Computer Sciences Corporation Form 10-K

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, and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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. x

As of May 23, 2003 the aggregate market value of stock held by non-affiliates of the Registrant was approximately $6,951,000,000. A total of 186,935,500 shares of common stock was outstanding as of such date.

Portions of the Registrant’s definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days after March 28, 2003, are incorporated by reference into Part III hereof.

Computer Sciences Corporation (CSC or the Company) is one of the world leaders in the information technology (I/T) and professional services industry. Since it was founded in 1959, the Company has helped clients use I/T more efficiently in order to improve their operations and profitability, achieve business results and focus on core competencies.

CSC offers a broad array of services to clients in the global commercial and government markets and specializes in the application of complex I/T to achieve its customers’ strategic objectives. Its service offerings include information technology and business process outsourcing and I/T and professional services.

Outsourcing involves operating all or a portion of a customer’s technology infrastructure, including systems analysis, applications development, network operations, desktop computing and data center management. CSC also provides business process outsourcing, managing key functions for clients, such as claims processing, credit checking, logistics and customer call centers.

I/T and professional services includes systems integration, consulting and professional services. Systems integration encompasses designing, developing, implementing and integrating complete information systems. Consulting and professional services includes advising clients on the strategic acquisition and utilization of I/T and on business strategy, security, modeling, simulation, engineering, operations, change management and business process reengineering. Also included are a variety of specialized technical functions such as aviation services and base and range operations. During fiscal 2003, approximately 50% of CSC’s activities in I/T and professional services were delivered by its U.S. Federal sector.

CSC also licenses sophisticated software systems for the healthcare and financial services markets and provides a broad array of end-to-end e-business solutions that meet the needs of large commercial and government clients. The Company focuses on delivering results by linking business innovation skills with seasoned delivery expertise to provide flexible and scalable solutions. To do so, CSC draws on its vast experience in designing, building and maintaining large, complex, mission-critical systems and applies this knowledge to today’s business challenges.

In addition, CSC does not have exclusive agreements with hardware or software providers and believes that this “vendor neutrality” enables it to better identify and manage solutions specifically tailored to each client’s needs.

CSC provides its services to clients in global commercial industries and to the U.S. federal government. Segment and geographic information is included in Note 12 to the Company’s consolidated financial statements for the fiscal year ended March 28, 2003.

CSC has provided I/T services to the U.S. federal government since 1961. In fiscal 1986, when U.S. federal contracts represented 70% of the Company’s revenues, CSC decided to devote substantial resources to further develop global commercial business in order to accelerate its growth and take advantage of the competencies gained as a leader in the federal sector. As a result of this strategy, CSC has increased its penetration of the global commercial market and has diversified its business.

In the global commercial market sector, CSC’s service offerings are marketed to clients in a wide array of industries including aerospace/defense; automotive; chemical and energy; consumer goods; financial services; healthcare; manufacturing; media; retail/distribution; telecommunications; traffic and transportation; travel and hospitality; and utilities.

Geographically, CSC has major operations throughout North America, Europe and Asia-Pacific.

During the last three fiscal years, the Company’s revenue mix by major markets was as follows:

During fiscal 2003, CSC announced awards valued at approximately $7.7 billion, including $5 billion of Global Commercial awards and $2.7 billion with the U.S. federal government. These multi-year awards represent the estimated value at contract signing. They cannot be considered firm orders, however, due to their variable attributes, including demand-driven usage, modifications in scope of work due to changing customer requirements, and the annual funding constraints and indefinite delivery/indefinite quantity characteristics of major portions of the Company’s U.S. federal activities.

Continuing with its strategy of balanced growth through organic sources (new contracts and contract expansion) and acquisition, CSC acquired U.S. federal government I/T and professional services provider DynCorp during March 2003. This transaction enhances CSC’s access to the growing federal I/T and professional services markets and expands the Company’s already broad variety of services provided to various levels of the U.S. government. The combined operations rank CSC as a Top 3 U.S. federal I/T contractor providing comprehensive end-to-end services and solutions throughout our clients’ business processes.

Within the global commercial market, there were several significant awards to CSC during fiscal 2003:

CSC’s largest commercial award during fiscal 2003 was the 10 year, $1.6 billion global I/T outsourcing agreement with Motorola. This award calls for the Company to manage Motorola’s worldwide midrange, desktop and distributed computing and network infrastructure, along with help desk functions.

Bombardier Transportation, an operating group of Bombardier Inc. and a leader in rail equipment manufacturing and servicing, entered into a $700 million, 7 year I/T outsourcing agreement with CSC. The Company will provide desktop, help desk, data center, network and application management services.

D&B, formerly known as Dun & Bradstreet, and CSC signed a 10 year, $560 million I/T outsourcing agreement which calls for CSC to manage help desk, network and desktop and laptop support functions. D&B will also transition data center operations as well as print and mail facilities services to the Company.

CSC will continue to provide distributed computing data processing services to J.P.Morgan Chase & Co. under a new 7 year, $500 million subcontract, replacing the Company’s initial agreement with J.P.Morgan Chase & Co. entered into during 1996.

The Company continued to strengthen and expand its relationship with Raytheon Company through three outsourcing arrangements totaling $492 million over 8 years. A new agreement with Raytheon Aircraft Company calls for CSC to manage a full range of I/T infrastructure. The duration of two of the Company’s existing agreements with Raytheon Company are also extended by 8 years under the terms of these agreements.

CSC signed an 8 year, $320 million agreement to provide a broad range of I/T infrastructure outsourcing services to Basell, the world’s largest producer of polypropylene. Under the terms of the agreement, the Company will assume responsibility for Basell’s global I/T infrastructure, including data center, help desk and network operations and desktop computers.

Adding to the Company’s relationship with United Technologies Corporation (UTC), CSC was awarded a $143 million agreement expanding its I/T outsourcing to include similar services for UTC operations in Asia Pacific. This expansion brings total UTC awards of $4 billion to CSC through 2014.

CSC provides a broad array of services to the U.S. federal government, ranging from traditional systems integration and outsourcing to complex project management and technical services. The Company has extensive experience in the development of software for mission-critical systems for defense and civil agency applications, and also provides systems engineering and specialized support in network management, satellite communications, intelligence, aerospace, logistics and related high-technology fields. As a result of the DynCorp acquisition, CSC also provides a variety of technical functions such as aircraft maintenance and marine services.

There were several significant awards to CSC during fiscal 2003 from the U.S. federal government:

CSC is 1 of 8 teams awarded the U.S. Army’s Rapid Response Program Government-wide Acquisition contract. The contract to provide a variety of rapid support services is available to all government agencies. The Company’s portion of the $3 billion contract is estimated to be $700 million over 8 years. CSC will provide a broad range of services, including communications, I/T services, aircraft refurbishment and airstrip construction.

The National Security Agency has selected CSC as 1 of 4 companies to provide systems and security engineering, hardware and software installation, help desk support and systems administration. The Company’s estimated share of the blanket purchase order is $300 million over 5 years (if all options are exercised).

CSC was awarded a 7 year, $285 million (if all options are exercised) task order from the Environmental Protection Agency to implement, operate and maintain an e-government central data exchange. This portal will integrate environmental information and provide a single point of entry for environmental reporting from federal, state and local government agencies and private industry.

The Missile Defense Agency awarded CSC a 3 year, $270 million (if all options are exercised) follow-on contract to continue providing scientific, engineering and technical assistance including acquisition and business management, systems engineering, testing and evaluation, and web engineering support services to the Ballistic Missile Defense System.

The I/T 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.

CSC’s ability to obtain business is dependent upon its ability to offer better strategic concepts and technical solutions, better value, a quicker response or a combination of these factors. In the opinion of the Company’s management, CSC is positioned to compete effectively in the global commercial and U.S. federal government 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 I/T and professional services that it provides, from consulting to software and systems design, implementation and integration, to information technology and business process outsourcing to technical services.

The Company has offices worldwide, and as of March 28, 2003 employed approximately 90,000 persons. The services provided by CSC require proficiency in many fields, such as computer sciences, programming, mathematics, physics, engineering, astronomy, geology, operations, research, economics, statistics and business administration.

All of the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, filed with or furnished to the U.S. Securities and Exchange Commission on or after November 15, 2002 are available free of charge through the Company’s internet website, www.csc.com, as soon as reasonably practical after the Company has electronically filed such material with, or furnished it to, the SEC.

Upon expiration of its leases, the Company does not anticipate any difficulty in obtaining renewals or alternative space. Lease expiration dates range from fiscal 2004 through fiscal 2018.

The Company is currently party to a number of disputes which involve or may involve litigation. After consultation with counsel, it is the opinion of Company management that the ultimate liability, if any, with respect to these disputes will not be material to the Company’s results of operations or financial position.

Van B. Honeycutt joined the Company in 1975. He was elected Chief Executive Officer in April 1995, and Chairman of the Board of Directors in March 1997. He has been a director of the Company since 1993. Previous positions within the Company include President and Chief Operating Officer (1993-1995), President of the Industry Services Group (1988-1993), and President of CSC Credit Services, Inc. (1983-1988).

Michael W. Laphen joined the Company in 1977 and was elected President and Chief Operating Officer in April 2003 and Vice President in August 2001. He was President of the European Group from August 2000 to March 31, 2003. Previous positions within the Company include President of the Federal sector-Civil Group (1998-2000), and President of Systems Group - Integrated Systems Division (1992-1998).

Edward P. Boykin has retired effective June 1, 2003. He joined the Company in 1966 and was elected President and Chief Operating Officer in July 2001, serving in that role through March 31, 2003. Previous positions within the Company include President of the Financial Services Group (1999-2001), CSC Vice President with responsibility for leveraging the capabilities that exist within the J.P. Morgan and DuPont accounts (1998-1999), President of The Pinnacle Alliance, a CSC-managed organization providing information technology outsourcing and other services to J.P. Morgan (1996-1998), and President of the Technology Management Group (1993-1996).

Leon J. Level joined the Company in 1989 as Vice President and Chief Financial Officer and as a member of CSC’s Board of Directors. Former positions include Vice President and Treasurer of Unisys Corporation and Chairman of Unisys Finance Corporation; Assistant Corporate Controller and Executive Director of The Bendix Corporation; and Principal with the public accounting firm of Deloitte & Touche LLP.

Harvey N. Bernstein joined the Company as Assistant General Counsel in 1983. He became Deputy General Counsel and was elected a Vice President in 1988. Prior to joining the Company, he specialized in government procurement law at the firm of Fried, Frank, Harris, Shriver & Jacobson in Washington, D.C.

Paul M. Cofoni joined the Company in 1991 and was elected Vice President in August 2001. He has been President of the Federal sector since June 2001. Previous positions within the Company include President of the Technology Management Group (1998-2001) and Vice President of the Technology Management Group’s Eastern Region (1991-1998). Prior to joining the Company, he had a 17 year career with General Dynamics Corporation, where he held various executive-level positions.

Donald G. DeBuck joined the Company in 1979 and was elected Vice President and Controller in August 2001. Previous positions within the Company include Assistant Controller (1998-2001) and Vice President of Finance and Administration, Communications Industry Services (1996-1998).

Hayward D. Fisk joined the Company in 1989 as Vice President, General Counsel and Secretary. Prior to joining the Company, he was associated for 21 years with Sprint Corporation (formerly United Telecommunications, Inc.), in various legal and executive officer positions, most recently as Vice President and Associate General Counsel.

Paul T. Tucker joined the Company in 1996 as a Corporate Development executive, and in August, 1997 was elected Vice President of Corporate Development. From 1990 to 1995 he was President and Chief Executive Officer of Knight-Ridder Financial, an electronic real-time financial market information company. Previously, he founded and served as President and Chief Technologist of HAL Communications Corp., a communications hardware and software company and was an Associate Professor and Senior Research Engineer at the University of Illinois.

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

As of June 5, 2003 the number of registered shareholders of Computer Sciences Corporation’s common stock was 10,734. The table shows the high and low intra-day 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 calendar years and through June 5, 2003.

A discussion of “Income Before Taxes” and “Net Income and Earnings per Share” is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A). A discussion of “Special Items” is also included in MD&A.

The selected financial data has been restated for fiscal 1999 to include the results of a business combination accounted for as pooling of interests.

In accordance with Emerging Issues Task Force (EITF) Issue No. 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” amortization of contract premiums has been reclassified from costs and expenses to reduction of revenue beginning in the third quarter of fiscal 2003. A discussion of EITF Issue No. 01-09 is included in MD&A. Additionally, during the third quarter of fiscal 2003, CSC reclassified the provision for doubtful accounts from costs of services to selling, general and administrative. Prior period amounts conform to current presentation.

The Company’s service and product offerings include information technology services including consulting and systems integration services, outsourcing, and other professional services. CSC provides these services to customers in the global commercial and U.S. federal markets. On a geographic basis, CSC provides services to global commercial customers in the United States, Europe, and Other International locations. Australia, Asia and Canada generate substantially all revenue within Other International.

During fiscal 2003, the information technology services industry experienced a reduction in global demand for commercial project-oriented activities as customers reduced discretionary spending in response to the economic environment. Based on current indicators, the Company anticipates stabilization of U.S. market demand for consulting and systems integration services, but expects continued pressure on demand for such services in European and Other International markets. While the future demand for outsourcing services is unknown, the long-term nature of major outsourcing engagements allows outsourcing providers to benefit from a certain level of continuity.

The U.S. federal government is one of the world’s largest information technology services customers. The U.S. federal and public sector information technology spending are expected to increase in calendar 2003 in order to improve technologies in the areas of defense, homeland security, civil agency modernization, and education. While the ultimate distribution of U.S. federal funds and project assignments remain uncertain, the Company expects its information technologies and outsourcing capabilities, including the skill set acquired with DynCorp, to be viewed favorably by the U.S. federal government.

During fiscal 2003, the Company’s Global Commercial segment benefited from currency fluctuations in Europe and Other International regions as discussed below. The Company cannot forecast future movement in currency exchange rates or its impact on operating results.

Revenues for the Global Commercial and U.S. Federal sector segments (see Note 12) for fiscal 2003, fiscal 2002 and fiscal 2001 are as follows:

The Company’s overall revenue declined by $32.7 million for fiscal 2003 from fiscal 2002. Declines in Global Commercial segment revenues were substantially offset by the U.S. Federal sector’s 17% revenue growth. The Company announced $7.7 billion in new business awards during fiscal 2003 compared with $11.4 billion and $10.9 billion announced for fiscal 2002 and fiscal 2001, respectively.

Global Commercial revenue declined 6%, or $504.8 million, during fiscal 2003. In constant currency, Global Commercial revenue declined approximately 10%. The Company announced $5.0 billion in new Global Commercial business awards during fiscal 2003 compared with the $3.6 billion announced during fiscal 2002 and $8.2 billion announced during fiscal 2001.

For fiscal 2003, U.S. Commercial revenue declined by 10%, or $439.3 million. Approximately one-third of this decline is attributable to reduced demand for consulting and systems integration services. Substantially the entire consulting and systems integration decline occurred in the first and second quarters of fiscal 2003 with stabilization in demand taking place in the third and fourth quarters of fiscal 2003. The balance of the U.S. Commercial revenue decline is attributable to expiration of outsourcing contracts and client reductions in billable volumes and discretionary projects, partially offset by over $170.0 million in new outsourcing engagements. For fiscal 2002, U.S. Commercial revenue grew 5%, or $201.0 million. This growth was principally generated by outsourcing engagements including additional activities on the Nortel Networks, BAE Systems, General Dynamics and J.P. Morgan Chase & Co. contracts and further expansion in the Company’s financial services vertical markets including the benefit associated with the fiscal 2001 acquisition of Mynd Corporation (Mynd). Revenue growth was impacted by a significant decrease in consulting and systems integration revenue.

The Company’s European operations generated fiscal 2003 growth of 2%, or $47 million. Outsourcing revenue growth of approximately 10% was substantially offset by a revenue decline in consulting and systems integration services including the financial services vertical market. Sources of outsourcing revenue growth included BAE Systems, Nortel Networks, British Nuclear Fuels Limited, and Whitbread accounts and the impact of new business including Bombardier, United Kingdom Department of Health, and Allders. Currency fluctuations favorably impacted European revenue by approximately 10% points. For fiscal 2002 compared to 2001, the Company’s European operations generated growth of 14%, or $350.6 million. In constant currency, European revenue growth was approximately 17%. The growth was mainly attributable to outsourcing services in the United Kingdom including additional activities associated with automotive services, Australian Mutual Provident (AMP), BAE Systems and Schroders Bank.

Other International revenue declined by 9%, or $112.4 million, during fiscal 2003. The decline was primarily attributable to reduced product sales and related services reflecting the economic downturn in Asian markets. Currency fluctuations in Australia and Asia favorably impacted Other International revenue growth by approximately 5% points. For fiscal 2002, Other International operations provided revenue growth of 4%, or $48.0 million. In constant currency, Other International growth was approximately 10%. The growth was primarily attributable to expansion from outsourcing contracts including activities associated with Nortel Networks and a new outsourcing contract with the Northern Territory Government in Australia. Other International revenue growth was unfavorably impacted by reduced demand for services in Asia due to weakness in the Asian economies.

The Company’s U.S. Federal sector revenues were derived from the following sources:

Revenues from the U.S. Federal sector increased 17% during fiscal 2003 versus fiscal 2002. The contribution of former DynCorp operations from the date of acquisition, March 7, 2003 to March 28, 2003 accounted for $166.0 million or approximately 6% of U.S. Federal sector’s revenue growth. The remaining revenue growth of 11%, or $308.1 million, is principally attributable to new and increased work related to intelligence community activities, the Internal Revenue Service (IRS) Prime contract, General Services Administration contracts, and an Immigration and Naturalization Service contract.

Revenues for fiscal 2002 compared with fiscal 2001 increased 11%. The increase was principally related to new and increased work related to intelligence community activities, the Army Logistics Modernization contract (LOGMOD), the IRS Prime contract and several other task order activities on both Civil agency and Department of Defense (DoD) contracts.

During fiscal 2003, CSC announced federal contract awards with a total value of $2.7 billion, compared with the $7.8 billion and $2.7 billion announced during fiscal 2002 and fiscal 2001, respectively. Federal contract awards for fiscal 2002 included a single intelligence community award with an anticipated value of $5.0 billion.

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

For fiscal 2003, the Company’s costs of services as a percentage of revenue decreased to 79.9% from 80.7%. Performance improvements in our U.S. outsourcing operations resulting from cost containment efforts, consolidation of regional and back office functions in multiple geographies, and use of less costly offshore sites contributed 1.2% points of improvement. Performance improvements in our U.S. Federal sector, U.S. consulting and systems integration, and Other International operations contributed equally to .6% points of improvement. Europe operations caused a .6% point adverse shift, primarily due to revenue shortfalls resulting from soft I/T project demand. Shifts in the mix of our business toward federal operations, which carry a higher ratio of costs of services, caused an adverse movement of .4% points.

The Company’s costs of services as a percentage of revenue increased to 80.7% from 80.1% for fiscal 2002 compared to fiscal 2001. The change was primarily related to a decrease in demand for commercial consulting and systems integration services, which decreased utilization and impacted revenue realization. The Company also experienced cost pressure on certain outsourcing contracts.

During the third quarter of fiscal 2003, the Company reclassified the provision for doubtful accounts from costs of services to selling, general and administrative. Prior period amounts have been adjusted to conform to current year presentation.

Selling, general and administrative (SG&A) expenses as a percentage of revenue declined to 6.3% from 6.5% for fiscal 2003 versus fiscal 2002. The reduction in SG&A is attributable to a $14.2 million decrease in

provision for doubtful accounts and European performance improvements of approximately $29.0 million partially offset by U.S. Commercial and Other International performance decline. The favorable impact of a shift in the Company’s business mix towards the U.S. Federal sector, where SG&A costs are lower as a percentage of revenue than the Company’s composite, substantially offset a decline in the U.S. Federal sector’s performance in SG&A.

Selling, general and administrative expenses as a percentage of revenue declined to 6.5% from 7.8% for fiscal 2002 versus fiscal 2001. The decrease was due to the Company’s continued cost reduction initiatives, management’s focus on discretionary costs and consolidation of certain back office services. During the year, the Company realigned certain functions in its U.S. healthcare operations with similar functions into other groups and integrated its Pinnacle Alliance unit into the financial services vertical operations. The majority of the increase in the provision related to customer credit risks associated with certain parties for whom the Company provided systems integration and consulting professional services.

The Company’s fiscal 2003 depreciation and amortization expense as a percentage of revenue was virtually unchanged compared to fiscal 2002. Last year’s depreciation and amortization expense included $77.7 million related to goodwill and employee workforce amortization which is no longer amortized as a result of the Company’s adoption of Statement of Financial Accounting Standards (SFAS) No. 142 on March 30, 2002. An approximate .7% point improvement in depreciation and amortization as a percentage of revenue from the absence of amortization of goodwill and employee workforce acquired was offset by depreciation related to additional investments during fiscal 2003 and fiscal 2002 in equipment and contract costs in support of our outsourcing clients.

Depreciation and amortization expense as a percentage of revenue increased to 7.1% from 5.9% for fiscal 2002 versus fiscal 2001. The increase was due primarily to the additional depreciation and amortization of assets associated with the Company’s increased outsourcing activities and increased goodwill amortization related to the December 2000 acquisition of Mynd.

The $8.2 million decrease in interest expense for fiscal 2003 net of interest income resulted from a lower average outstanding debt partially offset by a higher average interest rate and decreased interest income.

The increase of $52.7 million for fiscal 2002 resulted principally from the increased debt associated with funding the Mynd acquisition and purchases related to outsourcing activities.

In connection with the DynCorp acquisition in March 2003, the Company reviewed its operations, product strategies and the carrying value of its assets to identify any potential exit or disposal activities. As a result, during the fourth quarter ended March 28, 2003, special items of $5.2 million ($3.3 million after tax) or 2 cents per share (diluted) were recorded. The special items related to software associated with prior CSC operations now redundant to similar assets acquired with DynCorp. In addition, certain identified equipment can no longer accommodate the larger, integrated U.S. Federal sector business, and its use will be discontinued during the first two quarters of fiscal 2004, which will result in an estimated charge of $22.0 million. The Company anticipates completing the exit and disposal activities related to the DynCorp acquisition by the end of the second quarter of fiscal 2004.

During fiscal 2002, the Company reviewed its estimates related to the fiscal 2001 special charge (discussion below) and made certain adjustments. These adjustments increased the facilities consolidation provision by $4 million to $29.6 million. This adjustment was offset by a decrease of $3 million related to the phased-out operations and other assets provisions and by a decrease of $1 million related to employee severance costs. These adjustments resulted in total special charges related to phased-out operations and other assets of $17.9 million. The decrease in employee severance costs was due to 109 fewer U.S. employee

involuntary terminations. As a result of renegotiations of certain international employee severance agreements, the Company involuntarily terminated an additional 285 international employees. The net impact was an additional 176 employees involuntarily terminated and a $1 million reduction related to employee severance costs. As a result of these actions, there was no net additional special charge recorded during fiscal 2002.

During fiscal 2001, special items of $232.9 million ($156.0 million after tax) were recorded as detailed below.

In response to a changing mix of information technology services, business conditions and overall demand for consulting and systems integration services, the Company reviewed its global operations. As a result of this review, a special item of $137.5 million ($91.3 million after tax) or 54 cents per share (diluted) was recorded during the fourth quarter ended March 30, 2001. Included in the charge was employee severance costs of $67.9 million, write-offs in connection with consolidation of facilities of $25.6 million, write-off of capitalized software and computer-related assets of $22.1 million and $20.9 million related to phased-out operations and other assets. The involuntary termination benefits accrued and expensed of $67.9 million related to 1,896 employees of which 722 were U.S. employees and 1,174 were international employees. As of March 28, 2003, all involuntary termination benefits have been paid and all affected employees have been terminated. Less than $5 million of accrued costs related to consolidation of facilities remained at March 28, 2003.

In connection with the December 2000 acquisition of Mynd, the Company reviewed its global commercial financial services operations, product strategies and the carrying value of its assets. As a result, special items were recorded in the third and fourth quarters of fiscal 2001. During the third quarter ended December 29, 2000, special items of $84.2 million ($57.3 million after tax), or 34 cents per share (diluted) were recorded and included, $58.2 million related to non-cash adjustments to the carrying value of capitalized software and the write-off of other assets and intangibles and $9.4 million related to a legal settlement and write-off of assets from operations previously sold or phased-out. The third quarter charge also included $16.6 million accrued for employee severance costs. In the fourth quarter, the amount for employee severance costs was adjusted to $14.5 million. The employee severance costs related to 628 global commercial financial services employees. All of the severance payments have been made and all of the employees have been involuntarily terminated. Upon completion of the integration of Mynd during the fourth quarter ended March 30, 2001, the Company recorded an additional special item of $11.2 million ($7.4 million after tax) or 4 cents per share (diluted) for the write-off of capitalized software and a provision for consolidation of facilities. The $11.2 million was the net special item after the severance adjustment described above.

The Company’s income before taxes and margin for the most recent three fiscal years is as follows:

During fiscal 2003, income before taxes as a percentage of revenue increased to 5.4%. Included in fiscal 2002 income before taxes is a .7%, or $77.7 million, impact of amortization of goodwill and employee workforce acquired which are no longer amortized. The remaining increase relates to improved performance in costs of services and selling, general and administrative costs offset by increases in other depreciation and amortization as described above. Income before taxes and margin for fiscal 2003 include special items of $5.2 million described above in caption “Special Items”.

The provision for income taxes as a percentage of pre-tax earnings was 28.0%, 30.7% and 29.4% for the three years ended March 28, 2003. The decrease of 2.7% points in the effective tax rate from fiscal 2002 to fiscal 2003 resulted from the ceasing of goodwill and employee workforce amortization in fiscal 2003, which decreased the effective rate by approximately 3.5% points. This decrease was partially offset by the reduced

relative impact of permanent tax differences. The change in effective tax rate to 30.7% from 29.4% for fiscal 2002 is principally related to the tax benefit of higher marginal rates applied to the fiscal 2001 special charge.

The tax rate applied to special items was 37.5% and 33.0% for fiscal 2003 and fiscal 2001, respectively.

The Company’s net income and diluted earnings per share for fiscal 2003, fiscal 2002, and fiscal 2001 are as follows:

The net earnings margin was 3.9% for fiscal 2003, 3.0% for fiscal 2002 and 2.2% for fiscal 2001. The improvement for fiscal 2003 was principally attributable to lower costs of services and selling, general and administrative expenses. During fiscal 2002, the Company’s net income margin increased to 3% from 2.2% for fiscal 2001 primarily due to the impact of the fiscal 2001 special items, partially offset by the fiscal 2002 increases in costs of services, depreciation and amortization and interest expense as described above.

Historically, the majority of the Company’s cash and cash equivalents has been provided from operating activities. During fiscal 2003, net cash provided from operations decreased primarily due to a reduction in payables and accrued expenses, net of acquired DynCorp balances, partially offset by additional net earnings and a lesser increase in accounts receivable.

The Company’s investments principally relate to purchases of computer equipment and software, facilities, and deferred outsourcing contract costs that support the Company’s expanding Global Commercial and U.S. Federal sector operations. Investments include computer equipment purchased at the inception of outsourcing contracts as well as subsequent upgrades, expansion or replacement of these client-supporting assets. The Company’s investments also include acquisitions accounted for under the purchase method of accounting, including significant amounts for the fiscal 2003 acquisition of DynCorp and the fiscal 2001 acquisition of Mynd.

As described above, historically a majority of the Company’s capital investments have been funded by cash from operations. The Company issued 15 million shares during the fourth quarter of fiscal 2003 to partially fund the DynCorp acquisition. In addition, the Company issued $300 million of 5.00% notes due February 15, 2013. The funds were used for general corporate purposes, including reduction of outstanding commercial paper which had increased as a result of paying off assumed DynCorp debt and the cash portion of the DynCorp consideration.

During fiscal 2002, the Company issued $500 million of 6.75% notes due June 2006 and $500 million of 7.375% notes due June 2011. The net proceeds were used for general corporate purposes, including the reduction of outstanding commercial paper.

The balance of cash and cash equivalents was $299.6 million at March 28, 2003, $149.1 million at March 29, 2002 and $184.7 million at March 30, 2001. During this period, the Company’s earnings have added to equity. During fiscal 2003, foreign currency translation adjustment increased equity by $165.0 million while unfunded pension obligations decreased equity by $90.3 million. At the end of fiscal 2003, CSC’s ratio of debt to total capitalization was 35.0%.

At March 28, 2003, the Company had a commercial paper program, backed by two syndicated credit facilities, with a total capacity of $671.0 million. The credit facilities were comprised of a $321.0 million facility, which expires on August 18, 2005 and a $350.0 million facility, which expires August 15, 2003. At March 28, 2003, approximately $470.0 million was available for borrowing under this program compared to $497.8 million at the end of fiscal 2002. At March 28, 2003, the Company had $201.0 million borrowings under the commercial paper program and is in compliance with all terms of the agreements. In addition, the Company had uncommitted lines of credit of $511.1 million available with certain foreign banks. During fiscal 2003, the Company issued 15 million shares of common stock and $300 million worth of term debt from its fiscal 2002 shelf registration.

The following table summarizes the Company’s contractual obligations by period as of March 28, 2003:

Regarding minimum purchase obligations included above, the Company has signed long-term purchase agreements with certain software, hardware, telecommunication and other service providers to obtain favorable pricing, committed service levels and terms for services that are necessary for the operations of business activities. The Company is contractually committed to purchase specified service minimums over remaining periods ranging generally from 1 to 5 years. If the Company does not meet the specified service minimums, the Company would have an obligation to pay the service provider a portion or all of the shortfall.

In the normal course of business, the Company may provide certain customers and potential customers with financial performance guarantees, which are generally backed by standby letters of credit or surety bonds. In general, the Company would only be liable for the amount of these guarantees in the event of default in the performance of our obligations, the probability of which is remote in management’s opinion. The Company is in compliance with the performance obligations under all service contracts for which there is a performance guarantee, and any liability incurred in connection with these guarantees would not have a material adverse effect on the Company’s consolidated results of operations or financial position. In addition, the Company has other guarantees that represent parent guarantees in support of working capital uncommitted lines of credit established with local financial institutions for its foreign business units. Borrowings under these lines were $49.9 million at March 28, 2003.

The following table summarizes the expiration of the Company’s financial guarantees outstanding as of March 28, 2003:

As of March 28, 2003, the amount of outstanding subsidiary debt under the subsidiary debt guarantees noted above was $49.9 million.

In the opinion of management, CSC will be able to meet its liquidity and cash needs for the foreseeable future through the combination of cash flows from operating activities, cash balances, unused borrowing capacity and other financing activities. If these resources need to be augmented, major additional cash requirements would likely be financed by the issuance of debt and/or equity securities and/or the exercise of the put option as described in Note 13 to the Company’s consolidated financial statements. The Company’s sources of debt include the issuance of commercial paper and short-term borrowings. If the Company were unable to sell commercial paper or if the Company determined it was too costly to do so, the Company has the ability to borrow under the two syndicated backstop credit facilities.

It has been the Company’s policy to invest earnings in the growth of the Company rather than distribute earnings as dividends. This policy, under which dividends have not been paid since fiscal 1969, is expected to continue, but is subject to regular review by the Board of Directors.

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The Company’s significant accounting policies are described in Note 1 to the consolidated financial statements under “Summary of Significant Accounting Policies.”

The Company’s critical accounting policies related to revenue recognition include long-term contracts, outsourcing contracts, and software sales. The Company also has critical accounting policies addressing outsourcing contract costs, software development costs, and retirement benefits.

the entire term of the contract, including estimates of resources and costs necessary to complete performance. Management regularly reviews project profitability and underlying estimates. Revisions to the estimates at completion are reflected in results of operations as a change in accounting estimate in the period in which the facts that give rise to the revision become known by management. Provisions for estimated losses, if any, are recognized in the period in which the loss is determined.

Revenue on outsourcing contracts is recognized based on the services performed or information processed during the period in accordance with contract terms and the agreed-upon billing rates applied to the consumed service metrics.

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

Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract are deferred and expensed over the contract life. These costs consist of contract acquisition and transition costs, including the cost of due diligence activities after competitive selection and costs associated with installation of systems and processes. Costs incurred for bid and proposal activities are expensed as incurred. Fixed assets acquired in connection with outsourcing transactions are capitalized and depreciated consistent with fixed asset policies described in Note 1. Amounts paid to clients in excess of the fair market value of acquired property and equipment (premiums) are capitalized as outsourcing contract costs and amortized over the contract life. The amortization of such outsourcing contract cost premiums is accounted for as a reduction in revenue, as described in Note 1. Management regularly reviews outsourcing contract costs for impairment.

Terminations of outsourcing contracts, including transfers either back to the client or to another I/T provider, prior to the end of their committed contract term are infrequent due to the complex transition of personnel, assets, methodologies, and processes involved with outsourcing transactions. In the event of an early termination, the Company and the client, pursuant to certain contractual provisions, engage in negotiations on the recovery of unamortized contract costs, lost profits, transfer of personnel, rights to implemented systems and processes, as well as other matters.

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

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

The Company offers a number of pension and postretirement healthcare and life insurance benefit plans. CSC utilizes actuarial methods required by SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” to account for pension and postretirement plans, respectively. The actuarial methods require significant assumptions to calculate the net periodic pension benefit expense and the related pension benefit obligation for our defined benefit pension plans. These assumptions include, but are not limited to, the expected long-term rate of return on plan assets and discount rates. In making these assumptions, we are required to consider current market conditions, including changes in interest rates. Changes in the related net periodic pension costs may occur in the future due to changes in these and other assumptions.

The assumption for the expected long-term rate of return on plan assets is selected by taking into account the expected duration of the projected benefit obligation for the plans, the asset mix of the plans, historic plan asset returns as well as current market conditions and other factors. Our fiscal 2003 pension plan valuations utilized a weighted average expected long-term rate of return on plan assets of 8.1% compared to 8.4% used in fiscal 2002. Holding all other assumptions constant, a one-half percent increase or decrease in the assumed weighted average rate of return on plan assets would have decreased or increased, respectively, the net periodic pension cost by approximately $7 million.

The discount rate assumption reflects the market rate for high-quality, fixed income debt instruments based on the expected duration of the benefit payments for our pension plans as of our annual measurement date and is subject to change each year. Our fiscal 2003 pension plan valuations utilized a weighted average discount rate of 6.3% compared to 6.8% used in fiscal 2002. Holding all other assumptions constant, a one-half percent increase or decrease in the assumed weighted average discount rate would have decreased the net periodic pension cost by approximately $19 million or increased it by approximately $20 million, respectively.

SFAS No. 87 requires recognition of a minimum pension obligation if the fair value of plan assets is less than the accumulated benefit obligation (ABO) at the end of the year. As of March 28, 2003, some of the Company’s pension plans had ABOs in excess of the fair value of their respective plan assets for which we recognized an additional minimum obligation resulting in an increase in intangible assets of $24.5 million and a charge to equity of $90.3 million, net of tax. Based on future plan asset performance and interest rates, additional charges to equity may be required.

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill no longer be amortized when the new standard is adopted. The new standard also requires an initial goodwill impairment assessment in the year of adoption and annual impairment tests thereafter. The Company adopted SFAS No. 142 on March 30, 2002. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of the impairment loss, if any. During the second quarter ended September 27, 2002, the Company completed the initial goodwill assessment and the annual goodwill impairment test. No impairment losses were identified as a result of these tests.

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

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 clarifies guidance

related to the classification of gains and losses from extinguishment of debt and resolves inconsistencies related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications. The provision of SFAS No. 145 related to the extinguishment of debt will be effective for the Company on March 29, 2003. The provision of SFAS No. 145 related to the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications was effective for all transactions occurring after May 15, 2002. Adoption of this statement did not have a significant effect on the Company’s consolidated financial position or results of operations.

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

In November 2002 and May 2003, the EITF reached a consensus on Issue 00-21, “Revenue Arrangements with Multiple Deliverables.” EITF Issue 00-21 provides guidance and criteria for determining when a multiple deliverable arrangement contains more than one unit of accounting. The guidance also addresses methods of measuring and allocating arrangement consideration to separate units of accounting. The guidance will be effective for revenue arrangements entered into after June 15, 2003. The Company presently intends to adopt this statement prospectively and the Company does not anticipate a material impact to the Company’s financial condition or results of operation as a result of adoption.

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

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

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure — an amendment of FASB Statement No. 123.” SFAS No. 148 amends FASB Statement No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. The statement will be effective for the Company’s fiscal 2004 and adoption of this statement is not expected to have a significant effect on the Company’s consolidated financial position or results of operations as the Company will continue to account for stock based compensation as described in Note 1.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This statement is effective for contracts entered into or modified after June 30, 2003. Adoption of this statement is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003. Adoption of this statement is not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

In May 2003, the EITF reached a consensus on Issue No. 01-08, “Determining Whether an Arrangement Contains a Lease.” EITF Issue No. 01-08 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of FASB Statement No. 13, “Accounting for Leases.” The guidance in Issue No. 01-08 is based on whether the arrangement conveys to the purchaser (lessee) the right to use a specific asset. The Issue 01-08 will be effective for arrangements entered into or modified in the Company’s second quarter of fiscal 2004. The Company is currently evaluating EITF Issue No. 01-08 and has not determined the impact this statement will have on its consolidated financial position or results of operations.

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

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

These factors also include the following risks specifically related to the merger with DynCorp: (i) the risk that the CSC and DynCorp businesses will not be integrated successfully; (ii) the risk that the expected benefits of the proposed merger may not be realized; (iii) the risk that resales of CSC stock following the merger may cause the market price to fall; and (vi) CSC’s increased indebtedness after the merger.

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

The Company has fixed-rate long-term debt obligations, short-term commercial paper and other borrowings subject to market risk from changes in interest rates. Sensitivity analysis is one technique used to measure the impact of changes in interest rates on the value of market-risk sensitive financial instruments. A hypothetical 10% movement in interest rates would not have a material impact on the Company’s future earnings or cash flows.

During the ordinary course of business, the Company enters into certain contracts denominated in foreign currency. Potential foreign currency exposures arising from these contracts are analyzed during the contract bidding process. The Company generally manages these transactions by ensuring costs to service contracts are incurred in the same currency in which revenue is received. Short-term contract financing requirements are met by borrowing in the same currency. By matching revenues, costs and borrowings to the same currency, the Company has been able to substantially mitigate foreign currency risk to earnings. If necessary, the Company may also use foreign currency forward contracts or options to hedge exposures arising from these transactions. The Company does not foresee changing its foreign currency exposure management strategy.

During fiscal 2003, 36.5% of the Company’s revenue was generated outside of the United States. Using sensitivity analysis, a hypothetical 10% increase in the value of the U.S. dollar against all currencies would decrease revenue by 3.65% or $414.0 million, while a hypothetical 10% decrease in the value of the U.S. dollar against all currencies would increase revenue by 3.65% or $414.0 million. In the opinion of management, a substantial portion of this fluctuation would be offset by expenses incurred in local currency. As a result, a hypothetical 10% movement of the value of the U.S. dollar against all currencies in either direction would impact the Company’s earnings before interest and taxes by $27.9 million. This amount would be offset, in part, from the impacts of local income taxes and local currency interest expense.

At March 28, 2003, the Company had approximately $193.7 million of non-U.S. dollar denominated cash and cash equivalents, and approximately $51.0 million of non-U.S. dollar borrowings.

Schedules other than that listed above have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes.

To the Board of Directors and Stockholders
Computer Sciences Corporation
El Segundo, California

We have audited the accompanying consolidated balance sheets of Computer Sciences Corporation (the Company) as of March 28, 2003, and March 29, 2002, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended March 28, 2003. Our audits also included the financial statement schedule listed in the Index at Item 8. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Computer Sciences Corporation as of March 28, 2003 and March 29, 2002 and the results of its operations and its cash flows for each of the three years in the period ended March 28, 2003 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 3 of the Notes to Consolidated Financial Statements, effective March 30, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

The accompanying consolidated financial statements include those of Computer Sciences Corporation, its subsidiaries and those joint ventures and partnerships over which it exercises control, hereafter collectively referred to as “CSC” or “the Company.” The Company consolidates joint ventures only when it has majority voting stock. All material intercompany transactions and balances have been eliminated.

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

Costs on outsourcing contracts are generally expensed as incurred. However, certain costs incurred upon initiation of an outsourcing contract are deferred and expensed over the contract life. These costs consist of contract acquisition and transition costs, including the cost of due diligence activities after competitive selection and costs associated with installation of systems and processes. Costs incurred for bid and proposal activities are expensed as incurred. Fixed assets acquired in connection with outsourcing transactions are capitalized and depreciated consistent with fixed asset policies described below. Amounts paid to clients in excess of the fair market value of acquired property and equipment (premiums) are capitalized as outsourcing

contract costs and amortized over the contract life. The amortization of such outsourcing contract cost premiums is accounted for as a reduction in revenue, as described below. Management regularly reviews outsourcing contract costs for impairment.

Capitalized and purchased software, net of accumulated amortization, consisted of the following:

Amortization of capitalized software development costs and purchased software included in depreciation and amortization of $810.3, $810.8 and $618.2 for fiscal 2003, fiscal 2002, and fiscal 2001, respectively, consisted of the following:

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

Cash payments for interest on indebtedness and cash payments for taxes on income are as follows:

During March 2003, CSC completed the acquisition of all of the outstanding equity securities of DynCorp in exchange for 15 million shares of common stock plus $161.3 in cash.

For purposes of reporting cash and cash equivalents, the Company considers all investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s investments consist of high quality securities issued by a number of institutions having high credit ratings, thereby limiting the Company’s exposure to concentrations of credit risk. With respect to financial instruments, the Company’s carrying amounts of its other current assets and liabilities were deemed to approximate their market values due to their short maturity. At March 28, 2003, the Company had no outstanding material hedge contracts with respect to its foreign exchange or interest rate positions.

Depreciation and amortization reported in the consolidated statements of cash flows includes amortization of premiums which is reported as a reduction of revenue in the consolidated statements of income.

The Company is subject to various claims and contingencies associated with lawsuits, insurance, tax and other issues arising out of the normal course of business. The Company’s consolidated financial statements reflect the treatment of claims and contingencies based on management’s view of the expected outcome. The Company consults with legal counsel on those issues related to litigation and seeks input from other experts and advisors with respect to matters in the ordinary course of business. If the likelihood of an adverse outcome

is probable and the amount is estimable, the Company accrues a liability in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, “Accounting for Contingencies.”

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

The Company evaluates the carrying value of long-lived assets to be held and used, other than goodwill and intangible assets with indefinite lives, when events and circumstances indicate a potential impairment. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that case, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the estimated cash flows associated with the asset under review, discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for the cost of disposal. Changes in estimates of future cash flows could result in a write-down of the asset in a future period.

The Company has determined local currencies are the functional currencies of the foreign operations. Accordingly, these foreign entities translate assets and liabilities from their local currencies to U.S. dollars using year-end exchange rates while income and expense accounts are translated at the average rates in effect during the year. The resulting translation adjustment is recorded as part of accumulated other comprehensive loss (OCI). As of March 28, 2003 and March 29, 2002 the balance of currency translation adjustment included in OCI is $46.7 and $211.7, respectively.

Basic earnings per common share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect the incremental shares issuable upon the assumed exercise of stock options.


x		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 28, 2003
OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to


Title of each class:		Name of each exchange on which registered

Common Stock, $1.00 par value per share Preferred Stock Purchase Rights		New York Stock Exchange Pacific Exchange


	Approximate
Owned properties as of March 28, 2003	Square Footage		General Usage

Blythewood, South Carolina		521,000		Computer and General Office Facility
Copenhagen, Denmark		486,000		Computer and General Office Facility
Austin, Texas		404,000		General Office
Falls Church, Virginia		401,000		General Office
Aldershot, England		268,000		General Office
El Segundo, California		206,000		General Office
Newark, Delaware		176,000		Computer and General Office Facility
San Diego, California		162,000		Computer and General Office Facility
Norwich, Connecticut		144,000		Computer and General Office Facility
Meriden, Connecticut		118,000		Computer and General Office Facility
Aaurus, Denmark		104,000		General Office
Moorestown, New Jersey		99,000		General Office
Maidstone, United Kingdom		79,000		Computer and General Office Facility
Shatin, Hong Kong		72,000		General Office
Singapore		61,000		General Office
Jacksonville, Illinois		60,000		General Office
High Brooms, England		43,000		Computer and General Office Facility
Sterling, Virginia		41,000		General Office
Various other U.S. and foreign locations		495,000		Primarily General Offices


Leased properties as of March 28, 2003

Washington, D.C. area	3,158,000	Computer and General Office Facility
Australia and other Pacific Rim locations	1,348,000	Computer and General Office Facility
Texas	865,000	Computer and General Office Facility
Germany	840,000	General Office
New Jersey	792,000	General Office
Ohio	616,000	General Office
England	603,000	General Office
Georgia	579,000	General Office
Alabama	471,000	General Office
Connecticut	451,000	General Office
New York	380,000	General Office
Massachusetts	373,000	General Office
Tennessee	353,000	General Office
Delaware	318,000	General Office
California	314,000	General Office
France	251,000	General Office
Denmark	226,000	General Office
Various other U.S. and foreign locations	3,249,000	Computer and General Office Facilities



	2003						2002				2001

Calendar Quarter	High			Low			High		Low		High		Low

1^st		36.65			27.50			53.47		40.52		66.71		29.50
2^nd		41.46	*		26.52	*		50.10		38.40		46.00		28.99
3^rd								47.85		25.47		39.50		31.00
4^th								36.00		24.30		50.50		30.96


Nevada (State of incorporation or organization) 2100 East Grand Avenue El Segundo, California (Address of principal executive offices)		95-2043126 (I.R.S. Employer Identification No.) 90245 (zip code)


Item		Page

Part I
1.	Business		1
2.	Properties		5
3.	Legal Proceedings		6
4.	Submission of Matters to a Vote of Security Holders		6
Part II
5.	Market for the Registrant’s Common Equity and Related Stockholder Matters		8
6.	Selected Financial Data		8
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
7A.	Quantitative and Qualitative Disclosures About Market Risk		22
8.	Financial Statements and Supplementary Data		23
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		59
Part III
10.	Directors and Executive Officers of the Registrant		59
11.	Executive Compensation		59
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		59
13.	Certain Relationships and Related Transactions		59
14.	Controls and Procedures		59
15.	Principal Accountant Fees and Services		60
Part IV
16.	Exhibits, Financial Statement Schedule and Reports on Form 8-K		61


Item 4.	Submission of Matters to a Vote of Security Holders


Item 5.	Market for the Registrant’s Common Equity and Related Stockholder Matters



			Five-Year Review

In millions except per-share amounts			March 28, 2003			March 29, 2002			March 30, 2001			March 31, 2000			April 2, 1999

Total assets			$	10,433.2		$	8,610.5		$	8,174.8		$	5,874.1		$	5,260.4
Debt:
	Long-term			2,204.9			1,873.1			1,029.4			652.4			399.7
	Short-term			249.9			309.6			1,195.7			238.1			436.4
	Current maturities			24.9			21.4			158.9			11.1			167.5

		Total		2,479.7			2,204.1			2,384.0			901.6			1,003.6
Stockholders’ equity				4,606.4			3,623.6			3,215.2			3,044.0			2,588.5
Working capital				1,100.9			596.2			(384.9	)		782.4			661.5
Property and equipment:
	At cost			4,172.2			3,884.4			3,507.4			2,744.2			2,368.8
	Accumulated depreciation and amortization			2,184.6			1,976.4			1,649.0			1,469.3			1,256.6

	Property and equipment, net			1,987.6			1,908.0			1,858.4			1,274.9			1,112.2
Current assets to current liabilities				1.4:1			1.2:1			0.9:1			1.4:1			1.3:1
Debt to total capitalization				35.0	%		37.8	%		42.6	%		22.9	%		27.9	%
Book value per share			$	24.66		$	21.17		$	19.06		$	18.17		$	15.67
Stock price range (high)				50.10			53.47			99.88			94.94			74.88
(low)				24.30			28.99			29.50			52.38			46.25



	Fiscal Year

In millions except per-share amounts	2003		2002		2001		2000		1999

Revenues	$	11,346.5	$	11,379.2	$	10,492.9	$	9,344.5	$	8,093.8

Costs of services		9,068.2		9,187.2		8,406.8		7,346.4		6,340.3
Selling, general and administrative		716.9		741.9		814.9		785.5		744.9
Depreciation and amortization		810.3		810.8		618.2		519.5		439.3
Interest, net		134.3		142.5		89.8		40.5		34.4
Special items		5.2				232.9		41.1

Total costs and expenses		10,734.9		10,882.4		10,162.6		8,733.0		7,558.9

Income before taxes		611.6		496.8		330.3		611.5		534.9
Taxes on income		171.4		152.7		97.1		208.6		179.4

Net income	$	440.2	$	344.1	$	233.2	$	402.9	$	355.5

Basic earnings per common share	$	2.55	$	2.02	$	1.39	$	2.42	$	2.17

Diluted earnings per common share	$	2.54	$	2.01	$	1.37	$	2.37	$	2.12

Average common shares outstanding		172.317		170.054		168.260		166.311		164.124
Average common shares outstanding assuming dilution		173.119		171.279		170.767		169.749		167.986


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



		Fiscal 2003						Fiscal 2002					Fiscal 2001

					Percent					Percent
Dollars in millions		Amount			Change			Amount		Change			Amount

	U.S. Commercial	$	3,868.2			(10	%)	$	4,307.5		5	%	$	4,106.5
	Europe		2,981.2			2			2,934.2		14			2,583.6
	Other International		1,151.6			(9	)		1,264.0		4			1,216.0

Global Commercial			8,001.0			(6	)		8,505.7		8			7,906.1
U.S. Federal Sector			3,347.4			17			2,873.3		11			2,586.7
Corporate			(1.9	)					.2					.1

Total		$	11,346.5			0		$	11,379.2		8		$	10,492.9



		Dollar Amount						Percentage of Revenue

Dollars in millions		2003		2002		2001		2003			2002			2001

Costs of services		$	9,068.2	$	9,187.2	$	8,406.8		79.9	%		80.7	%		80.1	%
Selling, general and administrative			716.9		741.9		814.9		6.3			6.5			7.8
Depreciation and amortization			810.3		810.8		618.2		7.1			7.1			5.9
Interest expense, net			134.3		142.5		89.8		1.2			1.3			.9
Special items			5.2				232.9								2.2

	Total	$	10,734.9	$	10,882.4	$	10,162.6		94.5	%		95.6	%		96.9	%



	Dollar Amount						Margin

Dollars in millions	2003		2002		2001		2003			2002			2001

Income before taxes	$	611.6	$	496.8	$	330.3		5.4	%		4.4	%		3.1	%


Item 2.	Properties


Item 3.	Legal Proceedings


Item 6.	Selected Financial Data


	Business Environment



	Dollar Amount						Margin

Dollars in millions, except EPS	2003		2002		2001		2003			2002			2001

Net income	$	440.2	$	344.1	$	233.2		3.9	%		3.0	%		2.2	%
Diluted earnings per share	$	2.54	$	2.01	$	1.37


		Less than		1-3		3-5		More than
Dollars in millions		1 Year		Years		Years		5 Years		Total

Long-term debt				$	701.0	$	498.9	$	993.3	$	2,193.2
Capital lease obligations		$	22.2		8.2		1.9				32.3
Operating leases			331.5		423.7		222.9		234.2		1,212.3
Minimum purchase obligations			465.4		755.1		359.4		63.5		1,643.4
Other long-term liabilities			2.7		1.1		.4		.1		4.3

	Total	$	821.8	$	1,889.1	$	1,083.5	$	1,291.1	$	5,085.5


						Fiscal
		Fiscal		Fiscal		2006 &
Dollars in millions		2004		2005		thereafter		Total

Performance guarantees:
	Surety bonds	$	55.2	$	3.0			$	58.2
	Letters of credit		16.2			$	22.1		38.3
Other surety bonds			15.3		3.1				18.4
Standby letters of credit			61.1						61.1
Subsidiary debt guarantees			469.2		40.0				509.2

	Total	$	617.0	$	46.1	$	22.1	$	685.2


	Page

Independent Auditors’ Report		24
Consolidated Statements of Income for the fiscal years ended March 28, 2003, March 29, 2002 and March 30, 2001		25
Consolidated Balance Sheets as of March 28, 2003 and March 29, 2002		26
Consolidated Statements of Cash Flows for the fiscal years ended March 28, 2003, March 29, 2002 and March 30, 2001		28
Consolidated Statements of Stockholders’ Equity for the fiscal years ended March 28, 2003, March 29, 2002 and March 30, 2001		29
Notes to Consolidated Financial Statements		30
Quarterly Financial Information (Unaudited)		58

SCHEDULE

Schedule II — Valuation and Qualifying Accounts for the fiscal years ended March 28, 2003, March 29, 2002, and March 30, 2001		67



		Fiscal Year Ended

In millions except per-share amounts		March 28, 2003			March 29, 2002			March 30, 2001

Revenues		$	11,346.5		$	11,379.2		$	10,492.9

Costs of services			9,068.2			9,187.2			8,406.8
Selling, general and administrative			716.9			741.9			814.9
Depreciation and amortization			810.3			810.8			618.2
Interest expense			142.8			154.8			106.1
Interest income			(8.5	)		(12.3	)		(16.3	)
Special items (note 4)			5.2						232.9

Total costs and expenses			10,734.9			10,882.4			10,162.6

Income before taxes			611.6			496.8			330.3
Taxes on income (note 5)			171.4			152.7			97.1

Net income		$	440.2		$	344.1		$	233.2

Earnings per common share:
	Basic	$	2.55		$	2.02		$	1.39

	Diluted	$	2.54		$	2.01		$	1.37


In millions			March 28, 2003		March 29, 2002

Current assets:
	Cash and cash equivalents		$	299.6	$	149.1
	Receivables, net of allowance for doubtful accounts of $71.8 (2003) and $74.6 (2002) (note 6)			3,320.2		2,753.9
	Prepaid expenses and other current assets			468.3		401.2

		Total current assets		4,088.1		3,304.2

Investments and other assets:
	Software, net of accumulated amortization of $427.1 (2003) and $336.4 (2002)			355.6		375.6
	Outsourcing contract costs, net of accumulated amortization of $579.5 (2003) and $388.1 (2002)			923.5		992.2
	Excess of cost of businesses acquired over related net assets, net of accumulated amortization of $308.7 (2003) and $285.6 (2002)			2,507.3		1,641.0
	Other assets (notes 5 and 8)			571.1		389.5

		Total investments and other assets		4,357.5		3,398.3

Property and equipment — at cost (note 7):
	Land, buildings and leasehold improvements			827.8		712.7
	Computers and related equipment			2,980.7		2,880.8
	Furniture and other equipment			363.7		290.9

				4,172.2		3,884.4
	Less accumulated depreciation and amortization			2,184.6		1,976.4

		Property and equipment, net		1,987.6		1,908.0

			$	10,433.2	$	8,610.5


							Earnings		Accumulated
	Common Stock				Additional		Retained		Other			Common			Unearned
					Paid-In		for Use in		Comprehensive			Stock in			Restricted
(In millions except shares in thousands)	Shares		Amount		Capital		Business		Loss			Treasury			Stock			Total

Balance at March 31, 2000		167,903.0	$	167.9	$	907.1	$	2,061.0	$	(75.8	)	$	(16.1	)	$	(.1	)	$	3,044.0

Comprehensive income:
Net income								233.2											233.2
Currency translation adjustment										(111.7	)								(111.7	)
Unfunded pension obligation										(.2	)								(.2	)
Unrealized loss on available for sale securities										(8.1	)								(8.1	)

Comprehensive income																			113.2

Stock-based compensation		1,224.4		1.2		58.1							(1.4	)					57.9
Amortization and forfeitures of restricted stock																.1			.1

Balance at March 30, 2001.		169,127.4		169.1		965.2		2,294.2		(195.8	)		(17.5	)					3,215.2

Comprehensive income:
Net income								344.1											344.1
Currency translation adjustment										(22.4	)								(22.4	)
Unfunded pension obligation										(1.5	)								(1.5	)
Unrealized gain on available for sale securities										4.3									4.3

Comprehensive income																			324.5

Stock-based compensation		1,066.9		1.1		30.8							(1.0	)					30.9
Defined contribution plan transactions		1,377.3		1.4		51.6													53.0

Balance at March 29, 2002		171,571.6		171.6		1,047.6		2,638.3		(215.4	)		(18.5	)					3,623.6

Comprehensive income:
Net income								440.2											440.2
Currency translation adjustment										165.0									165.0
Unfunded pension obligation										(90.3	)								(90.3	)
Unrealized loss on available for sale securities										(1.8	)								(1.8	)

Comprehensive income																			513.1

Stock-based compensation		439.0		.4		15.5							(.5	)					15.4
Defined contribution plan transactions		205.0		.2		8.9													9.1
Common stock issuance		14,991.0		15.0		430.2													445.2

Balance at March 28, 2003.		187,206.6	$	187.2	$	1,502.2	$	3,078.5	$	(142.5	)	$	(19.0	)				$	4,606.4


		March 28, 2003		March 29, 2002

Commercial software products		$	188.0	$	187.4
Internal-use software			73.8		94.3
Purchased software			93.8		93.9

	Total	$	355.6	$	375.6


Property and Equipment:
	Buildings	10 to 40 years
	Computers and related equipment	3 to 10 years
	Furniture and other equipment	2 to 10 years
	Leasehold improvements	Shorter of lease term or useful life
Software		2 to 10 years
Credit information files		10 to 20 years
Outsourcing contract costs		Contract life