided by the Company Audit Committee's independent investigation and certain expert opinions of outside professionals. The Company made such a submission on January 14, 2014 and a supplemental submission on April 9, 2014. The Company, through outside counsel, has been in continuing discussions with the SEC Enforcement Staff concerning a potential resolution of the staff’s investigation involving the Company. However, to date those discussions have not resulted in a resolution. The Company is unable to estimate with confidence or certainty how long the SEC process will last or its ultimate outcome, including whether the Company will reach a settlement with the SEC and, if so, the amount of any related monetary fine and other possible remedies. In addition, the Company is unable to predict the timing of the completion of the SEC's Division of Corporation Finance's review of its 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 CSC, could have an adverse impact on the Company's reputation, business, financial condition, results of operations or cash flows.

Out of Period Adjustments Financial Impact Summary

Cumulative Impact of Out of Period Adjustments

The rollover impact on income (loss) from continuing operations before taxes of the recorded out of period adjustments in fiscal 2014, 2013 and 2012 is attributable to the following prior fiscal years:
 
 
Increase/(Decrease)
 
 
(Amounts in millions)
 
Fiscal 2012 Adjustments
 
Fiscal 2013 Adjustments
 
 Fiscal 2014 Adjustments
 
Total Adjustments
Fiscal 2014
 
$

 
$

 
$
(2
)
 
$
(2
)
Fiscal 2013
 

 
6

 
4

 
10

Fiscal 2012
 
79

 
7

 
(6
)
 
80

Prior fiscal years (unaudited)
 
(79
)
 
(13
)
 
4

 
(88
)

See Note 19 for a summary of the effect of the pre-tax out of period adjustments on the Company's segment results for fiscal 2014, 2013 and 2012.

Fiscal 2014 Adjustments Financial Impact Summary

During fiscal 2014, the Company identified and recorded net adjustments increasing income from continuing operations before taxes by $2 million that should have been recorded in prior fiscal years. This net impact on income from continuing operations before taxes for fiscal 2014 is comprised of the following:

net adjustments decreasing fourth quarter pre-tax income by $1 million primarily resulting from the recognition of impairment charges on abandoned capitalized software costs;
net adjustments increasing third quarter pre-tax income by $5 million primarily resulting from the recognition of revenue on previously delivered software products and services and previously delivered outsourcing services, offset by charges to cost of services (COS) relating to previously delivered software productions and services and a margin correction on long-term contracts accounted for under the percentage-of-completion revenue method;
net adjustments decreasing second quarter pre-tax income by $11 million primarily resulting from the reversal of revenue due to deferral of revenue for undelivered elements on software contracts lacking vendor specific objective evidence and margin corrections on contracts under percentage of completion accounting, a charge to COS for reversal of previously deferred costs and a charge to selling, general and administrative (SG&A) expense reversing excess capitalization associated with internal systems development; and
net adjustments increasing first quarter pre-tax income by $9 million primarily resulting from the corrections of revenues and costs in its GBS segment, correction of payroll expenses within its GBS segment, corrections to record adjustments that were identified late in the close process but not included in the Company's consolidated fiscal 2013 financial statements.

Adjustments recorded during fiscal 2014 that should have been recorded in prior fiscal years decreased net income attributable to CSC common shareholders by $18 million. This decrease is attributable to the tax effect of the adjustments described above, a net $8 million of tax expense resulting from discrete tax items that should have been recorded in prior

42


fiscal years and the effect of income from discontinued operations, net of tax of $2 million. The discrete tax expenses are primarily attributable to a $10 million increase in liabilities for uncertain tax positions associated with a tax restructuring of one of the Company's operating subsidiaries and to the tax effect of the net pre-tax adjustments.

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 2014 under the rollover method. The amounts noted below also include certain adjustments that only impacted quarters (unaudited) within fiscal 2014, but had no net impact on the full year fiscal 2014 results:
 
 
Fiscal 2014
 
 
 
 
Quarter Ended
 
 
(Amounts in millions)
 
June 28, 2013
 
September 27, 2013
 
December 27, 2013
 
March 28, 2014
 
Total
Other adjustments
 
$
(21
)
 
$
32

 
$
(12
)
 
$
(1
)
 
$
(2
)
Effect on income from continuing operations before taxes
 
(21
)
 
32

 
(12
)
 
(1
)
 
(2
)
Taxes on income
 
14

 
(4
)
 

 

 
10

Other income tax adjustments
 
2

 
9

 
5

 
(8
)
 
8

Effect on income from discontinued operations, net of taxes
 

 

 
(1
)
 
3

 
2

Effect on net income attributable to CSC common shareholders
 
$
(5
)
 
$
37

 
$
(8
)
 
$
(6
)
 
$
18


Out of period adjustments recorded in fiscal 2014 had the following impact on select line items of the Consolidated Statements of Operations for the twelve months ended March 28, 2014 under the rollover method:
 
 
Twelve Months Ended March 28, 2014
(Amounts in millions, except per-share amounts)
 
As Reported
 
Adjustments
Increase/
(Decrease)
 
Amount Adjusted
for Removal
of Errors
Revenues
 
$
12,998

 
$
21

 
$
13,019

Costs of services (excludes depreciation and amortization and restructuring costs)
 
9,567

 
23

 
9,590

Selling, general and administrative (excluding restructuring costs)
 
1,278

 

 
1,278

Depreciation and amortization
 
1,018

 
(2
)
 
1,016

Restructuring costs
 
76

 
2

 
78

Interest expense
 
147

 

 
147

Other expense, net
 
18

 

 
18

Income from continuing operations before taxes
 
910

 
(2
)
 
908

Taxes on income
 
289

 
(18
)
 
271

Income from continuing operations
 
621

 
16

 
637

Income from discontinued operations, net of taxes
 
69

 
2

 
71

Net income attributable to CSC common shareholders
 
674

 
18

 
692

EPS – Diluted
 
 
 
 
 
 
Continuing operations
 
$
4.01

 
$
0.11

 
$
4.12

Discontinued operations
 
0.46

 
0.01

 
0.47

Total
 
$
4.47

 
$
0.12

 
$
4.59



43


The out of period adjustments affecting income from continuing operations before taxes during the twelve months ended March 28, 2014 under the rollover method are related to the following consolidated balance sheet line items:

Accounts receivable ($1 million decrease);
Prepaid expenses and other current assets ($1 million increase);
Software ($2 million decrease);
Other assets ($1 million decrease);
Property and equipment ($1 million decrease);
Accrued payroll and related costs ($8 million decrease);
Accrued expenses and other current liabilities ($18 million decrease); and
Deferred revenue ($20 million increase).

The Company has determined that the impact of the consolidated out of period adjustments recorded in fiscal 2014 is immaterial to the consolidated results, financial position and cash flows for fiscal 2014 and prior years. Consequently, the cumulative effect of these adjustments was recorded during fiscal 2014.

Fiscal 2013 Adjustments Financial Impact Summary

During fiscal 2013, the Company identified and recorded net adjustments decreasing income from continuing operations before taxes by $6 million that should have been recorded in prior fiscal years. This net impact on income from continuing operations before taxes for fiscal 2013 is comprised of the following:
net adjustments decreasing fourth quarter pre-tax income by $9 million resulting primarily from the correction of inappropriately capitalized operating costs originating from the Company's GIS segment, a software revenue recognition correction originating from the Company's GBS segment and the correction of understated payroll and related expenses at Corporate;
net adjustments decreasing third quarter pre-tax income by $1 million primarily resulting from the correction of useful lives of property and equipment in service at a GIS contract that were inconsistent with established CSC accounting conventions;
net adjustments increasing second quarter pre-tax income by $5 million primarily resulting from the correction of accounting errors identified by the Company related to costs incurred under the NHS contract (see below for more discussion of out of period adjustments related to the Company's NHS contract); and
net adjustments decreasing first quarter pre-tax income by $1 million primarily resulting from the corrections of fiscal 2012 revenue recognized on a software contract in the Company's GBS segment, corrections of fiscal 2012 restructuring cost accruals originating primarily from the Company's GBS and GIS segments and corrections to record adjustments that were identified late in the close process but not included in the Company's consolidated fiscal 2012 financial statements

Adjustments recorded during fiscal 2013 that should have been recorded in prior fiscal years increased net income attributable to CSC common shareholders by $7 million. This increase is attributable to the tax effect of the adjustments described above and $5 million of tax benefit resulting from discrete tax items that should have been recorded in prior fiscal years. The discrete tax benefits are primarily attributable to the adjustment of the deferred tax liability related to intellectual property assets.

Further adjustments were identified and recorded in fiscal 2014 related to fiscal 2013 that increased the net error reported by $4 million.

NHS

As previously disclosed in fiscal 2012 and in the first quarter of fiscal 2013, the Company had identified certain additional items related to the investigation of the Company's use of the percentage-of-completion accounting method used on the NHS contract. During the second quarter of fiscal 2013, based on its analysis of these items, the Company recorded net credits of $9 million in pre-tax out of period adjustments impacting prior fiscal years. During the third quarter of fiscal 2013, the Company identified additional prior period errors. Such errors identified in the third quarter, which were self-correcting in the third quarter of fiscal 2012, have no impact on income from continuing operations before taxes for fiscal 2013. The accounting errors identified during fiscal 2013 are primarily related to either costs incurred under the contract or the estimation of contract revenues and costs at completion, which resulted in the overstatement of income from continuing

44


operations before taxes. The Company has concluded that there is no cumulative impact of this overstatement as a result of the $1.5 billion specified contract charge recorded as of December 30, 2011 being overstated by the same amount.

The Company has concluded that the errors identified during fiscal 2013 do not appear to have any impact on amounts charged to the NHS. Based on information provided by independent counsel, the Company believes that a small portion of such adjustments should be characterized as intentional accounting irregularities. The impact on income (loss) from continuing operations before taxes of the out of period adjustments identified in fiscal 2013 related to the Company's NHS contract is attributable to the following prior fiscal years:
 
 
Increase/(Decrease)
(Amounts in millions)
 
Fiscal 2013 Adjustments
Fiscal 2013
 
$
(9
)
Fiscal 2012
 
10

Fiscal 2011
 
(15
)
Fiscal 2010
 
18

Prior fiscal years (unaudited)
 
(4
)

The following table summarizes the cumulative effect on the fiscal 2013 net income attributable to CSC common shareholders of the consolidated out of period adjustments recorded during fiscal 2014 and 2013 under the rollover method. The amounts noted below also include certain adjustments that only impacted quarters (unaudited) within fiscal 2013, but had no net impact on the full year fiscal 2013 results:
 
 
Fiscal 2013
 
 
 
 
Quarter Ended
 
 
(Amounts in millions)
 
June 29, 2012
 
September 28, 2012
 
December 28, 2012
 
March 29, 2013
 
Total
NHS adjustments
 
$

 
$
(9
)
 
$